Johnson v. Circuit City

Filed: August 24, 1998

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 97-2408
(CA-95-3296-DKC)

Demeka Johnson,

Plaintiff - Appellee,

versus

Circuit City Stores, Inc.,
Defendant - Appelant.

O R D E R

The court amends its opinion filed July 1, 1998, as follows:

On page 9, footnote 1 -- the footnote is amended to read as
follows:

Johnson argues initially that the Federal Arbitration Act
(FAA), including its presumption in favor of arbitrabil-
ity, is not applicable to this case for two reasons: (1)
a valid contract did not exist between herself and
Circuit City, and (2) even if one did, it did not evi-
dence a transaction involving interstate commerce. See 9
U.S.C. § 2. We address Johnson’s first reason in the
folloiwng text of our opinion, but we do not address her
second reason because Johnson did not raise it below. See
Karpel v. Inova Health Sys. Servs., 134F.3d 1222, 1227
(4th Cir. 1998) (issues raised for the first time on
appeal generally will not be considered, unless refusal
to consider the issue would be plain error or would
 - 2 -

result in a fundamental miscarriage of justice); Muth v.
United States, 1 F.3d 246, 250 (4th Cir. 1993) (same).

For the Court - By Direction

/s/ Patricia S. Connor
Clerk
PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DEMEKA JOHNSON,
Plaintiff-Appellee,

and

ERIC BROOKS; REGINALD DERRICKSON;
MOHMED IBRAHIM; MAXINE JAMES;
ARTIS KENDALL; BERNARD
LIVINGSTON; HAROLD MOORE;
STANLEY SIMS; STEVEN TAYLOR; H.
No. 97-2408
ALEXANDER RICHARDSON,
Plaintiffs,

v.

CIRCUIT CITY STORES, INCORPORATED,
Defendant-Appellant.

EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION,
Amicus Curiae.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Deborah K. Chasanow, District Judge.
(CA-95-3296-DKC)

Argued: June 4, 1998

Decided: July 1, 1998

Before WIDENER, HAMILTON, and MICHAEL,
Circuit Judges.

_________________________________________________________________
Vacated and remanded by published opinion. Judge Hamilton wrote
the opinion, in which Judge Widener and Judge Michael joined.

_________________________________________________________________

COUNSEL

ARGUED: Rex Darrell Berry, DAVIS, GRIMM & PAYNE, Seattle,
Washington, for Appellant. Terry Lynn Sullivan, HOWREY &
SIMON, Washington, D.C., for Appellee. Jodi Beth Danis, Office of
General Counsel, EQUAL EMPLOYMENT OPPORTUNITY COM-
MISSION, Washington, D.C., for Amicus Curiae. ON BRIEF: David
E. Nagle, LECLAIR RYAN, Richmond, Virginia, for Appellant. Wil-
liam R. O'Brien, Patricia G. Butler, HOWREY & SIMON, Washing-
ton, D.C.; Warren Kaplan, THE WASHINGTON LAWYERS'
COMMITTEE FOR CIVIL RIGHTS AND URBAN AFFAIRS,
Washington, D.C., for Appellee. C. Gregory Stewart, General Coun-
sel, Philip B. Sklover, Associate General Counsel, Vincent J. Black-
wood, Assistant General Counsel, EQUAL EMPLOYMENT
OPPORTUNITY COMMISSION, Washington, D.C., for Amicus
Curiae.

_________________________________________________________________

OPINION

HAMILTON, Circuit Judge:

Acting pursuant to 28 U.S.C. § 1292(b) and upon the petition of
Circuit City Stores, Inc. (Circuit City), we agreed to hear this interloc-
utory appeal of the district court's denial of Circuit City's motion for
summary judgment in this race discrimination case, brought pursuant
to 42 U.S.C. § 1981. In its order denying Circuit City's motion, the
district court held that the arbitration agreement signed by plaintiff
Demeka Johnson is unenforceable for lack of consideration. Because
we hold that the arbitration agreement is supported by adequate con-
sideration, we vacate the district court's denial of Circuit City's
motion for summary judgment and remand for further proceedings
consistent with this opinion.

