FILED
United States Court of Appeals
Tenth Circuit
AUG 15 2002
PATRICK FISHER
Clerk PUBLISH
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
TERESITA J. DUMAIS,
Plaintiff - Appellee,
v. No. 01-2224
AMERICAN GOLF CORPORATION, doing business as Paradise Hills Golf Club, a foreign corporation; and WILLIAM WINKLER,
Defendants - Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
(D.C. No. CIV-00-255 MV/LCS)
_________________________
Martin R. Esquivel of Dines, Gross & Esquivel, P.C., Albuquerque, New Mexico,
for Defendants-Appellants.
Christopher M. Moody (Whitney Warner with him on the brief) of Noeding &
Moody, P.C., Albuquerque, New Mexico, for Plaintiff-Appellee.
Before EBEL, McKAY, and BRISCOE, Circuit Judges.
_________________________
McKAY, Circuit Judge.
_________________________
Appellee Dumais began working at the Paradise Hills Golf Course on
May 3, 1996. At that time, Golf Enterprises owned the course. Some two months
later, Appellant American Golf assumed ownership of Paradise Hills. American
Golf required all employees, including Appellee, to complete new employment
applications. On July 25, 1996, Appellee also signed two separate arbitration
agreements. One was titled "We Can Work It Out," and the other, the "New Co-
Worker Authorization & Acknowledgment Form."
The "We Can Work It Out" agreement required Appellee to bring any claim
of unlawful harassment, discrimination, or wrongful discharge arising out of her
employment relationship with American Golf exclusively through the process of
final and binding arbitration. Appellee also specifically acknowledged that she
knowingly and voluntarily waived her rights to pursue these employment claims
in court.
The "New Co-Worker Authorization & Acknowledgment Form" bound
Appellee to the provisions of American Golf's employment handbook titled "Co-
Worker Alliance Handbook." This handbook also contained an agreement to
arbitrate employment claims. The parties dispute whether Appellee actually
received a copy of the Handbook.
One section of the Handbook declares that American Golf "reserves the
right to at any time change, delete, modify, or add to any of the provisions
contained in this handbook at its sole discretion," with the exceptions of
Appellee's employment-at-will status and the arbitration provision. Aple. App. at
58. However, on the page of the Handbook where the employees sign which
acknowledges that they read and understood the Handbook's provisions,
American Golf reserves the right to amend, supplement, or revise everything in
the Handbook with the exception of employees' at-will status. Id. at 66. The
Handbook also states, "This Co-Worker Alliance is my personal agreement of
employment with [American Golf]. I understand that this handbook supersedes
any and all prior handbooks." Id. at 58.
In July of 1999, Appellee left American Golf's employ. She subsequently
filed a Charge of Discrimination with the EEOC. Then, in February 2000,
Appellee filed suit in the United States District Court for the District of New
Mexico. In response, Appellants filed a motion to compel arbitration.
The motion to compel arbitration was assigned to a magistrate judge for
disposition. On April 25, 2001, the magistrate judge held an evidentiary hearing
where he refused to consider two affidavits American Golf wished to enter into
evidence concerning the date Appellee began employment with American Golf.
On May 20, 2001, the magistrate judge issued his Proposed Findings and
Recommended Disposition, which the district court adopted in its June 14, 2001
Order.
The district court found that Appellee commenced employment with
American Golf on May 3, 1996, rather than July 31, 1996. The district court held
that the arbitration agreement was invalid because it was illusory, lacked
mutuality, and was not supported by consideration. Additionally, the district
court held that the arbitration agreements did not cover Appellee's infliction of
emotional distress or prima facie tort claims against American Golf or any claims
brought against Appellant William Winkler. The district court also refused to
overturn the magistrate judge's decision to reject American Golf's affidavits.
Appellants timely appealed to this court. Appellants challenge the district
court's finding regarding Appellee's beginning date of employment, the district
court's decision not to allow American Golf's affidavits into evidence, and the
district court's holdings that the agreement to arbitrate was illusory, lacked
mutuality, was not supported by consideration, and did not cover Appellee's
claims for infliction of emotional distress, prima facie tort, or any claims against
Mr. Winkler.
Because it is immaterial to our resolution of this appeal, we need not
review whether the district court's finding regarding the date Appellee
commenced employment with American Golf was clearly erroneous. Instead, we
begin our review of the district court's Order by considering whether it correctly
held that the arbitration agreement between American Golf and Appellee was
illusory. We review the denial of a motion to compel arbitration de novo and
employ the same legal standard employed by the district court. Armijo v.
Prudential Ins. Co. of Am., 72 F.3d 793, 796 (10th Cir. 1995).
The district court held that the arbitration agreement was illusory because
the Handbook contains two conflicting provisions. One provision allows
American Golf to unilaterally alter, modify, change, etc., any provision of the
Handbook except Appellee's employment-at-will status and the arbitration
agreement. A second provision permits American Golf to unilaterally alter,
modify, change, etc., any provision of the Handbook except Appellee's
employment-at-will status. This rendered American Golf's contract with Appellee
ambiguous because "[t]he inconsistent provisions . . . are reasonably and fairly
susceptible to different constructions." Aplt. App. at 323.
