PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
KARREN Y. HILL,
Plaintiff-Appellee,
v. No. 04-2187
PEOPLESOFT USA, INCORPORATED,
Defendant-Appellant.
Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Roger W. Titus, District Judge.
(CA-04-237-RWT)
Argued: May 25, 2005
Decided: June 22, 2005
Before MOTZ and GREGORY, Circuit Judges, and
HAMILTON, Senior Circuit Judge.
Vacated and remanded with instructions by published opinion. Senior
Judge Hamilton wrote the opinion, in which Judge Motz and Judge
Gregory joined.
COUNSEL
ARGUED: Fred Saul Sommer, SHULMAN, ROGERS, GANDAL,
PORDY & ECKER, P.A., Rockville, Maryland, for Appellant. Pat-
rick Joseph Massari, Washington, D.C., for Appellee. ON BRIEF:
Daniel H. Handman, SHULMAN, ROGERS, GANDAL, PORDY &
ECKER, P.A., Rockville, Maryland, for Appellant.
2 HILL v. PEOPLESOFT
OPINION
HAMILTON, Senior Circuit Judge:
The issue in this case is whether the district court erred when it
refused to compel Karren Hill (Hill) to arbitrate the discrimination
claims she brought against PeopleSoft USA, Incorporated (People-
Soft). The district court refused to compel arbitration, holding that the
arbitration agreement signed by the parties was not supported by con-
sideration. PeopleSoft appeals, and, for the reasons stated below, we
vacate the district court’s judgment and remand the case to the district
court with instructions to grant the motion to compel arbitration.
I
In August 2001, by way of an offer letter (the Offer Letter), Peo-
pleSoft offered Hill the position of customer product consultant. In
the Offer Letter, PeopleSoft indicated that, as a condition of her
employment, Hill would have to sign a separate arbitration agreement
(the Arbitration Agreement).
The Arbitration Agreement signed by the parties is a comprehen-
sive six-page document which sets forth both Hill and PeopleSoft’s
obligations concerning arbitration. Specifically, in the Arbitration
Agreement, the parties agreed to arbitrate "all" claims arising out of
Hill’s employment relationship with PeopleSoft, except for those
claims involving workers compensation, unemployment insurance, or
the administrative jurisdiction of a labor commissioner, the National
Labor Relations Board, or the Equal Employment Opportunity Com-
mission. Moreover, in the Arbitration Agreement, PeopleSoft retained
the right to enforce, in court, any violation of its intellectual property
rights.
The Arbitration Agreement also sets forth the process for request-
ing arbitration, the parties’ rights concerning legal representation in
the arbitration proceeding, the rules governing the selection of an
arbitrator, the arbitrator’s authority, the pleadings and extensive dis-
covery allowed in the arbitration proceeding, the hearing procedure,
and information regarding fees and costs. Moreover, in the Arbitra-
HILL v. PEOPLESOFT 3
tion Agreement, neither party reserved the right to modify the agree-
ment’s terms.
In the Offer Letter, PeopleSoft also indicated that Hill, by accept-
ing PeopleSoft’s offer of employment, was agreeing to be bound by
the company’s "Internal Dispute Solution" program (the IDS Pro-
gram). Unlike the Arbitration Agreement, the IDS Program is not a
document signed by the parties. Rather, the IDS Program is a com-
pany policy generally applicable to all employees. It involves a three-
stage process for resolving all "legal employment claim(s) or dis-
pute(s)." Step one, the open-door policy, allows an employee to raise
any issue with her manager. Step two, the employee relations step,
involves action by the company’s human resources department and
may involve internal or external mediation of a claim or dispute. If
the first two steps are unsuccessful at resolving the claim or dispute,
the parties must proceed to the third step—binding arbitration. Unlike
the separate Arbitration Agreement, in the IDS Program PeopleSoft
reserved the right to "change" the program "without notice."
On January 28, 2004, Hill brought this action against PeopleSoft
in the United States District Court for the District of Maryland.
According to the complaint, numerous acts of discrimination by Hill’s
coworkers and superiors in PeopleSoft’s Bethesda, Maryland office
and elsewhere formed the basis of her claims of sexual harassment,
hostile work environment, retaliation, and race discrimination. On
February 18, 2004, PeopleSoft filed a motion to compel arbitration.
In response, Hill filed an opposition to the motion to compel arbitra-
tion and filed her own cross-motion for summary judgment. In her
cross-motion for summary judgment, Hill argued that the Arbitration
Agreement was both procedurally and substantively unconscionable
and that PeopleSoft waived its right to proceed to arbitration. On
August 31, 2004, the district court denied PeopleSoft’s motion to
compel arbitration, and PeopleSoft noted a timely appeal.
II
Under the Federal Arbitration Act (the FAA), a court must stay
"any suit or proceeding" pending arbitration of "any issue referable to
arbitration under an agreement in writing for such arbitration." 9
U.S.C. § 3. Because ascertaining the scope of an arbitration agree-
4 HILL v. PEOPLESOFT
ment is a task of contract interpretation, we review de novo a district
court’s determination of the arbitrability of a dispute. United States
v. Bankers Ins. Co., 245 F.3d 315, 319 (4th Cir. 2001). At the same
time, we give due regard to the federal policy favoring arbitration and
resolve "any doubts concerning the scope of arbitrable issues . . . in
favor of arbitration." Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24-25 (1983).
