Smith, Lisa A. v. American Arbitration ( 2000 )

  • In the
    United States Court of Appeals
    For the Seventh Circuit
    No. 00-1204
    Lisa A. Smith,
    American Arbitration Association, Inc.
     and Argenbright, Inc.,
    Appeal from the United States District Court
    for the Northern District of Illinois, Eastern Division.
    No. 99 C 7368--John F. Grady, Judge.
    Argued September 22, 2000--Decided September 25, 2000
    Opinion December 1, 2000
     Before Posner, Manion, and Evans, Circuit Judges.
     Posner, Circuit Judge. The plaintiff appeals from
    the dismissal under Fed. R. Civ. P. 12(b)(6) of
    her far-ranging challenge to standard arbitration
    procedure. She had made a contract to sell
    defendant Argenbright her controlling interest in
    the PIMMS Corporation for some $65 million. The
    contract provided that disputes under it would be
    resolved by arbitration in Chicago "in accordance
    with the rules and regulations of the American
    Arbitration Association" and that the contract
    was to be construed in accordance with the law of
    Minnesota, where PIMMS was located. Shortly after
    the sale, Argenbright gave notice to Smith that
    it believed that she had exaggerated PIMMS’s
    revenue potential, that the exaggeration
    constituted a breach of warranty, that
    Argenbright had sustained damages of $14 million,
    and that it wanted to arbitrate the claim. It
    filed the claim with the American Arbitration
    Association’s Chicago office, which responded by
    sending the parties a list of 15 arbitrators
    taken from the Association’s roster for "Large
    and Complex Commercial Cases." The list contained
    14 men and one woman. Pursuant to the
    Association’s rules, the parties were asked to
    strike the names of any of the persons on the
    list whom they did not want to have on the
    arbitration panel and to rank the remaining ones.
    One of the names struck by Argenbright was that
    of the woman on the list (whom Smith had listed
    as her first choice), and as a result a panel of
    three male arbitrators was selected--whereupon
    Smith brought this suit in federal district court
    against Argenbright and the Association,
    complaining primarily that the lack of gender
    diversity of the list, coupled with Argenbright’s
    action in excluding the only woman on it, was a
    breach of contract. Federal jurisdiction is thus
    based primarily on diversity of citizenship, see
    Caudle v. American Arbitration Ass’n, No. 00-
    2000 WL 1528950
    , at *1 (7th Cir. Oct. 17,
    2000), but there is also a federal claim, that
    the defendants have denied the plaintiff the
    equal protection of the laws. The parties do not
    discuss which state’s law governs the state-law
    claim against the AAA, as distinct from Smith’s
    claim against Argenbright, but imply by their
    citations that it is Illinois law. Curiously, the
    Association, although served, filed no appearance
    in either the district court or this court. That
    was taking a chance.
     The district court rebuffed Smith’s effort to
    obtain a preliminary injunction against the
    arbitration and so the arbitration went forward
    before the all-male panel. The court then
    dismissed Smith’s suit for failure to state a
    claim. Her appeal asks us to order the
    arbitration rerun before a new panel that
    contains at least one woman. Shortly before the
    appeal was argued to us, the trial phase of the
    arbitration ended and the arbitrators announced
    that they would issue their decision shortly. (We
    have not been told whether they have yet done
    so.) Lest the pendency of the appeal influence
    the arbitration in any way, we accelerated our
    consideration and issued an order affirming the
    district court with a notation that the opinion
    would follow. This is the opinion.
     Smith expresses concern that because she is a
    woman and her opponent is a corporation
    presumably controlled by men (though there is no
    allegation to that effect), an all-male panel
    will be unsympathetic to her. No effort to
    substantiate the suggestion that male judges or
    arbitrators are prejudiced against wealthy women
    who have purely commercial disputes with
    corporations has been made; nor has Smith pointed
    to any issue in this litigation to which a man
    might be insensitive. The relief sought, which
    seems premised on the belief that a female
    litigant is entitled to be judged by a panel that
    includes at least one woman, borders on the
     But we do not suppose that there is anything in
    the law that would forbid private parties to
    stipulate to a mode of private dispute resolution
    that specified a particular gender composition of
    the tribunal, assuming the arbitrators are not
    employees of the American Arbitration Association
    or of some other dispute-resolution agency
    conducting the arbitration, which might bring
    Title VII into play. So if Smith has a
    contractual right to be judged by an arbitration
    panel that contains at least one woman, she can
    enforce it, though just how and when are
    questions, as we’ll see; but let’s start with the
    question whether there is a possible breach of
     Smith relies primarily on a "Guide to Mediation
    and Arbitration for Business People," published
    by the American Arbitration Association. The
    guide states that the Association "monitors the
    integrity of the process, the quality of roster
    composition and balance in terms of gender,
    racial and ethnic diversity," all aimed at a
    "bottom line" consisting of "a roster of neutrals
    crafted to meet the needs of the parties."
    Another publication of the Association, "A Brief
    Overview of the American Arbitration
    Association," states that the Association
    maintains "a national panel of experts, diverse
    in gender and ethnicity." These statements alone
    cannot support a breach of contract suit against
    either the Association or Argenbright. The fact
    that the contract provides for arbitration in
    accordance with the Association’s rules and
    regulations no more made the Association a party
    to the contract than a building contract that
    specifies that the builder will install Kohler
    plumbing fixtures makes Kohler a party to the
    building contract. The Association did agree to
    administer the arbitration between Smith and
    Argenbright in exchange for a fee, and by doing
    so it undertook to administer the arbitration in
    accordance with the Association’s rules. But the
    "Guide" and the "Brief Overview" are not a part
    of those rules, and the rules of the Association
    (which, remember, are incorporated in the stock
    purchase agreement) are explicit that the
    Association’s "authority and duties . . . are
    prescribed in the agreement of the parties and in
    these rules."