2
I.

Johnson is a black female and a resident of Beltsville, Maryland.
In February 1995, Johnson saw an advertisement for a full-time, per-
manent sales associate position posted on the bulletin board at Circuit
City's Beltsville store. At the time Johnson noticed the advertisement,
she was employed as the service manager at a local McDonald's res-
taurant, where she had been employed since 1993. Upon noticing the
advertisement for the position at Circuit City, Johnson obtained an
application for the position and checked the box for"Full Time"
employment indicating the specific position for which she was apply-
ing. (J.A. 109).

After submitting her application, Johnson received no response
from Circuit City for several months. During that time, she stopped
by and telephoned the store on a number of occasions to inquire about
her application, and on one such occasion she was told that her appli-
cation had been lost. According to Johnson, she ultimately submitted
four or five applications for the full-time sales associate position dur-
ing the period from February to September 1995. The final applica-
tion, one completed by Johnson on September 6, 1995, is the
application at issue in this case.

Contained in the employment application Johnson completed on
September 6, 1995 was a Dispute Resolution Agreement. In the pre-
liminary section of the employment application, the application
warned with respect to the Dispute Resolution Agreement: "This
agreement requires you to arbitrate any legal dispute related to your
application for employment or employment with Circuit City. Circuit
City will not consider your application unless this agreement is
signed." (J.A. 105). At the beginning of the section describing the
Dispute Resolution Agreement, the application warned further: "The
Dispute Resolution Agreement and the Dispute Resolution Rules and
Procedures affect your legal rights. You may wish to seek legal
advice before signing this Dispute Resolution Agreement." (J.A. 106).
The agreement continued:

I have read this Agreement and understand that I should
read the Dispute Resolution Rules and Procedures over the
next few days.

3
 I understand that I may withdraw my consent to this Agree-
ment within three (3) days from the date on which I sign
below by notifying the Applicant Screening Department in
writing . . . that I am withdrawing my application for
employment at Circuit City. . . . I understand that by so noti-
fying the Applicant Screening Department, I will not be
bound to this Agreement and that I no longer will be eligible
for employment at Circuit City. I recognize that if I sign the
Agreement and do not withdraw within three days of sign-
ing I will be required to arbitrate any and all employment-
related claims I may have against Circuit City, whether or
not I become employed by Circuit City.

This Agreement will be enforceable throughout the applica-
tion process, my employment, and thereafter with respect to
any claims arising from or relating to my application or can-
didacy for employment, employment or cessation of
employment with Circuit City. I then must arbitrate all my
employment-related claims, and I may not file a lawsuit in
court.

(J.A. 106) (emphasis in original). Johnson signed the Dispute Resolu-
tion Agreement and provided her social security number. Immediately
below her signature, the agreement contained an additional provision,
which stated: "Circuit City agrees to follow this Dispute Resolution
Agreement and the Dispute Resolution Rules and Procedures in con-
nection with the Associate whose signature appears above." Id.
Underneath this provision was the signature of a Circuit City repre-
sentative. Immediately following the Dispute Resolution Agreement
in the application was the following advisory:

STOP!

IF YOU HAVE NOT SIGNED THE AGREEMENT . ..

If you have decided not to agree to the terms of the preced-
ing DISPUTE RESOLUTION AGREEMENT then you do
not need to complete the balance of this application. We
appreciate your interest in the company.

4
 IF YOU HAVE SIGNED THE AGREEMENT . . .

If you have decided at this time to agree to the terms of the
preceding DISPUTE RESOLUTION AGREEMENT then
you will need to complete the balance of this application so
that we can continue with your application process.

(J.A. 107) (emphasis in original).

