IN THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT No. 01-4415 MARY ANN SPINETTI, Plaintiff-Appellant, v. SERVICE CORPORATION INTERNATIONAL AND SERVICE CORPORATION INTERNATIONAL OF PENNSYLVANIA d/b/a LAFAYATTE MEMORIAL PARK, Defendant-Appellee. On Appeal from the United States District Court for the Western District of Pennsylvania Civil Action No. 01-1191 BRIEF OF THE U.S. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION AS AMICUS CURIAE IN SUPPORT OF THE APPELLANT NICHOLAS M. INZEO Acting Deputy General Counsel PHILIP B. SKLOVER Associate General Counsel LORRAINE C. DAVIS Assistant General Counsel SUSAN R. OXFORD Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION 1801 L Street, N.W. Washington, D.C. 20507 (202) 663-4791 TABLE OF CONTENTS page STATEMENT OF INTEREST . . . . . . . . . . . . . . . . . . 1 STATEMENT OF THE ISSUE . . . . . . . . . . . . . . . . . 2 STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . 2 SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . 6 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . 9 ARBITRATION PROVISIONS THAT IMPOSE PROHIBITIVE FORUM COSTS ON A FEDERAL STATUTORY CLAIMANT OR DEPRIVE INDIVIDUAL CLAIMANTS OF THE REMEDIAL PROTECTIONS OF A FEDERAL STATUTE ARE INVALID. . . . 9 The Court Below Correctly Held that the Cost-Sharing Provision in SCI's Arbitration Agreement is Invalid. . . . . . . . . . . . . . 9 The Court Below Also Correctly Held that the Limits in SCI's Arbitration Agreement on the Remedial Protections of the ADEA and Title VII are Unenforceable as a Matter of Law. . . . . . 13 THIS COURT SHOULD FOLLOW THE LEAD OF THE ELEVENTH CIRCUIT IN PEREZ V. GLOBE AIRPORT SECURITY SERVICES, INC. AND HOLD THAT WHERE AN ARBITRATION AGREEMENT IMPROPERLY STRIPS CLAIMANTS OF REMEDIAL PROTECTIONS AVAILABLE UNDER FEDERAL CIVIL RIGHTS STATUTES OR IMPOSES PROHIBITIVE FORUM COSTS, THE PROPER COURSE IS TO DENY ENFORCEMENT OF THE AGREEMENT, NOT TO ENFORCE THE AGREEMENT WITH THE OBJECTIONABLE PROVISIONS SEVERED. . . . . . . . . . . . . . . . . 16 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . 24 CERTIFICATE OF BAR MEMBERSHIP . . . . . . . . . . . . . . 25 CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . 26 CERTIFICATE OF COMPLIANCE . . . . . . . . . . . . . . . . 26 TABLE OF AUTHORITIES page CASES Armendariz v. Foundation Health Psychcare Servs., Inc., 6 P.3d 669 (Cal. 2000) . . . . . . . . . . . . . 20 Ball v. SFX Broadcasting, Inc., 165 F. Supp. 2d 230 (N.D.N.Y. 2001) . . . . . . . . . 12 Blair v. Scott Specialty Gases, 283 F.3d 595 (3d Cir. 2002) . . . . . . . . . 6, 7, 10, 12 Burden v. Check Into Cash of Kentucky, LLC, 267 F.3d 483 (6th Cir. 2001), cert. denied, 122 S. Ct. 1436 (2002) . . . . . . . . . 14 Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978) . . . . . . . . . . . . . . . . . 15 Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997) . . . . . . . . 10, 11, 12 Camacho v. Holiday Homes, Inc., 167 F. Supp. 2d 892 (W.D. Va. 2001) . . . . . . . . . . 12 EEOC v. L.B. Foster Company, 123 F.3d 746 (3d Cir. 1997) . . . . . . . . . . . . . . 15 Gannon v. Circuit City, 262 F.3d 677 (8th Cir. 2001) . . . 6, 20 Geiger v. Ryan's Family Steak Houses, Inc., 134 F. Supp. 2d 985 (S.D. Ind. 2001) . . . . . . . . . 12 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) . . . . . . . . . . . . . . . . 6, 7, 9 passim Graham Oil Co. v. Arco Prods. Co., 43 F.3d 1244 (9th Cir. 1995) . . . . . . . . . . 18, 19, 22 Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) . . . . . . . . . . . . . . . 4, 6, 10 passim Kolani v. Gluska, 75 Cal. Rptr. 2d 257 (Cal. Ct. App. 1998) . . . . . . . . . . . . . . . . . 21 Latona v. Aetna U.S. Healthcare Inc., 82 F. Supp. 2d 1089 (C.D. Cal. 1999) . . . . . . . . . 22 McCaskill v. SCI Management Corp., 285 F.3d 623 (7th Cir. 2002) . . . . . . . . . . . 5, 8, 15 passim Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985) . . . . . . . . . . . . . . . 5, 6, 7 passim Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054 (11th Cir. 1998) . . . . . . . . . 11, 12, 19 Perez v. Globe Airport Security Services Inc., 253 F.3d 1280 (11th Cir.), reh'g and reh'g en banc denied, 273 F.3d 1118 (11th Cir. 2001) . . 14, 16, 17 passim Rodriguez v. Taylor, 569 F.2d 1231 (3d Cir. 1977) . . . . . 15 Shankle v. B-G Maint. Mgmt. of Colorado, Inc., 163 F.3d 1230 (10th Cir. 1999) . . . . . . . . . 11, 12, 18 Sosa v. Paulos, 924 P.2d 357 (Utah 1996) . . . . . . . . . . 22 STATUTES Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq. . . . . . . . . . . . . . . . 1 Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e et seq. . . . . . . . . . . . . . . 1 COURT RULES F.R.A.P. 29(a) . . . . . . . . . . . . . . . . . . . . . 2 MISCELLANEOUS E. Allan Farnsworth, Farnsworth on Contracts (1990) . . . . 19 Robert A. Gorman, The Gilmer Decision and the Private Arbitration of Public-Law Disputes, 1995 U. ILL. L. REV. 635 . . . . . . . . . . . . . . . 