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Nino v. Diamonds International, No. 09-1268 (3d Cir. June 15, 2010); McGullam v. Cedar Graphics, Inc., No. 08-4661 (2d Cir. June 15, 2010)

| Jun 14, 2010 | Daily Developments in EEO Law |

The Third Circuit tosses, in toto, an arbitration policy promulgated by a jewelry retailer, finding it both unconscionable under Virgin Island law and (more notably) forfeited by the employer’s failure to file a dispositive motion during the first year of the litigation. The Second Circuit affirms summary judgment in a Title VII harassment case, but finds discord among the panel members about the right way to apply the Morgan limitations rule.

Nino v. Diamonds International, No. 09-1268 (3d Cir. June 15, 2010):  The panel reverses a district court’s order compelling arbitration of a Title VII employment discrimination dispute under Title VII. This agreement, like many following in the wake of Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), was full of tripwires and spring-guns, including a provision that gave the employer two strikes on the arbitration panel to the employees’ one strike, setting a five-day limitations period on claims, and requiring the parties to bear their own fees and expenses (barring statutory fee-shifting).  The district court, and the panel, had no difficulty concluding that the agreement was substantively and procedurally unconscionable under Virgin Islands law (the forum of the dispute, and the choice of law dictated by the Federal Arbitration Act).

The panel added, though only in a footnote, that the agreement was so “convoluted” that confusion alone might be grounds to find the agreement at least procedurally unconscionable: “We find it hard to imagine that an employee in Nino’s position reading these contradictory materials could realistically understand what sort of dispute resolution mechanism he was agreeing to.”

The panel parted with the district court in two respects, nonetheless, resulting in reversal of the lower court’s order to compel.  First, the panel held that the unconscionable parts of the agreement were unseverable, because they collectively and impermissibly oriented the agreement against the employees’ rights:

“The provisions in question do not simply accord an advantage upon DI indirectly or by happenstance. Instead, they are baldly one-sided, with only one discernable purpose-to create advantages for the employer that are not afforded to the employee. Of the four members of the arbitration panel, the agreement permits DI to strike two and the employee to strike just one. The employee is required to give notice to DI of the claims he intends to arbitrate, while DI is under no such obligation to provide any notice to the employee. The employee must file a detailed grievance regarding the matter he seeks to arbitrate within five days of the underlying events or lose the right to go to arbitration altogether, while DI is insulated against the risk of default for any failure to adhere to its own filing deadlines.”

Second, the panel reversed the district court’s holding that the employer preserved its right to arbitrate by asserting it as an affirmative defense in its answer.  Here, the employer (as has often enough been the case) allowed the litigation to ride for a while, allowing it to obtain discovery and test the waters with the court, before ultimately invoking the clause.  While some courts have allowed the mere pleading of the defense to preserve the argument, here the panel finds that sustained litigation of the claim for fifteen months by itself prejudiced the employee:

“[T]he investment of considerable time and money litigating a case may amount to sufficient prejudice to bar a later-asserted right to arbitrate. This recognition that the right to arbitrate may be waived under such circumstances is consistent with the purpose behind arbitration itself-arbitration is meant to streamline the proceedings, lower costs, and conserve private and judicial resources, and it furthers none of those purposes when a party actively litigates a case for an extended period only to belatedly assert that the dispute should have been arbitrated, not litigated, in the first place.”

The court found that the fifteen-month delay, combined with significant discovery and motion practice, and the employer’s assent to a various pre-trial orders, supported a holding that the employer waived its rights.

McGullam v. Cedar Graphics, Inc., No. 08-4661 (2d Cir. June 15, 2010):  The plaintiff endured verbal harassment from her first day of employment in the production department (April 15, 1996) till she was transferred. “On September 22, 1999, after she complained of sexual harassment and at her request, she was transferred to a position in the estimating department.” There then followed the single incident, after her transfer, which the plaintiff complained was part of a continuing violation: 

“While working in the estimating department, I was away from the majority of the harassment, hostility and aggravation. However, all comments of a sexual and derogatory nature did not cease entirely. On the opposite side of my cubic[le] wall was a salesman . . . [who] carried on numerous lengthy conversations with male buddies and made frequent comments about women such as referring to them as ‘chickies[.’] He also remarked that ‘[i]f it wasn’t going to be a sleep-over, she wasn’t worth the trip[,’] regarding a woman friend that he was involved with.”

The district court granted summary judgment, holding alternatively that “(i) the hostile work environment claim was time-barred, and (ii) in the alternative, McGullam failed to raise a genuine issue of material fact as to the severity or pervasiveness of the complained-of conduct.” Affirming, the panel majority holds that the comments made by an employee in a different department was too remote from the balance of the verbal harassment to support a continuing violation under National Railroad Passenger Corporation v. Morgan, 536 U.S. 101 (2002).

The plaintiff’s trouble came in the form of waiting until nearly 300 days after she was fired (at which point, any liability for hostile work environment by definition ceased accruing) before filing a charge.  Thus, she was required to present a genuine issue of fact about a harassing event during the tiny porthole of a window open during the seven-day period of September 6-12, 2000 to be timely.  The “chickies” comment (the majority holds) is too innocuous, while the sleep-over comment (even assuming that it occurred in this window) was unrelated to the prior incidents even under the circuit’s flexible analysis: the event occurred in a different department, after a significant gap in time, and — even in the plaintiff’s telling — was not targeted at her. Moreover, “the salesman she overheard was a member of neither the production department nor the estimating department.” Finally, the panel concluded that the single remark did not, by itself, create an actionable hostile work environment.

Judge Calabresi, concurring, contends that the severity of the prior incidents of alleged harassment ought to play a greater role in the limitations analysis than the majority allows:  “I believe that the severity of alleged conduct affects whether that conduct should be considered ‘related’ under Morgan. All other things being equal, incidents that occurred later in time are more likely to be part of the same hostile environment as pre limitations period incidents when those earlier incidents were more severe. In this respect, consider both the subjective and objective relevance of severity. As to the plaintiff herself, the severity of the earlier statements seems clearly relevant to the question of linkage between incidents. After all, how one reacts subjectively to a later statement-i.e., whether one perceives the statement to constitute part of the same employment practice as prior statements and incidents-certainly depends on the nature, including the severity, of the earlier conduct. Moreover, an objective observer in the plaintiff’s position would, I think, consider the relative severity of earlier incidents relevant to her assessment of whether later incidents were related. Where, for example, an individual previously experienced severe harassment, whether in the form of humiliating or obscene comments or even physical threats, a reasonable person is more likely to deem later comments and actions, even if milder, to be part of a pattern than if the earlier episodes were comparatively benign. This is especially likely when the same person or group of people is the source of both the earlier and later incidents. But even where the source is not common, earlier occurrences of severe hostility in the workplace may reasonably color one’s interpretation of later events and hence whether those events are related.”

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