As set forth above, the Dispute Resolution Agreement incorporates
the terms of the Dispute Resolution Rules and Procedures (Rules and
Procedures). With respect to what claims are subject to arbitration,
Rule 2 of the Rules and Procedures provides that"any and all
employment-related legal disputes, controversies or claims of an
Associate arising out of, or relating to, an Associate's application or
candidacy for employment, employment or cessation of employment
with Circuit City or one of its affiliates shall be settled exclusively by
final and binding arbitration . . . ." (J.A. 112). This rule provides fur-
ther that all previously unasserted claims arising under federal, state,
or local statutory or common law shall be subject to arbitration,
including claims arising under the Age Discrimination in Employ-
ment Act, Title VII, the Americans With Disabilities Act, the Fair
Labor Standards Act, and 42 U.S.C. § 1981. Rule 4 provides for the
means by which "[an] Associate shall commence an arbitration." (J.A.
113). Under Rule 11, the Rules and Procedures provide that the arbi-
trator's authority is "limited to deciding the case submitted by the
Associate." (J.A. 117).

According to Johnson, when she submitted her application form,
no Circuit City employee discussed with her the application, the Dis-
pute Resolution Agreement, or the Rules and Procedures. In addition,
after submitting the application, she was given three books to review,
none of which contained the Rules and Procedures the application had
advised she read.

Following her submission of the application on September 6, 1995,
Johnson was called for an interview at the Beltsville store. Johnson
was interviewed by three persons, including the store manager, all of
whom indicated to Johnson that they thought she was well qualified
and would receive an offer of employment. According to Johnson,

5
during the course of these interviews, she spoke to a Caucasian
woman who had applied for a position just one week earlier and was
already working. In addition to undergoing interviews, Johnson pro-
vided a urine sample and took a written examination. Johnson was
subsequently told by a store employee that her application was com-
plete and the results of her tests were "fully successful." (J.A. 60).

Shortly thereafter, the store manager summoned Johnson for a sec-
ond interview. According to Johnson, the store manager, whose atti-
tude had changed from the previous interview, stated that the purpose
of the interview was to make certain that Johnson really wanted the
job. The store manager then told Johnson that there were no positions
available at the Beltsville store, but that she would forward Johnson's
application to two other Circuit City stores. Because Johnson did not
have access to transportation to the other stores, Johnson declined the
offer to have the store manager forward her application.

During the next several weeks after her second interview, Johnson
stopped by the Beltsville store on a number of occasions to see
whether the position for which she had applied had been filled.
According to Johnson, the store continued to advertise the full time,
permanent position as vacant until after this action was filed on Octo-
ber 31, 1995.

Also some time after Johnson's second interview with the store
manager, Johnson's mother called Circuit City to complain about her
daughter's experience. As a result of these calls, Johnson was put in
touch with Cheryl Holland, a district manager for Circuit City, who
told her the store manager would now "love" to have Johnson work
at the Beltsville store and Johnson should call there again. (J.A. 61).
As directed, Johnson called the store manager at Beltsville but was
referred to the scheduling manager. The scheduling manager then
advised Johnson that she would only be considered for a temporary
sales position for the holiday season. Johnson declined the offer of
temporary employment because she had only applied for, and was
only interested in, a full-time, permanent position. Johnson asserts
that she has not heard from Circuit City since that time.

On October 31, 1995, a group of current and former employees of
Circuit City filed this action in the United States District Court for the

6
District of Maryland, alleging that Circuit City engaged in racially
discriminatory promotion practices in violation of 42 U.S.C. § 1981
and Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000 et seq.
Johnson joined this suit prior to the plaintiffs' filing of their second
amended complaint, and in the second amended complaint, Johnson
alleged that Circuit City engaged in discriminatory employment prac-
tices affecting her in violation of 42 U.S.C. § 1981. Johnson's posi-
tion in the lawsuit is unique and different from that of other plaintiffs
in that she is the only plaintiff who was never employed by Circuit
City, but rather, was merely an applicant for employment.