12 STATEMENT OF INTEREST The U.S. Equal Employment Opportunity Commission (“Commission”) is the agency established by Congress to administer, interpret and enforce the Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq. (“ADEA”), Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e et seq. (“Title VII”), and other federal anti-discrimination statutes. In this case, the plaintiff brought suit in federal court, alleging claims under the ADEA and Title VII. The defendant moved to dismiss the plaintiff's suit, arguing that the plaintiff was required to arbitrate her federal claims pursuant to a pre-dispute arbitration agreement imposed by the defendant. The agreement required the plaintiff to pay half of the cost of arbitration and provided that plaintiff was responsible for her own attorney's fees, even if she prevailed. This case presents the question of whether an arbitration clause in an employment agreement, which requires resolution of discrimination claims in an arbitral forum but truncates important substantive rights provided by federal law and imposes significant and prohibitive forum fees, should be enforced. For the reasons discussed below, the Commission believes that enforcement of such an agreement would frustrate Congressional intent to provide particular substantive protections and rights for victims of employment discrimination. To assist the Court in resolving the important issues raised by this appeal, the Commission, pursuant to F.R.A.P. 29(a), offers its views to the Court as amicus curiae. STATEMENT OF THE ISSUE Whether the district court erred in severing unenforceable provisions in an arbitration agreement and enforcing the remainder of the agreement, even though the parties did not include a severability provision in their contract, where enforcement of the agreement, even with the invalid provisions excised, would undermine important federal policies underlying enforcement of federal statutory civil rights. STATEMENT OF THE CASE 1. Mary Ann Spinetti filed suit against her former employers, Service Corporation International, et al. (collectively “SCI”), alleging that she was fired because of discrimination based on her age and gender, and asserting claims under the ADEA and Title VII. See R.9 (Slip op. in Spinetti v. Service Corp. Int'l, Civil No. 01-1191 (W.D. Pa. Nov. 15, 2001) at 1-2.<1> SCI sought to compel Spinetti to arbitrate these claims pursuant to a clause in the “Principles of Employment” (“Agreement”), a document Spinetti signed during her employment. R.4. The “Principles of Employment” contains a clause stating that employment-related disputes, including discrimination claims, will be resolved by arbitration. R.9, slip op. at 2. The Agreement further provides, with respect to the recovery of attorney's fees: “Each party ... shall pay its own costs and attorneys' fees, regardless of the outcome of the arbitration.” With respect to the costs of conducting the arbitration, the Agreement provides: “Each party shall pay one-half of the compensation to be paid to the arbitrator(s), as well as one-half of any other costs relating to the administration of the arbitration proceeding (e.g., room rental, court reporter, etc.).” Ibid. In its motion to compel arbitration and dismiss the complaint, SCI claimed that if Spinetti prevailed in the arbitration, SCI would not assert the requirement that each party pay its own attorney's fees. Id. at 11 n.8. The “Principles of Employment,” however, expressly prohibits the parties from making any unilateral or oral modifications to its terms,<2> and the parties never executed any written agreement to modify any of the arbitration provisions. Spinetti opposed SCI's motion, arguing that the arbitration agreement was invalid because the requirement that she pay half the costs of arbitration imposed a prohibitive expense and because the provision that barred her from recovering attorney's fees if she prevailed deprived her of a statutory right. Id. at 3. Spinetti further argued that, since the Agreement expressly prohibited oral modifications, SCI's belated offer to waive the bar against recovery of attorney's fees did not alter the agreement's invalidity. See R.7 (Plaintiff's Brief in Opposition to Defendants' Motion to Dismiss) at 15 n.10. 2. The district court agreed with Spinetti that the prohibition against attorney's fee awards and the cost-sharing requirements of the arbitration agreement were both invalid. Nevertheless, the court held that the agreement was enforceable with the objectionable provisions excised, and granted SCI's motion to dismiss and compel arbitration on that basis. Citing Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), the district court concluded that the party objecting to the payment of costs as prohibitive bears the burden of proof, based on the particular language pertaining to the payment of fees and costs, the actual anticipated costs and the claimant's financial situation. R.9 (slip op.) at 6. The court compared the costs that Spinetti would likely incur if she arbitrated her claims, id. at 7-8, with her current financial situation, id. at 8-9, and concluded that Spinetti had “adequately demonstrated that the costs associated with arbitrating her claims are