November 2001 

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As the U.S. Supreme Court marked the traditional beginning of its term on the first Monday in October, most Court watchers focused on the interesting and important cases on the docket for 2001-2002. But it is doubtful that this term can surpass the drama and significance of last year's October-June session.

During its last term, the Court handled a number of extraordinarily high profile cases that captured the public's attention and imagination. The most notable, of course, was its ruling in Bush v. Gore, 121 S.Ct. 525 (2000), the first case it decided during the term, in which it essentially handed the presidency to George W. Bush by effectively curtailing the Florida presidential vote recount.

Other high visibility cases ensued, ranging from allowing a disabled professional golfer under the Americans with Disabilities Act (ADA) to compete on the professional circuit while riding in a golf cart,1 to permitting law enforcement officers under the 4th Amendment to arrest drivers for minor traffic offenses such as not buckling their seatbelts,2 to a decision on the last day of its term striking down on grounds of federal non-exemption and the 1st Amendment a statute prohibiting tobacco advertising near schools and playgrounds.3

The cases stretching from the commencement of the 2000-2001 term to its conclusion gave the year an eclectic character. But despite the prominence of these cases, the past term of the Court had another theme: Alternative Dispute Resolution (ADR). If Supreme Court terms were denominated in Chinese motif, the past term would probably be called "The Year of the Arbitrator."

In five significant decisions last term, the impacts of which are slowly now being felt, the High Court ruled upon an extraordinary number of arbitration cases. Never before, and perhaps rarely again in an era of its shrinking docket, has the Court decided so many arbitration cases in a single sitting. In fact, the number of arbitration rulings has nearly doubled that of the 1960 term, the halcyon year in which the Court established arbitration as a judicially endorsed means of ADR in the Steelworkers Trilogy.4

All five of the rulings upheld the arbitral process in different contexts. The decisions are likely to have a profound impact in Minnesota and throughout the country as they reverberate through the fluid body of case law.

Marshall H. Tanick is an attorney with the law firm of Mansfield, Tanick & Cohen, P.A. in Minneapolis and St. Paul. He is certified as a Civil Trial Specialist by the Minnesota State Bar Association (MSBA) and represents employers and employees in a variety of workplace-related matters.

The most significant of the five arbitration cases last term, and perhaps the most important in the past several terms, concerns the enforceability of compulsory arbitration agreements. Usually entered into at the beginning of an employment relationship, these pacts require employees to channel all their legal disputes through arbitration, relinquishing their rights to pursue legal claims through litigation.

In Circuit City Stores, Inc. v. Adams,5 the Court addressed a question that has divided lower federal appellate and trial courts throughout the country: whether these clauses are enforceable under the Federal Arbitration Act, 9 U.S.C. ¤ 1, et seq., in light of an awkwardly worded provision that, on its face, seemingly bars the enforcement of employment agreements by federal courts. The 9th Circuit Court of Appeals, alone among the federal circuits, ruled that such contracts are not enforceable in cases arising out of California.6 Ironically, at about the same time, the California Supreme Court upheld compulsory arbitration agreements in the workplace, provided that employees are provided with the same due process rights they would have if they had pursued litigation, including prohibition of making employees pay for arbitration, requiring the arbitration body to be neutral, allowing more than minimal discovery, requiring a written decision with some limited judicial review, and prohibiting limitations and additional remedies that might be available through litigation.7

In Circuit City, the U.S. Supreme Court, by a 5-4 majority, reversed the often-overturned 9th Circuit and held that such agreements are enforceable under the federal statute. The Court narrowly construed the exemption found in sections of the act, which states that the law does not apply to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Consistent with most lower federal courts, the High Court reasoned that the exemption covers only "transportation workers." The dissenting judges viewed the majority's reasoning to be "very odd," noting that the Court's interpretation exempted the type of employees that Congress "most obviously had authority" to regulate.

The related and broader issue, not directly tackled by the Court in Circuit City, is whether compulsory arbitration clauses may bar litigation of federal statutory discrimination claims. A number of tribunals, joined by the Equal Employment Opportunity Commission ("EEOC") and other organizations, deem compulsory arbitration clauses to be improper because they require employees to forfeit important rights and remedies that can be obtained through litigation but may not be as readily accessible, or available at all, in arbitration. The ruling in Circuit City did not address that issue, but the High Court has agreed to tackle it next time. In EEOC v. Waffle House, Inc. it will review a ruling of the 4th Circuit that denied the EEOC the right to seek damages on behalf of an employee who signed a compulsory arbitration contract.8 The Court will decide if such an agreement forecloses the EEOC from freezing damages under Title VII of the Federal Civil Rights Act.

Minnesota Impact: The decision in the Circuit City case is likely to affect a number of employers and employees in Minnesota, where up to 25 percent of the workforce -- including those in labor unions -- is subject to compulsory arbitration agreements.

