Lewis v. Circuit City Stores, Inc.

                                                                         F IL E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit

                                                                         August 31, 2007
                                      PU BL ISH
                                                                       Elisabeth A. Shumaker
                                                                           Clerk of Court
                    U N IT E D ST A T E S C O U R T O F A P PE A L S

                                 T E N T H C IR C U IT



 M ICH AEL J. LEW IS,

       Plaintiff-Appellant,

 v.                                                        No. 05-3383

 CIR CUIT CITY STORES, IN C.,

       Defendant-Appellee.



                  A ppeal from the U nited States D istrict C ourt
                            for the D istrict of K ansas
                           (D .C . N o. 05-C V -4001-JA R )


David O. Alegria of M cCullough, W areheim & LaBunker, P.A., Topeka, Kansas,
for Plaintiff-Appellant.

Stephen Robert Clark (Kevin J. Breer with him on the brief), of Polsinelli Shalton
W elte Suelthaus, PC, St. Louis, M issouri, for Defendant-Appellee.


Before K E L L Y , E B E L, and G O R SU C H , Circuit Judges.


E B E L, Circuit Judge.


      Plaintiff-Appellant M ichael Lewis brought suit against his former

employer, Defendant-Appellee Circuit City, for wrongful termination, based on
alleged retaliation against Lewis for seeking workers’ compensation benefits, a

tort recognized by Kansas. However, Lewis has already arbitrated a claim of

retaliatory discharge against Circuit City, pursuant to an arbitration agreement he

signed with his employment application, and lost on the merits of that claim. Yet

Lewis now brings the very same claim of retaliatory discharge in court based on

the same incident and harm alleged in the arbitration proceeding against Circuit

City. Looking to well-settled law, we conclude that Lewis’s claim is barred by

claim preclusion. W e also hold that Lewis has waived his argument that the

arbitration agreement is invalid under contract law, because he proceeded through

arbitration without objecting to the agreement’s enforceability. In addition, we

conclude that Lewis’s argument that the arbitration decision violates public policy

has no merit. Finally, we conclude that sanctions are not appropriate in this case.

Accordingly, we AFFIRM the district court’s dismissal of Lewis’s suit on

summary judgment and DENY Circuit City’s motion for sanctions.


                                I. B A C K G R O U N D

Lewis’s Employment with Circuit City

      M ichael Lewis became a full-time employee of Circuit City in September

1996 as a “roadshop manager.” In February 1997, he injured his knee while

installing an automobile alarm, and sought medical treatment through a w orkers’

compensation claim. He states that over the years he has “continued to have

                                         -2-
problems” with his knee and, at various times, notified Circuit City of those

problems. Lewis informed his supervisor in writing in November 2002 that he

still had pain in his knee and requested to see a medical specialist, but allegedly

did not receive a response.

      Circuit City terminated Lewis on January 6, 2003. The parties dispute the

reason for Lewis’s termination. Lewis claims that after he requested additional

medical treatment in November 2002, his supervisor’s attitude toward Lewis

“becam e hostile and retaliatory,” and Lewis was disciplined and suspended. O n

those facts, Lewis claims that Circuit City wrongfully terminated him in

retaliation for filing a worker’s compensation claim.

      Circuit City states that it terminated Lewis because he violated the

company’s weapons policy, a violation brought to the company’s attention by

employee M ike Guerrero. 1 In early December 2002, Lewis had a “confrontation”

with Guerrero that resulted in Guerrero “walking off the job.” Guerrero then

called an employer-provided telephone hotline to complain about Lewis. His

complaint included allegations that Lewis had brought a gun to work and had

cleaned it at the work counter. W hen questioned, Lewis admitted that he had

brought a “pistol grip and slide” to work to repair it, and that he worked on it out




      1
       The following facts are adopted from the arbitrator’s decision and are
undisputed.

                                         -3-
of view of any customers. He said these were only “parts” of a handgun, not an

operable handgun, and therefore the weapons policy did not apply. However, four

members of Circuit City’s management review ed this information, decided that it

was a violation of the weapons policy, and concluded that termination was

warranted. 2


The Arbitration Agreement

      W hen Lewis applied for employment in 1996, his application included a

Dispute Resolution Agreement (the “arbitration agreement”) in which he agreed

to settle any claims arising out of his application process or any future

employment with Circuit City “exclusively by final and binding arbitration before

a neutral Arbitrator.” The agreement covered any claims

      arising under federal, state or local statutory or common law . . .
      includ[ing], but not limited to . . . Title VII of the Civil Rights Act of
      1964, as amended, . . . state discrimination statutes, state statutes and/or
      common law regulating employment termination, the law of contract or



      2
        Lewis also alleged during arbitration that Circuit City “made a deal” w ith
this Guerrero, who is Hispanic, to re-employ him after firing Lewis, arguing that
this constituted illegal preferential treatment by race under Title VII of the Civil
Rights Act. Circuit City said it rehired Guerrero because his complaint had been
substantiated, and because he had been employed only a short period of time
before the events at issue unfolded, and Circuit City wished to give him an
opportunity to “complete his training or demonstrate his abilities.”
       Although Lewis brought a Title VII claim in arbitration, this factual dispute
is of no import. Lewis did not bring a Title VII claim in his complaint in court.
His claim was only for the tort of retaliatory discharge as recognized by Kansas
comm on law. See infra.

