No. 09-1268 ____________________________________________ IN THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ____________________________________________ RAJAE NINO, Plaintiff-Appellant, v. JEWLERY EXCHANGE, INC., d/b/a/ Diamonds International, & WENDY TARAPANI, Defendants-Appellees. ____________________________________________ On Appeal From the United States District Court of the Virgin Islands, Division of St. Thomas & St. John ____________________________________________ BRIEF OF THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION AS AMICUS CURIAE IN SUPPORT OF APPELLANT AND REVERSAL ____________________________________________ JAMES L. LEE EQUAL EMPLOYMENT Deputy General Counsel OPPORTUNITY COMMISSION Office of General Counsel LORRAINE C. DAVIS 131 M St. NE, 5th Fl. Acting Associate General Counsel Washington, D.C. 20507 (202) 663-4724 ANNE NOEL OCCHIALINO Annenoel.Occhialino@EEOC.gov Attorney TABLE OF CONTENTS TABLE OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . ii STATEMENT OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 STATEMENT OF THE ISSUES. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. Statement of the Facts. . . . . . . . . . . . . . . . . . . . . 3 B. District Court Decision. . . . . . . . . . . . . . . . . . . . 7 ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 THE DISTRICT COURT'S ORDER DISMISSING THIS CASE AND SENDING IT TO ARBITRATION SHOULD BE REVERSED BECAUSE THE ARBITRATION AGREEMENT CONTAINS MULTIPLE UNCONSCIONABLE PROVISIONS THAT CANNOT BE SEVERED FROM THE REMAINDER OF THE AGREEMENT. . . . . . . . . . . . . . . . . . . . . 8 A. The arbitration agreement contains multiple unconscionable provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1. Procedural Unconscionability. . . . . . . . . . . . . . . . . . . . 10 2. Substantive Unconscionability. . . . . . . . . . . . . . . . . . 10 B. The multitude of unconscionable provisions are not severable because they evince Diamonds' deliberate attempt to impose an arbitration scheme designed to discourage Nino's resort to arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE TABLE OF AUTHORITIES Cases page(s) Alexander v. Anthony Int'l, 341 F.3d 256 (3d Cir. 2003) passim Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974)........................ 1 Blair v. Scott Specialty Gases, 283 F.3d 595 (3d Cir. 2002).................18 Dumais v. Am. Golf Corp., 299 F.3d 1216 (10th Cir. 2002)................... 17 EEOC v. Christiansburg Garmet Co., 434 U.S. 417 (1978)................... 15 Ferguson v. Countrywide Credit Industries, Inc., 298 F.3d 778 (9th Cir. 2002)........................................................21 Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306 (6th Cir. 2000)... 17 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991)......... 9,10,15 Graham Oil Co. v. ARCO Prods. Co., 43 F.3d 1244 (9th Cir. 1994).... 21,22 Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) .....16, 24 Hooters of Am., Inc. v. Phillips, 173 F.3d 933 (4th Cir. 1999) ............ 17 Lucey v. FedEx Ground Package Sys., Inc., No. 07-4372, 2009 WL 51644 (3d Cir. Jan. 8, 2009) ................................. 10 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) ............................................. ...9,15 Parilla v. IAP Worldwide Servs. VI, Inc., 368 F.3d 269 (3d Cir. 2004) .......................................passim Plaskett v. Bechtel Int'l, Inc., 243 F. Supp. 2d 334 (D.V.I. 2003) ......21,24 Spinetti v. Serv. Corp. Int'l, 324 F.3d 212 (3d Cir. 2003) ............ passim Zimmer v. Cooperneff Advisors, Inc., 523 F.3d 224 (3d Cir. 2008)....... 11 Statutes 9 U.S.C. § 1 et seq. ....................................................... 8 9 U.S.C. § 2 et seq. ........................................................9 42 U.S.C. § 2000e et seq.....................................................1 Rules and Regulations Fed. R. App. P. 29...........................................................1 V.I. Code Ann. § 4...........................................................9 Other E. Allen Farnsworth, Farnsworth on Contracts § 5.8 (1990).................. 22 Restatement (Second) of Contracts §178...................................1, 16 Restatement (Second) of Contracts §184......................................19 Restatement (Second) of Contracts §208..................................passim STATEMENT OF INTEREST The Equal Employment Opportunity Commission was established by Congress to administer, interpret, and enforce Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. This case involves the validity and enforceability of an arbitration agreement between an employee and his employer. Specifically, this case raises the issue of whether an arbitration agreement is procedurally and substantively unconscionable where it was presented on a take-it-or-leave-it basis, contains filing deadlines as short as two days, precludes an award of attorney's fees and costs, and allows the employer to strike two potential arbitrators from a pool of four while allowing the plaintiff to strike only one. This case also raises the question of whether the unconscionable provisions can be severed from the agreement or whether unconscionability taints the entire agreement and therefore renders the entire agreement unenforceable. While there is no allegation that the arbitration agreement in any way affects the Commission's enforcement authority, the Commission has an interest in this case because "private rights of action remain [] an essential means of obtaining judicial enforcement of Title VII," as "private litigant[s] not only redress[] [their] own injur[ies] but also vindicate[] the important Congressional policy against discriminatory employment practices." Alexander v. Gardner-Denver Co., 415 U.S. 36, 45 (1974). Accordingly, the Commission respectfully offers its views to the Court. See Fed. R. App. P. 29. STATEMENT OF THE ISSUES <1> I. Whether the district court properly found that the arbitration agreement was procedurally and substantively unconscionable because the employer had excessive bargaining power and presented the agreement on a take-it- or-leave-it basis and because the agreement imposed five-day and two- day filing deadlines, prohibited the plaintiff from recovering his attorney's fees and costs, and allowed the employer to strike two arbitrators from a pool of four while allowing the plaintiff to strike only one. II. Whether the court erred in concluding that although the arbitration agreement was procedurally and substantively unconscionable, the invalid provisions of the agreement could be severed from the remainder of the arbitration agreement, which was otherwise enforceable. STATEMENT OF THE CASE A. Statement of the Facts Defendant Jewelry Exchange, Inc., d/b/a Diamonds International ("Diamonds") is a multi-national corporation operating jewelry stores. JA12.<2> Plaintiff Rajae Nino, who is originally from Jordan and has a degree in Business Administration from the University of Jordan and a jeweler/gemologist certificate from the Gemological Institute of America, agreed to work for Diamonds as a salesperson/gemologist in St. Thomas starting in January 2000. JA12. Because he lacked a United States work visa, however, he was initially assigned to Diamonds' Aruba store where Diamonds provided his housing and paid him $450/week plus commission. JA12; JA37(Compl. ¶12). After Diamonds helped Nino successfully obtain his work visa, he was transferred to Alaska, where Diamonds also provided his housing and a food allowance. JA13; JA37-38(Compl. ¶ 13). In September 2000, Diamonds asked Nino to transfer to St. Thomas, and he did. JA13. On October 6, 2000, which was either Nino's first or second day in St. Thomas, he was told to sign his employment contract, which was a standard contract. JA13. He was given no opportunity to negotiate the terms of the agreement, which required him to work "at least" six days a week. Id.; JA79. He was paid $450/week and given a $600/month housing allowance plus a sales commission ranging from 1% to 7%. JA80(Contract, Art. III, ¶ 1). Article IV of the contract, "Grievance and Arbitration Procedure," states that the parties agree that arbitration is the sole remedy for all employment disputes. JA80. The provision imposes a five-day deadline for an employee to file a written complaint with the employee's manager setting "forth in detail all reasons the Employee feels the Employer's actions were improper." JA80(Contract, Art. IV, ¶ 3). The manager then has two days to "advise" the employee of his or her decision, and the employee then has two days to appeal the decision to the managing director, who has five days to render a decision. JA80-81(Contract, Art. IV, ¶¶ 3-4). After that, the employee has five days to file a written arbitration request with the managing director. JA81(Contract, ¶ 5). Although the agreement imposes strict time lines on the employee, the "Failure to Process" provision states that Diamonds' failure to timely process a grievance means only that "the last decision given . . . shall be a final and binding resolution." JA82(Contract, ¶ 15). The agreement also imposes no deadlines at all upon Diamonds should it seek to arbitrate a claim against an employee. The arbitration agreement further explains that upon receiving a written arbitration request, Diamonds will request a panel of four arbitrators from the American Arbitration Association. JA81(Contract, ¶ 6). Diamonds then has the right to strike the first arbitrator, the employee has the right to strike the second, and "this process will continue until there remains one arbitrator . . . or the parties can decide on an arbitrator that would be mutually acceptable." Id. The agreement also states that the parties shall split the arbitrator costs and pay their own attorney's fees and costs. JA82(Contract, ¶ 13). Nino signed the contract, but Diamonds did not. JA83. Also on October 6, 2000, Nino signed a one-page agreement titled "Diamonds International AGREEMENT" ("DI agreement") acknowledging his receipt of Diamonds' "policies and procedures manual" and agreeing to be bound by its terms. JA84. Nino testified, however, that he did not recall having received the policies and procedure manual and that he may have received it at a later date. JA77-JA78 (Nino Depo. 32-33). In any event, the DI agreement also stated that Diamonds "reserves the right to unilaterally amend its rules, regulations, policies, and procedures without prior notice to its employees" and that Nino understood that "the grievance procedures set forth in the employee handbook" constituted his "exclusive remedy for [his] employment-related disputes."<3> Id. The policies and procedure manual contains a "Dispute Resolution" section. Doc.73, Ex. K, pg. 17. That section outlines a grievance procedure that is similar, but not identical, to the one contained in the employment contract. It requires employees to file a written notice of complaint with their supervisor within two days; to file an appeal to the HR department within two days of the supervisor's decision; to file an appeal of that decision to the managing director, which is the "final and binding" decision unless the matter concerns termination; and then, if the decision regards a termination, to file an appeal with the President within ten days, and a "management panel" will then provide a "binding and final" resolution of the grievance. Id. Nothing in the policies and procedures manual states that employees have a right to arbitration. Id. Nor does the manual prescribe any timeframes in which