Following the lead of the U.S. Supreme Court in Gilmer v. Interstate Johnson Co., 500 U.S. 20 (1991), the Minnesota Supreme Court has held that mandatory arbitration arrangements between employers and employees preclude the right to litigate state law discrimination claims.9 This diverges from the reasoning of the U.S. Supreme Court in Alexander v. Gardner-Denver, 415 U.S. 36 (1974), which held that an employee who submits a discrimination claim under a collective bargaining agreement is not barred from litigating the same claim under Title VII of the Federal Civil Rights Act. It also runs counter to the reasoning of the U.S. Supreme Court in Wright v. Universal Maritime Ser. Corp., 119 S. Ct. 391 (1998), upholding a labor union member's right to pursue federal staffing disability and discrimination claims where not explicitly barred by the collective bargaining agreement.

The Minnesota Supreme Court, construing the "exclusivity" clause of the state Human Rights Act, last year concluded that claims asserted under that provision transcend compulsory arbitration agreements under the Uniform Arbitration Act, Minn. Stat. ¤ 573.01, et seq.. In Correll v. Distinctive Dental Services, P.A., 607 N.W.2d 440 (Minn. 2000), the Court held that an employee who filed a charge of marital discrimination under the act might pursue that claim before the administrative agency even though the employee had signed a compulsory employment agreement. The Court relied upon the "exclusivity" clause of the act, Minn. Stat. ¤ 363.11, which provides that the Human Rights Department has "exclusive" authority while such claims are "pending." It reasoned that this provision trumps a mandatory arbitration clause.

The U.S. Supreme Court also upheld an arbitration agreement entered into by an American Indian tribe. In C&L Enterprises v. Citizen Band Potawatomi Tribe,10 the Court ruled that a tribe in Oklahoma waives its immunity from suit in state court by signing a contract for off-reservation commercial activity containing an arbitrator clause.
The Court rejected the tribe's contention that, because of its sovereign immunity, it could not be compelled by a court to participate in arbitration when a dispute arose under the contract. The tribe's agreement that "no court on earth, even on the moon" could order it to arbitrate was unanimously rejected by the Court. It reasoned that the tribe had "clearly consented to arbitration and to the enforcement of arbitral awards" in the state court system.

Minnesota Impact: The case is likely to have broad impact in Minnesota, where many tribes enter into off-reservation business arrangements. The effect may be a trap for those doing business with tribes, which may be reluctant to agree to arbitrate. Ironically, this would undermine this form of ADR in tribal-business disputes.

In another case of importance to employees, particularly those in labor unions, the Court ruled in Eastern Associated Coal Corp. v. UMW Dist. 17,11 that the doctrine of "public policy" cannot be used to overturn an arbitrator's ruling reinstating an employee to the job. The case involved an employee who, while occupying safety-sensitive positions, twice failed workplace drug tests. The employee, a member of a union, was fired and then grieved the decision through the collective bargaining process. An arbitrator reinstated him to his job, and the employer appealed, contending that restoring him to his job violated the "public policy" against illegal drug usage.

The Supreme Court disagreed, deferring to arbitral authority and holding that the arbitrator's remedy should not be reversed on "policy" grounds. The Court, however, did not totally close the door to the concept of "public policy" as a basis to challenge an arbitral award, provided that the "policy" at issue is "explicit, well-defined, and dominant" and that "it flows from positive law and not from general considerations of supposed public interest."

Minnesota Impact: The Minnesota courts have wrestled with the concept of "public policy" as a basis for challenging arbitration awards, especially with grievances under collective bargaining agreements, as in Eastern Associated.12 Their rulings generally have paralleled the Supreme Court's holding in Eastern Associated. The Minnesota Supreme Court and the Court of Appeals have refused to set aside arbitration awards based on "public policy."13 But, like the United States Supreme Court, they have never categorically rejected that doctrine and might embrace it if it were to arise in the appropriate circumstances. Therefore, the ruling by the Minnesota Supreme Court in Eastern Associated essentially validates Minnesota jurisprudence regarding the limited, but theoretically potential, basis for using "public policy" as a means of attacking an arbitration award.

Judicial aversion to overruling the decisions of arbitrators also was reflected in Major League Baseball Players Assn. v. Garvey.14 The Court, in a per curiam opinion, overturned an appellate court ruling that reversed an arbitral award against Steve Garvey, a former major league baseball player, on his claim of illegal collusion by team owners who forced him out of the game.

The case followed a five-year train of rulings in which the lower courts had deferred in the arbitral ruling against the ballplayer. The Supreme Court noting the "very limited" role of the judiciary in review of labor arbitration rulings, scolded the 9th Circuit for its "baffling" decision to pass upon the merits of the dispute which "usurped the arbitrator's role." It ordered that the case be resubmitted to the arbitrator to decide if Garvey was entitled to relief, a decision that the lower court eventually made itself.