                                          -4-
      the law of tort: including, but not limited to, claims for . . . wrongful
      discharge . . . and intentional/ negligent infliction of emotional distress
      or defamation. Statutory or common law claims alleging that Circuit
      City retaliated or discriminated against an Associate shall be subject to
      arbitration.

      The agreement contained a statement that signing the agreement was a

condition of being considered for employment by Circuit City, and that arbitration

would be conducted in accordance with the Circuit City Dispute Resolution Rules

and Procedures (the “arbitration procedures”). Lewis signed this statement. H e

does not dispute that he received notice of the procedures. The procedures

specified that although the substantive law of the state in which Lewis was

employed would apply to any claims raised in arbitration, decisions and awards

would be enforceable through the Federal Arbitration Act (“FAA”), 9 U.S.C. §§

1, et seq., and the Uniform Arbitration Act of Virginia, Va. Code Ann. § 8:01-

581.01, et seq.


Procedural History

      Lewis submitted an Arbitration Request Form in April 2003, identifying his

intended counsel as David Alegria. In this form, he claimed that he was fired

because he had informed his supervisor “that my knee had been hurt at work and I

needed medical attention.” He requested that his position be “restored with back

pay.” This form, which he signed, stated that he agreed “to accept the decision

and award of the Arbitrator as final and binding.” Lewis submitted another

                                         -5-
Arbitration Request Form in August 2003, which included more details about the

nature of his complaint, made specific claims under the K ansas Act Against

Discrimination, Kan. Stat. Ann. § 44-1001, et seq., and Title VII of the Civil

Rights Act, 42 U.S.C. § 2000e, et seq., and made a generalized claim for

retaliatory discharge under state law. 3   Lewis requested five years’ worth of

annual compensation (totaling $226,910), medical reimbursement, $500,000 for

emotional distress, unspecified punitive damages, and attorneys fees. This

request, prepared by Alegria, did not include the statement agreeing to accept the

decision and aw ard of the arbitrator.

      The arbitration hearing commenced February 25, 2004, and ended February

27, 2004. Pursuant to the procedures, a single arbitrator heard the matter. W hile

it is not clear what the full extent of discovery was, or the nature of the hearing,

the record includes a set of interrogatories completed by Lewis, several references




      3
          Lewis stated in the second Arbitration Request Form:

      U nder K ansas Public policy, a termination of employment for an
      em ployee’s efforts to exercise statutory rights under the Kansas
      Workers’ Compensation Act constitutes unlawful retaliation and entitles
      the terminated employee to actual and punitive damages. . . .
      I believe that Circuit C ity has committed an unlaw ful practice . . . in
      retaliation for my filing of a worker’s compensation claim under K.S.A.
      44-501 et seq. This also constitutes a violation of Title VII of the Civil
      Rights A ct.


                                           -6-
to witness testimony, an acknowledgment of evidence and post-hearing briefs, and

an apparently unsuccessful attempt to subpoena Guerrero for the hearing.

      The arbitrator issued a decision on April 30, 2004, that addressed Lew is’s

Title VII and retaliatory discharge claims. Specifically with respect to retaliatory

discharge, the arbitrator cited to Ortega v. IBP, Inc., 874 P.2d 1188, 1191, 1198

(Kan. 1994), which stated that Kansas courts recognize the tort in the context of

worker’s compensation filings and concluded that a plaintiff “must establish that

claim by a preponderance of the evidence, but the evidence must be clear and

convincing in nature.” Noting that “[n]umerous case decisions [from state and

federal Kansas courts] follow the burden-shifting requirements set forth in the

United States Supreme Court decision of M cDonnell Douglas Corp. v. Green[,

411 U.S. 792 (1973),] . . . for both claims of discrimination under the Civil Rights

Act of 1964, and retaliatory discharge claims,” the arbitrator proceeded to analyze

the facts of the case and concluded that Circuit City’s reason for termination was

not “mere pretext” for discrimination or retaliation. 4 The arbitrator ruled that

Circuit City was justified in terminating Lewis because it had interpreted the



      4
        M cDonnell Douglas permits a Title VII plaintiff to present a prima facie
case of discrimination based on circumstantial evidence, but eventually puts the
onus back on the plaintiff to prove discrimination. See 411 U.S. at 804-05. In
Ortega, the Kansas Supreme Court implied that the M cDonnell Douglas burden-
shifting approach applies in state law employment discrimination actions, but did
not expressly hold that it should be invoked in tort actions for retaliatory
discharge. 874 P.2d at 1197.

                                         -7-
weapons policy in good faith. The arbitrator noted that it was possible that

Circuit City’s management misapplied the policy, but relied on Sanchez v. Philip

M orris Inc., 992 F.2d 244, 247 (10th Cir. 1993), which states that “Title VII is not

violated by the exercise of erroneous or even illogical business judgment.”

