United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 22, 2000 Decided April 21, 2000
No. 99-7103
Emmanuel Bailey,
Appellee
v.
Federal National Mortgage Association,
Appellant
Appeal from the United States District Court
for the District of Columbia
(No. 98cv03095)
Juanita A. Crowley argued the cause for appellant. With
her on the briefs was John Payton.
Kelly J. Davidson argued the cause for appellee. With her
on the brief was Pamela J. White.
Before: Edwards, Chief Judge, Tatel and Garland, Circuit
Judges.
Opinion for the Court filed by Chief Judge Edwards.
Edwards, Chief Judge: The instant litigation involves a
claim of employment discrimination filed by the appellee,
Emmanuel Bailey, against the appellant, Federal National
Mortgage Association ("Fannie Mae" or "employer"). In
response to Mr. Bailey's complaint, Fannie Mae filed a motion
to stay litigation pending arbitration. The District Court
denied the motion to stay, and Fannie Mae now appeals.
This case presents a new twist to an old problem. In Cole
v. Burns Int'l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997), we
held that, if certain conditions are met, an employer may
compel an employee to use arbitration in lieu of litigation to
pursue a statutory claim of employment discrimination if the
employee signed an arbitration agreement as a condition of
hire. In this case, however, Fannie Mae seeks to compel
arbitration pursuant to a "Dispute Resolution Policy" that
was unilaterally promulgated by the employer after Mr.
Bailey was hired. There is a serious question under Cole
whether an employer may impose a condition of employment
requiring a current employee to use arbitration before seek-
ing to litigate statutory employment discrimination claims for
no consideration save the employee's continued employment.
Fortunately, we do not have to decide this troublesome
question. The issue was not raised before the trial court,
because Fannie Mae disclaimed any intention of terminating
Mr. Bailey if he persisted in his refusal to arbitrate the
instant dispute. Fannie Mae contends only that its motion to
stay should be granted because Mr. Bailey implicitly agreed
to arbitrate statutory claims of employment discrimination
when he continued to work for the employer after the issu-
ance of the Dispute Resolution Policy. Mr. Bailey, in turn,
claims that he never gave his assent to be bound by the
employer's new arbitration policy. Mr. Bailey claims further
that he made it clear to Fannie Mae that he did not subscribe
to the employer's new arbitration policy.
The District Court denied Fannie Mae's motion to stay,
finding that, because there was no meeting of minds between
the parties, there was no arbitration agreement to enforce.
We can find no error in the judgment of the District Court.
Accordingly, we affirm.
I. Background
On March 12, 1998, Mr. Bailey filed a memorandum with
Fannie Mae's Office of Corporate Justice requesting an inves-
tigation of various allegations of race and gender discrimina-
tion. In this memorandum, labeled a "Formal Complaint,"
Mr. Bailey stated:
Pursuant to the Fannie Mae Employee Handbook, I
hereby submit a Formal Complaint with respect to the
aforementioned violations of all applicable United States
and District of Columbia Laws and the Fannie Mae
Affirmative Action Plan. Further, I hereby retain all
redress options available to me under the Equal Employ-
ment Opportunity Commissions (EEOC) [sic] and the
United States and/or Local Court System.
Request for Formal Investigation, reprinted in Joint Appen-
dix ("J.A.") 39.
Fannie Mae had announced in January 1998 that it would
issue a new arbitration policy on March 16, 1998. Subse-
quently, on March 16, 1998, as promised, Fannie Mae issued a
Dispute Resolution Policy, which required employees to pur-
sue job-related claims internally, through arbitration, before
such claims could be presented to a court of law. In particu-
lar, the Dispute Resolution Policy stated that, as of March 16,
1998,
the Policy becomes a condition of employment for all
Fannie Mae employees. This means that, by starting or
continuing work for Fannie Mae on or after that date,
each employee is indicating that he or she accepts the
Policy as a condition of employment and agrees to be
bound by it.
Dispute Resolution Policy at 1, reprinted in J.A. 106.
Mr. Bailey never said anything to any official at Fannie
Mae to indicate that he acceded to the Dispute Resolution
Policy, and he never signed any agreement to that effect.
And Mr. Bailey never did or said anything to withdraw the
position stated in his March 12 complaint, in which he re-
served the right to pursue statutory claims with the EEOC
and in federal or state court. Indeed, on March 30, 1998,
after the Policy was issued, Mr. Bailey's counsel sent a letter
to Fannie Mae asserting that
Mr. Bailey's [March 12] Complaint was directed to [the
employer] on that date specifically to avoid the effective
date on March 16 of a new corporate policy that might
have mandated arbitration of Mr. Bailey's issues.
