SALAZAR V. CITADEL COMMUNICATIONS CORP.,
2004-NMSC-013, 135 N.M. 447, 90 P.3d 466
KATHLEEN SALAZAR,
Plaintiff-Appellee,
v.
CITADEL COMMUNICATIONS CORP.,
Defendant-Appellant.
SUPREME COURT OF NEW MEXICO
2004-NMSC-013, 135 N.M. 447, 90 P.3d 466
APPEAL FROM THE DISTRICT COURT OF
BERNALILLO COUNTY, Wendy York, District Judge.
Released for Publication May 17, 2004.
Rodey, Dickason, Sloan, Akin & Robb,
P.A., Edward Ricco, Thomas L. Stahl, Albuquerque, NM, Eckert Seamans Cherin
& Mellott, L.L.C., John J. Myers, Allan W. Brown, Pittsburgh, PA, for
Appellant.
Foster, Johnson, McDonald, Lucero &
Koinis, L.L.P., J. Douglas Foster, Kathryn D. Lucero, Albuquerque, NM, for
Appellee.
EDWARD L. CHÁVEZ, Justice. WE CONCUR:
PETRA JIMENEZ MAES, Chief Justice, PATRICIO M. SERNA, Justice, RICHARD C.
BOSSON, Justice.
AUTHOR: EDWARD L. CHÁVEZ.
{1} Defendant-Appellant
Citadel Communications (Company) provided Plaintiff-Appellee Kathleen Salazar
(Salazar) with an Employment Handbook which, among other things, required
binding arbitration of all disputes with the Company. According to the
Handbook, the arbitration is to proceed in accordance with an Agreement to
Arbitrate that is "annexed," or appended, to the Handbook. The
Company simultaneously reserved the right to modify, unilaterally and at any
time, any of the Handbook's provisions save the employee's at-will status.
Because we conclude that this reservation extended to the arbitration provision
of the Handbook, we further conclude that it and the annexed Agreement to
Arbitrate represent an illusory and unenforceable promise. The District Court
having reached the same conclusion, we affirm.
{2} Salazar filed a de
novo appeal in District Court from an order of the New Mexico Human Rights
Commission which denied her discrimination claim. She had alleged to the
Commission that she was terminated from her employment at the Company because
of her ethnicity and gender. The Company subsequently filed a motion to stay
the District Court action and compel arbitration. The Company attached to that
motion what it alleged to be a valid and enforceable agreement to arbitrate,
signed by Salazar.
{3} The scope of this
agreement would seem to cover Salazar's current claims against the Company. The
agreement, made "in consideration of continued employment and the mutual
agreement to arbitrate claims," provides that "[a]ll disputes, as
defined below, between Employee and the Company . . . shall be resolved by
final and binding arbitration in accordance with the provisions of this
agreement." Disputes, in turn, are defined to "include all claims for
legal or equitable relief based upon state, federal or local common or
statutory laws." Although the agreement recognizes certain exceptions,
none apply to this case.
{4} As the Company
acknowledges, this Agreement was attached to the Employee Handbook, which sets
forth many of the terms and conditions of employment. For example, the Handbook
has sections on hours, pay, attendance, benefits, safety, conduct, and
termination of employment. Additionally, the Handbook discusses the Company's
dispute resolution policy and procedure, which includes a subsection on
arbitration. That arbitration subsection provides, in part: "As a
condition of employment with the Company, all employees and the Company agree
to submit all disputes . . . to arbitration in accordance with the Agreement to
Arbitrate Claims entered into between the Company and its employees,
the form of which is annexed to this Handbook."
(Emphasis added.)
{5} Although the
Handbook instructs the employee to read it "so that you will know what the
Company expects from you and what you can expect from the Company," it
takes great pains to avoid creating a contractual relationship. The beginning
of the Handbook, under a heading entitled "Important: Read Carefully"
(emphasis omitted), informs the employee that the Handbook "is not
intended to constitute a contract of employment between [the employee] and the
Company." Furthermore, that same section states that the Handbook
"supersedes and revokes all previous practices, procedures, policies, and
other statements of the Company . . . that modify, supplement or conflict with
this Handbook," but that it, in turn, "may be amended at any time,
with or without advance notice."
The Receipt and Acknowledgment
form, signed by Salazar, repeats the assertions that the Handbook is not a
contract and can be unilaterally modified at any time. Both the Handbook and
the Receipt and Acknowledgment form, however, provide one exception to the
Company's unfettered and unilateral right to alter the terms and conditions of
Salazar's employment as set forth in the Handbook: the employee's at-will
status can only be modified "by an express written employment agreement
executed by a regional president of the Company or the general manager of the
station" and the employee. (Emphasis omitted.) Nothing in the Agreement to
Arbitrate expressly states that it, having been "annexed" to the
Employee Handbook, is not also subject to the Company's right to unilaterally
modify its provisions or that modifying the arbitration provision in the
Handbook would not affect the annexed Agreement to Arbitrate.
