Cooper v. MRM Inv Co

• Court: Court of Appeals for the Sixth Circuit
• Decided: May 3, 2004
• Docket: 02-5702
• Status: Published

Opinion

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 Cooper v. MRM Investment Co., et al. No. 02-5702 ELECTRONIC CITATION: 2004 FED App. 0126P (6th Cir.) File Name: 04a0126p.06 _________________ COUNSEL UNITED STATES COURT OF APPEALS ARGUED: David W. Anderson, ENGLISH, LUCAS, FOR THE SIXTH CIRCUIT PRIEST & OWSLEY, Bowling Green, Kentucky, for _________________ Appellants. William B. Ryan, DONATI LAW FIRM, Memphis, Tennessee, for Appellee. ON BRIEF: David W. TONYA COOPER , X Anderson, Regina A. Jackson, ENGLISH, LUCAS, PRIEST Plaintiff-Appellee, - & OWSLEY, Bowling Green, Kentucky, for Appellants. - William B. Ryan, DONATI LAW FIRM, Memphis, - No. 02-5702 Tennessee, for Appellee. Robert J. Gregory, OFFICE OF v. - THE GENERAL COUNSEL, Washington, D.C., Ann > Elizabeth Reesman, McGUINESS, NORRIS & WILLIAMS, , Washington, D.C., for Amici Curiae. MRM INVESTMENT - COMPANY , TERRY ROGERS - _________________ and LARRY MAYS, - Defendants-Appellants. - OPINION - _________________ N Appeal from the United States District Court ALDRICH, District Judge. This appeal concerns the for the Middle District of Tennessee at Nashville. validity and enforceability of an arbitration provision in an No. 01-01596—John T. Nixon, District Judge. employment contract between plaintiff-appellee Tonya Cooper and defendant-appellant MRM Investment Company Argued: October 23, 2003 (“MRM”). Cooper alleges that while working as a manager at MRM’s restaurant, she was sexually harassed and Decided and Filed: May 3, 2004 constructively discharged. She brought a Title VII action, and MRM moved to compel arbitration. The district court denied Before: KENNEDY and GIBBONS, Circuit Judges; the motion, holding the arbitration agreement invalid or ALDRICH, District Judge.* unenforceable on five grounds. The district court held that the arbitration provision is invalid as a matter of Tennessee law because it is an unconscionable contract of adhesion and is insufficiently bilateral, and invalid as a matter of federal law because it did not make clear that Cooper was waiving her right to a jury trial. The court also opined that as a matter of policy, Title VII claims belong in court, not in arbitration. * For the reasons that follow, we reverse those portions of the The Honorab le Ann Aldrich, United States District Judge for the district court’s judgment. Northern District of Ohio, sitting by designation.

1 No. 02-5702 Cooper v. MRM Investment Co., et al. 3 4 Cooper v. MRM Investment Co., et al. No. 02-5702

The district court also held that the arbitration provision is (and, to the extent not inconsistent, the then prevailing unenforceable, as a matter of federal common law, because it rules of the [FAA]) will apply. incorporated American Arbitration Association (“AAA”)1 rules likely to impose undue costs on Cooper that she would J.A. 23. Compare Lee v. Red Lobster Inns of Am., No. 02- not incur in court, rendering arbitration an ineffective forum 5188, 2004 WL 187564 (6th Cir. Jan. 27, 2004) (employee to vindicate her rights. For the reasons that follow, we vacate did not affirmatively agree to arbitrate her Title VII claims, this portion of the district court’s judgment and remand for because she did not sign handbook sheet agreeing to proceedings consistent with this opinion. arbitration and none of the written materials distributed by the employer advised her that continuing her employment I. BACKGROUND constituted assent to the arbitration policy). The parties agree MRM did not separately advise Cooper that she was giving Terry Rogers and Larry Mays are the sole shareholders of up her right to a jury trial, nor did they provide her with a MRM, which owns and operates several Kentucky Fried copy of the AAA’s rules. See J.A. 17-18. Chicken/Taco Bell (“KFC”) franchises. From January 3 through August 2000, Cooper worked as an assistant manager As a result of sexual harassment, Cooper alleges, she was of MRM’s KFC store in Waverly, Tennessee, at $400-450 per forced to quit in August 2000. She found a job at another week plus possible bonuses. See J.A. 6-10, 17 and 90-91. On restaurant, where she earned $7,200 in 2001, and tended bar January 5, 2000, MRM required her to sign a document part-time, earning an additional $300 to $500 per week as of entitled “Arbitration of Employee Rights,” which provides: early 2002. In January 2001, Cooper filed a Charge of Discrimination with the EEOC, which issued a Dismissal and Because of the delay and expense of the court systems, Notice of Rights in September 2001. Cooper filed her KFC and I agree to use confidential binding arbitration complaint in December 2001. Following oral argument, the for any claims that arise between me and KFC, its related district court denied MRM’s motion to compel arbitration on companies, and/or their current or former employees. May 1, 2002. MRM appealed on May 28, 2002. Such claims would include any concerning compensation, employment (including, but not limited to II. ANALYSIS any claims concerning sexual harassment), or termination of employment. Before arbitration, I agree: (i) first, to A. Standard of Review present any such claims in full written detail to KFC; (ii) next, to complete any KFC internal review process; We review de novo the district court’s holding that the and (iii) finally, to complete any external administrative arbitration agreement is invalid and unenforceable. See Great remedy (such as with the Equal Employment Earth Cos. v. Simons, 288 F.3d 878, 888 (6th Cir. 2002). The Opportunity Commission). In any arbitration, the then court’s factual findings, by contrast, will be set aside only if prevailing rules of the American Arbitration Association they are clearly erroneous: If the district court’s account of the evidence is plausible 1 The AAA, a non-profit public service organization, assists in the in light of the record viewed in its entirety, the court of design and administration of dispute resolution systems for corpo rations, appeals may not reverse it even though convinced that unions, government agencies, law firms and the courts. See McM ullen v. had it been sitting as the trier of fact, it would have Meijer, Inc., 355 F.3d 48 5, 487 n.1 (6th Cir. 2004). No. 02-5702 Cooper v. MRM Investment Co., et al. 5 6 Cooper v. MRM Investment Co., et al. No. 02-5702