Letter from Pamela J. White to Stasia Kelly (Mar. 30, 1998),
reprinted in J.A. 70-71. On May 8, 1998, after an exchange
of correspondence between the parties over Mr. Bailey's
refusal to be bound by the new arbitration policy, Mr. Bailey's
counsel sent another letter to Fannie Mae to reiterate her
client's position:
Mr. Bailey retained "all redress options" available to him
with the courts or EEO administrative agencies and,
thus, rejected Fannie Mae's new mandatory arbitration
policy effective March 16, 1998. Furthermore, with or
without regard to the filing date and pendency of his
Complaint, Mr. Bailey does not agree to be bound by the
new "Dispute Resolution Policy."
Letter from Pamela J. White to Dawn P. Marcelle (May 8,
1998), reprinted in J.A. 186. In response to this last letter,
Fannie Mae's counsel sent a letter to Mr. Bailey's attorney,
reiterating the employer's position and reassuring Mr. Bailey
that he was in no threat of losing his job:
Fannie Mae had not previously understood that Mr.
Bailey had already decided that he would not be bound
by the Dispute Resolution Policy. As you know, Fannie
Mae considers Mr. Bailey to be bound by that Policy
with respect to the complaint that he made on March 12,
1998. In the event that an employee disregards the
Policy, Fannie Mae would enforce it by seeking appropri-
ate judicial relief. As Fannie Mae previously told em-
ployees, it will not terminate them for failing to follow
the Policy.
Letter from Fannie Mae to Pamela J. White, reprinted in
J.A. 190.
On August 6, 1998, Fannie Mae rejected Mr. Bailey's
complaint as unmeritorious. On December 14, 1998, Mr.
Bailey filed a lawsuit in the Superior Court of the District of
Columbia, alleging discrimination and retaliation in violation
of 42 U.S.C. s 1981 (1994), discrimination and retaliation in
violation of the D.C. Human Rights Act s 1-2501, and breach
of implied contract in violation of 42 U.S.C. s 1981. Fannie
Mae removed Mr. Bailey's lawsuit to the United States
District Court for the District of Columbia on December 18,
1998. Fannie Mae then moved, pursuant to 9 U.S.C. s 3
(1994), to stay litigation pending arbitration of Mr. Bailey's
claims. Because Mr. Bailey had rejected the policy of man-
datory arbitration as a condition of his continued employment,
he opposed the motion to stay.
On May 21, 1999, the District Court denied Fannie Mae's
motion, finding that Mr. Bailey had effectively rejected the
possibility of arbitration when he filed his complaint with
Fannie Mae on March 12, 1998. Fannie Mae then filed this
appeal pursuant to 9 U.S.C. s 16(a)(1) (1994).
II. Discussion
A. The Standard of Review
Normally, the determination of intent is a question of fact.
See Pullman-Standard v. Swint, 456 U.S. 273, 288 (1982).
Therefore, a district court's findings on intent are subject to
deferential review under Federal Rule of Civil Procedure
52(a), and such findings may not be set aside unless clearly
erroneous. See id. at 287-88. It does not matter whether a
finding of fact is based on documentary evidence or infer-
ences from other facts; in either event, an appellate court
must respect a trial court's finding of fact unless it concludes
that the finding is clearly erroneous. See Anderson v. Bes-
semer City, 470 U.S. 564, 574 (1985). "A finding is 'clearly
erroneous' when although there is evidence to support it, the
reviewing court on the entire evidence is left with the definite
and firm conviction that a mistake has been committed."
United States v. United States Gypsum Co., 333 U.S. 364, 395
(1948). And the burden of establishing a clear error is on the
appellant. See, e.g., Case v. Morrisette, 475 F.2d 1300, 1307
(D.C. Cir. 1973).
In Pullman-Standard, the Court applied Rule 52(a) to
review a lower court's determination that the differential
impact of a seniority system reflected an intent to discrimi-
nate racially. The Court expressly repudiated the view that
facts could be put into distinguishable categories (i.e., either
subsidiary or ultimate) in determining whether Rule 52(a)'s
clearly erroneous standard of review should apply. See Pull-
man Standard, 456 U.S. at 287. However, the Court left
open the question of the standard of review for "mixed
questions of law and fact," that is, "questions in which the
historical facts are admitted or established, the rule of law is
undisputed, and the issue is whether the facts satisfy the
statutory standard, or to put it another way, whether the rule
of law as applied to the established facts is or is not violated."
