Lead Opinion
Opinion by Judge TASHIMA; Partial Concurrence and Partial Dissent by Judge O’SCANNLAIN.
Ocean View Hotel Corporation (“Ocean View”) and Thomas Cox executed an employment agreement containing a mandatory arbitration clause. When a dispute arose during the course of employment, Cox wrote a letter to Ocean View requesting arbitration, but Ocean View responded by telling Cox that it did not consider his claim ripe for arbitration. Following termination of his employment, Cox filed a complaint in the Circuit Court of Hawai’i. At that point, Ocean View decided that it wanted to arbitrate Cox’s claim. After removing the action to federal court, Ocean View moved to compel arbitration. The district court denied its motion to compel arbitration and granted Cox’s motion for partial summary judgment on the ground that Ocean View previously breached its agreement and waived its right to arbitrate disputes with Cox. Cox v. Ocean View Hotel Corp.,
We hold that the district court erred in granting partial summary judgment in favor of Cox based on his breaeh-of-agreement theory, because Cox did not properly initiate arbitration under the terms of his employment agreement. We also hold that the district court improperly granted summary judgment in Cox’s favor on the issue of waiver.
BACKGROUND
On July 17, 2001, Cox and Ocean View signed a Letter of Agreement of Cox’s employment as the Director of Finance for the Radisson Hotel Waikiki Prince Kuhio. In addition to setting forth Cox’s job description and compensation, the letter included the following arbitration clause:
Any disputes between Employer and Employee arising out of the employment relationship shall be settled by arbitration in accordance with the then current Model Employment Arbitration Procedures of the American Arbitration Association (AAA) in lieu of jury trial and all other judicial dispute resolution methods. Employee fully understands and accepts this.... Any controversy except for Workmen’s Compensation, involving the construction or application of the terms, provisions, or conditions of this Agreement or otherwise arising out of or related to this Agreement shall likewise be settled by arbitration. This agreement to arbitrate covers all employment disputes including but not limited to those involving tort, wrongful discharge, and discrimination claims. The cost of the arbitration shall be paid by the Company. The location of the arbitration shall be paid by the Company. The location of the arbitration shall be in the County in which the Company is located. This clause cannot be amended without written consent of both parties.
The letter also provided that “[t]he validity, interpretation, enforceability, and the performance of this Agreement shall be governed by and construed in accordance with the law of the State of California.”
The employment relationship began to sour by October 2003, when Cox’s supervisor Gary Jutz raised allegations that Cox was involved in a sexual relationship with one of his female subordinates. The events that gave rise to the current litigation began the following year, on October 5, 2004, when Jutz sent a memorandum to Cox demanding that Cox end his personal relationship with that subordinate. Although the letter did not describe the relationship as a romantic or sexual one, it stated that the perception of the alleged relationship was disrupting the perform-
On October 11, 2004, Cox responded in a letter to Jutz’s supervisor, Clyde Guinn, in which he laid out various arguments in support of his claim that he was a victim of sex discrimination. In the first line, Cox called the letter a “request to enter into arbitration.” He also stated that assertions in Jutz’s memo violated provisions in his employment handbook, by amounting to “sex discrimination, harassment, intimidation, interference with others in the performance of their jobs, threatening, making maliciously false and/or defamatory statements concerning an associate, and retaliation....” Cox’s letter concluded by requesting that Guinn “provide the date and time of the arbitration hearing and any questions” to his attorney at a listed address.
Guinn responded on October 27, 2004, in a letter to Cox (“Guinn’s letter”). In it, Guinn disagreed with Cox’s characterization of Jutz’s memo as accusing Cox of having a romantic or sexual relationship with that subordinate. He also disagreed with Cox’s statements that Jutz was guilty of the violations asserted in Cox’s letter. The essential portions of Guinn’s letter are contained in the following two paragraphs:
In summary, therefore, I do not consider this a ease for arbitration. Gary Jutz believes that your behavior, as a senior member of the hotel management team, is cause for censure. You do not accept this is the case. Clearly, if you continue to pursue the activities which Gary Jutz has complained of, you run the risk of being terminated. At that point, assuming you then consider it a wrongful termination, arbitration may be in order.