On November 20, 1996, prior to any discovery on Johnson's claim,
Circuit City filed a motion for summary judgment seeking the dis-
missal of Johnson's claim on the basis that she was bound by an
agreement to arbitrate any claims arising out of her application for
employment. On May 30, 1997, the district court entered an order and
memorandum opinion denying Circuit City's motion for summary
judgment, holding that under Maryland contract law, the alleged arbi-
tration agreement was void for lack of consideration.

On June 13, 1997, Circuit City filed a motion for certification for
appellate review pursuant to 28 U.S.C. § 1292(b). On that same date,
this court issued our opinion in O'Neil v. Hilton Head Hospital, 115
F.3d 272 (4th Cir. 1997), upholding the validity of an arbitration
agreement, at least arguably similar to the Dispute Resolution Agree-
ment at the center of this dispute. On September 16, 1997, the district
court entered a memorandum opinion and order granting Circuit
City's motion for certification to appeal, stating that an immediate
appeal may materially advance the determination of the litigation
between Johnson and Circuit City, regardless of which way this court
rules. The district court declined, however, to stay proceedings in the
district court pending the interlocutory appeal. On October 16, 1997,
we granted Circuit City's petition for permission to appeal, and Cir-
cuit City now seeks reversal of the district court's denial of its motion
for summary judgment as to Johnson's claims of unlawful race dis-
crimination in violation of § 1981.

On November 25, 1997, Circuit City filed a motion to correct the
record on appeal, apparently because counsel had discovered that one
printed page of the standard employment application form completed

7
by applicants for employment with Circuit City did not appear in the
copy of Johnson's application which had been attached to Circuit
City's motion for summary judgment in the district court. Johnson
opposed the motion, arguing that there was no evidence that Johnson
had been provided with a complete copy of the application and that
the page was not included in the record before the district court. In
response to Circuit City's motion, we deferred action on the motion
to permit the parties to file a similar motion in the district court so that
the district court could rule on the motion in the first instance. The
district court denied Circuit City's motion to correct the record on
February 17, 1998, and we subsequently deferred action on Circuit
City's motion to correct the record pending oral argument.

II.

The district court held as a matter of law that the arbitration agree-
ment signed by Johnson in this case was not supported by adequate
consideration and was, therefore, unenforceable. Because its decision
was a legal one, our review is de novo. See Higgins v. E.I. DuPont
de Nemours & Co., 863 F.2d 1162, 1167 (4th Cir. 1988) (whether a
party was entitled to summary judgment is a matter of law which we
review de novo).

Whether a party agreed to arbitrate a particular dispute is an issue
for judicial determination to be decided as a matter of contract. See
AT&T Technologies, Inc. v. Communications Workers of Am., 475
U.S. 643, 648-49 (1986); Arrants v. Buck, 130 F.3d 636, 640 (4th Cir.
1997). In so deciding, the court should apply "ordinary state-law prin-
ciples that govern the formation of contracts." First Options of Chi-
cago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); see also Arrants, 130
F.3d at 640 ("Courts decide whether there is an agreement to arbitrate
according to common law principles of contract law."). However, the
Supreme Court has emphasized that "it should be kept in mind that
`questions of arbitrability must be addressed with a healthy regard for
the federal policy favoring arbitration.'" Gilmer v. Interstate/Johnson
Lane Corp., 500 U.S. 20, 26 (1991) (quoting Moses H. Cone Mem'l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). "Pursuant to
that liberal policy, `any doubts concerning the scope of arbitrable
issues should be resolved in favor of arbitration, whether the problem
at hand is the construction of the contract language itself or an allega-

8
tion of waiver, delay, or a like defense to arbitrability.'" O'Neil, 115
F.3d at 273-74 (quoting Moses H. Cone, 460 U.S. at 24-25).1