{6} Salazar filed a
brief in opposition to the Company's motion to compel arbitration, arguing that
the Agreement to Arbitrate was illusory, that it lacked consideration, and that
it was unconscionable. The District Court issued a letter decision, finding the
Agreement to Arbitrate unenforceable. In that letter, the Court concluded that,
"given all the language of the employee handbook and the Receipt and
Acknowledgment form, the arbitration agreement was subject to unilateral
modification and is, therefore, invalid." The Court noted that the Company
limited its ability to modify the employee's at-will status, but provided no
such limitation on the agreement to arbitrate or any of the other terms and
conditions of Salazar's employment. Alternatively, she concluded that the
documents were ambiguous as to whether the Company could unilaterally modify
the Agreement and construed the ambiguity against it. She denied the other
grounds for invalidating the agreement asserted by Salazar, finding them to be
without merit.
{7} The Company
appealed to the Court of Appeals.
See NMSA
1978, §
44-7A-29(a)(1) (2001) (providing for an appeal following an order
denying a motion to compel arbitration). The Court of Appeals, in turn,
transferred the case to this Court sua sponte.
See
NMSA 1978, §
28-1-13(C) (1987);
Martinez v. City
of Grants,
1996-NMSC-061, ¶ 3,
122 N.M. 507,
927 P.2d 1045 (noting that
this Court has exclusive jurisdiction over appeals from district court orders
involving the New Mexico Human Rights Act). We affirm the District Court.
{8} Under the Federal
Arbitration Act (FAA), a pre-dispute agreement to arbitrate is "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 (2000). Under
recent United States Supreme Court cases, such agreements can even require a
party to arbitrate statutory claims.
See Gilmer v. Interstate/Johnson Lane Corp., 500
U.S. 20, 23 (1991). Of course, a prerequisite to compelling arbitration is the
existence of a valid agreement to arbitrate.
Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985);
Heye v. Am. Golf Corp.,
2003-NMCA-138, ¶
8,
134 N.M. 558, 80 P.3d 495. To determine whether the agreement to arbitrate
is valid, courts look to general state contract law,
Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987),
with the caveat that state laws that are specifically hostile to arbitration
agreements are preempted by the FAA,
Doctor's
Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996).
{9} Under general New
Mexico contract law, an agreement that is subject to unilateral modification or
revocation is illusory and unenforceable.
Bd. of
Educ. v. James Hamilton Constr. Co.,
119 N.M. 415, 420,
891 P.2d 556,
561 (Ct. App. 1994). This principle applies equally to agreements to arbitrate.
Heye,
2003-NMCA-138, ¶¶ 11-12. The party
that reserves the right to change the agreement unilaterally, and at any time,
has not really promised anything at all and should not be permitted to bind the
other party. The Employee Handbook undoubtedly qualifies as such an illusory
promise; by its own terms it is not a contract, should not be interpreted as a
contract, and can be unilaterally altered by the Company at any time, with or
without notice. Thus, the exceedingly narrow question for us to decide is
whether the Agreement to Arbitrate, the "form of which" was
"annexed to" the Employee Handbook, is part of the Employee Handbook
or whether, as the Company argues, it is an entirely separate agreement. If the
Agreement to Arbitrate is part of the Employee Handbook, then it too is subject
to the Company's unfettered right to unilaterally alter it and is, for that
reason, illusory. The District Court concluded that, as a matter of law, the
Agreement to Arbitrate is part of the Employee Handbook. Reviewing that legal
determination de novo,
id. ¶ 4, we affirm.
See also DeArmond
v. Halliburton Energy Servs., Inc.,
2003-NMCA-148, ¶ 4, 134 N.M.630,
81
P.3d 573,
cert, denied, 2003-NMCERT-003.
{10} We primarily rely
on the terms of the Employee Handbook itself. The Handbook, which covers most
aspects of Salazar's employment, also provides for binding arbitration of
disputes. That arbitration is to be accomplished "in accordance with the
Agreement to Arbitrate Claims entered into between the Company and its
employees." The "form" of this Agreement to Arbitrate is
"annexed to" the Employee Handbook. We think it fair to say that
under the common understanding of the word "annex," that which has
been annexed to a larger unit has become part of that unit.
See, e.g.,
The
American Heritage Dictionary of the English Language 73 (4th ed. 2000)
(defining the verb "to annex" as "[t]o append or attach,
especially to a larger or more significant thing," or "[t]o add or
attach, as an attribute, condition, or consequence");
Black's Law Dictionary 87 (7th ed. 1999)
(defining the noun "annex" as "[s]omething that is attached,
such as a document to a report or an addition to a building").