prohibitive.” Id. at 10. Citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985), the court also invalidated the provision that bars recovery of statutorily-authorized attorney's fees and costs by a prevailing claimant in an arbitration conducted under the “Principles of Employment.” After noting that Title VII and the ADEA permit a court to award attorney's fees and costs to a prevailing party, the court “agree[d] with Spinetti that the Agreement truncates these statutorily granted rights.” R.9 (slip op.) at 10. The court rejected SCI's argument that the attorney's fee provision was essentially overridden by Paragraph 4 in “Exhibit ‘A' Arbitration Procedures,” which calls for the application of Pennsylvania and federal laws. The court concluded that SCI's “strained” interpretation ignored “very clear language set forth elsewhere [in the Agreement] which states that ‘[i]n the event of any inconsistency between this Agreement and the statutes, rules or regulations to be applied pursuant to this paragraph, the terms of this Agreement shall apply.'” Id. at 10-11.<3> Although the Agreement contains no severability clause and expressly prohibits modifications absent a written agreement signed by both parties, the court severed the invalid provisions and enforced the remaining terms. Id. at 12-13 (citing Gannon v. Circuit City Stores, Inc., 262 F.3d 677, 680-81 (8th Cir. 2001)). This appeal followed. R.10. SUMMARY OF ARGUMENT As this Court recently noted in Blair v. Scott Specialty Gases, 283 F.3d 595, 605 (3d Cir. 2002), the Supreme Court has made it clear that arbitration of federal statutory claims is only appropriate “‘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.'” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991) (alteration in original) (quoting Mitsubishi, 473 U.S. at 637). As this Court further noted in Blair, the Supreme Court's decision in Green Tree Financial Corp., recognized that “the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum.” 531 U.S. at 90. Similarly, the prohibition against a claimant's recovery of any of the relief specified in the statute, including attorney's fees, undermines the remedial and deterrent effects of federal statutory rights. See Gilmer, 500 U.S. at 26 (arbitration agreement must not require a party to “‘forego the substantive rights afforded by the statute'”)(quoting Mitsubishi, 473 U.S. at 628). Although the court below rendered its decision before this Court decided Blair, the district court correctly anticipated this Court's ruling that questions concerning whether a particular arbitration agreement imposes prohibitive costs on a claimant must be examined by the court before determining whether to compel arbitration. In light of the substantial evidence Spinetti presented on the significant costs of arbitrating a dispute under SCI's “Principles of Employment” and her inability to pay such costs, R.9 (slip op.) at 7-10, the district court correctly held the Agreement's cost-sharing provision invalid. Likewise, the court below correctly found invalid the provision barring an award of attorney's fees to a prevailing employee. The court erred, however, in enforcing the Agreement with those two provisions excised, an issue not presented to this Court in Blair. Provisions in an arbitration agreement that impose significant forum costs on a claimant and/or limit available relief are likely to deter employees from pursuing discrimination claims, as well as undermine procedural due process and contravene public policy. If agreements that contain invalid provisions like these are given effect under a severance theory, employers who are inclined to skirt the law will have little incentive to draft valid agreements. To ensure that employers draft arbitration agreements that comport with the standards established by the Supreme Court, agreements containing invalid cost-sharing provisions or unlawful limitations on statutory remedies should be held unenforceable in their entirety. This argument is particularly compelling here, where SCI's arbitration agreement contained no severability clause and specified that none of its provisions could be modified except by written agreement signed by both the employee and the company. The Court of Appeals for the Seventh Circuit recently held that SCI's arbitration agreement is invalid and unenforceable based on the clause that requires each party to bear its own attorney's fees. McCaskill v. SCI Management Corp., 285 F.3d 623 (7th Cir. 2002). The court concluded that this provision amounted to a “forfeit” of the plaintiff's statutory right to an award of fees if she prevailed, a remedy that the Seventh Circuit recognized as “essential to fulfill the remedial and deterrent functions of Title VII.” Id. at 627. The court stated: “Because the provision prevents her from effectively vindicating her rights in the arbitral forum by preemptively denying her remedies authorized by Title VII, the arbitration agreement is unenforceable.” Ibid. ARGUMENT ARBITRATION PROVISIONS THAT IMPOSE PROHIBITIVE FORUM COSTS ON A FEDERAL