Minnesota Impact: Similar to Eastern Associated, the Garvey ruling adds potency to the arbitral process. It is likely to be cited in support of the fundamental proposition that courts should refrain from overseeing the merits of rulings, a proposition already well-established in Minnesota law.15

While not pertaining directly to the workplace, the High Court's other arbitration case last term could have significant impact upon workplace issues. In GreenTree Financial Corp. v. Randolph,16 the Court narrowly reiterated its preference for arbitration as a means for dispute resolution.

By a 5-4 vote, the Court held that an arbitration clause in a boilerplate consumer financing agreement was valid and binding, reversing a ruling of the 11th Circuit Court of Appeals, which included a challenge under the Truth-in-Lending Act (TILA).17 The Court reasoned that compulsory arbitration was mandated, absent a showing that the cost of arbitration would pose an impractical barrier to pursuit of claims by consumers. Since the record did not reveal that the cost of arbitration would be prohibitive, the Court upheld the provision.

Minnesota Impact: The Minnesota courts have not expressly passed upon the legitimacy of arbitration clauses in boilerplate consumer financial transactions. This ruling, however, is likely to make it more difficult for consumers to pursue statutory remedies under federal laws and may also impede their ability under similar state consumer protection laws. The decision also could limit the ability of consumers to pursue class actions in arbitration, rather than litigation, which may significantly restrict consumers' right to challenge improper or unlawful financing transactions because of their inability to group together small claims into a viable economic force.

This is what occurred previously on remand in Randolph. The 11th Circuit Court of Appeals, which had earlier barred enforcement of the clause barring class actions, refused to "make the same mistake again" and upheld the clause.18 The court reasoned that it must, because of the Supreme Court's reversal, give great weight to a "pro-arbitration policy," notwithstanding its preclusion of class actions. It concluded that Congress did not intend "to confer upon individuals a non-waivable right to pursue a class action" under TILA. The court stated that class action treatment was not essential to uphold statutory rights because of the existence of "other incentives," such as statutory damages and attorneys' fees, for pursuing TILA claims.

Apart from its impact on consumer rights, the ruling in Randolph could spill over into the workplace. In upholding the boilerplate arbitration clause, the ruling lends further credence to compelling a signatory to an arbitration agreement to abide by those terms, rather than challenging the agreement in order to seek a litigation forum for dispute resolution.

These five recent rulings all tend to validate the arbitration process. This is hardly surprising since it was the U.S. Supreme Court that endorsed the contemporary use of arbitration in another trio of cases, the Steelworkers Trilogy, in 1960. In that triumvirate of cases, the Court ratified arbitration as a preferred means of dispute resolution long before the term "ADR" was conceived.

Now, 40 years later, the Court has further embedded arbitration into the body of the law. Its rulings in the latest five cases are likely to have substantial impact in Minnesota, as well as throughout the rest of the country.

1 PGA Tour v. Martin, 121 S.Ct. 1879 (2001)
2 Atwater v. City of Lago Vista, 121 S. Ct. 2540 (2001)
3 Lorillard Tobacco v. Reilly, 121 S. Ct. 2404 (2001).
4 Steelworkers v. American Mfg. Co., 363 U.S. 564 (1960); Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960); Steelworkers v. Enterprise Wheel & Car. Co., 363 U.S. 593 (1960).
5 121 S. Ct. 1362 (2001).
6 194 F.3d 1070 (9th Cir. 1999).
7 Armendariz v. Foundation Health Psychcare Services, Inc., 6 Cal.3d 669; 99 Cal. Rptr. 745 (Cal. 2000).
8 EEOC v. Waffle House, Inc., 193 F.3d 805 (4th Cir. 1999), rev. granted 3/26/01, No. 99-1823.
9 Johnson v. Piper Jaffray, Inc., 515 N.W.2d 712 (Minn. 1992).
10 121 S. Ct. 1589 (4/30/01).
11 121 S. Ct. 462 (2000),
12 See M.H. Tanick, "Public Policy in Arbitration Awards," 69 Hennepin Lawyer, April, 2000, p. 4.
13 E.g., Auditor v. Minnesota Association of Professional Employees (MAP), 504 N.W.2d 751 (Minn. 1993); City of St. Paul v. AFSCME Council 14, 567 N.W.2d 524 (Minn. App. 1997); MedCenters Healthcare Inc. v. Park Nicollet Medical Center, (Minn. App. 1988).
14 121 S. Ct. 1724 (5/14/01).
15 E.g., Ramsey County v. AFSCME Council 91, 309 N.W.2d 785, 792 (Minn. 1981); State v. Berthiaume, 259 N.W.2d 904, 910 (Minn. 1977).
16 121 S. Ct. 513 (2000),
17 178 F.3d 1149 (11th Cir. 1999).
18 Randolph v. GreenTree Financial Corp., 2001 WL 245727 (11th Cir. 3/13/01).