Id. at 289 n.19. It is unclear in this case whether the District
Court's finding that Mr. Bailey never agreed to arbitration is
a simple question of fact or a mixed question of law and fact.
At first blush, the issue appears to raise a question of fact
regarding the parties' intent. Unfortunately, the question is
not so simple.
In United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir.
1998), the court observed that "[i]nterpretation of an ambigu-
ous contract term on the basis of extrinsic evidence is gener-
ally treated as a question of fact, and the district court's
findings as to the parties' intent are reviewed deferentially,
i.e., reversed only for clear error." Id. at 945 n.7. The
majority opinion notes, however, that there are a number of
cases in which the appellate court has engaged in de novo
review of district court interpretations. See id. Microsoft
assumes that "de novo review of legal analysis is in principle
compatible with deference to factual findings"; but the opin-
ion then expresses concern that, under a "mixed approach" in
a case involving a question of intent, "the centrality of intent
would often make the deference swallow the de novo review, a
result our cases do not seem to contemplate." Id.
The problem here is complicated even more, because this is
not a case in which the parties disagree over the meaning of
an existing agreement. Rather, the legal battle here is over
the existence of a contract, not its meaning. In fact, both
sides seem to agree that if the Dispute Resolution Policy
constitutes an enforceable agreement, there is no disagree-
ment over the meaning of the arbitration policy. The District
Court found that Mr. Bailey never assented to the new
arbitration policy. We must now decide whether the District
Court's decision on this question is subject to deferential
review under Rule 52(a).
One of our sister circuits has held that an appellate court
engages in de novo review when considering a district court's
order denying a stay of a federal suit pending arbitration
pursuant to 9 U.S.C. s 3. See, e.g., Riley Mfg. Co. v. Anchor
Glass Container Corp., 157 F.3d 775, 779 (10th Cir. 1998).
According to the Tenth Circuit, such review requires the
appellate court to evaluate "whether the district court cor-
rectly found that no valid and enforceable agreement to
arbitrate the parties' dispute exists." Id. The Second Cir-
cuit, on the other hand, has held that a determination as to
whether the parties entered into an enforceable agreement to
arbitrate raises a mixed question of law and fact. See
Chelsea Square Textiles, Inc. v. Bombay Dyeing and Mfg.
Co., 189 F.3d 289, 295 (2d Cir. 1999). Fannie Mae contends
that this court is required to review the judgment of the
District Court de novo. Mr. Bailey, citing Walker v. J.C.
Bradford & Co., 938 F.2d 575, 576-77 (5th Cir. 1991), appears
to suggest that the matter involves a mixed question of law
and fact. See Br. of Appellee at 14.
The D.C. Circuit has yet to address this precise question.
In Gardner v. Benefits Communications Corp., 175 F.3d 155
(D.C. Cir. 1999), the court reversed a trial court's decision
compelling arbitration, holding that the employee had never
agreed to use arbitration in lieu of litigation. Gardner is
inconclusive on the standard of review, however.
Now that we must squarely face the issue, we hold in
accord with the Second Circuit
that the determination that parties have contractually
bound themselves to arbitrate disputes--a determination
involving interpretation of state law--is a legal conclu-
sion subject to our de novo review, ... but that the
findings upon which that conclusion is based are factual
and thus may not be overturned unless clearly erroneous.
Chelsea Square, 189 F.3d at 295. As we noted in Microsoft,
"the centrality of intent" may in some cases "make the
deference swallow the de novo review." 147 F.3d at 945 n.7.
The Second Circuit recognized, however, that cases of this
genre often involve an interpretation of state law, which is a
legal conclusion subject to de novo review. See Chelsea
Square, 189 F.3d at 295.
B. The Parties Never Agreed to Contractually Bind Them-
selves to Arbitrate
Fannie Mae had announced in January 1998 that it would
issue the new arbitration policy on March 16, so the District
Court found that Mr. Bailey "knew this [new] arbitration
process was coming" when he filed his complaint with Fannie
Mae on March 12, 1998. Trial Tr. at 5, reprinted in J.A. 203.
The District Court therefore found that Mr. Bailey "made a
timely election against arbitration" when he filed his com-
plaint. Id. at 2, reprinted in J.A. 200. And, most important-
ly, the District Court found that Mr. Bailey's internal com-
plaint "clearly signal[ed] ... that he was intending to invoke
his rights to reject arbitration." Id. at 5, reprinted in J.A.