Diamonds must act to file a complaint against an employee. On February 3, 2005, Diamonds suspended Nino for one week without pay. JA7. He never returned to work and later filed his complaint, alleging, inter alia, that he had been harassed and discriminated against based on his sex and national origin and that he had been retaliated against. JA8. Diamonds eventually filed a motion to dismiss, arguing that all of Nino's claims were subject to arbitration. JA8. B. District Court Decision: The district court first noted that the Federal Arbitration Act requires that valid arbitration agreements be enforced. JA9. Whether an arbitration agreement is valid, the court said, turns on the relevant state law of contracts. JA9. In the case of the Virigin Islands, the restatements supplies the relevant law. JA10. Applying the Restatement of Contracts § 208, the court said that unconscionability, which includes procedural and substantive elements, constitutes a defense to enforcement of a contract or contract provision. JA10. The court first concluded that procedural unconscionability, which looks at the process by which an agreement is reached and is generally satisfied when the party with excessive bargaining power prepares the contract and presents it on a take-it-or-leave-it basis, was present here, given "the entire context of Nino's dealings with Diamonds and his dependence on Diamonds with respect to his immigration status at the time he accepted the job offer" and the fact that he "was given no reasonable choice in accepting the challenged Arbitration Agreement." JA13. As for substantive unconscionability, which looks at whether the terms unreasonably favor one party, the court found this element was also satisfied because the agreement imposed unreasonable time-filing requirements (as Diamonds conceded) and because the agreement precluded an award of attorney's fees and costs to Nino. JA14-15. The court rejected, however, Nino's argument that the requirement that he pay half the costs of the arbitration was also substantively unconscionable, reasoning that Nino had failed to offer any evidence showing that the cost of arbitration would likely be significantly higher than litigation or that he would be unable to pay his share of them. JA16. Although the court determined that the arbitration agreement contained unconscionable provisions, the court concluded that they could be severed from the remainder of the agreement. Relying on the restatements of contracts, the court concluded that "the unenforceable time periods and requirement that the parties bear their own costs and attorneys' fees are not essential to the parties' agreement to arbitrate certain disputes." JA17. Accordingly, the court concluded, they could be "severed from the Arbitration Agreement without disturbing the primary intent of the parties to arbitrate their dispute." Id. (citing Spinetti v. Serv. Corp. Int'l, 324 F.3d 212 (3d Cir. 2003)). ARGUMENT THE DISTRICT COURT'S ORDER DISMISSING THIS CASE AND SENDING IT TO ARBITRATION SHOULD BE REVERSED BECAUSE THE ARBITRATION AGREEMENT CONTAINS MULTIPLE UNCONSIONABLE PROVISIONS THAT CANNOT BE SEVERED FROM THE REMAINDER OF THE AGREEMENT. Under the Federal Arbitration Act, 9 U.S.C. § 1 et seq., "[a] party to a valid and enforceable arbitration agreement is entitled to . . . an order compelling such arbitration." Alexander v. Anthony Int'l, 341 F.3d 256, 263 (3d Cir. 2003); see also Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991) (holding that statutory discrimination claims may also be subject to arbitration, but only "'so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum'" such that "'the statute will continue to serve both its remedial and deterrent function'") (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 (1985)). Whether a contract is valid is a question for a court to determine under state law. Alexander, 341 F.3d at 264; see 9 U.S.C. § 2 (arbitration agreements are enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract"). Where an arbitration agreement contains provisions that are unenforceable, a court must decide whether to sever the offending provisions from the remainder of the agreement or whether enforcement of the arbitration agreement should be denied. In this case, the district court properly concluded that the arbitration agreement contained several provisions that are unconscionable and therefore unenforceable, but the court erred in concluding that the unenforceable provisions were severable. A. The arbitration agreement contains multiple unconscionable provisions. Under U.S. Virgin Islands law, as expressed in the Restatement (Second) of Contracts, a contract or term that is unconscionable is unenforceable. See V.I. Code Ann. § 4. Specifically, Restatement (Second) of Contracts § 208 states that "[i]f a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term." As this Court recognized in Alexander, which also arose in the U.S. Virgin Islands, "unconscionability involves both 'procedural' and 'substantive' elements." Alexander, 341 F.3d at 265. Both elements are present here. 1. Procedural Unconscionability "Procedural unconscionability pertains to the process by which an agreement is reached and the form of an agreement." Id. (internal quotation marks and citations omitted). It is generally found when the contract is one of adhesion, i.e., it was "prepared by the party with excessive bargaining power who present[ed] it to the other party for signature on a take-it-or-leave-it basis." Id. (internal quotation marks and citations omitted).