STATUTORY CLAIMANT OR DEPRIVE INDIVIDUAL CLAIMANTS OF THE REMEDIAL PROTECTIONS OF A FEDERAL STATUTE ARE INVALID. The Court Below Correctly Held that the Cost-Sharing Provision in SCI's Arbitration Agreement is Invalid. The court below correctly determined that SCI cannot require its employees to incur prohibitive forum costs in an arbitral forum in order to pursue a federal statutory claim of employment discrimination. The court, furthermore, correctly recognized that the question of whether the costs imposed in a particular arbitration agreement are valid or invalid must be determined before a court decides an employer's motion to compel arbitration. The court correctly determined that in this instance the cost-sharing provision in SCI's “Principles of Employment,” which requires employees to incur thousands of dollars in forum fees in order to pursue a claim in arbitration, violates the standards established by the Supreme Court for employer-imposed arbitration of federal statutory claims. In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the Supreme Court ruled that an individual can be required to arbitrate a claim of discrimination under the federal Age Discrimination in Employment Act provided the arbitration agreement does not require the federal claimant to “‘forgo the substantive rights afforded by the statute.'” Id. at 26 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)). The Court emphasized that mandatory arbitration of federal statutory claims is permissible only if “‘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.'” 500 U.S. at 28 (quoting Mitsubishi, 473 U.S. at 637). Gilmer thus establishes that there are limitations in federal law on the use of arbitration procedures imposed by employers in pre-dispute agreements with employees. One such limitation, which the Court recognized in Green Tree, is that “the existence of large arbitration costs could preclude a litigant ... from effectively vindicating her federal statutory rights in the arbitral forum.” Blair, 283 F.3d at 605, quoting Green Tree, 531 U.S. at 90. As this Court noted in Blair, a number of courts of appeals had expressed concern about cost-sharing arrangements, even before the Supreme Court's decision in Green Tree. In Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997), for instance, the D.C. Circuit ruled that an employer may not require an employee to accept an arbitration agreement “that requires the employee to submit his or her statutory claims to arbitration and then requires the employee to pay all or part of the arbitrators' fees.” Id. at 1483. The D.C. Circuit reasoned that employees “seeking to vindicate statutory rights” should not be required to “pay for the services of an arbitrator when they would never be required to pay for a judge in court.” Id. at 1484 (citing Gilmer). Similarly, in Shankle v. B-G Maint. Mgmt. of Colorado, Inc., 163 F.3d 1230, 1233 (10th Cir. 1999), the Tenth Circuit ruled that a “mandatory arbitration agreement” that “requires an employee to pay a portion of the arbitrator's fees, [is] unenforceable.” The court stressed that such an agreement “undermines the remedial and deterrent functions of the federal anti-discrimination laws,” imposing a “prohibitive cost” on the exercise of statutory rights. Id. at 1235. Likewise, in Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1062 (11th Cir. 1998) (Cox, J., & Tjoflat, J., concurring), the Eleventh Circuit opined that a pre-dispute agreement imposed by an employer is unenforceable where the agreement makes the claimant liable for a portion of the sometimes “hefty cost of an arbitration.” The rationale of these decisions, rooted in the Supreme Court's own pre-Green Tree precedent, is succinctly summarized in Cole: a “‘federal court, before enforcing an employer's demand for arbitration under an employment contract, may -- indeed, must -- scrutinize the agreed-upon or contemplated arbitration system'” to ensure that the system provides “substantive protection[s] and access to a neutral forum in which to enforce those protections.” Cole, 105 F.3d at 1482-83 (quoting Robert A. Gorman, The Gilmer Decision and the Private Arbitration of Public-Law Disputes, 1995 U. Ill. L. Rev. 635, 645)). Not surprisingly, the post-Green Tree decisions follow a similar path. Relying on Green Tree, courts have struck down arbitration agreements that require a statutory claimant to pay a portion of the arbitrator's fees. See, e.g., Camacho v. Holiday Homes, Inc., 167 F. Supp. 2d 892, 895-97 (W.D. Va. 2001); Ball v. SFX Broadcasting, Inc., 165 F. Supp. 2d 230, 238-40 (N.D.N.Y. 2001); cf. Geiger v. Ryan's Family Steak Houses, Inc., 134 F. Supp. 2d 985, 996-97 (S.D. Ind. 2001) (relying on Cole, Shankle, and Paladino). A possible by-product of an arbitration agreement like the one at issue in this case, which requires an employee to pay half the costs of arbitration, is that some individuals will be dissuaded from asserting their statutory claims. The agreement denies access to a judicial forum and then, by its terms, exposes claimants to liability