Although Circuit City’s procedures permitted the arbitrator to shift the costs of

the arbitration from Circuit City to the claimant if he should lose, the arbitrator

declined to do so in Lewis’s case. 5

      In December 2004, Lewis – through the same counsel he used in arbitration

– filed suit against Circuit City in Kansas state court alleging “wrongful

termination based upon retaliation for exercising statutory rights under the Kansas

workers’ compensation Act.” Lewis stated that he “ha[d] exhausted his

arbitration remedies,” and contended that under Kansas law, “the tort of

retaliatory discharge is a non-negotiable right” inappropriate for resolution by

arbitration. Circuit City removed to federal court on the basis of diversity of



      5
         The procedures provide that the Circuit City employee initiating an
arbitration must pay a $75 fee, but can apply for a financial hardship w aiver,
which Lewis did. If the claimant wins, the filing fee is refunded to him, and the
arbitrator may require that Circuit City pay the claimant’s incidental costs.
However, in the event that Circuit City prevails, the arbitrator may require the
claimant to pay Circuit City’s arbitration costs. The employee’s share of
arbitration costs is capped at the higher of $500 or 3 percent of the employee’s
annual salary at Circuit City, which at Lewis’s asserted annual salary of $45,382
would be $1361.42.
       The arbitrator is authorized to award attorney’s fees “in accordance with
applicable law.”

                                         -8-
citizenship and amount in controversy pursuant to 28 U.S.C. § 1332. Circuit City

then filed a motion to dismiss, arguing that because Lewis agreed to final and

binding arbitration, he could not seek a “second bite at the apple” on the very

same claim in court. The district court converted Circuit City’s motion to a

motion for summary judgment, and, after the requisite briefing, granted the

motion. The court decided that Lewis had not alleged any of the narrow bases

permitted by the FAA for vacating or modifying an arbitration award, and that he

had missed the FAA deadline for filing such a suit by several months. The court

thus concluded that Lew is’s suit improperly sought to relitigate a claim after a

final judgment. Lewis v. Circuit City Stores, Inc., No. 05-4001-JAR (D. Kan.

Sept. 7, 2005). This timely appeal followed.


                                 II. D ISC U SSIO N

      W e have jurisdiction over this appeal as an appeal from a final decision of

a district court, 28 U.S.C. § 1291, and to the extent this is an appeal from a final

decision with respect to an arbitration that is subject to the FAA, we have

appellate jurisdiction under 9 U.S.C. § 16(a)(3). 6



      6
          It is clear that the FAA applies to Lewis’s arbitration agreement with
Circuit City. Section 2 of the FAA validates and enforces any “written provision
in . . . a contract evidencing a transaction involving comm erce to settle by
arbitration a controversy thereafter arising out of such contract or transaction.” 9
U.S.C. § 2. M oreover, the arbitration agreement itself provided that
                                                                        (continued...)

                                         -9-
      W e review “de novo . . . the district court's grant of summary judgment,

applying the same legal standard as the district court.” Elliott Indus. Ltd. P’ship

v. BP Am. Prod. Co., 407 F.3d 1091, 1106-1107 (10th Cir. 2005). “Summary

judgment is appropriate if the pleadings, depositions, answ ers to interrogatories,

and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to

judgment as a matter of law .” W olf v. Prudential Ins. Co., 50 F.3d 793, 796 (10th

Cir. 1995) (quotation omitted). “W hen applying the de novo standard of review

to the district court’s grant of summary judgment, we view the evidence and draw

all reasonable inferences therefrom in the light most favorable to the party

opposing summary judgment.” Elliott Indus., 407 F.3d at 1107 (quotation



      6
        (...continued)
enforceability of the agreement was to be governed by the FAA and the U niform
Arbitration Act of Virginia.
       Lewis argues that the FAA does not apply to employment relationships or
to jobs not related to interstate commerce. But the Supreme Court has determined
that the FAA applies to agreements to arbitrate employment disputes; indeed, the
Court specifically has done so with respect to a Circuit City arbitration agreement
with a sales counselor. Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).
The Court decided that the reference to “transaction” in Section 2 of the FAA is
broad enough to apply to employment contracts, and held that the exceptions to
FAA applicability at Section 1 of the A ct apply only to em ployees who work
directly in a channel of interstate commerce, such as the sea or railroad. Id. at
118. The Court so ruled without reference to a test for whether a particular
employee’s job was related to interstate commerce, consistent with its prior
holding that Section 2’s coverage of transactions “involving comm erce” is co-
extensive with the broad reach of the U.S. Constitution’s Commerce Clause.
Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 274 (1995).

                                        - 10 -
omitted). Because Lew is was the non-moving party, we view the evidence before

us in the light most favorable to him.


A . C onstruction of Lew is’s C omplaint

      Lew is’s complaint brings a claim for relief based on the tort of retaliatory

discharge, and Lewis consistently represented to the district court that this was

the nature of his claim. Therefore, we construe his cause of action as the common

law tort of retaliation for seeking workers’ compensation benefits, recognized by

Kansas courts as an exception to the employment-at-will doctrine. See Coleman

v. Safew ay Stores, Inc., 752 P.2d 645, 648-49 (Kan. 1988) (emphasizing “the tort

nature of the employee’s cause of action” and “the strong public policy of Kansas

underlying the W orkers’ Compensation Act”), disapproved of on other grounds by

Gonzalez-Centeno v. N. Cent. Kan. Reg’l Juvenile Det. Facility, 101 P.3d 1170,

1175 (Kan. 2004). W e observe that although Lewis alleges he was retaliated

against for “exercising his statutory rights under the K ansas workers’

compensation Act,” he provides no citation or argument that the Act itself

provides a cause of action for retaliatory discharge. 7



      7
        Lew is’s complaint also refers to Title VII in its factual allegations: “M r.
Lewis had opposed discrimination which is prohibited by Title VII of the Civil
Rights A ct as amended by refusing to extend preferential treatment to a Hispanic
employee.” This lone comment regarding Title VII and discrimination without
any reference to actions by Circuit City does not meet the standards of even our
                                                                         (continued...)