<4> Applying this standard, this Court has found procedural unconscionability where multinational employers present arbitration agreements to individuals on a take-it-or-leave-it basis, especially where those individuals lack other employment opportunities. Id. at 266 (agreement procedurally unconscionable where the employer, "which conducts business throughout the nation and the world, clearly possessed more bargaining power than two long-time equipment operators with limited educational backgrounds and, at best, very narrow options for other employment," and where the employees were presented with a "take-it-or-leave-it" agreement); Lucey v. FedEx Ground Package Sys., Inc., No. 07-4372, 2009 WL 51644, at *2 (3d Cir. Jan. 8, 2009) (agreement procedurally unconscionable "where FedEx drafted the arbitration provision and presented it to Plaintiffs with little to no bargaining power on a take-it-or-leave it basis"). In contrast, this Court has held that there is no procedural unconscionability where an employee was highly educated, had significant prior work experience and multiple job offers, and signed an arbitration agreement after having the opportunity to negotiate it. Zimmer v. Cooperneff Advisors, Inc., 523 F.3d 224, 229 (3d Cir. 2008) (agreement was not procedurally unconscionable where plaintiff had economics Ph.D. from Harvard, had substantial prior work experience in the field, had multiple employment offers, and did not deny that he had had opportunity to negotiate his contract). Here, the district court properly held that the arbitration agreement was procedurally unconscionable. As the court found, Diamonds is an international corporation that "arguably possessed more bargaining power than Nino, an individual jewelry salesperson and gemologist" who had only a degree in Business Administration from the University of Jordan and a jeweler/gemologist certificate from the Gemological Institute of America. JA12. Additionally, as the court found, Nino was dependent upon Diamonds "with respect to his immigration status at the time he accepted the job offer," JA13, which further exacerbated the excessive disparity in their bargaining positions. Finally, as the court further found, "Nino was given no reasonable choice in accepting the challenged Arbitration Agreement," as the HR supervisor presented it to him on a take-it-or- leave-it basis without giving him any opportunity to negotiate its terms. JA13; JA77-78 (Nino Depo. 30-33); JA76-77(Reply at 2-3) (failing to dispute that Nino had no opportunity to negotiate the arbitration agreement). Thus, like the plaintiffs in Alexander and Lucey, Nino was in an inferior bargaining position and was presented with the arbitration agreement on a take-it-or-leave-it basis. Moreover, the disparity in bargaining power between Nino and Diamonds was arguably even more pronounced in this case than in Alexander and Lucey because Nino was reliant on Diamonds for his immigration status. Accordingly, the district court's conclusion that the agreement was procedurally unconscionable was correct. 2. Substantive Unconscionability The district court was also correct in determining that the arbitration agreement was substantively unconscionable because its contained "terms that unreasonably favored [Diamonds] to which [Nino] d[id] not truly assent." Alexander, 341 F.3d at 265; see Restatement (Second) of Contracts § 208 cmt. d ("[G]ross inequality of bargaining power together with terms unreasonably favorable to the stronger party, may confirm indications that the . . . weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms."). In this case there is no doubt that the arbitration agreement contains terms that are substantively unconscionable. Diamonds itself admits that the requirement that Nino file a written complaint with his manager within five working days, then appeal to the managing director within two days, and then file a request for arbitration within five days is substantively unconscionable. JA14. And, indeed, Diamonds has conceded this point with good reason. Under Title VII, an employee in the Virgin Islands has 300 days to file a charge of discrimination and 90 days from the receipt of a right-to-sue letter to file a lawsuit. Diamonds, however, gives its employees drastically less time - just five days to file an initial complaint (and just two days to appeal it) and then only another five days to file a request for arbitration.<5> Because this Court held in Alexander that a 30-day time limit for filing an arbitration request "is clearly unreasonable and unduly favorable to" the employer, there is no question that the time limits in this case were substantively unconscionable and therefore unenforceable. Id. at 266-67; see also Restatement (Second) of Contracts § 178(1) (a promise is unenforceable on the grounds of public policy if "interest in its enforcement is clearly outweighed . . . by a public policy against the enforcement of such terms"). Moreover, Diamonds' "unfair advantage is only compounded by the fact that [Diamonds] is apparently not required to provide detailed and written notice to an employee of any of its own claims within a strictly enforced . . . time period." Alexander, 341 F.3d at 267 (emphasis added). In fact, the agreement does not even require Diamonds to submit an arbitration request to Nino at all. Additionally, while the agreement requires Nino to adhere to impossibly short filing deadlines, Diamonds is not required to adhere to the deadlines the agreement sets forth for it to process Nino's complaints. The "Failure to Process" provision states that if Diamonds fails to timely process a grievance, "the last decision given by [Diamonds] shall be a final and binding resolution of the grievance." Doc. 73, Ex. K, pg. 17. Apparently, this is a case where what is good for the goose is not good for the gander. As the district court found, the provision in the arbitration agreement prohibiting Nino from recovering his attorney's fees and costs is also substantively unconscionable.