In this case, the district court applied basic principles of contract
law and concluded that the arbitration agreement on which Circuit
City relied to compel Johnson to arbitrate her § 1981 claim against
Circuit City lacked sufficient consideration to constitute an enforce-
able agreement. Specifically, the district court held that the failure of
Circuit City to affirmatively promise to incur any detriment in
exchange for Johnson's agreement to arbitrate any claims she might
have against Circuit City meant that Johnson's agreement to arbitrate
was not supported by any consideration on Circuit City's part and,
thus, lacked mutuality. The district court, in particular, noted that
while the Dispute Resolution Agreement stated that Johnson's appli-
cation would not be considered in the absence of her agreement to
arbitrate her claims, Circuit City never actually agreed to consider
Johnson's application even if she did agree to arbitrate her claims.
The district court also held that because Circuit City did not agree to
arbitrate any claims it had against Johnson and because the arbitra-
tor's authority was specifically limited to deciding"the case submit-
ted by the Associate," (J.A. 117), consideration for the agreement
could not be found in a "`mutual promise[ ] to arbitrate disputes under
the contract,'" (J.A. 170) (quoting Holmes v. Coverall North Am.,
Inc., 649 A.2d 365, 370 (Md. 1994)).

Following the district court's denial of Circuit City's motion for
summary judgment, however, we decided O'Neil, in which we held
_________________________________________________________________

1 Johnson argues initially that the Federal Arbitration Act (FAA),
including its presumption in favor of arbitrability, is not applicable to
this case for two reasons: (1) a valid contract did not exist between
herself and Circuit City, and (2) even if one did, it did not evidence
a transaction involving interstate commerce. See 9 U.S.C. § 2. We
address Johnson’s first reason in the folloiwng text of our opinion,
but we do not address her second reason because Johnson did
not raise it below. See Karpel v. Inova Health Sys. Servs., 134
F.3d 1222, 1227 (4th Cir. 1998) (issues raised for the first time on appeal
generally will not be considered, unless refusal to consider the issue
would be plain error or would result in a fundamental miscarriage of jus-
tice); Muth v. United States, 1 F.3d 246, 250 (4th Cir. 1993) (same).

9
that an arbitration agreement was supported by adequate consider-
ation where both parties agreed to be bound by the arbitration process.
See O'Neil, 115 F.3d at 274. In O'Neil, the plaintiff signed an
acknowledgment form recognizing receipt of an employee handbook
and agreeing to submit all employment disputes to arbitration. See id.
at 273. Specifically with respect to arbitration, the plaintiff agreed:

"I understand that [the employer] makes available arbitra-
tion 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 arbitra-
tion panel as ultimate resolution of my complaints for any
and all events that arise out of employment or termination
of employment."

See id. (quoting agreement) (emphasis in original). In holding that the
plaintiff's agreement to arbitrate employment disputes was supported
by adequate consideration, we rejected her argument that the absence
of any affirmative obligation on the part of the employer to adhere to
the arbitration process was fatal to its enforcement, stating:

[Plaintiff] first argues the contract to arbitrate was not sup-
ported by adequate consideration because the agreement
was not binding on the hospital. [Plaintiff's] argument fails
because its premise is mistaken.

Here the agreement to be bound by arbitration was a mutual
one. The contract to arbitrate was proffered by the
employer. Such a proffer clearly implies that both the
employer and the employee would be bound by the arbitra-
tion process. If an employer asks an employee to submit to
binding arbitration, it cannot then turn around and slip out
of the arbitration process itself.

Id. Although we recognized in O'Neil that an agreement may be
unenforceable where the agreement permits the employer to ignore
the results of arbitration, we noted that the arbitration agreement in
O'Neil did not contain such a clause and we"decline[d] to read such
a clause into the contract." Id. at 275. Instead, we held that "[a]

10
mutual promise to arbitrate constitutes sufficient consideration for
[the] arbitration agreement." Id.