for what the court below found, in this instance, to be substantial arbitral forum fees. Many putative claimants (and their attorneys), faced with this potential liability, will simply give up the fight and not pursue an otherwise viable claim. As the Supreme Court's decision in Green Tree suggests, and as this Court concluded in Blair, it is not enough that a fee award might be corrected in a post-arbitration review proceeding. To ensure that civil rights claimants are not dissuaded from pursuing their claims as an initial matter, the deterrent effect of a cost-sharing provision must be addressed at the outset. The court below properly considered the validity of the cost-sharing provision in the arbitration agreement contained in SCI's “Principles of Employment” before determining whether to grant SCI's motion to compel arbitration, and properly found that Spinetti had established that the cost-sharing provision was invalid in this instance. The Court Below Also Correctly Held that the Limits in SCI's Arbitration Agreement on the Remedial Protections of the ADEA and Title VII are Unenforceable as a Matter of Law. The court below also correctly determined that SCI cannot require its employees to arbitrate their claims under an agreement that deprives them of statutory remedies to which they would otherwise be entitled. The court correctly recognized that the question of whether a particular arbitration agreement unlawfully limits statutory remedies, like the question of whether the costs imposed in a particular arbitration agreement are valid or invalid, must be determined before a court decides an employer's motion to compel arbitration. The prohibition in the “Principles of Employment” against an award of attorney's fees to a prevailing claimant is unenforceable as a matter of law, as the lower court properly found. In Gilmer, the Court made it clear that “[b]y agreeing to arbitrate a statutory claim, a party does not forego the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.” 500 U.S. at 26 (citing Mitsubishi, 473 U.S. at 628). Thus, an arbitration requirement cannot be imposed on an employee in such a way that it undermines the ability of a prospective litigant to “‘vindicate [his or her] statutory cause of action in the arbitral forum.'” Gilmer, 500 U.S. at 28 (citing Mitsubishi, 473 U.S. at 637). Courts have continued to emphasize that, under the Gilmer and Green Tree line of cases, an arbitration agreement should not be enforced, in the first instance, if it proscribes “statutorily available remedies.” E.g., Perez v. Globe Airport Sec. Servs. Inc., 253 F.3d 1280, 1284-86 (11th Cir.), reh'g and reh'g en banc denied, 273 F.3d 1118 (11th Cir. 2001); see also Burden v. Check Into Cash of Kentucky, LLC, 267 F.3d 483, 492-93 (6th Cir. 2001), cert. denied, 122 S. Ct. 1436 (2002)(claims that arbitration in a specific case “would impose burdensome costs [or] deny statutory rights ... attack the enforceability of the arbitration clause itself, separate from the underlying [agreement]” and, thus, “should ordinarily be decided in the trial court before final resolution of a motion to compel arbitration”). SCI's arbitration agreement requires each party to “pay its own costs and attorneys' fees, regardless of the outcome of the arbitration.” This conflicts with the statutory remedies available under Title VII and the ADEA, which presumptively provide for an award of attorney's fees to a prevailing plaintiff as a matter of right. See Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 417 (1978) (prevailing plaintiff in a Title VII case “ordinarily is to be awarded attorney's fees in all but special circumstances”); EEOC v. L.B. Foster Company, 123 F.3d 746 (3d Cir. 1997)(same); Rodriguez v. Taylor, 569 F.2d 1231 (3d Cir. 1977)(attorney's fee provisions in Fair Labor Standards Act, which ADEA incorporates by reference, “have been construed to mandate awards to successful plaintiffs”) (citations omitted). As this Court noted in L.B. Foster, the award of attorney's fees to a prevailing plaintiff in a civil rights case encourages individuals to pursue private claims of employment discrimination and thereby “vindicate[s] ‘a policy that Congress considered of the highest priority.'” 123 F.3d at 750-51 (citing Christiansburg, 434 U.S. at 418); see also McCaskill v. SCI Management Corp., 285 F.3d 623, 626 (7th Cir. 2002) (right to attorney's fees is integral to purposes of Title VII “and often is central to the ability of persons to seek redress from violations of Title VII.”). The requirement in the “Principles of Employment” that each party bear its own attorney's fees and costs, which amounts to a bar against any award of attorney's fees to a claimant who prevails in arbitration, undermines the critical role that such an award is designed to play in the enforcement of federal workplace protections. The court below, relying on Mitsubishi for the principle that a party cannot be required to forego substantive statutory rights in arbitration, properly considered the validity of the attorney's fees provision