Business Law 11th Edition by Kenneth Clarkson,Roger LeRoy Miller,Gaylord Jentz,Frank Cross

Exercise 5

Morrison v. Circuit City Stores, Inc.
United States Court of Appeals, Sixth Circuit, 2003. 317 F.3d 646.
www.ca6.uscourts.gov/internet/index.htm a
KAREN NELSON MOORE, Circuit Judge.
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* * * Plaintiff-Appellant Morrison, an African-American female with a bachelor's degree in engineering from the U.S. Air Force Academy and a master's degree in administration from Central Michigan University, submitted an application for a managerial position at a Circuit City store in Cincinnati, Ohio. As part of the application process, Morrison was required to sign a * * * "Dispute Resolution Agreement." This document contained an arbitration clause that required resolution of all disputes or controversies arising out of employment with Circuit City in an arbitral forum. * * * Circuit City would not consider any application for employment unless the arbitration agreement was signed * * *.
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Pursuant to [the agreement] each party is required to pay one-half of the costs of arbitration following the issuance of an arbitration award * * *. In addition, * * * if an employee is able to pay her share of the arbitration costs within [ninety days], her costs (not including attorney fees) are then limited to the greater of either five hundred dollars or three percent of her most recent annual compensation.
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* * * Morrison began her employment at Circuit City on or about December 1, 1995. Two years later, on December 12, 1997, she was terminated. Morrison alleges that her termination was the result of race and sex discrimination. b. She filed this lawsuit * * * in Ohio state court, alleging federal and state claims of race and sex discrimination * * *. Circuit City removed the case to federal court and then moved to compel arbitration and to dismiss Morrison's claims. The district court granted Circuit City's motion * * *.
* * * Morrison's appeal followed.
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We hold that potential litigants must be given an opportunity, prior to arbitration on the merits, to demonstrate that the potential costs of arbitration are great enough to deter them and similarly situated individuals from seeking to vindicate [assert] their federal statutory rights in the arbitral forum. * * * Thus, in order to protect the statutory rights at issue, the reviewing court must look to more than just the interests and conduct of a particular plaintiff.* * * [A] court considering whether a cost-splitting provision is enforceable should consider similarly situated potential litigants, for whom costs will loom as a larger concern, because it is, in large part, their presence in the system that will deter discriminatory practices. [Emphasis added.]
For this reason, if the reviewing court finds that the cost-splitting provision would deter a substantial number of similarly situated potential litigants, it should refuse to enforce the cost-splitting provision in order to serve the underlying functions of the federal statute. * * * [Emphasis added.]
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This analysis will yield different results in different cases. It will find, in many cases, that highlevel managerial employees and others with substantial means can afford the costs of arbitration, thus making cost-splitting provisions in such cases enforceable. In the case of other employees, however, this standard will render cost-splitting provisions unenforceable in many, if not most, cases.
* * * Circuit City argues that Morrison could have avoided having to pay half of the cost of the arbitration * * * if she could have arranged to pay the greater of $500 or 3 percent of her annual salary (in this case, 3 percent of $54,060, or $1,622) within ninety days of the arbitrator's award.* * *
In the abstract, this sum may not appear prohibitive, but it must be considered from the vantage point of the potential litigant in a case such as this. Recently terminated, the potential litigant must continue to pay for housing, utilities, transportation, food, and the other necessities of life in contemporary society despite losing her primary, and most likely only, source of income.* * *
The provision reducing the (former) employee's exposure to the greater of $500 or three percent of her annual compensation presents a closer issue. However, a potential litigant considering arbitration would still have to arrange to pay three percent of her most recent salary, in this case, $1,622, within a three-month period, or risk incurring her full half of the costs * * *. Faced with this choice-which really boils down to risking one's scarce resources in the hopes of an uncertain benefit-it appears to us that a substantial number of similarly situated persons would be deterred from seeking to vindicate their statutory rights under these circumstances. c
Based on this reasoning, we hold that Morrison has satisfied her burden in the present case in demonstrating that * * * the cost-splitting provision in the agreement was unenforceable with respect to her claims.
1. On what argument did Morrison base her appeal of the court's order to arbitrate her employment-discrimination claims
2. Why did the U.S. Court of Appeals for the Sixth Circuit hold in Morrison's case that the arbitration agreement's cost-splitting provision was unenforceable
a. This is a page within the Web site of the U.S. Court of Appeals for the Sixth Circuit. In the left-hand column, click on "Opinions Search." In the "Short Title contains " box, type "Morrison," and click "Submit Query." In the "Opinion" box corresponding to the name of the case, click on the number to access the opinion.
b. Employment discrimination will be discussed in detail in Chapter 34
[c. The court also concluded that the provision could be severed from the agreement, which meant that the rest of the agreement could be enforced. Because the arbitration in this case had already occurred, and Morrison had not been required to pay any share of the costs, the court affirmed the lower court's order compelling arbitration "on these different grounds."]