                                         - 11 -
      Lewis’s complaint does not mention the FAA or acknowledge the

arbitration agreement generally. Instead, Lewis insists that under Kansas law, he

has a legal right to his day in court, citing Coleman. Notably, Lewis does not

argue that his complaint is intended to seek review of the arbitration decision

under the limited grounds afforded by the FAA. 8    In fact, Lewis specifically

conceded before the district court that “[t]he admittedly narrow and strictly

limited standards of appeal of an arbitrator’s decision made an appeal . . . futile.”

Before us, Lewis does not appeal the district court’s conclusion that he did not

avail himself of review under the FAA, a petition that would have been untimely

anyw ay pursuant to the three-month deadline in 9 U.S.C. § 12. As such, we

construe this action purely as one seeking to litigate a claim of retaliatory

discharge under state tort law .


B. A pplicability of C laim Preclusion




      7
      (...continued)
most basic pleading requirements to state a claim under Title VII.
      8
         Section 10 of the FAA permits a district court to vacate an award where a
party asserts that the arbitration aw ard was the result of misconduct or a
significant procedural irregularity. See 9 U.S.C. § 10. Section 11 permits a court
to modify an award to correct a mistaken calculation or other factual error, or to
change its scope if the arbitration decision reached a matter not actually submitted
to arbitration. See 9 U.S.C. § 11. The Act, however, does not provide for
judicial review of the merits of an arbitrator’s decision.

                                        - 12 -
      “The doctrine of res judicata, or claim preclusion, will prevent a party from

relitigating a legal claim that was or could have been the subject of a previously

issued final judgment.” M ACTEC, Inc. v. Gorelick, 427 F.3d 821, 831 (10th Cir.

2005), cert. denied, 547 U.S. 1040 (2006). In deciding “the claim-preclusive

effect of a federal diversity judgment,” we generally “adopt the law that would be

applied by state courts in the State in which the federal diversity court sits.”

Hartsel Springs Ranch of Colo., Inc. v. Bluegreen Corp., 296 F.3d 982, 986 (10th

Cir. 2002) (quoting M atosantos Commercial Corp. v. Applebee’s Int’l, Inc., 245

F.3d 1203, 1208 (10th Cir. 2001)). The parties have not addressed the choice-of-

law provisions in the arbitration agreement, specifically whether Virginia’s or

Kansas’s doctrine of claim preclusion applies to enforcement of the arbitration

award. W e do not need to resolve this issue here because, under the law of either

jurisdiction, Lewis’s judicial claim against Circuit City seeking damages for

retaliatory discharge would be barred.

      There is no dispute that Lewis previously brought an action against the

same party, complaining of the same w rongful discharge based on pursuit of

worker’s compensation benefits, which resulted in a final arbitration decision on

the matter. Virginia’s doctrine of claim preclusion “prevents relitigation of the

same cause of action, or any part thereof which could have been litigated,

between the same parties and their privies.” Bill Greever Corp. v. Tazew ell Nat’l



                                         - 13 -
Bank, 504 S.E.2d 854, 856 (Va. 1998). Similarly, Kansas law prevents Lewis

from proceeding with his claim anew. “The doctrine of res judicata is a bar to a

second action upon the same claim, demand or cause of action.” In re Estate of

Reed, 693 P.2d 1156, 1160 (Kan. 1985). The fact that Lewis w as ambiguous as to

the legal source of his right of action for retaliatory discharge during arbitration

does not undermine our conclusion that he brought the same claim then as he does

now, particularly given that the arbitrator invoked Kansas law on the tort of

retaliatory discharge in deciding that Lewis has not met his burden of proving

retaliation.

       Furthermore, courts in both jurisdictions have applied claim preclusion to

litigation subsequent to final and valid arbitration awards. See, e.g., W aterfront

M arine Constr., Inc. v. N. End 49ers Sandbridge Bulkhead Groups A, B and C,

468 S.E.2d 894, 902 (Va. 1996); O’Keefe v. M errill Lynch & Co., 84 P.3d 613,

619 (K an. Ct. App. 2004). This court also has held that the doctrine applies to

arbitration decisions. See M ACTEC, 427 F.3d at 831 (“As for finality, a valid

and final award by arbitration generally has the same effect under the rules of res

judicata as a judgment of a court.”).




                                        - 14 -
      Lew is’s judicial claim against Circuit City seeking damages for retaliatory

discharge fits squarely within claim preclusion. 9 Although his arguments are

vague and unstructured, he apparently seeks to avoid claim preclusion through

two theories designed to undermine the finality of the arbitration decision: first,

that his arbitration agreement with Circuit City was never valid under contract

law; and second, that Kansas public policy prevents enforcement of the arbitration