In the meantime, if you feel that Gary Jutz is “guilty of’ the issues set out above, it may be that we should have an independent investigation by an outside attorney to establish whether or not there is in the Hotel a perception of a “relationship” existing between you and your direct subordinate ..., thereby justifying the complaints made by Mr. Jutz to you on numerous occasions.... At the conclusion of any such investigation I believe the position will be much clearer for all parties and we could then each decide on what course of action each wishes to adopt in the circumstances.
Jutz terminated Cox’s employment on December 20, 2004. On February 10, 2005, Cox filed a Charge of Discrimination with the Hawai’i Civil Rights Commission, and on September 26, 2005, the Commission granted him the right to sue. Cox then filed a complaint in state court, which Ocean View removed to federal district court. In its answer, Ocean View requested “that the Complaint herein be stayed and that Plaintiff be required to submit all of his claims to final and binding arbitration .... ” Cox moved for partial summary judgment denying arbitration on the theory that Ocean View breached its agreement to engage in arbitration by refusing arbitration in Guinn’s letter.
The district court ruled in favor of Cox, granting his motion for partial summary judgment and denying Ocean View’s motion to compel arbitration. Cox I,
STANDARD OF REVIEW
We review the denial of a motion to compel arbitration de novo. Brown v. Dillard’s, Inc.,
ANALYSIS
I
Preliminarily, we must decide whether Cox’s challenges to enforcing the arbitration clause are for the court, or for the arbitrator, to decide. We have previously determined that the federal law of arbitrability under the Federal Arbitration Act (“FAA”) governs the allocation of authority between courts and arbitrators. Chiron Corp. v. Ortho Diagnostic Sys., Inc.,
Section 2 of the FAA creates a policy favoring enforcement of agreements to arbitrate. 9 U.S.C. § 2; Buckeye Check Cashing, Inc. v. Cardegna,
In this case, neither party disputes the validity of the Letter of Agreement. Instead, Cox challenges enforcement of the arbitration clause on the grounds that Ocean View breached the agreement to arbitrate and therefore had no right to enforce the clause or, alternatively, that Ocean View’s conduct amounted to a waiver of the right to arbitrate. Therefore, under Buckeye Check Cashing, the particular contractual defenses to enforcement of the arbitration clause at issue in this case, breach and waiver, were properly heard by the district court.
Ocean View contends that the issue of waiver was for the arbitrator to determine. The cases on which it relies, however, Omar v. Ralphs Grocery Company,
In Howsam, the Court confronted the issue whether a court or a National Association of Securities Dealers (“NASD”) arbitrator should apply a NASD procedural rule to a dispute between the parties. Id. at 81,
The reasoning of Howsam is simply inapplicable to resolution of the first gateway issue: whether the parties are bound by the arbitration clause.