weighed the evidence differently. Where there are two interstate transportation). Thus, generally applicable state- permissible views of the evidence, the factfinder’s choice law contract defenses like fraud, forgery, duress, mistake, lack between them cannot be clearly erroneous. This is so of consideration or mutual obligation, or unconscionability, even when the district court’s findings do not rest on may invalidate arbitration agreements. See Doctor’s Assocs. credibility determinations, but are based instead on v. Casarotto, 517 U.S. 681, 687 (1996) (citations omitted); physical or documentary evidence or inferences from Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987); Fazio v. other facts. Lehman Bros., Inc., 340 F.3d 386, 393-94 (6th Cir. 2003). “The federal policy favoring arbitration, however, is taken Harrison v. Monumental Life Ins. Co., 333 F.3d 717, 721-22 into consideration even in applying ordinary state law.” (6th Cir. 2003) (quoting Anderson v. City of Bessemer City, Garrett v. Hooters-Toledo, 295 F. Supp. 2d 774, 779 (N.D. 470 U.S. 564, 573-75 (1985)). Ohio 2003) (citing Inland Bulk Transfer Co. v. Cummins Engine Co., 332 F.3d 1007, 1014 (6th Cir. 2003) (internal B. Arbitration Agreements are Generally Enforceable citation omitted)). and are Strongly Favored The Supreme Court has roundly endorsed arbitration and At common law, American courts were loathe to order explained its benefits in the employment law context: specific enforcement of an agreement to arbitrate, adopting the “jealous notion held by the common law courts of We have been clear in rejecting the supposition that the England that arbitration agreements were nothing less than a advantages of the arbitration process somehow disappear drain on their own authority to settle disputes.” Raasch v. when transferred to the employment context. Arbitration NCR Corp., 254 F. Supp. 2d 847, 853 (S.D. Ohio 2003) agreements allow parties to avoid the costs of litigation, (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, a benefit that may be of particular importance in 219-20 n.6 (1985)). In response, Congress enacted the employment litigation, which often involves smaller Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“the FAA”), “to sums of money than disputes concerning commercial place arbitration agreements upon the same footing as other contracts. These litigation costs to parties (and the contracts.” Gilmer v. Interstate/Johnson Lane Corp., 500 accompanying burden to the Courts) would be U.S. 20, 24 (1991). The FAA expresses a strong public compounded by the difficult choice-of-law questions that policy favoring arbitration of a wide class of disputes. It are often presented in disputes arising from the provides, in part: employment relationship ... and the necessity of bifurcation of proceedings in those cases where state law A written provision in any maritime transaction or a precludes arbitration of certain types of employment contract evidencing a transaction involving commerce to claims but not others. The considerable complexity and settle by arbitration a controversy thereafter arising out of uncertainty that [a broader reading of § 1's exclusion] such contract or transaction ... shall be valid, irrevocable, would introduce into the enforceability of arbitration and enforceable, save upon such grounds as exist at law or agreements in employment contracts would call into in equity for the revocation of any contract. doubt the efficacy of alternative dispute resolution procedures adopted by many of the Nation’s employers, 9 U.S.C. § 2 (emphasis added); see also 9 U.S.C. § 1 in the process undermining the FAA’s proarbitration (excepting some disputes arising out of employment in purposes and breeding litigation from a statute that seeks No. 02-5702 Cooper v. MRM Investment Co., et al. 7 8 Cooper v. MRM Investment Co., et al. No. 02-5702

to avoid it. The Court has been quite specific in holding Cooper’s employment and the alleged harassment and that arbitration agreements can be enforced under the discharge occurred there, and neither party expected any other FAA without contravening the policies of congressional state’s law to apply. enactments giving employees specific protection against discrimination prohibited by federal law; as we noted in The district court held that the arbitration agreement is a Gilmer, 500 U.S. at 26, by agreeing to arbitrate a contract of adhesion under Tennessee law. Tennessee defines statutory claim, a party does not forgo the substantive a contract of adhesion as “a standardized contract form rights afforded by the statute; it only submits to their offered to consumers of goods and services on essentially a resolution in an arbitral, rather than a judicial, forum. ‘take it or leave it’ basis, without affording the consumer a realistic opportunity to bargain and under such conditions that Circuit City Stores v. Adams, 532 U.S. 105, 122-23 (2001) the consumer cannot obtain the desired product or service (citations and internal quotations omitted). Indeed, Title VII except by acquiescing to the form of the contract.” claims may be subjected to binding arbitration. See Willis v. Buraczynski v. Eyring, 919 S.W.2d 314, 320 (Tenn. 1996) Dean Witter Reynolds, Inc., 948 F.2d 305, 310 (6th Cir. (citations omitted). The essence of adhesion is that the 1991); cf. Cosgrove v. Shearson Lehman Bros., No. 95-3432, parties’ bargaining positions and leverage enable one party to 1997 WL 4783, at *2 (6th Cir. Jan. 6, 1997) (same for ADEA “select and control risks assumed under the contract.” See id.; claims); Bailey v. Ameriquest Mortgage Co., 346 F.3d 821, see also BLACK’S LAW DICTIONARY 318 (7th ed. 1999). 822 (8th Cir. 2003) (same for FLSA claims). The question In Buraczynski, the state Supreme Court held that an before the court, then, is whether there are “grounds ... at law arbitration agreement between a doctor and a patient was a or in equity” for the revocation or non-enforcement of the contract of adhesion where it was presented to the patient well agreement. See 9 U.S.C. § 2. after her course of treatment had begun. Emphasizing the special doctor-patient relationship, the court noted that if the C. Under Tennessee Law, the Arbitration Agreement patient declined to sign, she would have suffered an was not a Contract of Adhesion interruption in care and lost the opportunity to continue treatment with the physician whom she had come to know 1. Tennessee Law on Contracts of Adhesion and trust. See Buraczynski, 919 S.W.2d at 320. In Tennessee, “a contract is presumed to be made with A contract is not adhesive merely because it is a reference to the law of the place where it was entered into standardized form offered on a take-it-or-leave-it basis. Even unless it appears it was entered into in good faith with after Buraczynski, Tennessee courts decline to find arbitration reference to the law of some other state.” Ohio Cas. Ins. Co. provisions adhesive where the consumer fails to prove that v. The Travelers Indem. Ins. Co., 493 S.W.2d 465, 467 (Tenn. refusal to sign would cause some detriment other than not 1973) (citations omitted). Tennessee generally applies the lex being able to buy from the particular merchant (such as not loci contractus, but sometimes it applies the law of the place being able to obtain the goods or services elsewhere). Pyburn of performance. See Nordahl v. Studer Revox America, Inc., v. Bill Heard Chevrolet, 63 S.W.3d 351 (Tenn. Ct. App. No. 94-6336, 1996 WL 99782, at *4 (6th Cir. Mar. 5, 1996) 2001), held that an arbitration agreement between a car dealer (citing Solomon v. FloWarr Mgmt., 777 S.W.2d 701, 705 n.5 and a buyer was not adhesive, as there was no proof that the (Tenn. Ct. App. 1989)). The district court correctly looked to buyer’s refusal to agree would cause some detriment other Tennessee law, because the agreement was executed there, than being unable to come to terms with the particular dealer. No. 02-5702 Cooper v. MRM Investment Co., et al. 9 10 Cooper v. MRM Investment Co., et al. No. 02-5702