{11} The Employee
Handbook, therefore, provides for binding arbitration of disputes and annexes,
or attaches, the form of an agreement which sets forth the manner in which the
arbitration is to be accomplished. Because other language of the Employee
Handbook gives the Company the right to modify any of its provisions unilaterally
at any time, we conclude that the Company has retained the authority to
unilaterally modify both the arbitration section of the Handbook and the
annexed Agreement to Arbitrate, which is merely the form of the agreement set
forth in the Handbook. For that reason, we hold the proffered Agreement to
Arbitrate, when considered in the proper context of the Employee Handbook, is
illusory and unenforceable. At the very least, as the District Court
alternatively held, the fact that the Agreement to Arbitrate is expressly
annexed to the Employee Handbook, a document which the Company may unilaterally
modify, creates an ambiguity as to whether the Company also has reserved the
right to unilaterally modify the arbitration agreement. We construe ambiguities
of such pre-printed contracts against the maker.
See
Heye,
2003-NMCA-138, ¶ 14.
{12} Like the District
Court, we also find it significant that the Employee Handbook provides but one
limited exceptionCthe employee's at-will statusCto the sweeping rule that any
part of the Handbook can be unilaterally modified by the Company at any time.
This exception shows that the Company, the drafter of the Employee Handbook,
knew how to limit its authority to unilaterally modify any aspect of the
Employee Handbook. That there is no similar exception for the arbitration
portion of the Handbook in the Handbook itself, the Receipt and Acknowledgment
form, or the Agreement to Arbitrate, suggests that the Company intended to
retain its authority to modify the arbitration clause. By way of contrast, in
In re Tenet Healthcare, Ltd., 84 S.W.3d 760
(Tex. App. 2002), cited by the Company, the relevant agreement provided that
"the company may change, rescind or add to any of the policies, benefits
or practices described in the Employee Handbook,
except
the employment-at-will policy and the Mutual Agreement to Arbitrate referred to
below, in its sole and absolute discretion, with or without prior
notice."
Id. at 763.
{13} In urging us to
reverse the District Court, the Company relies primarily on
Patterson v. Tenet Healthcare, Inc., 113 F.3d
832 (8th Cir. 1997). In that case the U.S. Court of Appeals for the Eighth
Circuit, construing Missouri law, enforced an arbitration agreement that was
part of the acknowledgment form of an employee handbook. Immediately following
a provision that reserved the company's right to amend any of the provisions of
the handbook at any time, the acknowledgment form provided:
I understand [Tenet] makes available
arbitration for resolution of grievances. I also understand that as a condition
of employment and continued employment, I agree to submit any complaints to the
published process and agree to abide by and accept the final decision of
the arbitration panel as ultimate resolution of my complaint(s) for any and all
events that arise out of employment or termination of employment.
Id. at 834-35. The
Eighth Circuit, without a discussion of illusory promises or ambiguity, found
that this arbitration clause was separate from the other provisions of the
employee handbook which the company had reserved the right to amend. The court
gave two reasons: first, the arbitration clause is on a separate page of the
handbook, to be removed once the employee signs it, and second, the court found
"a marked transition in language and tone" from the paragraph before
the arbitration agreement. Id. at 835.
That difference, the court reasoned, "would sufficiently impart to an
employee that the arbitration clause stands alone, separate and distinct from
the rest of the handbook." Id.
{14} Patterson, which addressed Missouri law, stands
in sharp contrast to our Court of Appeals' decision in
Heye. In
Heye,
the employee handbook mentioned the agreement to arbitrate twice: once in the
body of the handbook, and a second time in the acknowledgment form. The
employee's signature on the acknowledgment form attested that the employee had
read the handbook, understood that the company could modify it at any time,
understood that he or she was, and would remain, an at-will employee, and
acknowledged "that I have read and agree to be bound by the arbitration
policy set forth [in] . . . this handbook."
Heye,
2003-NMCA-138, ¶ 6. Rather than rely on a "marked transition in language
and tone" to find the arbitration provision separate, the Court of Appeals
found that the arbitration agreement and acknowledgment form, seemingly
absolute in their commitment to arbitration, conflicted with the reservation of
the right to modify any provision of the handbook. This conflict created an
ambiguity which the Court of Appeals construed against the company to find the
promise to arbitrate illusory and unenforceable.
See
also Dumais v. Am. Golf Corp., 299
F.3d 1216 (10th Cir. 2002) (interpreting the same arbitration agreement as
Heye and reaching the same result).
{15} Assuming that the
Eighth Circuit adequately described Missouri law in
Patterson, we conclude that there are sharp
contrasts between the substantive contract law of that state and New Mexico.
Instead, we find
Heye to be an accurate
statement of New Mexico law which we apply to this case. To the extent that
Missouri law differs in regard to illusory promises or the rule, oft-repeated
in this state, that we construe ambiguous adhesion contracts against the
drafter, we do not find it persuasive.
{16} We conclude that
the Agreement to Arbitrate was made part of the Employee Handbook by the plain
meaning of the language in that Handbook. Because the Company has reserved the
right to modify any provision of the Handbook at any time, we conclude that the
Agreement to Arbitrate is an unenforceable illusory promise. We affirm the
District Court.
EDWARD L. CHÁVEZ, Justice
PETRA JIMENEZ MAES, Chief Justice
PATRICIO M. SERNA, Justice
RICHARD C. BOSSON, Justice