As in O'Neil, both parties in this case agreed to be bound by the
arbitration process for the resolution of any claim required to be sub-
mitted to arbitration under the Dispute Resolution Agreement. There-
fore, we hold that the Dispute Resolution Agreement was supported
by adequate consideration. Although, as the district court noted, Cir-
cuit City did not affirmatively agree to consider Johnson's application
even if she signed the agreement, but rather, stated merely that her
application would not be considered in the absence of her signature,
no consideration above and beyond the agreement to be bound by the
arbitration process was required. Here, the Dispute Resolution Agree-
ment contained a provision stating, "Circuit City agrees to follow this
Dispute Resolution Agreement and the Dispute Resolution Rules and
Procedures in connection with the Associate whose signature appears
above." (J.A. 106). Because Circuit City agreed to be mutually bound
by the terms of the Dispute Resolution Agreement, it was not neces-
sary that it agree to incur any additional detriment in exchange for
Johnson's agreement to arbitrate her employment-related claims,
regardless of whether that consideration was an agreement to actually
consider her application or some other additional consideration.
Rather, the agreement to be bound by the same rules was sufficient.

We recognize, as noted by Johnson, that the Dispute Resolution
Agreement apparently requires the arbitration only of Johnson's
claims against Circuit City and does not appear to require the arbitra-
tion of any claims Circuit City might have against Johnson, as evi-
denced by the limitation of the arbitrator's authority to claims
"submitted by the Associate." (J.A. 117). However, the agreement in
O'Neil similarly appeared to require only the arbitration of the
employee's complaints, providing that the employee, specifically,
agreed "to submit any complaints" to arbitration and to accept the
final decision as ultimate resolution of "[the employee's] complaints."
O'Neil, 115 F.3d at 273. Although the district court opined in its order
granting Circuit City's motion for certification of appeal that we rec-
ognized in O'Neil an implied agreement on the part of the employer
to arbitrate its claims, we do not read O'Neil as implying such an
agreement. Instead, O'Neil implied merely an agreement on the part
of the employer to "be bound by the arbitration process." Id. at 274.

11
An agreement to "be bound by the arbitration process" does not nec-
essarily mean an agreement to submit the employer's claims to arbi-
tration; rather, it more likely means that the employer agreed, with
respect to any claims the employer has agreed should be submitted
to arbitration, to be bound by the rules of the arbitration procedure
and to be bound by its results. Therefore, O'Neil is not distinguishable
on the basis that, in O'Neil, we interpreted the agreement as requiring
not only that the employer be bound by the arbitration process, but
also that the employer agree to submit any claims it might have
against the employee to arbitration.

III.

Because we held in O'Neil, under materially similar circumstances,
that the arbitration agreement in that case was supported by sufficient
consideration to uphold its enforceability, the district court erred in
holding the Dispute Resolution Agreement in this case to be unen-
forceable because it lacked adequate consideration and in denying
Circuit City's motion for summary judgment on that basis.2 We,
therefore, vacate the district court's order denying Circuit City's
motion for summary judgment as to Johnson's claims and remand to
the district court for further consideration of Circuit City's motion.3

VACATED AND REMANDED
_________________________________________________________________

2 In rendering our decision, we have not relied on the page of the stan-
dard employment application (Page 2) that Circuit City asserts was part
of the application signed by Johnson and has submitted in support of its
motion to correct the record on appeal. We therefore deny Circuit City's
motion to correct the record for purposes of this appeal. However, on
remand, Circuit City will have the opportunity to seek leave of the dis-
trict court to supplement the record to include the missing page.

3 Because the district court held the Dispute Resolution Agreement
invalid solely on the basis of inadequate consideration, we express no
opinion as to the merits of Johnson's alternative arguments relating to the
enforceability of the Dispute Resolution Agreement.

12