award. W ith regard to the first argument, we determine that he has waived it by



      9
         Lewis argues that his retaliatory discharge tort claim is analogous to a 42
U.S.C. § 1983 or Title VII action, and contends that arbitration of such actions do
not generate a claim-preclusive effect that w ould preclude further litigation.
Indeed, the Supreme Court has held that where a city police officer files a
grievance against the city pursuant to a collective bargaining agreement and it is
arbitrated, claim preclusion does not apply to a subsequent § 1983 claim brought
in court. M cDonald v. City of W . Branch, 466 U.S. 284, 292 (1984). To the
extent the Supreme Court has permitted litigation of a Title VII claim after
arbitration, it has been under the same collective-bargaining context as
M cDonald. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 34-35
(1991) (discussing Alexander v. Gardner-Denver Co., 415 U.S. 36, 49-50 (1974)).
       But the Court has since limited M cDonald’s rule to arbitrations of
grievances regarding contractual rights in collective-bargaining agreements,
noting that in a collective-bargaining context, “the interests of the individual
employee may be subordinated to the collective interests of all employees in the
bargaining unit,” and hence an individual should have the opportunity to represent
his or her own interests in court. Gilmer, 500 U.S. at 35 (quoting Gardner-
Denver, 415 U.S. at 58 n.19). The Court also distinguished Gardner-Denver,
M cDonald and related cases as involving arbitration of contract-based claims, in
contrast to statutory claims, because the employees had never agreed to have an
arbitrator decide their individual statutory rights. Id.
       In contrast, Lewis’s arbitration agreement was not part of any union policy
or collective-bargaining agreement. Furthermore, Lewis’s arbitration agreement
with Circuit City was not limited to contractual disputes, but instead Lewis
broadly agreed to arbitrate any statutory or tort claims.

                                        - 15 -
proceeding w ithout objection through arbitration. W ith regard to the second, we

conclude that controlling precedent precludes the application of the public policy

exception to judicial enforcement of arbitration awards to the facts of this case.


C . Lew is’s A rgum ent that the A rbitration A greem ent is U nenforceable

      Lewis argued to the district court that his arbitration agreement with Circuit

City was unenforceable as a matter of basic contract law. He continues to press

this argument on appeal. W e conclude that Lewis waived this argument by

proceeding with arbitration without placing any objection clearly on the record

prior to or during the arbitration proceeding.

      Section 2 of the FAA provides that arbitration agreements “shall be valid,

irrevocable, and enforceable, save upon such grounds as exist at law or in equity

for the revocation of any contract.” 9 U.S.C. § 2. The Supreme Court has held

that state contract law can therefore invalidate such agreements “if that law arose

to govern issues concerning the validity, revocability, and enforceability of

contracts generally.” Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87

(1996) (quotation, emphasis omitted). “Thus, generally applicable contract

defenses, such as fraud, duress, or unconscionability, may be applied to invalidate

arbitration agreements without contravening § 2.” Id. at 687.

      The Supreme Court has observed that to the extent parties “forcefully

object[] to the arbitrators deciding their dispute,” they preserve their objection

                                        - 16 -
even if they follow through with arbitration. First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938, 946 (1995); accord Coady v. Ashcraft & Gerel, 223 F.3d 1,

9 n.10 (1st Cir. 2000) (finding no waiver when the party “consistently and

vigorously maintained its objection to the scope of arbitration”); China M inmetals

M aterials Imp. & Exp. Co., Ltd. v. Chi M ei Corp., 334 F.3d 274, 291-92 (3d Cir.

2003) (same).

      On the other hand, many courts have held that, absent an explicit statement

objecting to the arbitrability of the dispute, a party cannot “await the outcome and

then later argue that the arbitrator lacked authority to decide the matter.” AGCO

Corp. v. Anglin, 216 F.3d 589, 593 (7th Cir. 2000); see also Opals on Ice

Lingerie, Designs by Bernadette, Inc. v. Bodylines Inc., 320 F.3d 362, 368 (2d

Cir. 2003) (“[I]f a party participates in arbitration proceedings without making a

timely objection to the submission of the dispute to arbitration, that party may be

found to have waived its right to object to the arbitration.”); Slaney v. Int’l.

Amateur A thletic Fed’n, 244 F.3d 580, 591 (7th Cir. 2001) (“Slaney could not sit

back and allow the arbitration to go forw ard, and only after it was all done . . .

say: oh by the way, we never agreed to the arbitration clause. That is a tactic that

the law of arbitration, with its commitment to speed, will not tolerate.” (quotation

omitted)); Fortune, Alsw eet & Eldridge, Inc. v. Daniel, 724 F.2d 1355, 1357 (9th

Cir. 1983) (per curiam) (holding that “a party may not submit a claim to



                                         - 17 -
arbitration and then challenge the authority of the arbitrator to act after receiving

an unfavorable result” because it would “frustrate th[e] policy” behind

arbitration).

      W e have not published an opinion regarding whether a party’s failure to

raise a question of the enforceability of an arbitration agreement, followed by the

party’s participation in arbitration, effectively waives that party’s right to object

to arbitration. 1 0 However, in reviewing Supreme Court precedent and persuasive

authority from other circuits, it is clear that our usual rules regarding waiver and

estoppel apply to prevent a party from complaining about the enforceablity of an

arbitration agreement if he already has fully participated in arbitration without

any relevant objection. In particular, a rule of waiver is important to advance the

goals of arbitration as an efficient method of dispute resolution for which parties

may contract in advance. “It would be unreasonable and unjust to allow [a party]

to challenge the legitimacy of the arbitration process, in w hich he had voluntarily




      10
         W e did hold, in a recent unpublished opinion, that where a party
“vigorously participated in the arbitration,” he may waive any objection to
arbitration. Hicks v. Bank of Am., N.A., 218 Fed. Appx. 739, 746 (10th Cir. Feb.
21, 2007) (unpublished). W e also have held in the reverse situation – where a
party goes to trial rather than seeking to compel arbitration at the earliest
opportunity – that the party waives its right to compel arbitration after an
unfavorable court verdict. M etz v. M errill Lynch, Pierce, Fenner & Smith, Inc.,
39 F.3d 1482, 1490 (10th Cir. 1994).