before deciding whether to grant SCI's motion to compel arbitration, and properly held the provision to be invalid and unenforceable. See McCaskill, 285 F.3d at 626-27. THIS COURT SHOULD FOLLOW THE LEAD OF THE ELEVENTH CIRCUIT IN PEREZ V. GLOBE AIRPORT SECURITY SERVICES, INC. AND HOLD THAT WHERE AN ARBITRATION AGREEMENT IMPROPERLY STRIPS CLAIMANTS OF REMEDIAL PROTECTIONS AVAILABLE UNDER FEDERAL CIVIL RIGHTS STATUTES OR IMPOSES PROHIBITIVE FORUM COSTS, THE PROPER COURSE IS TO DENY ENFORCEMENT OF THE AGREEMENT, NOT TO ENFORCE THE AGREEMENT WITH THE OBJECTIONABLE PROVISIONS SEVERED. Although the court below properly ruled the cost-sharing and attorney's fee provisions invalid and unenforceable, the court erred when it granted SCI's motion to compel arbitration with the invalid provisions simply excised from the agreement. The court's action conflicted with the agreement's plain terms, which included no severability clause and expressly barred any modification of terms except by the written consent of both parties. Even more critically, such an action by the court undermines important federal public policies. The Seventh Circuit, in McCaskill v. SCI, recently held that SCI's arbitration agreement was unenforceable in its entirety on the grounds that the attorney's fee clause deprives a plaintiff of an important Title VII remedy.<4> This Court should follow the lead of the Seventh Circuit in McCaskill and the Eleventh Circuit in Perez v. Globe Airport Security Services, Inc. and reverse the district court's decision to enforce the arbitration agreement as modified. In Perez, the court held that an arbitration agreement was unenforceable with respect to the plaintiff's Title VII claim because the agreement contravened Title VII's remedial provisions by requiring “equal sharing of fees and costs of arbitration despite the award of fees permitted a prevailing party by Title VII.” 253 F.3d at 1285-86. The court rejected the employer's request that the court “reform the agreement by severing the costs and fees provision and enforcing the remainder.” Id. at 1287. The court stressed that “[t]o sever the costs and fees provision and force the employee to arbitrate a Title VII claim despite the employer's attempt to limit the remedies available would reward the employer for its actions and fail to deter similar conduct by others.” Id. As the court put the matter: If an employer could rely on the courts to sever an unlawful provision and compel the employee to arbitrate, the employer would have an incentive to include unlawful provisions in its arbitration agreements. Such provisions could deter an unknowledgeable employee from initiating arbitration, even if they would ultimately not be enforced. It would also add an expensive procedural step to prosecuting a claim; the employee would have to request a court to declare a provision unlawful and sever it before initiating arbitration. Including an unlawful provision would cost the employer little . . . . Id. The Perez approach is consistent with the general reluctance of courts to employ the severance remedy when a provision in an arbitration agreement offends public policy. In Shankle v. B-G Maint. Mgmt. of Colorado, for example, the Tenth Circuit was confronted with an arbitration agreement that impermissibly shifted a portion of the arbitrator's fees to the statutory claimant. The court ruled that the fee-shifting provision was impermissible because it undermined “the remedial and deterrent functions of the federal anti-discrimination laws.” 163 F.3d at 1235. The court rejected the employer's invitation to “‘redline' the fee-splitting provision and compel arbitration.” Id. n.6. The court cited the general principle that a court “‘is without authority to alter or amend contract terms and provisions absent an ambiguity in the contract.'” Id. In the court's view, because the defect in the agreement was plainly apparent on the face of the agreement, the court was “not at liberty” to rewrite the agreement in a way that would render the agreement lawful. Id. Similarly, in Graham Oil Co. v. Arco Prods. Co., 43 F.3d 1244 (9th Cir. 1995), the Ninth Circuit declined to exercise the severance option when confronted with an arbitration agreement that precluded an award of punitive damages with respect to a federal statutory claim for which such damages were available. The court stressed that the company had attempted to use the arbitration agreement as a way of achieving the “unlawful end” of limiting the damages to which the claimant was statutorily-entitled. Id. at 1249. The court opined that such a “blatant misuse of the arbitration procedure” tended “to taint the entire [arbitration] clause.” Id. Severance was inappropriate, the court concluded, because the arbitration clause represented an “‘integrated scheme to contravene public policy.'” Id. (quoting E. Allan Farnsworth, Farnsworth on Contracts § 5.8, at 70 (1990)). In McCaskill v. SCI, the Seventh Circuit relied on Graham in holding SCI's arbitration agreement unenforceable based on the requirement that each party bear its own attorney's fees and costs. 