Id. at 359. The court reasoned, “[i]f Defendant had refused to told that [she] needed to sign the documents.” See J.A. 40. sell Plaintiff the van, Plaintiff could have gone to another But the packet of “several documents” which Cooper had to Chevrolet dealership (or any other type of dealership for that sign, clearly included the arbitration agreement. Attached to matter) and obtained a van elsewhere if he considered the the brief MRM itself filed below, was a single-page Agreement unacceptable.” Id. at 360. photocopy containing the four short2 documents MRM asked Cooper to sign, including the arbitration agreement and the Similarly, in Wallace v. National Bank of Commerce, 938 sexual-harassment policy. S.W.2d 684 (Tenn. 1997), the plaintiff contended that a customer agreement, which imposed fees for returned checks, In addition, the district court recalled MRM’s counsel was a contract of adhesion. Id. at 687. The court of appeals conceding that MRM had presented the agreement as a “take- disagreed. The court acknowledged that the agreements had it-or-leave-it.” See Cooper, 199 F. Supp. 2d at 778. MRM some adhesive characteristics because they were standardized disputes that recollection: forms and their execution was a precondition for opening an account. Id. at 687-88. Nonetheless, the court held, “these MRM’s attorney stated that she was not present when the factors standing alone are not sufficient .... [P]erhaps most Arbitration Agreement was signed, had not discussed the significantly, there is no showing in the record that the issue with her clients, was in no position to advise the customers had no realistic choice but to acquiesce in the court exactly how the Arbitration Agreement was imposition of the bank’s charges. There is no showing that presented to Cooper, and upon repeated insistence by the the fees were the same at all the defendant banks or that court that counsel answer directly whether Cooper was banking services could not be obtained from other required to sign the document, stated that she could only institutions.” Id. assume that Cooper’s signature would have been required. 2. Analysis of Adhesion MRM’s Brief at 17 n.1. Here the “judge’s recollection does a. Agreement was “Take-It-Or-Leave-It” Standardized not contradict or impeach the record, but rather supplies an Form Prepared by MRM The district court found that MRM prepared the agreement, 2 a standardized form, with no negotiation or input from The case for enforcing the agreement is strengthened by the fact that it is brief and embodied in a separate document. This court has already Cooper. See Cooper v. MRM Inv. Co., 199 F. Supp. 2d 771, affirmed a district court’s rejection of the argument that a merchant 778-79 (M.D. Tenn. 2002); see also C & L Enters. v. Citizen fraudulently induced consumers to sign an arbitration agreement, as “the Band, Potawatomi Indian Tribe of Okla., 532 U.S. 411, 423 contract language was clear and una mbiguo us. The defendants presented (2001) (characterizing adhesion contract as one where a form the arbitration agreem ents to the plaintiffs on a separate form. The agreement is “foisted” upon a “quiescent” party which did not contract terms were not hidden in boilerplate language or otherw ise prepare it). The judge also did not err in finding that Cooper disguise d.” Stout v. Byrider, 50 F. Supp. 2d 733, 740 (N.D. Ohio 19 99), aff’d, 228 F.3d 709 (6th C ir. 200 0), cert. denied, 531 U .S. 1148 (200 1). had to sign the agreement to get the job. Cooper’s affidavit Com pare How ell v. NHC Hea lthcare-F ort San ders, 109 S.W.3d 731, 734 does not expressly allege that she was told she would not get (Tenn. Ct. App. 2003) (arbitration clause in nursing home admission the job if she did not sign the arbitration agreement; she says agreement was unenforceable where, inter alia, the clause was “buried” only that she “was presented with several documents and was inconspicuously on page ten of eleven-page agreement), app eal denied (Tenn. June 30, 200 3). No. 02-5702 Cooper v. MRM Investment Co., et al. 11 12 Cooper v. MRM Investment Co., et al. No. 02-5702

omission to its contents. Therefore, it was permissible for today’s economy, the choice to ‘leave it’ often amounts to no him to rely on his own recollections regarding the substance” choice at all. Indeed, if she ‘leaves it’, she probably forgoes of the exchange. Paschen Contractors, Inc. v. Illinois State the opportunity for employment.” Cooper, 199 F. Supp. 2d Toll Hy. Auth., 590 N.E.2d 539, 543 (Ill. App.), appeal at 778 (citation omitted). The judge relied in part on an withdrawn, 602 N.E.2d 458 (Ill. 1992). article which chronicled an increasing trend toward arbitration clauses in employment contracts: “[P]rospective employees Moreover, no transcript was made of the hearing. Cf. often have no choice at all -- that is, even if they decide to Karsch v. LaBarge, 223 F.3d 859, 863 (8th Cir. 2000) walk away from one mandatory arbitration contract, they will (“Walton has provided us with no transcript or other record of often have no choice but to accept another employment the ... hearings that might support his contention that fee contract that mandates arbitration as well.” Id. at 778 n.4 disgorgement was not discussed”). In the absence of a (citation omitted). transcript, the Rules of Procedure allowed MRM to substitute a written narrative of the hearing,3 but MRM did not do so. There was nothing wrong with referring to authorities for Absent either type of record, the Court defers to the district the proposition that, as a general matter, employers often court’s recollection, and its conclusion that Cooper was condition employment on a commitment to arbitration. required to sign the agreement if she wanted the job. See Evidence that employers around the country require such Adair v. United States Postal Serv., No. 99-3058, 1999 WL agreements as a matter of course may provide context for an 1253039, at *1 (6th Cir. Dec. 13, 1999) (“the district court’s employee’s claim that relevant employers in his locality also rulings regarding the testimony simply cannot be reviewed do so. To find this contract adhesive, however, there must be because the record does not include a trial transcript or evidence that Cooper would be unable to find suitable narrative statement.”); accord SIL-FLO v. SFHC, 917 F.2d employment if she refused to sign MRM’s agreement. She 1507, 1517 (10th Cir. 1990) (“without a record of the presented no such evidence. For instance, she did not allege proceedings below we have no option but to defer to the that she looked for comparable jobs but was unable to find district court’s ruling during trial that [the] deposition did not one. Generalizations about employer practices in the modern violate its earlier order”). economy cannot substitute for such evidence. See Andersons, Inc. v. Horton Farms, 166 F.3d 308, 324 (6th Cir. 1998) (no b. Cooper Failed to Show She Had No Alternatives to procedural unconscionability where grain seller “failed to the KFC Job present evidence that it searched for other alternatives and that there were none”). The last element of adhesion is the absence of a meaningful choice for the party occupying the weaker bargaining Recent Tennessee decisions on the enforceability of position. The district court opined that “[e]specially in exculpatory clauses illustrate the need for such party-specific evidence in an unconscionability analysis. In Russell v. Bray, a home inspection company required home-buyers to sign a 3 form contract which limited its liability to the lesser of the “The stateme nt must be served on the appellee, who may serve objections or prop osed am endments within 10 days after being served. repair cost or refund of the inspection fee. When buyers sued The statement and any objections or proposed amendments must then be to invalidate the contract as violative of public policy, the submitted to the district court for settlement and approval. As settled and court considered six factors, three of which are relevant here: approved, the statement must be included by the district clerk in the record on appe al.” FED. R. APP . P. 10(c). No. 02-5702 Cooper v. MRM Investment Co., et al. 13 14 Cooper v. MRM Investment Co., et al. No. 02-5702