203. In other words, the District Court found that Fannie
Mae was "put ... on notice" that Mr. Bailey rejected the new
arbitration policy. Id. at 6, reprinted in J.A. 204. The
District Court's findings are supported by the record and
easily survive review under Rule 52(a).
Fannie Mae, however, claims that Mr. Bailey's determina-
tion to retain his right to pursue statutory claims before the
EEOC and in the courts was not inconsistent with the
employer's policy requiring employees to use arbitration.
This assertion is simply wrong. Absent an agreement to
arbitrate, an employee is not required to exhaust arbitration
as a condition precedent to pursuing his statutory remedies
before the EEOC and the courts. Therefore, Mr. Bailey's so-
called "redress options" would be dramatically changed--in
terms of cost, time delays, and, possibly, inadequate adjudica-
tory processes--if he were barred from litigation until after
he pursued his claims in arbitration. And, if forced to use
arbitration, there is always the possibility that a reviewing
court might give some deference to an arbitrator's findings,
arguably to the detriment of a litigant like Mr. Bailey. See
Cole, 105 F.3d at 1486-87 (discussing the scope of judicial
review and deference to arbitration); see also Harry T.
Edwards, Where Are We Heading With Mandatory Arbitra-
tion of Statutory Claims in Employment?, 16 Ga. St. U. L.
Rev. 293, 304-06 (2000) (discussing different judicial ap-
proaches to the scope of review and deference to arbitration
awards). There are many parties and their advocates who
abhor arbitration precisely because it often adversely affects
redress options. See discussion and citations in Cole, 105
F.3d at 1477-79. See generally A Focus Issue on Mandatory
Arbitration Clauses, The Consumer Advocate (Nat'l Associa-
tion of Consumer Advocates, Washington, D.C.) Sept./Oct.
1999; Ethan A. Brecher, Putting the Reins on Employment
Arbitration: Courts Safeguard Employee Rights, N.Y. L.J.
Aug. 24, 1999, at 1; Harry T. Edwards, Where Are We
Heading With Mandatory Arbitration of Statutory Claims in
Employment, 16 Ga. St. U. L. Rev. 293; Morton H. Orenstein,
Mandatory Arbitration: Alive and Well or Withering on the
Vine?, 54 Disp. Resol. J. 57 (Aug. 1999); Debra Parker,
Tangled Up in Ticker Tape, 85 A.B.A. J. 44 (1999).
Quite apart from Mr. Bailey's complaint and what it sig-
naled to Fannie Mae, there are several other telling facts in
the record of this case. It is undisputed that Mr. Bailey
never executed any written agreement with Fannie Mae to
arbitrate statutory claims of employment discrimination. In-
deed, it is uncontested that the parties never purported to
reach an understanding by oral agreement. It is also unques-
tioned that Mr. Bailey never said or wrote anything after
Fannie Mae issued its new arbitration policy, either to rescind
what he had said in his written complaint or to otherwise
indicate that he subscribed to the Dispute Resolution Policy.
In fact, after the new policy was issued, Mr. Bailey's counsel
wrote to officials at Fannie Mae to make it clear that Mr.
Bailey was not bound to pursue his claims in arbitration.
In short, there are no disputes between the parties over
these material facts. The only remaining question, therefore,
is whether the District Court erred in concluding that Fannie
Mae failed to fulfill its burden of proving that there was an
agreement as to all material terms and that both parties
intended to be bound by the arbitration policy. Whether we
apply a de novo standard of review or "clearly erroneous"
review under Rule 52(a), it is clear here that the judgment of
the District Court must be affirmed.
Fannie Mae persists in arguing that there was an "agree-
ment" between the parties because Mr. Bailey did not un-
equivocally and effectively voice his opposition to the new
arbitration policy. There are two problems with this argu-
ment: First, the District Court found otherwise, and that
finding is not clearly erroneous. Second, the argument has a
false premise. The question here is not whether Mr. Bailey
effectively rejected what his employer proposed, for he had
no obligation even to respond to Fannie Mae's proposal. The
issue is whether Mr. Bailey did something to indicate that he
intended to enter into an agreement with Fannie Mae so as to
bind himself to pursue his statutory claims of employment
discrimination in arbitration.
The Supreme Court has instructed in First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), that "[w]hen
deciding whether the parties agreed to arbitrate a certain
matter, ... courts generally ... should apply ordinary state-
law principles that govern the formation of contracts." Id. at
944. Thus, in this case, we must look to the law of the
District of Columbia to determine whether the employer's
Dispute Resolution Policy reflects a binding agreement be-
tween Mr. Bailey and Fannie Mae.
