Third Circuit: Ex-Partner’s Suit Against Dickie, McCamey & Chilcote Law Firm Should Proceed

Holding:

Ruling on an issue of first impression, the U.S. Court of Appeals for the Third Circuit has found that Alyson J. Kirleis, an ex-partner of Dickie, McCamey & Chilcote, P.C. (“DMC” or “firm”) could proceed with her employment discrimination suit against her former law firm , and could not be compelled to arbitrate her claims. Kirleis filed her sex discrimination and sexual harassment suit in the U.S. District Court for the Western District of Pennsylvania. In response, the firm filed a motion to compel arbitration pursuant to 9 U.S.C. § 4, citing a mandatory arbitration provision in its bylaws. The district court denied the motion and the firm filed this timely appeal. In affirming the district court’s ruling, the Third Circuit held that Kirleis was able to show evidence that she was never informed of and never agreed to any arbitration clause in the firm's bylaws. The Third Circuit rejected the firm’s argument that Kirleis ‘s status as a shareholder of the company should put her on constructive notice of the arbitration provision and implied her intent to be bound thereby. The Third Circuit reasoned that under Pennsylvania law, explicit agreement is essential to the formation of an enforceable arbitration contract. Thus, the firm’s argument that Kirleis impliedly agreed to arbitrate her claims must fail under Pennsylvania law.

Detailed Summary:

In this appeal, the Third Circuit considered a question of first impression under Pennsylvania law: whether a shareholder/director may be compelled to arbitrate her civil rights claims pursuant to corporate bylaws to which she has not explicitly assented. When first presented with this issue, the Third Circuit petitioned the Pennsylvania Supreme Court to certify the question because it exposed tension between corporate law principles and arbitration contract principles. The Pennsylvania Supreme Court denied the petition, so the Third Circuit answered the question.

By way of background, Kirleis practiced law with DMC She worked at the firm as a summer associate in 1987 and became a full-time associate the following year. In 1998, Kirleis became a class B shareholder and was promoted to class A shareholder/director in 2001. Since she became a shareholder/director, Kirleis’s relationship with the firm has been governed by the firm’s corporate bylaws.

Kirleis filed two complaints against the firm in the district court alleging sex discrimination, retaliation, and hostile work environment in violation of federal and state law. The firm filed a motion to compel arbitration pursuant to 9 U.S.C. § 4, citing a mandatory arbitration provision in its bylaws. The district court denied the motion and the firm filed this timely appeal.

In this case, the firm argued that Kirleis’  status as a shareholder/director charged her with constructive knowledge of the terms of the bylaws and manifested her acceptance of the arbitration provision. In support of this argument, the firm noted that Kirleis accepted compensation and perquisites pursuant to the bylaws.

In ruling on this argument, the Third Circuit cited the rule that arbitration is a matter of contract. Opinion, p. 7, citing John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547 (1964).  The Third Circuit also cited the Federal Arbitration Act (“FAA”), reflects a “strong federal policy in favor of the resolution of disputes through arbitration.” Id., citing Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 263 (3d Cir. 2003). But this presumption in favor of arbitration “does not apply to the determination of whether there is a valid agreement to arbitrate between the parties.” Id., p.. 7-8, citing Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002).

Before compelling arbitration pursuant to the FAA, a court must determine that (1) a valid agreement to arbitrate exists, and (2) the particular dispute falls within the scope of that agreement. Id., citing Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005).

Here, the Kirleis was able to specify in her affidavit the specific circumstances that rendered the formation of an agreement to arbitrate impossible. For example, she swore under oath that she “was never provided with a copy of the By-Laws of defendant Firm,” “never signed any agreement or document which refers to or incorporates the arbitration provision in the By-Laws,” and “never agreed to arbitrate . . . claims against firm.” Id., p. 10. Not only are these allegations sufficiently specific, they are uncontested by the firm, the Third Circuit found. Hence, the district court did not err in finding that Kirleis’ affidavit is an evidence that created a genuine issue of material fact regarding the existence of an agreement to arbitrate.

The Firm next argued that Kirleis’s status as a shareholder/director of the Firm put her on constructive notice of the arbitration provision in the bylaws and implied her intent to be bound thereby. The Third Circuit however rejected this argument, stating that under Pennsylvania law, explicit agreement is essential to the formation of an enforceable arbitration contract. Id., p. 14, citing Emmaus Mun. Auth. v. Eltz, 204 A.2d 926, 927 (Pa. 1964); Philmar Mid-Atl., Inc., v. York St. Assoc. II, 566 A.2d 1253, 1255 (Pa. Super. 1989). Thus, the firm’s argument that Kirleis impliedly agreed to arbitrate her claims must fail under Pennsylvania law.

The Third Circuit added that Kirleis never received a copy of the only document containing the firm’s arbitration provision. Without this document, Kirleis could not have explicitly agreed to arbitrate her claims. Id., pp. 17-18, citing Quiles v. Financial Exchange Co., 879 A.2d 281 (Pa. Super. Ct. 2005).

On the basis of the foregoing, the Third Circuit affirmed the judgment of the district court.

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