[d.] As a result of the essential nature of the service, in the without being required to sign a contract containing a economic setting of the transaction, the party invoking similar exculpatory clause, we do not find Defendants exculpation possesses a decisive advantage of possessed a decisive advantage of bargaining strength bargaining strength against any member of the public against any member of the public who sought their who seeks his services. services. * * * Based upon the record before us, we find the fourth and fifth criteria are not satisfied in this [e.] In exercising a superior bargaining power the party case. confronts the public with a standardized adhesion contract of exculpation, and makes no provision Id. at 7-8 (emphasis added). Notably, Russell did not remand whereby a purchaser may pay additional reasonable to afford the buyers another opportunity to present evidence fees and obtain protection against negligence. on their alternatives and bargaining power. It was the buyers’ burden to establish a basis for non-enforcement of their [f.] Finally, as a result of the transaction, the person or contracts, and they had not done so. property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the Likewise, it was Cooper’s burden to establish state law seller or his agents. grounds for non-enforcement of her agreement with MRM; she failed to do so, leaving the record silent on whether other Russell v. Bray, 116 S.W.3d 1, 5-6 (Tenn. Ct. App. 2003) local employers might have hired her without a similar (applying Olson v. Molzen, 558 S.W.2d 429, 431-32 (Tenn. agreement. Cf. Beauchamp v. Great West Life Assurance Co., 1977)); see also Childress v. Madison Cty., 777 S.W.2d 1, 4 918 F. Supp. 1091, 1098 (E.D. Mich. 1996) (reluctant to find (Tenn. Ct. App. 1989) (applying Olson factors). arbitration agreement adhesive where plaintiff could work for other employers without signing such agreements). On such The Russell court found that hiring inspectors is a practical a record, the district court could not simply assume adhesion necessity for many home-buyers. Russell, 116 S.W.2d at 7. and procedural unconscionability based on what job The buyers did not provide sufficient evidence, however, on applicants may encounter elsewhere. See, e.g., Stout, 50 F. the parties’ relative bargaining power and their other Supp. 2d at 740 (declining to find adhesion in contract to buy alternatives. The court surmised that the company might have used car, as such cars “are widely available from a huge had superior bargaining power that enabled it to impose an number of sellers if [the buyers] found the arbitration adhesive exculpatory clause. Id. But the record was provision unacceptable”); Atlantic Pools & Spas, Inc. v. BellSouth Adver. & Publ’g Corp., 64 F. Supp. 2d 708, 712 devoid of any evidence that would allow us to find these (M.D. Tenn. 1999) (provision limiting liability for phonebook criteria are satisfied. Although there is evidence misprint was not adhesive; there was no “inordinate disparity” Plaintiffs were given the name of another home in bargaining power, in light of many other modes of inspection service, and attempted to set up an advertising plaintiff could use); accord Choice Hotels appointment with this other inspector, there is no Internat’l v. Chewl’s Hospitality, No. 02-1855, 2003 WL evidence showing whether the other inspector would 22961190, at *4 (4th Cir. Dec. 17, 2003) (franchisee properly have produced a contract with the same exculpatory compelled to arbitrate where it “has not demonstrated that it clause. As we are unable to determine from the record had no viable alternatives, or that it faced the possibility of whether Plaintiffs could have used another inspector No. 02-5702 Cooper v. MRM Investment Co., et al. 15 16 Cooper v. MRM Investment Co., et al. No. 02-5702

being excluded from the hotel franchise business if it had found that people seeking jobs at a fast food restaurant have, refused such an arbitration contract”). on average, a weaker bargaining position than people seeking white-collar jobs at, for instance, a brokerage firm: “While D. Under Tennessee Law, the Arbitration Agreement this difference is not determinative, it certainly informs the Was Not Unconscionable Court’s thinking.” Id. at 778 n.3. The judge contrasted brokerages because several precedents holding that Even if the MRM arbitration agreement were adhesive, the employment disputes may be subject to binding arbitration agreement was enforceable under Tennessee law unless involved brokers. See Gilmer, 500 U.S. 20; Haskins v. Cooper showed it was also unconscionable. “The common Prudential Ins. Co. of Am., 230 F.3d 231 (6th Cir. 2000), cert. law ... subjects terms in contracts of adhesion to scrutiny for denied, 531 U.S. 1113 (2001); Willis, 948 F.2d 305. reasonableness.” Carnival Cruise Lines v. Shute, 499 U.S. 585, 600 (1991) (Stevens, J., dissenting o.g.). Tennessee The finding that an employee had less bargaining power is recognizes two types of unconscionability: relevant to the procedural-unconscionability analysis. Moreover, as the district court judge implied, the disparity in Unconscionability may arise from a lack of a meaningful bargaining power also informs the substantive- choice on the part of one party (procedural unconscionability analysis, because a job applicant who lacks unconscionability) or from contract terms that are “leverage” may be more likely to agree to unfair terms. In a unreasonably harsh (substantive unconscionability). In close case, terms bordering on substantive unconscionability Tennessee we have tended to lump the two together and may look more unfair in light of circumstances suggesting speak of unconscionability resulting when the inequality of that the stronger party pressed his advantage against the the bargain is so manifest as to shock the judgment of a weaker party. In determining procedural unconscionability, person of common sense, and where the terms are so however, the judge did not require the parties to present oppressive that no reasonable person would make them on evidence on “factors bearing on the relative bargaining one hand, and no honest and fair person would accept them position of the contracting parties, including their age, on the other. education, intelligence, business acumen and experience, relative bargaining power, ... [and] whether the terms were Trinity Indus., Inc. v. McKinnon Bridge Co., 77 S.W.3d 159, explained to the weaker party....” See Morrison v. Circuit 170-71 (Tenn. Ct. App. 2001) (citations omitted). A contract City Stores, Inc., 317 F.3d 646, 666 (6th Cir. 2003) (en banc) is substantively unconscionable, then, when its terms “are (citations omitted). As the record discloses, the judge made beyond the reasonable expectations of an ordinary person, or no findings on those factors. Absent such findings, there was oppressive....” Buraczynski, 919 S.W.2d at 320. no basis for a negative answer to “[t]he crucial question ... [of] whether each party to the contract, considering his 1. No Basis for Finding the Agreement Procedurally obvious education or lack of it, [had] a reasonable opportunity Unconscionable to understand the terms of the contract....” Morrison, 317 The district court was troubled that MRM required an F.3d at 666 (citation and internal quotation omitted). applicant to sign an arbitration agreement “precisely at the time that he or she is most willing to sign anything just to get a job.” Cooper, 199 F. Supp. 2d at 780 and n.8. The judge No. 02-5702 Cooper v. MRM Investment Co., et al. 17 18 Cooper v. MRM Investment Co., et al. No. 02-5702