II
Section 2 of the FAA provides that arbitration clauses in contracts “shall be 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. Under the FAA, a party may challenge the validity or applicability of the arbitration provision by raising the same defenses “available to a party seeking to avoid the enforcement of any contract.” Brown,
A
Breach or repudiation of a contract by one party excuses nonperformance by the other. “A bedrock principle of California contract law is that he who seeks to enforce a contract must show that he has complied with the conditions and agreements of the contract on his part to be performed.” Brown,
Cox argues that his October 11, 2004, letter to Guinn constituted a proper demand for arbitration. We disagree. The arbitration clause in the employment agreement clearly states that “disputes ... shall be settled ... in accordance with the then current Model Employment Arbitration Procedures of the [AAA].... ” Our court, as well as the California Court of Appeal, has concluded that such language incorporates the applicable rules of the AAA into the terms of the contract. See Lifescan, Inc. v. Premier Diabetic Servs., Inc.,
Instead, Cox justifies his failure to follow AAA procedures by arguing that the employment agreement did not specify how arbitration was to be initiated, just that it would take place “in accordance” with AAA rules. This position is untenable because, as discussed above, the agreement clearly integrated those rules and procedures. Besides challenging the clarity of the provision, Cox does not assert any traditional contract defenses. Recently, the California Court of Appeal noted that it was aware of no cases “that stand for the extreme proposition that a party who fails to read a contract but nonetheless objectively manifests his assent by signing it — absent fraud or knowledge by the other contracting party of the alleged mistake- — -may later rescind the agreement on the basis that he did not agree to its terms.” Stewart v. Preston Pipeline Inc.,
Cox also contends that Ocean View’s refusal to arbitrate placed him in the situation of having to pay his own filing fee, because AAA rules require a party to pay a fee in order to initiate arbitration. Therefore, he argues, compliance with AAA procedures would violate the terms
The district court also determined that Ocean View should be equitably estopped from denying that Cox initiated arbitration because of its own refusal to arbitrate. The facts established by the pleadings do not support this view. The doctrine of equitable estoppel “provides that a person may not deny the existence of a state of facts if he intentionally led another to believe a particular circumstance to be true and to rely upon such belief to his detriment.” Aerojet-Gen. Corp. v. Commercial Union Ins. Co.,
For the foregoing reasons, Cox’s reliance on Brown is misplaced. In Brown, an employer, Dillard’s, terminated Brown for allegedly adding ten minutes to her timecard. Thereafter, she filed a notice of intent to arbitrate with the AAA as required by Dillard’s arbitration policy. Id. at 1008. Under the arbitration policy, Brown’s share of the arbitration fee was $100. Id. She paid the fee. Id. After filing, the AAA informed Brown that Dillard’s had not responded to its requests for information. Id. Brown was able to speak with a person in Dillard’s legal department once to notify the employer of this delinquency, but did not receive a response to
This court concluded, based on the facts summarized above, that Dillard’s “breached its agreement with Brown by refusing to participate in the arbitration proceedings Brown initiated.” Id. at 1010. We rejected the notion that the employer could make an independent determination of the suitability of the employee’s claims for arbitration, stating that Dillard’s “proper course of action was to make that argument in arbitration.” Id. (emphasis added). Thus, we construed Dillard’s refusal as a breach of the agreement which excused Brown from having to arbitrate the matter instead of pursuing her lawsuit. Id. at 1011.
The plaintiff in Brown made heroic efforts to initiate arbitration, clearly going beyond the requirements of the arbitration agreement. Here, in contrast, Cox did not comply with the terms of the agreement; he simply failed properly to initiate arbitration. As the non-complying party in this case, Cox cannot establish that Ocean View repudiated the arbitration agreement. Brown simply does not apply under the facts of this case.
B
Cox argues in the alternative that Guinn’s letter amounted to a waiver of Ocean View’s right to arbitrate Cox’s dispute. Recently, the California Supreme Court set forth the factors to be considered under California law to determine whether arbitration has been waived:
In determining waiver, a court can consider (1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.
St. Agnes Med. Ctr. v. PacifiCare of Cal.,
We note preliminarily that, while Cox’s failure properly to initiate arbitration under the AAA rules may make it more difficult for him to establish waiver, it does not foreclose his assertion, as it does in the breach of agreement context discussed
Thus, the district court properly considered whether Ocean View waived its right to compel arbitration, notwithstanding Cox’s failure to file a claim with the AAA, because arbitration is a matter of private contract law. See Howsam,
Moreover, waiver is an equitable doctrine. See generally Wyler Summit P’ship v. Turner Broad. Sys., Inc.,
We conclude that the district court erred in determining that Ocean View waived its right to arbitrate its dispute with Cox. None of the St. Agnes factors supports waiver. Even under the first factor, given Guinn’s understanding that the dispute was not yet ripe for arbitration, it is at least a debatable proposition “whether [Guinn’s] actions [were] inconsistent with the right to arbitrate.” St. Agnes,
Because none of the St Agnes factors supports Cox’s waiver argument and given the strong federal policy favoring the enforcement of arbitration agreements, we hold that the district court erred in concluding that Ocean View had waived its right to enforce the arbitration agreement.