                                         - 18 -
participated over a period of several months . . . .” Fortune, Alsweet & Eldridge,

724 F.2d at 1357.

      Lewis states that he objected to arbitration, that he “never had a choice to

opt out,” and that he “made it clear that he did not want to arbitrate.” 1 1 He points

to a blank dispute resolution agreement that he and his attorney allegedly refused

to sign. He also states that he followed through with arbitration “to comply with

defendant’s demands for arbitration and to exhaust such process.”

      But, importantly, at oral argument, Lewis conceded that he had not

expressly challenged the enforceability of the agreement during arbitration. The

record here reveals only a general complaint about having to arbitrate, and is

devoid of an objection to any legal aspect of the arbitration agreement or to the

enforceability of the agreement generally. A party’s bare statement that he does

not want to arbitrate a dispute is, of course, not a legal argument or objection, but

instead merely signals “buyer’s remorse” that he agreed at the outset to arbitrate

future disputes. Furthermore, the evidence belies Lewis’s claim that he “never




      11
         Lewis also references a letter from his attorney purporting to object to
arbitration, but the letter is not in the record before this court. “W here the record
is insufficient to permit review we must affirm.” Scott v. Hern, 216 F.3d 897,
912 (10th Cir. 2000). In any event, Lewis does not allege that the letter objected
to the validity or enforceability of the arbitration agreement under contract law, or
to the arbitrability of his claims generally.

                                         - 19 -
voluntarily agreed” to arbitrate his employment claims, because he twice

completed and signed arbitration request forms, the second time through counsel.

      Because Lewis never adequately objected in arbitration to the arbitrability

of his claims or raised a question as to the validity of the arbitration agreement,

he w aived his opportunity to do so and is estopped from raising such issues now . 1 2


D . L ew is’s A rgum ent T hat K ansas Public Policy P rohibits E nforcem ent of
the A rbitration A w ard

      “M indful of the strong federal policy favoring arbitration, a court may grant

a motion to vacate an arbitration award only in the limited circumstances provided




      12
         Although we do not base our decision on the merits of Lew is’s theory of
why the agreement was unenforceable, we observe that he has not alleged any
facts or developed an argument that could support a conclusion that the
arbitration agreement w as invalid under contract law.
       W e have invalidated illusory agreements to arbitrate, holding “that an
arbitration agreement allowing one party the unfettered right to alter the
arbitration agreement’s existence or its scope is illusory,” D umais v. Am. Golf
Corp., 299 F.3d 1216, 1219 (10th Cir. 2002), but Lewis does not explain how
Circuit City’s Agreement fits that pattern. Furthermore, Lew is cites no support
for his theory that form contracts – i.e. contracts drafted by only one party – are
per se invalid.
       W e have found unenforceable an arbitration agreement that imposed
prohibitively high costs on claimants, since high fees may deter claimants from
pursuing their statutory rights. Shankle v. B-G M aint. M gmt. of Colo., Inc., 163
F.3d 1230, 1234-35 (10th Cir. 1999) (involving an arbitration fee estimated at
$1,875 to $5,000). But Lewis does not inform us what his costs were, only that
they were “thousands of dollars,” and he does not distinguish between his
arbitration fees and attorney’s fees. Based on information in the record about
Circuit City’s policy of limiting an employee’s arbitration costs, we estimate
Lewis’s costs would be capped at about $1,360.

                                        - 20 -
in § 10 of the FAA, or in accordance with a few judicially created exceptions.”

Bowen v. Amoco Pipeline Co., 254 F.3d 925, 932 (10th Cir. 2001) (citations

omitted). Those “judicially created exceptions” apply to awards that violate

explicit public policy, derive from a manifest disregard of the law, or were the

result of an unfair hearing. Denver & Rio Grande W . R.R. Co. v. Union Pac. R.R.

Co., 119 F.3d 847, 849 (10th Cir. 1997) (citing W . R. Grace & Co. v. Local

Union 759, 461 U.S. 757, 766 (1983)). Lew is contends that the arbitration aw ard

violates Kansas public policy and therefore is void. 1 3 W e conclude that




      13
         The other judicially created exception that Lewis might have argued
applies to his appeal is the one permitting courts to set aside arbitration decisions
that were the result of an unfair hearing. Denver & Rio Grande W. R.R. Co., 119
F.3d at 849. Lewis alleges that he subpoenaed the “individual that accused me of
misconduct at work,” presumably Guerrero, but the individual “refused to appear
at the arbitration” and the “arbitrator did nothing to compel . . . the accuser’s
attendance to the arbitration.”
       A court may reverse an arbitration decision if the proceeding was
“fundamentally” unfair. Bowles Fin. Group, Inc. v. Stifel, Nicolaus & Co., 22
F.3d 1010, 1012 (10th Cir. 1994). “[A] fundamentally fair hearing requires only
notice, opportunity to be heard and to present relevant and material evidence and
argument before the decision makers, and that the decisionmakers are not infected
with bias.” Id. at 1013. Lewis does not argue that the arbitrator denied him the
right to present evidence. Instead, a subpoenaed witness did not appear. Lewis
does not state whether he objected to the missing witness, whether he asked the
arbitrators to assist him in enforcing the subpoena, or how the witness’s testimony
would have made a difference to the outcome of the proceeding. Therefore, not
only does Lewis fail to connect his factual allegations to a legal argument that the
arbitration proceeding was unfair, but also he lacks any allegations that would
support such an argument.