<6> JA15. While the Supreme Court has recognized the lawfulness of pre-dispute arbitration agreements, the Court has said that such agreements must not require a party to "'forego the substantive rights afforded by the statute.'" Gilmer, 500 U.S. at 26 (quoting Mitsubishi, 473 U.S. at 628). The Supreme Court has also said that a prevailing plaintiff in a Title VII case "ordinarily is to be awarded attorney's fees in all but special circumstances," which comports with the critical role of attorney's fees in encouraging individuals to "vindicate 'a policy that Congress considered of the highest priority.'" Christiansburg Garment Co. v. EEOC, 434 U.S. 417-18 (1978) (citation omitted). Accordingly, this Court has held unequivocally that provisions precluding employees from recovering their attorney's fees and costs are "unreasonably favorable" to the employer as they prevent employees from obtaining "complete compensation for any harm done and the company is able to evade full responsibility for its actions." Alexander, 341 F.3d at 267 (provision requiring each party to bear its own attorney's fees was substantively unconscionable under U.S. Virgin Islands law); see also Parilla v. IAP Worldwide Servs. VI, Inc., 368 F.3d 269, 278-89 (3d Cir. 2004) (provision requiring each party to pay their attorney's fees and costs was substantively unconscionable under Title VII and U.S. Virgin Islands law); Spinetti v. Serv. Corp. Int'l, 324 F.3d 212, 216 (3d Cir. 2003) (provision precluding the plaintiff from recovering her attorney's fees "runs counter to statutory provisions under Title VII and [the] ADEA" and is therefore unenforceable).<7> Similarly, this provision is also unenforceable as a matter of public policy because it precludes employees from obtaining the full panoply of relief they are entitled to under Title VII. See Restatement (Second) of Contracts § 178(3)(a) ("[i]n weighing a public policy against enforcement of a term, account is taken of the strength of that policy as manifested by legislation or judicial decisions"). Although the district court did not consider it, the provision allowing Diamonds to strike two arbitrators from a panel of four arbitrators, while allowing Nino to strike just one, also unreasonably favors Diamonds and is therefore substantively unconscionable. Such a provision confers on Diamonds a larger role than Nino in determining who the arbitrator would be, and thereby potentially confers on Diamonds an unfair advantage in the arbitration. Cf. Parilla, 368 F.3d at 283 (rejecting the plaintiff's argument that an arbitrator non-residency requirement was unconscionable and stating, "[u]nder the Agreement before us, each side plays an equal role in a process reasonably designed to select an impartial arbitrator"). Finally, we note that, in our view, there is a question as to whether the arbitration agreement is illusory and therefore unenforceable because Diamonds is able to unilaterally change its terms at any time without notifying Nino. Generally, "an arbitration agreement allowing one party the unfettered right to alter the arbitration agreement's existence or its scope is illusory." Dumais v. Am. Golf Corp., 299 F.3d 1216, 1219 (10th Cir. 2002) (arbitration agreement was illusory where employer reserved the unilateral right to amend anything except the employee's at-will status); see also Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 315-16 (6th Cir. 2000) (promise was illusory and agreement therefore unenforceable where one party "reserved the right to alter the applicable [arbitration] rules and procedures without any obligation to notify, much less receive consent from" employees); Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 939-40 (4th Cir. 1999) (arbitration agreement was unenforceable where, among other things, it allowed the employer to modify the rules at any time without providing notice). On October 6, 2000, Nino signed both the employment contract containing the arbitration agreement and the DI agreement, which acknowledged his receipt of Diamonds' policies and procedures manual. Significantly, the DI agreement states that Diamonds "reserves the right to unilaterally amend its rules, regulations, and policies, and procedures without prior notice to its employees." JA84. It is unclear whether this provision allows Diamonds to unilaterally amend the rules of the grievance and arbitration proceeding as set out in the employment contract. If so, this provision would appear to be illusory and unenforceable as it would give Diamonds "unfettered discretion to modify the agreement" without notifying Nino or obtaining his consent. Cf. Blair v. Scott Specialty Gases, 283 F.3d 595, 604 (3d Cir. 2002) (rejecting the plaintiff's argument that the arbitration agreement was illusory and stating, "[defendant]'s right is much more confined than the unfettered discretion of the arbitration provider in Floss, who could make changes to the agreement without notice to or consent of the employees"). Even if the DI agreement pertains only to Diamonds' policies and procedure manual however, it may render the arbitration agreement illusory because it allows Diamonds to unilaterally change the "Dispute Resolution" procedures outlined in the policies and procedures manual, which, in turn, seems to supplant or modify the grievance procedure an employee must follow - pursuant to the arbitration agreement contained in the employment contact - before requesting arbitration. Compare JA80-81(employment contract) (setting out mandatory grievance procedure that is prerequisite to requesting arbitration), with Doc.73, Ex. K, pg. 17 (policies and procedures manual) (setting out a mandatory grievance procedure with different filing deadlines). Thus, it would seem, any changes made to the grievance