2. No Basis for Finding the Agreement Substantively E. The District Court Erred in Finding the Agreement Unconscionable Lacked Sufficient Bilaterality In turn, the district court’s erroneous finding of procedural The district court also held that “there is an insufficient unconscionability contributed to its conclusion that the ‘modicum of bilaterality’ present in this case.” Cooper, 199 arbitration agreement’s terms were unfair and the product of F. Supp. 2d at 780. It reasoned that “the agreement was ... overreaching. Aside from the lack of support for the finding drafted by KFC, and imposed on a prospective employee that Cooper had far inferior bargaining power, unequal precisely at the time that he or she is most willing to sign bargaining power alone does not render a contract anything just to get a job. Although the KFC Arbitration substantively unconscionable. The Supreme Court has Agreement binds both parties, only the Defendant is aware of cautioned, “[m]ere inequality in bargaining power ... is not a the ramifications of the agreement.” Id. (citation omitted). sufficient reason to hold that arbitration agreements are never The court erred. The district court acknowledged that the enforceable in the employment context.” Gilmer, 500 U.S. at MRM agreement “does contain a measure of what ... courts 33. As one court noted, “[w]hen a party ... voluntarily agrees have termed a ‘modicum of bilaterality,’” and, unlike the to something in an attempt to obtain employment, they are not agreement held unconscionable in Circuit City Stores, Inc. v. being ‘forced’ to do anything....” EEOC v. Frank’s Nursery Adams, 279 F.3d 889 (9th Cir.), cert. denied, 535 U.S. 1112 & Crafts, 966 F. Supp. 500, 504 (E.D. Mich. 1997), rev’d (2002), it requires both parties to arbitrate, not just the o.g., 177 F.3d 448 (6th Cir. 1999); accord Williams v. Parkell employee. See Cooper, 199 F. Supp. 2d at 780. Despite this, Prods., No. 03-7164, 2003 WL 23022072, at *1 (2d Cir. Dec. the judge found that the agreement lacked sufficient 24, 2003) (affirming order compelling arbitration of Title VII bilaterality because “there is an asymmetry born out of a claims and holding that threat to terminate employment if difference in bargaining power that pervades the resulting employee did not sign arbitration agreement did not constitute arbitration agreement.” Id. In so doing, the judge improperly duress). conflated the procedural unconscionability and bilaterality analyses. While the district court’s compassion for job applicants is laudable, under its approach “practically every condition of Even if Cooper had far less bargaining power, that would employment would be an ‘adhesion contract’ which could not not detract from bilaterality, because MRM has the same duty be enforced because it would have been presented to the to arbitrate as Cooper. See Wilks v. Pep Boys, 241 F. Supp. employee by the employer in a situation of unequal 2d 860, 863 (M.D. Tenn. 2003) (“the plaintiffs’ claims that bargaining power on a ‘take it or leave it’ basis.” Morrison, the Agreement is invalid for lack of consideration and 70 F. Supp. 2d at 823 (quoting Beauchamp, 918 F. Supp. at because it constitutes an ‘illusory promise’ are without merit. 1098). Such a result would contravene Congress’s intent that Both parties are bound to arbitrate claims arising in their employment disputes be subject to valid arbitration relationship....”). agreements, unless excepted by FAA § 1 or rendered unenforceable under state contract law. For these reasons, the Moreover, the record does not support the supposition that record does not support the conclusion that the arbitration only MRM knew the agreement’s ramifications. Its defining agreement was procedurally and substantively ramification is that the parties will submit disputes to an unconscionable. arbitrator instead of a judge or jury. “[T]he loss of the right to a jury trial is a necessary and fairly obvious consequence No. 02-5702 Cooper v. MRM Investment Co., et al. 19 20 Cooper v. MRM Investment Co., et al. No. 02-5702

of an agreement to arbitrate.” Burden v. Check Into Cash of of an agreement to arbitrate.’”4 Burden, 267 F.3d at 492 Kentucky, LLC, 267 F.3d 483, 492 (6th Cir. 2001) (citation (quoting Sydnor v. Conseco Fin. Servs. Corp., 252 F.3d 302, omitted). Absent evidence that MRM rushed Cooper or 307 (4th Cir. 2001)); see also Pritchard v. Dent Wizard deceived her as to the agreement’s consequences, Burden Internat’l Corp., 275 F. Supp. 2d 903, 918-19 (S.D. Ohio charges her with knowledge of that central consequence. 2003) (employee unlikely to succeed on claim that his right Compare Brennan v. Bally Total Fitness, 198 F. Supp. 2d to jury trial superseded arbitration clauses). The Seventh 377, 383 (S.D.N.Y. 2002) (arbitration agreement was Amendment confers not the right to a jury trial per se, but unenforceable where employer gave employee only fifteen rather “only the right to have a jury hear the case once it is minutes to review sixteen-page document and used other determined that the litigation should proceed before a court. high-pressure tactics). If the claims are properly before an arbitral forum pursuant to an arbitration agreement, the jury trial right vanishes.” Bank F. Lack of Express Waiver of Right to Jury Trial Did One, N.A. v. Coates, 125 F. Supp. 2d 819, 834 (S.D. Miss. Not Render Agreement Invalid 2001), aff’d, No. 01-60059, 2002 WL 663804 (5th Cir. Apr. 5, 2002); accord Marsh v. First USA Bank, 103 F. Supp. 2d 1. Burden (6th Cir. 2001) 909, 921 (N.D. Tex. 2000) (citing Geldermann, Inc. v. CFTC, 836 F.2d 310, 323 (7th Cir. 1987)).5 The district court contrasted the MRM agreement, which said nothing about waiving the right to a jury trial, with the 2. KMC (6th Cir. 1985) is Distinguishable from Burden agreement enforced in Buraczynski. The latter alerted the (6th Cir. 2001), Which Governs weaker party, in ten-point capitals printed in red ink directly above the signature line, “BY SIGNING THIS CONTRACT As discussed supra, Burden mandates reversal of the YOU ARE GIVING UP YOUR RIGHT TO A JURY OR holding that the agreement is invalid because it did not COURT TRIAL ....” The district court held that the absence of such language in the MRM agreement rendered it unenforceable because “the waiver of any rights (substantive 4 or procedural), must be both knowing and clear. * * * If the Wright v. Universal Maritime Servs. Corp., 525 U.S. 70 (1 998 ), is employee is not clearly made aware of the rights she is not to the co ntrary. Wright held only that an arbitration clause’s waiver of the right to a jury trial must be “clear and unmistakable” when the waiving, that waiver is not only invalid, but the entire clause is contained in a collective bargaining agre ement (“CB A”). Id. at agreement is rendered unduly oppressive.” Cooper, 199 F. 80. See also Am . Heritage Life Ins. Co. v. O rr, 294 F.3d 702 , 710 (5th Supp. 2d at 775, 779. Cir. 200 2), cert. denied, 537 U.S. 110 6 (2003 ) (citation omitted ); see, e.g ., Knox v. Wheeling-Pittsburgh Steel Corp., 899 F. Supp. 1529, 1537 (N.D. This Court, however, has flatly rejected the claim that an W .Va. 1995). Cooper does not contend that her employment was covered arbitration agreement must contain a provision expressly by a CBA. Nor has Cooper denied that the FAA applies to her arbitration agree ment with M RM . waiving the employee’s right to a jury trial. Without discussion, we stated, “As to the failure of the arbitration 5 Of the Circuits to squarely address the issue, all four share the view clause to include a jury waiver provision, ‘the loss of the right we expressed in Burden. See Melton v. Philip Morris Inc., No. 01-35883, to a jury trial is a necessary and fairly obvious consequence 2003 WL 21774035 , at *2 (9th Cir. M ay 7, 2003 ); American Heritage, 294 F.3d at 710-11 ; Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 638 (4th Cir. 2002); Koveleskie v. SB C Capita l Ma rkets, 167 F.3d 361 , 368 (7th C ir.), cert. denied, 528 U.S. 811 (1999). No. 02-5702 Cooper v. MRM Investment Co., et al. 21 22 Cooper v. MRM Investment Co., et al. No. 02-5702