                                        - 21 -
controlling precedent from the U nited States and Kansas Supreme Courts renders

Lewis’s argument meritless.

      The public policy exception to enforcing arbitration awards is “rooted in

the common law[] that a court may refuse to enforce contracts that violate law or

public policy.” United Paperworkers Int’l Union v. M isco, Inc., 484 U.S. 29, 42

(1987). The Supreme Court has “cautioned . . . that a court’s refusal to enforce

an arbitrator’s interpretation of such contracts is limited to situations where the

contract as interpreted would violate ‘some explicit public policy’ that is ‘w ell

defined and dominant, and is to be ascertained by reference to the laws and legal

precedents and not from general considerations of supposed public interests.’” Id.

at 43 (quoting W .R. Grace, 461 U.S. at 766; emphasis omitted). W e have

emphasized the narrow application of the public policy exception, “keeping in

mind the admonition that an arbitration award is not to be lightly overturned.”

Seymour v. Blue Cross/Blue Shield, 988 F.2d 1020, 1024 (10th Cir. 1993).

Specifically, we have observed that a party does “not establish[] a public policy

violation sufficient to overturn [an] arbitrator’s award” if the arbitrator’s decision

“does not violate a clearly expressed law .” Id. at 1025. If an arbitrator could

have reasonably construed the facts of the case to eliminate such a conflict w ith

established law, then the public policy exception does not apply. Id.




                                         - 22 -
      Lew is argues that Kansas public policy allows him to file a retaliatory

discharge tort claim independent of arbitration. 1 4 However, the Kansas Supreme

Court has held that where the FAA applies to an arbitration agreement, it

preempts any state law that otherw ise might invalidate such an agreement.

Skew es v. Shearson Lehman Bros., 829 P.2d 874, 879 (Kan. 1992).

      The Kansas Uniform Arbitration Act (KUAA) provides that contract

provisions requiring the parties to arbitrate future disputes are enforceable, Kan.

Stat. Ann. § 5-401(b), but provides an exception for “contracts between an

employer and employees, or . . . any provision of a contract providing for

arbitration of a claim in tort,” id. § 5-401(c). Based on this statute and state

“public policy,” the K ansas Supreme Court held in Coleman v. Safew ay Stores,

Inc., 752 P.2d 645, that a contract to arbitrate in the collective bargaining context

did not preclude a labor worker from bringing an independent tort action in court

for retaliatory discharge. The Coleman court echoed the distinction the U.S.

Supreme Court has drawn between direct employer-employee arbitrations and

those that are led by the employee’s labor union pursuant to a collective

bargaining agreement, see Gilmer, 500 U.S. at 35, and concluded that “[t]he

potential result of a union’s emphasis on the collective good is that, in some




      14
         W e assume arguendo that Kansas law would apply to the question Lewis
presents.

                                        - 23 -
cases, the employee may be left without a remedy for an employer’s violation of

state public policy.” Coleman, 752 P.2d at 651-52. Lewis similarly points to

Hysten v. Burlington N. Santa Fe Ry. Co., a case allowing an employee to file suit

claiming retaliation after he already arbitrated the issue pursuant to a collective

bargaining agreement, as support for the policy of the right to file retaliation

claims independent of arbitration. 108 P.3d 437, 445 (K an. 2004).

      However, we have no doubt that when the FAA applies to an arbitration

agreement, the FAA preempts conflicting state law and will enforce the

agreement. “In enacting § 2 of the federal [Arbitration] Act, Congress declared a

national policy favoring arbitration and withdrew the power of the states to

require a judicial forum for the resolution of claims which the contracting parties

agreed to resolve by arbitration.” Southland Corp. v. Keating, 465 U.S. 1, 10

(1984). “W e see nothing in the Act indicating that the broad principle of

enforceability is subject to any additional limitations under state law.” Id. at 11;

see also Perry v. Thomas, 482 U.S. 483, 490-91 (1987) (same).

      The Kansas Supreme Court held as much in Skewes, 829 P.2d at 879,

reiterating that the FAA preempted the state statute that otherwise would refuse to

enforce arbitration of tort claims. The court distinguished Coleman as a case

employing the Labor M anagement Relations Act rather than the FAA. See id. at

878. “The FAA requires state courts to enforce an arbitration clause despite



                                         - 24 -
contrary state policy.” Id. at 879. The court acknowledged that it had observed

in Coleman that “arbitral procedures are comparatively inappropriate for the

resolution of tort claims.” Id. at 878. The court noted, though, that in other cases

involving tort claims such as fraud and breach of fiduciary duty, the court had

held that arbitration was required, and that, in any event, “[t]he United States

Supreme Court has not limited the preemption by the FA A.” Id. at 878-79. 1 5

      Both U.S. Supreme Court and Kansas Supreme Court authorities hold that

the FAA preempts the limitations that Kansas law might otherwise apply to the

enforceability of arbitration agreements. Lewis does not argue that his arbitration

fits within the potential exception pursuant to a collective bargaining agreement

or other union context. He thus cannot show “by reference to the laws and legal

precedents” that enforcing his arbitration agreement with Circuit City violates

“explicit public policy.” M isco, 484 U.S. at 43.