procedure in the policies and procedure manual subsequent to Nino's signing of the employment contract (which is, in fact, what Nino suggests happened, see Nino Br. at pg. 21, n.6) would automatically and unilaterally amend the employment contract by imposing on Nino different grievance procedures than those contained in the employment contract. B. The multitude of unconsionable provisions are not severable because they evince Diamonds' deliberate attempt to impose an arbitration scheme designed to discourage Nino's resort to arbitration. Although the district court properly concluded that the arbitration agreement contained unconscionable provisions, it erred in concluding that they could be severed from the remainder of the arbitration agreement. The Restatement (Second) of Contracts § 184 states: 1. If less than all of an agreement is unenforceable under the rule stated in § 178 [governing unenforceability on the grounds of public policy], a court may nevertheless enforce the rest of the agreement in favor of a party who did not engage in serious misconduct if the performance as to which the agreement is unenforceable is not an essential part of the agreed exchange. 2. A court may treat only part of a term as unenforceable under the rule stated in Subsection (1) if the party who seeks to enforce the term obtained it in good faith and in accordance with reasonable standards of fair dealing. Applying these principles, this Court has recognized that severance is appropriate where the unenforceable provisions of a contract are not "'an essential part of the agreed exchange'" of promises. Spinetti, 324 F.3d at 214 (quoting Restatement (Second) of Contracts § 184(1)). Specifically, in Spinetti this Court held that provisions prohibiting an award of attorney's fees and costs and requiring each party to pay half of the arbitral costs were unenforceable as a matter of law but that severance was appropriate because the essence of the parties' agreement was to settle employment disputes, not to decide attorney's fees and arbitral costs. Id. ("You don't cut down the trunk of a tree because some of its branches are sickly."). Conversely, this Court has held that where the unconscionable provisions "permeate[] the agreement . . . and thoroughly taint[] its central purpose of requiring the arbitration of employment disputes," severance is inappropriate and the agreement should not be enforced. Alexander, 341 F.3d at 271. In Alexander this Court held that provisions requiring employees to pay the arbitrator's fees if they lost, imposing a 30-day filing period, precluding any right to attorney's fees, and precluding relief other than reinstatement or "net pecuniary damages" tainted the central purpose of the arbitration agreement and therefore precluded its enforcement. Id. ("Because the sickness has infected the trunk, we must cut down the entire tree."). In reaching this conclusion, this Court explained that it was not challenging the liberal policy in favor of arbitration but that it simply could "not give effect to an agreement to arbitrate afflicted by so much fundamental and pervasive unfairness." Id. Subsequent to Spinetti and Alexander, in Parilla, 368 F.3d 269, this Court discussed at length the severability of unenforceable provisions in arbitration agreements. This Court noted that the "concept of 'permeation' and 'tainting' of the 'purpose of arbitration'" discussed in Alexander came from Plaskett v. Bechtel Int'l, Inc., 243 F. Supp. 2d 334 (D.V.I. 2003), which, in turn, relied on two Ninth Circuit decisions, Ferguson v. Countrywide Credit Industries, Inc., 298 F.3d 778, 788 (9th Cir. 2002), and Graham Oil Co. v. ARCO Prods. Co., 43 F.3d 1244, 1247 (9th Cir. 1994)). After discussing those cases, as well as Spinetti and Alexander, this Court stated: We read Alexander, Plaskett, Ferguson and Graham Oil to be applications of the equitable override provision of the Restatement. Such provision instructs that even where 'disregard of [illegal provisions] will not defeat the primary purpose of the bargain,' enforcement of the bargain will be denied if the person seeking it has been 'guilty of serious moral turpitude,' Restatement (First) of Contracts § 603, or 'serious misconduct,' Restatement (Second) of Contracts § 184(1). Under those four cases, a multitude of unconscionable provisions in an agreement to arbitrate will preclude severance and enforcement of the arbitration if they evidence a deliberate attempt by an employer to impose an arbitration scheme designed to discourage an employee's resort to arbitration or to produce results biased in the employer's favor. Id. at 288-89. This Court further commented that the mere existence of multiple unconscionable provisions does not compel a finding of serious misconduct. Id. at 289. Instead, such a determination hinges upon "whether the number of provisions and the degree of unfairness support the inference that the employer was not seeking a bona fide mechanism for dispute resolution, but rather sought to impose a scheme that it knew or should have known would provide it with an impermissible advantage." Id. (remanding the case for a determination as to severability). In this case, the district court summarily concluded that the provisions imposing the two-day and five-day filing deadlines and requiring the parties to bear their own attorney's fees and costs "are not essential to the parties' agreement to arbitrate certain disputes" and were therefore severable. This conclusion was erroneous. Contrary to the district court's finding, Diamonds' actions appear to represent a deliberate effort to use its superior sophistication and bargaining position to impose upon Nino "an arbitration scheme designed to discourage [his] resort to arbitration or to produce results biased