contain an express waiver of Cooper’s right to a jury trial. 148 B.R. 288, 290 (Bankr. S.D. Ohio 1992).6 Implied For that proposition, the district court relied on a pre-Burden overrulings, however, are disfavored. See id. at 290-91 panel decision: K.M.C. Co. v. Irving Trust Co., 757 F.2d 752 (citation omitted); accord United States v. Rodriguez, 311 (6th Cir. 1985). In KMC, the parties’ contract contained a F.3d 435, 439 (1st Cir. 2002), cert. denied, 538 U.S. 937 clause waiving the right to a jury trial. Nonetheless, when (2003). When possible, we will distinguish seemingly KMC sued for breach, the judge ordered a jury trial. He inconsistent decisions rather than find an overruling by found that before the parties signed the contract, a implication. See, e.g., Mfrs.’ Indus. Relations Ass’n v. East representative of defendant told the plaintiff’s president that Akron Casting Co., 58 F.3d 204, 210 (6th Cir. 1995). Indeed, “absent fraud, which was not present ..., the waiver provision Burden is distinguishable from KMC in three respects. would not be enforced.” The defendant appealed, contending that the judge should have enforced the waiver of the right to First, KMC’s seeming endorsement of the knowing and a jury trial. We held that the waiver was unenforceable voluntary standard was dictum. The panel held, “Those cases because it was not knowing and voluntary. See id. at 754-55. in which the validity of a contractual waiver of jury trial has been in issue have overwhelmingly applied the knowing and At first blush KMC seems to conflict with our later decision voluntary standard. We are of the opinion that the Magistrate in Burden. Both were panel decisions, and we have never [Judge] was correct in applying the knowing and voluntary addressed en banc the issue on which they seem to conflict. standard in this instance.” See KMC, 757 F.2d at 756 Under the law-of-the-circuit doctrine, only the Court sitting (emphasis added and citations omitted). In light of the rest of en banc may overrule published circuit precedent, absent an the panel’s analysis, its careful inclusion of the phrase “in this intervening Supreme Court decision or a change in the instance” is significant. Such language suggests a decision applicable law. See Walker v. Bain, 257 F.3d 660, 680 (6th limited to the peculiar facts of the case. The court went on to Cir. 2001) (Daughtrey, J., concurring in part and dissenting in explain that a determination of the standard governing part o.g.); Armco Employees Indep. Fed’n v. AK Steel Corp., contractual waiver of the right to jury trial, was not essential 252 F.3d 854, 860 n.2 (6th Cir. 2001) (citing 6TH CIR. R. to its decision: 206(c)). In any event, whether the appropriate standard is that A sister Circuit also allows the overruling of precedent “in K.M.C.’s waiver must have been knowing and voluntary, extremely rare circumstances, where non-controlling but or merely ‘clear,’ we conclude that if in fact it was persuasive case law suggests such a course.” United States v. represented to K.M.C.’s president Butler before the Chhien, 266 F.3d 1, 11 (1st Cir. 2001). The Fourth Circuit signing of the financing agreement that the jury waiver decision we relied on in Burden could be viewed as such provision would not be enforced under circumstances “non-controlling but persuasive case law.” If so, Burden such as those in the instant case, neither standard is met. could have overruled KMC without expressly saying so. “Precedent-making decisions may ... be overruled ... by implication so that a later decision overrules prior decisions which conflict with it whether such prior decisions are or are 6 not mentioned.” See Star Bank, N.A. v. Reveal (In re Reveal), Cf. Watt v. Alaska, 451 U.S. 259, 285 (1981) (Stewart, J., dissenting) (referring to the “e stablished rule o f statutory construction” leges posteriores, priores contrarias abrogant, subsequent laws repeal prior conflicting ones). No. 02-5702 Cooper v. MRM Investment Co., et al. 23 24 Cooper v. MRM Investment Co., et al. No. 02-5702

Id. at 757 (citations omitted). Because KMC did not decide damages, depriving the employee of a remedy she could seek whether a knowing and voluntary standard governs in court. See id. at 685-88. contractual waivers of the right to jury trial, it did not foreclose our decision in Burden. None of the grounds that justified non-enforcement in Trumbull obtains here. As to mutuality of obligation, the Second, KMC based its refusal to enforce the waiver on its MRM agreement obligates both parties to arbitrate and does finding that the defendant promised the plaintiff, before they not give MRM the right to change the agreement unilaterally. signed, that the waiver would not be enforced under the As to the “clear” or “knowing and voluntary” character of the circumstances. The court emphasized, “K.M.C. is not waiver of a judicial forum, the MRM agreement is short, clear claiming that it did not intend to waive jury trial but and embodied in a separate document, not buried in a lengthy inadvertently failed to object to the waiver provision in the handbook which addresses issues not affecting Cooper’s contract before signing it; [rather,] it claims that it objected rights. Moreover, unlike Trumbull, the MRM agreement strenuously and was assured that the provision would only specifically advised Cooper that she would be required to apply in narrow circumstances.” Id. n.6. By contrast, neither arbitrate sexual-harassment claims. Lastly, the MRM Burden nor Cooper was led to believe she would not be held agreement does not restrict the arbitrator’s authority to award to the letter of the agreement. Third, even if KMC announced punitive damages or any other remedy Cooper might obtain a rule that a contractual waiver of the right to a jury trial must in court. be “knowing and voluntary” or “clear,” Burden is consistent with that rule. As we held in Burden, a party who enters an G. District Court’s Statement that Title VII Claims arbitration agreement necessarily consents to the clear and Belong in Federal Court obvious consequence: the surrender of his right to go to trial. Burden, 267 F.3d at 492. The district court acknowledged that employers face many non-meritorious claims and that arbitration can offer greater In addition to KMC, the district judge relied on Trumbull v. efficiency and convenience than litigation. Without citing Century Marketing Corp., 12 F. Supp. 2d 683 (N.D. Ohio authority, however, the district court expressed hostility to the 1998). There a woman sued her former employer for sexual arbitration of employment discrimination claims: harassment in violation of Title VII, and the employer invoked an arbitration clause contained in the employee These cases do not ‘clog’ the federal docket – they handbook. The court held the clause unenforceable on three belong in federal court. Employees must not be forced grounds: (1) there was no mutuality of obligation, because to either forgo employment or forgo their right to a day the handbook authorized the employer to “modify, augment, in court, and Courts must not use the perceived problems delete, or revoke any and all policies” therein at any time; associated with employment discrimination [cases] to (2) the employee did not knowingly waive her right to prevent employees, and society at large, from vindicating litigate, because the clause occupied less than two pages of a the rights that Congress enshrined in the Civil Rights sixty-page handbook, was not set apart from provisions which Acts. did not affect her rights, and said nothing about arbitrating statutory claims as opposed to contractual disputes; and Cooper, 199 F. Supp. 2d at 779 n.7. Yet the Supreme Court (3) the clause barred the arbitrator from awarding punitive holds that “having made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an No. 02-5702 Cooper v. MRM Investment Co., et al. 25 26 Cooper v. MRM Investment Co., et al. No. 02-5702