E. C ircuit C ity’s M otion for Sanctions




      15
         Hysten does not change the analysis. The court in Hysten found that an
independent court action was warranted because remedies available in that
arbitration pursuant to the Railway Labor A ct were not an adequate alternative to
those available through a retaliatory discharge action under Kansas tort law. 108
P.3d at 445. In contrast, Lewis’s agreement is governed by the FAA, not a labor
relations statute. Lewis has not alleged that the agreement or FAA deprives him
of a remedy otherw ise available at law.

                                        - 25 -
         Circuit City moved for sanctions against both Lewis and his attorney, David

Alegria, in the form of attorneys’ fees and costs.

         Section 1927, titled “Counsel's liability for excessive costs,” states:

         Any attorney or other person admitted to conduct cases in any court of
         the U nited States or any Territory thereof who so multiplies the
         proceedings in any case unreasonably and vexatiously may be required
         by the court to satisfy personally the excess costs, expenses, and
         attorneys’ fees reasonably incurred because of such conduct.

28 U.S.C. § 1927. Fed. R. App. P. 38 similarly provides that “[i]f a court of

appeals determines that an appeal is frivolous, it may, after a separately filed

motion or notice from the court and reasonable opportunity to respond, award just

damages and single or double costs to the appellee.” W e also have “inherent

powers” to “levy sanctions in response to abusive litigation practices.” Roadway

Express, Inc. v. Piper, 447 U.S. 752, 764-65 (1980). “At the appellate level the

bringing of the appeal itself may be a sanctionable multiplication of proceedings.

Consequently, in an appropriate case the court may assess the entire costs of

litigation on appeal as ‘excess costs’ under § 1927 or as ‘just damages’ under Fed.

R. App. P. 38.” Braley v. Campbell, 832 F.2d 1504, 1513 (10th Cir. 1987) (en

banc).

         W e have stated, though, that w e do not take sanction decisions lightly.

Dreiling v. Peugeot M otors of Am., Inc., 768 F.2d 1159, 1165 (10th Cir. 1985)

(noting that the “power to assess costs against an attorney . . . must be strictly



                                           - 26 -
construed and utilized only in instances evidencing a serious and standard

disregard for the orderly process of justice”). Examples of when we have found

sanctions appropriate include: when counsel repeatedly refers to facts in the

record that simply are not there, Herzfeld & Stern v. Blair, 769 F.2d 645, 647

(10th Cir. 1985); when counsel does “not raise any issue at any level of review

that has not already been addressed by this court or other circuits numerous

times,” M oulton v. Comm’r of Internal Revenue, 733 F.2d 734, 735 (10th Cir.),

modified on other grounds by 744 F.2d 1448, 1448-49 (10th Cir. 1984); when an

appeal is “hopeless . . . under any reasonable analysis” and “vexatious at least in

part because [the] briefing obfuscated the legal issues and complicated the

defendants’ and the court’s task of sorting them out,” Braley, 832 F.2d at 1509;

and when counsel “submit[s] rambling briefs that make no attempt to address the

elements requisite to obtaining reversal, . . . fail[s] to explain how the lower

tribunal erred or to present clear or cogent arguments for overturning the decision

below, . . . [and] cit[es to] inapplicable or irrelevant authorities, or

misrepresent[s] facts or law to the court.” Gallegos v. Jicarilla Apache Nation, 97

Fed. Appx. 806, 813-14 (10th Cir. Nov. 28, 2003) (unpublished) (quotation,

alterations omitted).

      Because arbitration presents such a “narrow standard of review,” Section

1927 sanctions are warranted if the arguments presented are “completely



                                          - 27 -
meritless.” Dominion Video Satellite, Inc. v. Echostar Satellite L.L.C., 430 F.3d

1269, 1279 (10th Cir. 2005). In a persuasive discussion, the Eleventh Circuit

recently described why the availability of sanctions may be more appropriate in an

appeal involving a prior arbitration award:

             W hen a party who loses an arbitration award assumes a
      never-say-die attitude and drags the dispute through the court system
      without an objectively reasonable belief it will prevail, the promise of
      arbitration is broken. Arbitration’s allure is dependent upon the
      arbitrator being the last decision maker in all but the most unusual
      cases. The more cases there are, like this one, in which the arbitrator
      is only the first stop along the way, the less arbitration there will be.
      If arbitration is to be a meaningful alternative to litigation, the parties
      must be able to trust that the arbitrator’s decision w ill be honored
      sooner instead of later.

             Courts cannot prevent parties from trying to convert arbitration
      losses into court victories, but it may be that we can and should insist
      that if a party on the short end of an arbitration award attacks that
      aw ard in court without any real legal basis for doing so, that party
      should pay sanctions.

B.L. Harbert Int’l, LLC v. Hercules Steel Co., 441 F.3d 905, 913 (11th Cir. 2006).

      Nevertheless, we decline to award sanctions in this case against either

Lewis or his counsel, M r. Alegria. The arguments in this case are complex and,

although we determine them to be meritless, we can not characterize them as

completely frivolous. Further, we can not conclude that M r. Alegria’s conduct

and briefing were so beyond the pale of acceptable advocacy as to warrant

sanctions against him personally. Thus, we DENY Circuit City’s motion for

sanctions.

                                         - 28 -
                             III. C O N C L U SIO N

      W e A FFIRM the district court’s dismissal of Lew is’s claim on summary

judgment. W e DENY Circuit City’s motion for sanctions.




                                      - 29 -