in [Diamonds'] favor." Parilla, 368 F.3d at 289; see also Graham Oil, 43 F.3d at 1249 ("[S]everance is inappropriate when the entire clause represents an 'integrated scheme to contravene public policy.'") (quoting E. Allan Farnsworth, Farnsworth on Contracts § 5.8, at 70 (1990)). Certainly, Diamonds either "knew or should have known" that the imposition of five-day and two-day filing deadlines would discourage - or altogether foreclose - its employees from asserting their rights in an arbitral forum, as these absurdly short deadlines effectively preclude an employee from contacting an attorney to discuss the merits of any claim, much less to prepare a case. Compared with the 300 day filing-deadline for filing a charge with the EEOC, the five-day filing deadline is sixty times shorter, and the two-day deadline is one hundred and fifty times shorter. Indeed, the "degree of unfairness" of these deadlines - which, tellingly, Diamonds did not impose upon itself - "support[s] the inference that [Diamonds] was not seeking a bona fide mechanism for dispute resolution, but rather sought to impose a scheme that it knew or should have known would provide it with an impermissible advantage." Parilla, 368 F.3d at 289. Similarly, Diamonds' deliberate inclusion in the arbitration agreement of the requirement that employees pay their own attorney's fees and costs, regardless of victory, evinces its attempt "to impose an arbitration scheme designed to discourage [Nino's] resort to arbitration." Id. This is especially true given that Diamonds' salespersons were, at least initially, not well paid. See JA80 (Employment Contract, ¶ 1) (starting salary was $450/week plus commission of 1% to 7%). Finally, the provision permitting Diamonds to strike two arbitrators from a pool of four while allowing Nino to strike only one again evinces Nino's "deliberate attempt to produces results biased in [its] favor." Parilla, 368 F.3d at 289. Accordingly, as in Alexander, where this Court held "unconscionability permeates the agreement . . . and thoroughly taints it central purpose of requiring the arbitration of employment disputes," in this case the unconscionable provisions permeate the agreement and render it unenforceable. Alexander, 341 F.3d at 271; see also Plaskett, 243 F. Supp. 2d at 345 (concluding that provisions precluding an award of attorney's fees, imposing a 30-day filing deadline, and requiring confidentiality "strongly suggest[] a deliberate decision to use the employer's superior bargaining position to obtain an unfair advantage" and refusing to enforce agreement) (internal quotation marks and citation omitted). Although Nino did not offer evidence showing that he would be unable to split the cost of the arbitration, and therefore was unable to show that the fee- splitting provision in this case was unconscionable as applied to him, Diamonds' inclusion in the agreement of the fee-splitting provision provides additional evidence that Diamonds' intent in drafting the arbitration agreement was not to offer an alternative forum to resolve disputes but was to discourage its employees from asserting their rights altogether. The Supreme Court has acknowledged that "the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum." Green Tree Financial, 531 U.S. at 90. This Court has gone even further, observing that the mere inclusion in an arbitration agreement of a cost-splitting provision may deter employees from asserting their right to arbitration. See Parilla, 368 F.3d at 285 n.17 ("'When the cost-splitting provision is in the arbitration agreement, potential litigants who read the arbitration agreement will discover that they will be liable, potentially, for fees if they bring their claim in the arbitral forum and thus may be deterred from doing so.'") (quoting Spinetti, 324 F.3d at 217-18 n.2). While there is no evidence in this case of what the arbitrator's fees might be, in Alexander this Court discussed the plaintiffs' evidence that arbitrators charge anywhere from $800-$1,000 a day, and that was in 2003. 341 F.3d at 269. Similarly, in Spinetti this Court cited evidence that the arbitrator's filing fee alone in that case, which was also from 2003, was $4,250 and that a "mid-range" arbitrator in the plaintiff's region charged a minimum daily rate of $2,000. 324 F.3d at 217. Here, Nino was initially paid $450 per week with commission and only later received more substantial raises. Given the high costs of arbitration, which are well known, the relatively low salary Diamonds evidently paid its workers when they started, the fact that many arbitration complaints are brought by terminated employees who are often unemployed, at least temporarily, and the Supreme Court's and this Court's acknowledgement that large arbitration costs (or even their possibility) can preclude employees from effectively vindicating their rights in the arbitral forum, it is reasonable to infer that Diamonds' inclusion of the fee-splitting provision evinced a deliberate attempt to discourage its workers from asserting their right to arbitration. Like the arbitration agreement, the DI agreement acknowledging Nino's receipt of the policies and procedures manual supports the inference that Diamonds was trying to discourage its employees from asserting their rights, in any forum. The DI agreement states, "I further acknowledge . . . that the grievance procedures set forth in the employee handbook is my exclusive remedy for my employment- related disputes." Doc. 73, Ex. K, pg. 17. As discussed, the policies and procedures manual, however, contains a grievance procedure that differs from the one contained in the employment contract. Regardless of whether the policies and procedures manual in the record is the one given to Nino on October 6, 2000, or is a subsequently