intention to preclude a waiver of judicial remedies for the was potentially valid: under the AAA rules incorporated in statutory rights at issue.” Gilmer, 500 U.S. at 26 (citation the agreement, arbitration could be prohibitively expensive, omitted). The district court did not adduce evidence of a deterring employees like Cooper from attempting to vindicate Congressional intent to prohibit employees from waiving a their rights. As a matter of public policy, the court rightly judicial forum for discrimination or harassment claims, and rejected MRM’s argument that the agreement was enforceable we find none. because it is willing to pay Cooper’s arbitration costs. An employee should not have to “jump through hoops” to show On the contrary, the 1991 Amendments to Title VII arbitration is too costly, only to have the employer jettison the “evince[] a clear congressional intent to make arbitration an unduly burdensome cost-splitting provision when it is alternative method of dispute resolution.” Rajjak v. McFrank challenged. & Williams, No. 01 Civ. 0493, 2001 WL 799766, at *2 n.2 (S.D.N.Y. July 13, 2001) (citation omitted). The amendment The AAA has since amended its rules, however, to hold provided, in part, “Where appropriate and to the extent employers responsible in the first instance for all expenses authorized by the law, the use of alternative means of dispute except a small filing fee and costs for the employee’s resolution including ... arbitration, is encouraged to resolve witnesses. This may make it more difficult for Cooper to disputes arising under the Acts or provisions of Federal law show her likely arbitration costs are prohibitively high, as she amended by this title.” DeGaetano v. Smith Barney, No. 95 must to invalidate the agreement under Green Tree Finance Civ. 1613,1996 WL 44226, at *5 (S.D.N.Y. Feb. 5, 1996) Corp. of Alabama v. Randolph, 531 U.S. 79 (2000) and (quoting Civil Rights Act of 1991, § 118, Pub. L. No. 102-66, Morrison v. Circuit City, 317 F.3d 646 (6th Cir. 2003) (en nn. after 42 U.S.C.A. § 1981). Accordingly, we decided that banc). Congress did not intend to exclude Title VII claims from arbitration. See Willis, 948 F.2d at 310. Nonetheless, the 1. When Arbitration Costs Render an Arbitration district court indulged its belief that employers should not be Agreement Unenforceable allowed to require arbitration of statutory discrimination claims. That belief is incompatible with the strong In Green Tree Finance Corp. of Alabama v. Randolph, 531 congressional policy favoring arbitration. As this Court has U.S. 79 (2000), the Supreme Court adopted a case-by-case held, “the fact that some of plaintiff’s claims are based upon approach to determining whether an arbitration agreement’s Title VII, a federal civil-rights statute, does not affect the cost-splitting provision denies potential litigants the enforceability of the arbitration agreement. It is well-settled opportunity to vindicate their rights. “[W]here ... a party that statutory claims may be the subject of an arbitration seeks to invalidate an arbitration agreement on the ground that agreement enforceable under the FAA.” Cosgrove, No. 95- arbitration would be prohibitively expensive, that party bears 3432, 1997 WL 4783, at *2 (citing Gilmer, 500 U.S. at 26). the burden of showing the likelihood of incurring such costs.” Id. at 92. The agreement before the Court said nothing about H. Was the Agreement Invalid Because Arbitration arbitration costs, and the employee produced little evidence Would Be Prohibitively Expensive? on the costs she was likely to incur and whether she could afford them. Accordingly, the Court found the plaintiff had Unlike the findings that the agreement was adhesive, not met her burden of proving she would actually bear unconscionable, and insufficiently bilateral, the district prohibitive costs if required to arbitrate. The Court held, court’s other basis for finding the agreement unenforceable No. 02-5702 Cooper v. MRM Investment Co., et al. 27 28 Cooper v. MRM Investment Co., et al. No. 02-5702

It may well be that the existence of large arbitration costs cost-splitting provision on similarly situated [potential] could preclude a litigant such as Randolph from litigants, as opposed to its effect merely on the actual effectively vindicating her federal statutory rights in the plaintiff in the given case. arbitral forum. But the record does not show that Randolph will bear such costs if she goes to arbitration. * * * Indeed, [the record] contains hardly any information on the matter. * * * The record reveals only the A particular plaintiff may be determined to pursue his or arbitration agreement’s silence on the subject, and that her claims, regardless of costs. But a court considering fact alone is plainly insufficient to render it whether a cost-splitting provision is enforceable should unenforceable. The “risk” that Randolph will be saddled consider similarly situated potential litigants, for whom with prohibitive costs is too speculative to justify the costs will loom as a larger concern, because it is, in large invalidation of an arbitration agreement. part, their presence in the system that will deter discriminatory practices. Nothing in Green Tree ... suggests that a case-by-case analysis should not treat similar cases similarly. To invalidate the agreement on that basis would undermine the “liberal federal policy favoring arbitration For this reason, if the reviewing court finds that the agreements.” It would also conflict with our prior cost-splitting provision would deter a substantial holdings that the party resisting arbitration bears the number of similarly situated potential litigants, it burden of proving that the claims at issue are unsuitable should refuse to enforce the cost-splitting provision in for arbitration. order to serve the underlying functions of the federal statute. In conducting this analysis, the reviewing court Id. at 91-92 (citations omitted). Because the employee made should define the class of such similarly situated no showing about his likely arbitration costs, the Court potential litigants by job description and socioeconomic declined to specify “[h]ow detailed the showing of prohibitive background. It should take the actual plaintiff’s income expense must be before the party seeking arbitration must and resources as representative of this larger class’s come forward with contrary evidence ....” Id. at 92. Further ability to shoulder the costs of arbitration. guidance is available from our subsequent en banc decision in Morrison v. Circuit City, where we declared, Morrison, 317 F.3d at 663 (emphasis added); see also DeOrnellas v. Aspen Square Mgmt., 295 F. Supp. 2d 753 We hold that potential litigants must be given an (E.D. Mich. 2003) (holding arbitration agreement’s cost- opportunity, prior to arbitration on the merits, to sharing provision unenforceable under Morrison). demonstrate that the potential costs of arbitration are enough to deter them and similarly situated individuals The court must evaluate the likely cost of arbitration not in from seeking to vindicate their federal statutory rights in absolute terms, but relative to the likely costs of litigation. the arbitral forum. Our approach differs from the case- The up-front expense of litigation is often minimal, because by-case approach advocated in Bradford [v. Rockwell many employee-plaintiffs can secure a contingency fee Semiconductor Systems, 238 F.3d 549, 556 (4th Cir. agreement where counsel advances discovery costs and defers 2001)] by looking to the possible “chilling effect” of the collection of fees until judgment. See Morrison, 317 F.3d at No. 02-5702 Cooper v. MRM Investment Co., et al. 29 30 Cooper v. MRM Investment Co., et al. No. 02-5702