285 F.3d at 627. The court did not address the severance issue at length, noting only that “SCI conceded at oral argument that if we construe the arbitration agreement as not allowing the arbitrator to award attorney's fees, then the agreement deprives the plaintiff of remedies under Title VII and is unenforceable.” Id. at 626. Other courts have also taken the same approach as Graham. See, e.g., Paladino, 134 F.3d at 1062 (proper course when confronted with an arbitration clause that “defeats the statute's remedial purposes” is to deny enforcement of the agreement); Armendariz v. Foundation Health Psychcare Servs., Inc., 6 P.3d 669, 695-99 & n.13 (Cal. 2000) (fact that arbitration agreement contains more than one unlawful provision weighs against severance; in particular, severance is “disfavored” in cases in which an arbitration agreement “limit[s] damages to be obtained from challenging the violation of unwaivable statutory rights” because “employer will not be deterred from routinely inserting such a deliberately illegal clause into the arbitration agreements 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”).<5> The reason for this judicial reluctance to invoke the severance remedy is explained by the two public policy concerns implicated in cases of this nature. One public policy concern is that the agreement not impose prohibitive forum costs and not limit the damages to which the statutory claimant is entitled. That concern can arguably be addressed by the severance remedy; the agreement is purged of the invalid provision(s) and enforced as modified. There is, however, a second public policy concern that cannot be assuaged by the severance remedy. As discussed above, there is a substantial risk that if an employer is able to secure enforcement of an otherwise invalid agreement, by having the objectionable provision modified or removed, the employer will have an incentive to overreach. The employer can impose onerous remedial restrictions in an arbitration agreement. The employer can do so knowing that the worst case scenario is that the agreement will be enforced with the restrictions removed. The restrictions may well deter some putative claimants from coming forward, thereby achieving an enforcement deficit in that workplace with little or no cost to the employer. See generally Kolani v. Gluska, 75 Cal. Rptr. 2d 257, 260 (Cal. Ct. App. 1998) (refusing to allow an employer “to retreat to a narrow, lawful construction [of an employment agreement] in the event of litigation;” under that approach, “[e]mployers would have no disincentive to use . . . broad, illegal clauses” and many employees “would honor those clauses without consulting counsel or challenging the clause in court, thus directly undermining . . . statutory policy”). Viewed in this light, severance becomes part of the problem rather than the solution. In effect, severance works hand in glove with the invalid provision itself to deal a potentially serious blow to the enforcement of the anti-discrimination statutes. Some employees will be deterred from pursuing their statutory claims; those employees who are not deterred will be required to incur the cost of bringing a court action to have the invalid provision purged from the agreement. Imposing such an additional procedural burden on the statutory claimant is not only unfair to the claimant but is inconsistent with the Federal Arbitration Act itself, which is designed to trade the “‘procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.'” Gilmer, 500 U.S. at 31. This is precisely the type of case in which there is an “‘integrated scheme to contravene public policy,'” thus foreclosing the severance remedy. Graham Oil, 43 F.3d at 1249. Indeed, in cases of this nature, the severance remedy itself becomes a part of that integrated scheme to contravene public policy.<6> An employer could avoid this entire controversy by simply saying in the agreement that a prevailing claimant is entitled to the same relief that would have been available had the matter been heard in court and is obligated to pay only those forum costs that would be comparable to an action in court. Where an employer does not do so, but instead crafts an agreement that truncates remedies otherwise available to an employee under civil rights laws and imposes potentially prohibitive forum costs on the claimant, severance does not further the goals of the Federal Arbitration Act; it encourages expensive and time-consuming litigation concerning the validity of the employer's agreement. CONCLUSION Arbitration agreements cannot undermine the remedial protections of a federal statute such as Title VII or the ADEA. Provisions that impose prohibitive forum fees on a complainant or preclude an award of attorney's fees to a prevailing complainant are clearly the types of provisions that undermine federal civil rights protections, and the court below properly found those provisions to be invalid and unenforceable. The lower court erred, however, in enforcing the agreement with the invalid