CONCLUSION
We reverse the district court’s grant of partial summary judgment in favor of Cox, and remand for further proceedings consistent with this opinion.
REVERSED and REMANDED.
Notes
. We assume without deciding that the "dispute” Cox wanted arbitrated is an arbitrable dispute within the meaning of the parties’ arbitration agreement. Also, on this appeal, we resolve only the legal questions presented and not any factual disputes, which the parties are free to contest on remand. See Brown,
. Other courts have considered waiver as a defense to a motion to compel arbitration. See, e.g., Khan v. Parsons Global Servs.,
. The partial dissent is based on the premise that the arbitration agreement is valid. Dissent at 1127. As discussed below, however, we can only reach that conclusion after considering, and rejecting, the defenses raised by Cox. The Supreme Court has noted that because the duty to arbitrate originates in a contractual agreement between the parties, a party "cannot be compelled to arbitrate if an arbitration clause does not bind it at all.” John Wiley & Sons v. Livingston,
.Indeed, the California Court of Appeal noted that the issue "whether there is an enforceable arbitration agreement between the parties” was antecedent to the issue whether particular procedural matters, such as waiver, are covered by the agreement. Omar,
. Indeed, Howsam does not even cite Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
. Moreover, Cox presumably could seek reimbursement of any filing fees he advanced as part of the arbitration award.
. In concluding that Ocean View had “waived its right to enforce the arbitration agreement,” the district court relied on the three-factor test articulated in Brown. Cox I,
. Cox also contends that he was prejudiced because he “would have prevailed [in arbitration] and [Ocean View] would not have a basis for terminating [his] employment.” Any argument premised on the ultimate outcome of the arbitration, however, is speculative and, as such, cannot support a prejudice argument.
Concurrence Opinion
concurring in part and dissenting in part:
While I concur in the court’s decision that the motion to compel arbitration was erroneously denied by the district court, I respectfully disagree with its conclusion that the waiver issue was for the court to decide. In my view, arbitrability is a matter for the court; whether or not the agreement to arbitrate was properly invoked, by either side, at any time, is a matter for the arbitrator to decide. Thus I would reverse on the very narrow ground that a motion to compel must be granted because the arbitration clause is valid. I would leave all other issues to the arbitrator.
I
As the en banc opinion in Nagrampa v. Mailcoups, Inc.,
The Supreme Court in Howsam could not be clearer: “the presumption is that the arbitrator should decide allegations] of waiver, delay, or a like defense to arbi-trability.”
Here, I see no relevant distinction between Cox’s attempt to avoid the arbitra-bility of his employment dispute based on whether or not he properly followed the procedures of the AAA and Dean Witter’s challenge to arbitrability in Howsam based on the National Association of Securities Dealers (NASD) procedural rules. See Howsam,
Here, neither party disputes the existence nor validity of the arbitration agreement. Therefore, I concur in the majority’s decision to compel arbitration. However, I would remand all other issues to the arbitrator, including the issues of whether the arbitration provision was waived or breached, and therefore dissent to the extent the court holds otherwise.
II
Let me add that I find the majority’s treatment of Brown v. Dillard’s, Inc.,
. Such approach is correct notwithstanding the majority's citation to out of circuit cases considering waiver based on extensive participation in litigation. See, e.g., Khan v. Parsons Global Servs.,
. The majority opinion states that my approach leads to "a strange result: the arbitrator would get first crack at defenses to a motion to compel arbitration based on waiver or breach.” Opinion at 1121 n. 5. However, the majority opinion's approach is no less strange; it would require a court to answer the question of waiver before deciding whether the question of waiver is one for the arbitrator to decide. See Opinion at 1120 n. 4, 1120-21. Such an approach leads to a waste of judicial resources should the court find that the arbitration clause was not breached or waived and it does take into account the FAA's policy favoring enforcement of arbitration agreements. Although not directly on point, Buckeye Check Cashing instructs us that when faced such a “conundrum” we must "resolve[j it in favor of the separate enforceability of arbitration provisions.”