amended version, it was bound to confuse him and discourage his resort to arbitration as it contains even shorter filing deadlines than the arbitration agreement he signed on October 6, 2000, and the DI agreement fails to even mention that arbitration was available to employees. In fact, the policies and procedures manual strongly suggests that an employee has no recourse at all if the company denies the employee's grievance. See Doc.73, Ex. K, pg. 17 (stating that the managing director's decision is "final and binding" to all matters "other than termination or discharge," and that the President's decision is "binding and final" as to those matters). It is therefore reasonable to infer that Diamonds either knew or should have known that its employment contract, DI agreement, and policies and procedures manual would operate together to discourage employees from asserting their right to arbitration and would impermissibly stack the deck in its favor by confusing employees about what their rights were, imposing draconian filing deadlines, precluding employees from recovering their attorney's fees, requiring employees to pay half the costs of arbitration, informing employees that Diamonds would have more say in who the arbitrator was, and in suggesting that Diamonds could change the rules of the game at any time, without even providing any notice. CONCLUSION For the reasons discussed above, this Court should reverse the district court's grant of Diamonds' motion to dismiss Nino's complaint pursuant to the arbitration agreement and should remand this case for trial. Respectfully submitted, JAMES L. LEE Deputy General Counsel LORRAINE C. DAVIS Acting Associate General Counsel ________________________ /s/ ANNE NOEL OCCHIALINO Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Office of General Counsel 131 M St. NE, 5th Fl. Washington, D.C. 20507 (202) 663-4724 Annenoel.Occhialino@EEOC.gov CERTIFICATE OF COMPLIANCE I hereby certify that this brief complies with the type-volume requirements set forth in Federal Rules of Appellate Procedure Rule 32(a)(7)(B). This brief contains 6,215 words, from the Statement of Interest through the Conclusion, as determined by the Microsoft Word 2003 word processing program, with 14-point proportionally spaced type for text and 14-point proportionally spaced type for footnotes. The text of the E-Brief and all hard copies are identical. A virus check of the E-brief was performed using Symentac AntiVirus v. 6/14/2009 rev. 4. ________________________ /s/ ANNE NOEL OCCHIALINO Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Office of General Counsel 131 M St. NE, 5th Fl. Washington, D.C. 20507 (202) 663-4724 Annenoel.Occhialino@EEOC.gov CERTIFICATE OF SERVICE I hereby certify that one original and ten paper copies of the foregoing brief were sent this 15th day of June, 2009, by U.S. mail to the Clerk of this Court, and that one additional paper copy was sent to the clerk of the district court in St. Thomas. I further certify that one copy of the foregoing brief was sent by U.S. mail to the following counsel of record for Plaintiff- Appellant and Defendant-Appellee, respectively: Counsel for Plaintiff-Appellant Terri Griffiths 70C Lindbergh Bay, Ste. 134 St. Thomas, VI 00802 (340) 777-1510 Terri@Griffiths-Law.Com Counsel for Defendant-Appellee Treston E. Moore MOORE, DODSON & RUSSELL, P.C. 5035 (14A Norre Gade), Ste. 1 P.O. Box 310, E.G.S. St. Thomas, VI 00804-0310 (340) 777-5490 tresmoore@aol.com _________________________ /s/ ANNE NOEL OCCHIALINO Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION Office of General Counsel 131 M St. NE, 5th Fl. Washington, D.C. 20507 (202) 663-4724 Annenoel.Occhialino@EEOC.gov *********************************************************************** <> <1> The Commission expresses no opinion on any other issues presented in this appeal. <2> "JA" refers to the plaintiff-appellant's joint appendix. <3> The referenced "employee handbook" is evidently a reference to the policies and procedures manual, Doc. 73, Ex. K, as there is no other "employee handbook" in the record. <4> Of course, "[m]ere inequality in bargaining power . . . is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context." Gilmer, 500 U.S. at 33 (emphasis added); see Alexander, 341 F.3d at 265 ("A contract [ ] is 'not unconscionable merely because the parties to it are unequal in bargaining position.'") (quoting Restatement (Second) of Contracts § 208 cmt.d). Instead, to successfully challenge an arbitration agreement a party must show that is both procedurally and substantively unconscionable. Alexander, 341 F.3d at 265. <5> The deadlines contained in the "Dispute Resolution" section of Diamonds' policies and procedures manual contain even more draconian filing deadlines than those in the arbitration agreement: an employee is given just two days to file a complaint and then a grievance. Doc. 74, Ex. K, pg. 17. <6> Even if Diamonds offered to waive this provision, which it has not, "an after-the- fact offer to waive certain contract provisions can have no effect on" a determination as to unconscionability, which must be evaluated "[a]s of the time the contract was formed." Parilla v. IAP Worldwide Servs. VI, Inc., 368 F.3d 269, 285 (3d Cir. 2004). <7> Nino argued below that the requirement that he pay half of the arbitrator's fees was also substantively unconscionable, but the district court rejected this argument because he failed to offer any evidence showing what the fees might be or his inability to pay them. JA16; see Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 92 (2000) ("[Where] a party seeking to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs."). <8> Although not dispositive, we note that the arbitration agreement does not even contain a severability clause.