provisions excised. This Court should follow the lead of the Eleventh Circuit in Perez and hold, instead, that where an arbitration agreement improperly imposes cost barriers or strips claimants of the remedial protections of civil rights statutes, the proper course is to deny enforcement of the agreement, not to enforce the agreement with the objectionable provision severed. This is especially true where, as here, the agreement contains no severability clause and expressly provides that it can be modified only by written consent of the parties. Respectfully Submitted, NICHOLAS M. INZEO Acting Deputy General Counsel PHILIP B. SKLOVER Associate General Counsel LORRAINE C. DAVIS Assistant General Counsel SUSAN R. OXFORD Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION 1801 L Street, N.W. Washington, D.C. 20507 (202) 663-4791 June 3, 2002 CERTIFICATE OF BAR MEMBERSHIP I certify that I am a member of the Bar of the U.S. Court of Appeals for the Third Circuit. Susan R. Oxford June 3, 2002 CERTIFICATE OF SERVICE I, Susan R. Oxford, hereby certify that on this 3rd day of June, 2002, two copies of the attached brief were sent by first-class mail, postage prepaid, to each of the following counsel of record: Samuel J. Cordes, Esq. OGG, CORDES, MURPHY & IGNELZI 245 Fort Pitt Boulevard Pittsburgh, PA 15222 Richard J. Antonelli, Esq. LITTLER MENDELSON, P.C. Dominion Tower 625 Liberty Avenue, 26th Floor Pittsburgh, PA 15227 Susan R. Oxford June 3, 2002 CERTIFICATE OF COMPLIANCE I, Susan R. Oxford, hereby certify that this brief complies with the type-volume limitations imposed under F.R.A.P. 32(a)(7)(B)(i) and F.R.A.P. 29(d). The brief contains 5527 words. Susan R. Oxford 1 Citations to the record refer to the district court docket entries and are abbreviated “R.” followed by the district court's docket number. 2 Under a subheading entitled “Modifications,” the “Principles of Employment” provides: “Neither employee's at-will status nor any of the above provisions pertaining to arbitration may be modified except by a written agreement signed by both employee and the company.” R.8, Ex.2 [emphasis added]. 3 SCI offered a different argument in defending the same provision before the Court of Appeals for the Seventh Circuit. There, SCI argued that the attorney's fee provision “regulates only what [the employee] is responsible for paying, not what she may be awarded, and thus it is possible for an arbitrator to award her attorneys' fees consistent with the arbitration agreement, as long as she uses that award to pay her attorneys.” McCaskill v. SCI Management Corp., 285 F.3d 623, 626 (7th Cir. 2002). The Seventh Circuit rejected this interpretation of the SCI agreement, saying that it “defies the plain meaning of the words.” Id. 4 Because the court found the Agreement unenforceable based on the invalidity of this one provision, it did not address the plaintiff's argument that the Agreement was also invalid and unenforceable based on the cost-sharing provision. See McCaskill, 285 F.3d at 624. 5 In Gannon v. Circuit City, 262 F.3d 677 (8th Cir. 2001), a divided panel of the Eighth Circuit deployed the severance remedy in a case involving a punitive damages limitation in Circuit City's arbitration agreement. Id. at 679-83. In that case, however, the court mistakenly ignored the significant federal interest in ensuring that arbitration agreements do not have the effect of deterring the exercise of protected rights under statutes such as Title VII. As the dissenting judge pointed out, “Circuit City's counsel conceded at oral argument that job applicants are not told that the punitive damages limitation is far less than the amount recoverable under the law,” id. at 683 (Vietor, J., dissenting), raising the possibility that some uninformed claimants, confronted with the limitation, will be deterred from going forward on their claims. The dissent, in our view, had the better of the argument: “An attempt by the employer to defeat the remedial purpose of Title VII taints the entire agreement, making it unenforceable.” Id. at 684 (citing Perez, 253 F.3d at 1287). 6 While a severability clause informs the court's decision on the severance issue, it may not necessarily be determinative. A court is not bound by a severability clause where the clause itself contravenes public policy by encouraging a party in a “stronger bargaining position” to “overreach,” safe in the knowledge that, at worst, the agreement will be enforced with the objectionable provision excised. Sosa v. Paulos, 924 P.2d 357, 364 (Utah 1996); see also Latona v. Aetna U.S. Healthcare Inc., 82 F. Supp. 2d 1089, 1097 (C.D. Cal. 1999). In the employment context, courts need to examine the impact of any invalid provision(s) on the entire arbitration agreement and consider the potential adverse effects that severance might have on the preservation of rights and remedies guaranteed by civil rights statutes. Thus, although the Commission's argument is bolstered by the absence of a severability provision, it does not hinge on the presence or absence of such a clause.