Under applicable District of Columbia law, "[a]rbitration is
predicated upon the consent of the parties to a dispute, and
the determination of whether the parties have consented to
arbitrate is a matter to be determined by the courts on the
basis of the contracts between the parties." Ballard &
Assocs., Inc. v. Mangum, 368 A.2d 548, 551 (D.C. 1977).
Furthermore, under District law, an enforceable contract
does not exist unless there has been a "meeting of the minds"
as to all material terms. In other words, a contract is not
formed unless the parties reach an accord on all material
terms and indicate an intention to be bound. See Jack Baker,
Inc. v. Office Space Dev. Corp., 664 A.2d 1236, 1238 (D.C.
1995). With respect to proof of intent, the D.C. Court of
Appeals has held that "the parties' intention to be bound must
be 'closely' examined." Id. at 1239. The court explained:
In evaluating contract formation, we also look closely at
the parties' intention to be bound. In order to form a
binding agreement, both parties must have the distinct
intention to be bound; without such intent, there can be
no assent and therefore no contract.
Id. (quoting Edmund J. Flynn Co. v. LaVay, 431 A.2d 543,
547 (D.C. 1981)). Finally, the party asserting the existence of
a contract has the burden of proving its existence. See
Ekedahl v. Corestaff, Inc., 183 F.3d 855, 858 (D.C. Cir. 1999)
(per curiam). In this case, Fannie Mae has not come close to
satisfying the requirements of District of Columbia law in its
attempt to prove the existence of an agreement between the
employer and Mr. Bailey.
Fannie Mae's principal claim is that Mr. Bailey agreed to
the new arbitration policy because he did not positively reject
it. This is a non sequitur. Even if we accepted the prem-
ise--which we do not, because the District Court's finding to
the contrary is not cleary erroneous--it would not follow that
Mr. Bailey's failure to reject a proposal, without more, evi-
denced his assent to be bound. District of Columbia law
clearly requires a "meeting of the minds" as to all material
terms for a contract to be formed. There was no "meeting of
the minds" in this case, because Mr. Bailey did nothing
whatsoever to embrace the employer's proposal.
Fannie Mae also claims that when Mr. Bailey continued in
his job with the employer, this showed that he acceded the
Dispute Resolution Policy, because the Policy itself was pro-
claimed to be a "condition of employment." This, too, is a
flawed argument. First, as counsel acknowledged at oral
argument, there is a question as to whether Fannie Mae
could terminate a current employee solely because of his or
her refusal to accept the new arbitration policy. The Ninth
Circuit has held that
the unilateral promulgation by an employer of arbitration
provisions in an Employee Handbook does not constitute
a "knowing agreement" on the part of an employee to
waive a statutory remedy provided by a civil rights law.
Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756, 762
(9th Cir. 1997); see also Wright v. Universal Maritime Serv.
Corp., 525 U.S. 70, 79-82 (1998) (holding that a general
arbitration clause in a collective bargaining agreement does
not waive an employee's right to judicial forum for claim of
employment discrimination; an employee does not waive a
statutorily protected right unless the undertaking is "explicit-
ly stated," and any such "waiver must be clear and unmistak-
able"); Mohave Elec. Coop. v. NLRB, 2000 WL 287822 (D.C.
Cir. Mar. 28, 2000) (same); Cole, 105 F.3d at 1482 (noting
that the Supreme Court's decision in "Gilmer cannot be read
as holding that an arbitration agreement is enforceable no
matter what rights it waives or what burdens it imposes").
In other words, Mr. Bailey had reason to assume that, under
existing law, his job was not in jeopardy. This being the
case, Mr. Bailey signaled nothing when he remained in the
employ of Fannie Mae following the issuance of the arbitra-
tion policy. Furthermore, to be sure that there was no
confusion on this point, Mr. Bailey's lawyer specifically raised
the issue with the employer; in response, Fannie Mae's
attorney assured Mr. Bailey that he was in no threat of losing
his job over his refusal to subscribe to the employer's arbitra-
tion policy. Given these considerations, Mr. Bailey's contin-
ued employment with Fannie Mae surely was not an indica-
tion that he intended to be bound by the arbitration policy.
In light of the undisputed facts in this case and the
applicable law of the District of Columbia, we are constrained
to find that the District Court was correct in rejecting Fannie
Mae's motion to stay litigation pending arbitration.
III. Conclusion
For the foregoing reasons, we affirm the judgment of the
District Court.
So ordered.