The Supreme Court has directed that we "apply ordinary state-law
principles that govern the formation of contracts," First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995), and the "federal
substantive law of arbitrability." Moses H. Cone Mem’l Hosp., 460
U.S. at 24. Thus, state law determines questions "concerning the
validity, revocability, or enforceability of contracts generally," Perry
v. Thomas, 482 U.S. 483, 493 n.9 (1987), but the FAA creates "a
body of federal substantive law of arbitrability, applicable to any arbi-
tration agreement within the coverage of the Act." Moses H. Cone
Mem’l Hosp., 460 U.S. at 24. The FAA constitutes "a congressional
declaration of a liberal federal policy favoring arbitration agreements,
notwithstanding any state substantive or procedural policies to the
contrary." Id.
Because this case involves the question of whether the Arbitration
Agreement was a valid contract, we turn to Maryland law, which the
parties agree applies in this case. Under Maryland law, to be binding
and enforceable, an arbitration agreement must be a valid contract.
Cheek v. United Healthcare of Mid-Atlantic, Inc., 835 A.2d 656, 661
(Md. 2003). In examining whether an arbitration agreement is a valid
contract, we examine only the language of the arbitration agreement
itself. Id. at 664-65. Moreover, to be binding and enforceable, a con-
tract must be supported by consideration. Id. at 661. A "promise
becomes consideration for another promise only when it constitutes
a binding obligation." Id. Unlike a binding obligation, an "‘illusory
promise’ appears to be a promise, but it does not actually bind or obli-
gate the promisor to anything." Id. at 662. Because an illusory prom-
ise is not binding on the promisor, an illusory promise cannot
constitute consideration. Id.
In this case, the district court determined that the Arbitration
Agreement was not supported by consideration because, under the
HILL v. PEOPLESOFT 5
IDS Program, PeopleSoft reserved the right to change the IDS Pro-
gram "without notice." According to the court, PeopleSoft’s retention
in the IDS Program of the right to change the IDS Program without
notice rendered PeopleSoft’s promise to arbitrate in the Arbitration
Agreement illusory because PeopleSoft, in effect, could eliminate
arbitration altogether.
In our view, the district court’s reasoning is flawed. Put simply, the
court below, per Cheek, was not allowed to look beyond the separate
Arbitration Agreement, signed by the parties, to determine whether
the agreement was supported by consideration. Had the court con-
fined its analysis to the Arbitration Agreement, most assuredly, the
court would have concluded that the Arbitration Agreement was sup-
ported by consideration.
To be sure, the Arbitration Agreement is a specific, comprehensive
document, setting forth all of the parties’ rights and obligations con-
cerning arbitration. The Arbitration Agreement unambiguously binds
both Hill and PeopleSoft to arbitrate "all" claims, save a few, specifi-
cally enumerated exceptions that are not relevant here. The Arbitra-
tion Agreement sets forth the entire arbitration process, beginning
with the scope of arbitration and ending with the rules governing fees
and costs. Under the Arbitration Agreement, neither party has the
right to alter or amend the scope of arbitration or the arbitration pro-
cedures. Because the Arbitration Agreement, on its face, unambigu-
ously requires both parties to arbitrate, the district court erred when
it concluded that the Arbitration Agreement was not supported by
consideration.
Like the district court below, Hill relies on Cheek. In Cheek, the
plaintiff agreed to abide by the terms of an arbitration policy con-
tained in an employee handbook. The policy required the parties to
arbitrate all employment related disputes, but importantly in the pol-
icy the employer, United Healthcare, expressly reserved the right to
alter, amend, modify, or revoke the policy at its sole discretion at any
time. Id. at 658. Because the policy in Cheek gave United Healthcare
the right to alter, amend, modify, or revoke the policy, the court con-
cluded that United Healthcare’s promise to arbitrate all employment
related disputes was illusory. Id. at 662.
6 HILL v. PEOPLESOFT
Hill takes the position, as did the district court, that PeopleSoft’s
retention in the IDS Program of the right to change the IDS Program
"without notice" is analogous to United Healthcare’s retention of the
right to alter, amend, modify, or revoke its arbitration policy. The crit-
ical distinction between this case and Cheek is obvious. Unlike this
case, the reservation of rights in Cheek was contained in the arbitra-
tion policy. Looking at the four corners of the arbitration policy in
Cheek, the court understandably concluded that the policy contained
an illusory promise. In the instant case, by contrast, looking at the
four corners of the separate Arbitration Agreement, the agreement
contains no such illusory promise. To be sure, it is only when we are
asked to look beyond the four corners of the Arbitration Agreement
and examine the IDS Program—something Cheek tells us we are not
allowed to do—that Hill’s argument finds its support.
In sum, the district court simply was not at liberty to go beyond the
language of the Arbitration Agreement in determining whether the
agreement contained an illusory promise. Id. at 664-65. When one
examines the language of the Arbitration Agreement itself, only one
conclusion is tenable—the agreement is binding and enforceable.*
III
For the reasons stated herein, the judgment of the district court is
vacated and the case is remanded with instructions to grant People-
Soft’s motion to compel arbitration.
VACATED AND REMANDED WITH INSTRUCTIONS
*In the district court, Hill presented numerous arguments concerning
the Arbitration Agreement’s alleged procedural and substantive uncons-
cionability, as well as an argument that PeopleSoft waived its right to
proceed to arbitration. Although the district court did not address these
arguments, a remand to address these arguments is unnecessary because
the arguments raise purely legal questions based on facts not in dispute.
Cf. Perry v. Bartlett, 231 F.3d 155, 160 (4th Cir. 2000) (holding that,
although the district court erred in ruling that a statute was moot, appel-
late court could reach the question of the statute’s constitutionality where
the question raised was a purely legal one). After a careful and thorough
review of Hill’s unconscionability and waiver arguments, we conclude
that the arguments have no merit.