Construing the Handbook against the drafter (American Golf), the district
court held that the conflicting provisions allowed American Golf to change the
arbitration provision at will. "[T]he agreement binds [Appellee] to arbitration but
allows [American Golf] free rein to renege. This lopsided agreement is illusory
because it allows [American Golf] to unilaterally modify the terms at any time."
Id.
The parties' respective positions in this litigation are unusual because they
represent the opposite of what typically occurs. Essentially, Appellee is arguing
that the Handbook gives American Golf increased power to modify (all provisions
except employment-at-will status), and American Golf is arguing that its power to
modify is more circumscribed (cannot modify employment-at-will or arbitration
provisions). Typically, the roles would be reversedÄAmerican Golf would argue
that it has increased power to modify and Appellee would argue that American
Golf's right to modify was more limited.
We recognize the well-accepted rule that ambiguities in contracts are
construed against the drafter. See, e.g., Western Farm Bureau v. Carter, 979 P.2d
231, 232 (N.M. 1999). In the unusual posture of this case, the issue becomes
whether we construe the ambiguity against the drafter generally or within the
confines of the particular litigation before us. If construed generally against
American Golf, the ambiguity would prohibit American Golf from modifying the
arbitration agreement. If we construe the ambiguity against American Golf within
the specific confines of this dispute, the ambiguity would permit modification of
the arbitration agreement because such a construction would enable Appellee to
avoid arbitration.
The better course is to construe ambiguities against the drafter as dictated
by the confines of the specific litigation before us. The contract at issue is a form
contract effectively written by American Golf without Appellee's input or any
negotiation with her. The power American Golf enjoyed in constructing the
Handbook in the manner it preferred justifiably includes the burden of the
document's shortcomings in each instance. Accordingly, we interpret the
ambiguity created by the Handbook's conflicting provisions as allowing American
Golf to change the arbitration provision at will.
We join other circuits in holding that an arbitration agreement allowing one
party the unfettered right to alter the arbitration agreement's existence or its scope
is illusory. See Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 315-16
(6th Cir. 2000) (ability to choose nature of forum and alter arbitration without
notice or consent renders arbitration agreement illusory); Hooters of Am., Inc. v.
Phillips, 173 F.3d 933, 939 (4th Cir. 1999) (among other reasons, employer's
ability to modify rules "in whole or in part" without notice to employee renders
arbitration agreement illusory); Gibson v. Neighborhood Health Clinics, Inc., 121
F.3d 1126, 1133 (7th Cir. 1997) (Cudahy, J., concurring) (handbook provision
allowing employer to change arbitration agreement at will renders agreement
illusory). Nevertheless, American Golf maintains that two additional arguments
favor upholding the arbitration agreement.
American Golf argues that the district court relied too heavily on the
Handbook and did not give sufficient weight to the separate "We Can Work It
Out" agreement, which both parties signed. However, the Handbook specifically
states that it is the contract of employment between American Golf and Appellee.
Accordingly, the Handbook controls over any other document the parties signed.
American Golf next argues that the strong presumption favoring arbitration
requires us to ignore the contract's illusory nature. See, e.g., Green Tree Fin.
Corp.-Ala. v. Randolph, 531 U.S. 79, 91 ("liberal federal policy favoring
arbitration agreements") (quotation omitted); McWilliams v. Logicon, Inc., 143
F.3d 573, 576 (10th Cir. 1998) ("strong federal policy favoring arbitration," and
"all doubts must be resolved in favor of arbitrability") (citations omitted).
American Golf's position improperly conflates two separate inquiriesÄthe
existence of a valid arbitration agreement and the interpretation of a valid
arbitration agreement's scope. The presumption in favor of arbitration is properly
applied in interpreting the scope of an arbitration agreement; however, this
presumption disappears when the parties dispute the existence of a valid
arbitration agreement. See First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 944-45 (1995); Riley Mfg. Co., Inc. v. Anchor Glass Container Corp., 157
F.3d 775, 779 (10th Cir. 1998) ("[W]hen the dispute is whether there is a valid
and enforceable arbitration agreement in the first place, the presumption of
arbitrability falls away.") (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24-25 (1983)). Because we hold that the agreement between
American Golf and Appellee to arbitrate is illusory, the presumption in favor of
arbitration is inapplicable.
In sum, we hold that the alleged agreement between American Golf and
Appellee to arbitrate their employment disputes is illusory. Accordingly, there is
no need to address the factual issue of when Appellee began employment with
American Golf, whether the district court erred in refusing to consider American
Golf's affidavits, whether the arbitration agreement between American Golf and
Appellee lacks mutuality and consideration, or whether the arbitration agreement
covers all of the claims Appellee raised. Accordingly, we express no views as to
these issues.
We AFFIRM the district court's denial of Appellants' motion to compel
arbitration.