664. Conversely, a plaintiff “forced to arbitrate a typical did not err in determining that Cooper was likely to incur $60,000 employment discrimination claim will incur costs ... significant up-front costs under the then prevailing AAA rules that range from three to nearly fifty times the basic costs of which she would not incur in court. This comports with our litigating in a judicial, rather than arbitral, forum.” Id. at 669 comment that “many, if not most” employment plaintiffs who (citation omitted). Furthermore, because Title VII allows litigate their claims will be represented under contingency compensatory damage awards up to $300,000, the costs of agreements, paying neither fees nor costs until and unless arbitrating such a claim will range “higher and higher.” Id. they secure judgment. See Morrison, 317 F.3d at 664. Finally, the analysis of likely arbitration costs must Nor did the district court err in finding such costs would consider only “up-front” costs, not the lower cost that may deter many employees in Cooper’s circumstances from ultimately result if the arbitrator relieves the employee of arbitrating their claims. We predicted, after all, that courts costs presumptively imposed by AAA rules (e.g., if the would regularly find arbitration costs too high to permit employee prevails on the merits). See id. at 664. After all, enforcement of a lower- or middle-income employee’s duty it is the out-of-pocket costs an employee considers when to arbitrate. The courts “will find, in many cases, that high- deciding whether he can afford arbitration: level managerial employees and others with substantial means can afford the costs of arbitration, thus making cost-splitting The issue is whether the terms of the arbitration provisions in such cases enforceable. In the case of other agreement itself would deter a substantial number of employees, however, this standard will render cost-splitting similarly situated employees from bringing their claims provisions unenforceable in many, if not most, cases.” Id. at in the arbitral forum, and thus the court must consider the 665 (emphasis added and citations omitted). decision-making process of these potential litigants. In many cases, if not most, employees considering the 3. District Court Properly Rejected MRM’s Offer to Pay consequences of bringing their claims in the arbitral Cooper’s Arbitration Costs forum will be inclined to err on the side of caution, especially when the worst-case scenario would mean not The Cooper-MRM agreement contained no provision only losing on their substantive claims but also the stating that an invalid or unenforceable clause could be imposition of the costs of the arbitration. severed. The district court held that, in the absence of a severability provision, it could not enforce the clause Id. at 664-65 (emphasis added) (citations omitted). requiring arbitration while simultaneously invalidating the cost-splitting provision (and allowing MRM to relieve Cooper 2. The Employee’s Likely Up-Front Costs under the of her contractual obligation to pay some arbitration costs Former AAA Rules would effectively treat the arbitration cost-splitting provision was invalid). The court’s ruling on this issue was sound The district court found that Cooper earned $7,253.74 in under both Tennessee law and federal common law. 2001 and that she “and others similarly situated, often cannot afford to pay the high costs of arbitration.” See Cooper, 199 Under Tennessee law, the court could not make a new F. Supp. 2d at 781. There is no suggestion that Cooper has contract for the parties by adding a term, such as a undisclosed assets or sources of income, or that her income severability clause. See Central Adjustment Bureau, Inc. v. has increased to a meaningful extent. Accordingly, the court Ingram, 678 S.W.2d 28, 37 (Tenn. 1984) (cited in Warren v. No. 02-5702 Cooper v. MRM Investment Co., et al. 31 32 Cooper v. MRM Investment Co., et al. No. 02-5702

Metropolitan Gov’t of Nashville & Davidson Cty., 955 unilateral amendment of the agreement. See Popovich v. S.W.2d 618, 623 (Tenn. Ct. App. 1997)). The Court could McDonald’s Corp., 189 F. Supp. 2d 772, 779 (N.D. Ill. 2002) not invent a severability clause in order to “red-line” the cost- (accepting defendant’s offer to pay all arbitration costs, splitting provision while enforcing the clause requiring contrary to contract, would effectively allow it to unilaterally Cooper to arbitrate in the first place.7 modify contract). The district court’s decision on this issue was also sound as III. CONCLUSION a matter of federal public policy. As the Eleventh Circuit reasoned, “To sever the costs and fees provision and force the For the foregoing reasons, we reverse on all issues except employee to arbitrate a Title VII claim despite the employer’s one: whether the likely costs of arbitration are so high that attempt to limit the remedies available would reward the they will deter Cooper or similarly situated employees from employer for its actions and fail to deter similar conduct by exercising their right to arbitrate. On that issue we vacate and others.” Perez v. Globe Airport Sec. Servs., 253 F.3d 1280, remand for the court to analyze the likely arbitration costs 1287 (11th Cir. 2001), vac’d by 294 F.3d 1275 (11th Cir. under the AAA’s rules prevailing on the date that MRM filed 2002). But see Gannon v. Circuit City Stores, 262 F.3d 677, its motion in district court to compel Cooper to arbitrate.8 683 n.8 (8th Cir. 2001) (questioning Perez). Under the contrary approach, an employer “will not be deterred from routinely inserting such a deliberately illegal clause into the arbitration agreement it mandates for its employees if it knows that the worst penalty for such illegality is the severance of the clause after the employee has litigated the matter.” Brief of Amicus Curiae EEOC at 14-15 (citation omitted). Our en banc decision in Morrison made clear that the district court’s decision to reject MRM’s offer to pay was the proper course. See Morrison, 317 F.3d at 676-77; accord Gourley v. Yellow Transp., 178 F. Supp. 2d 1196, 1203-1205 (D. Colo. 2001) (rejecting employer’s offer to waive a contractual cost-splitting provision). Moreover, MRM’s offer was an impermissible attempt to vary the terms of a contract. There was neither a meeting of the minds nor consideration to support such a post hoc

7 8 Similarly, the Supreme Court has held, “What States may not do is Under our decision in Morrison v. Circu it City Stores, Inc., 317 F.3d decide that a co ntract is fair enough to enforce all its basic terms (price, 646 (6th Cir. 2003) (en banc), the relevant co sts are C oop er’s out-of- service, credit), but not fair enough to enforc e its arbitra tion clau se.” pocket costs, without reference to the possibility that she may later recoup Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281 (1995) some of them. Hence the district court shall consider neither the (quoted in Pyburn v. Bill Heard Chevrolet, 63 S .W .3d 3 51, 3 57 (Tenn. Ct. arbitrator’s possible award of fees and expenses to Cooper pursuant to the App.), appeal denied (Tenn. 2001 )). AAA Rules, nor M RM ’s offer to pay Coo per’s arbitration costs.