     We doubt, moreover, that a "promise," if that is
    how the statements we quoted should be read, to
    "monitor . . . balance in terms of gender, racial
    and ethnic diversity" or maintain "a national
    panel of experts, diverse in gender and
    ethnicity," is sufficiently definite to be
    enforceable in a suit for breach of contract.
    Shields v. Local 705, International Brotherhood
    of Teamsters Pension Plan, 
    188 F.3d 895
    , 900-01
    (7th Cir. 1999); Beraha v. Baxter Health Care
    956 F.2d 1436
    , 1441 (7th Cir. 1992). No
    guidance is found in the Association’s rules, or
    statements, or any place else that we can find,
    on what these duties of monitoring and
    maintenance consist of and how compliance or
    noncompliance with them is determined. The
    language is not promissory, and this
    distinguishes the employee-handbook cases on
    which Smith relies. See, e.g., Duldulao v. Saint
    Mary of Nazareth Hospital Center, 
    505 N.E.2d 314
    318 (Ill. 1987); Pine River State Bank v.
    333 N.W.2d 622
    , 627 (Minn. 1983); see 1
    E. Allan Farnsworth, Farnsworth on Contracts sec.
    2.9a, pp. 93-94 (1990). The closest analogy is to
    the federal statute that seeks to prevent
    discrimination in the creation of jury venires,
    28 U.S.C. sec.sec. 1861-1867, but the analogy is
    weak because jurors are drafted and arbitrators
    are volunteers. A venire can be compared with the
    population from which it was drawn to see whether
    it is a representative sample of that population.
    But even if a list of lawyers could be compiled
    who would be capable of arbitrating large and
    complex commercial cases, it would be impossible
    to determine how many would be willing to serve
    on AAA panels. Either the "promise" on which
    Smith relies is too vague to be enforceable or
    the AAA never intended (and never manifested an
    intent) that the promise be legally enforceable,
    or, most likely, both. See, e.g., Architectural
    Metal Systems, Inc. v. Consolidated Systems,
    58 F.3d 1227
    , 1229 (7th Cir. 1995).
     The breach of contract claim against Argenbright
    is, if anything, weaker than the claim against
    the AAA. Argenbright never undertook to exercise
    its discretion over arbitrator selection in a
    particular way. We do not know why Argenbright
    objected to the one woman on the AAA’s list; but
    even if it did so for precisely the reason that
    Smith suspects, this was not the breach of any
    express or implied contract between Smith and
    itself. We take it that Smith’s real complaint
    about Argenbright is that Argenbright took
    advantage of the Association’s having supplied a
    list that made it easy for a party to obtain an
    all-male panel. The argument in other words is
    that the panel composition was contaminated to
    Argenbright’s advantage and that having thus been
    the beneficiary of the Association’s breach
    Argenbright should, by principles of unjust
    enrichment, be forced to relinquish the unfair
    advantage that it obtained from that breach.
     So viewed, however, Smith’s claim against
    Argenbright is premature. The time to challenge
    an arbitration, on whatever grounds, including
    bias, is when the arbitration is completed and an
    award rendered. E.g., Dean v. Sullivan, 
    118 F.3d 1170
     (7th Cir. 1997); Michaels v. Mariforum
    Shipping, S.A., 
    624 F.2d 411
    , 414 n.4 (2d Cir.
    1980). To allow a party to bring an independent
    suit to enjoin the arbitration is inconsistent
    with fundamental procedural principles that apply
    with even greater force to arbitration than to
    conventional litigation. If during jury voir dire
    a Batson objection to the exercise of a
    peremptory challenge is rejected by the trial
    judge, the disappointed litigant cannot bring a
    suit to enjoin the litigation. But that is what
    Smith tried to do here. It is true that in rare
    instances a litigant can interrupt the litigation
    by filing an interlocutory appeal or seeking
    mandamus. But a party who wants to have such an
    option should not (and of course need not)
    consent to arbitration, which generally and here
    does not have an appellate component. The choice
    of arbitration is a choice to trade off certain
    procedural safeguards, such as appellate review,
    against hoped-for savings in time and expense
    (other than the expense of the tribunal), a
    measure of procedural simplicity and informality,
    and a differently constituted tribunal. Harter v.
    Iowa Grain Co., 
    220 F.3d 544
    , 553 (7th Cir.
    2000); see also Generica Ltd. v. Pharmaceutical
    Basics, Inc., 
    125 F.3d 1123
    , 1129-30 (7th Cir.
    1997). That choice would be disrupted by allowing
    a party to arbitration to obtain an interlocutory
    appeal to a federal district court, as Smith has
    tried to do.
     The parties are of diverse citizenship, so
    Argenbright if it obtains an award in the
    arbitration will be able to seek confirmation
    (that is, enforcement) of the award in federal
    district court under the Federal Arbitration Act.
    9 U.S.C. sec. 9; International Union of Operating
    Engineers, Local No. 841 v. Murphy Co., 
    82 F.3d 185
     (7th Cir. 1996); P & P Industries, Inc. v.
    Sutter Corp., 
    179 F.3d 861
    , 866 (10th Cir. 1999).
    Smith points out that while she will be able to
    object to confirmation, the grounds for objection
    permitted by the act (or by judicial extension of
    it, First Options of Chicago, Inc. v. Kaplan, 
    514 U.S. 938
    , 942 (1995); Cole v. Burns International
    Security Services, 
    105 F.3d 1465
    , 1486 (DC Cir.
    1997)) are extremely limited, and though one of
    them is "evident partiality" by the arbitrators,
    9 U.S.C sec. 10(a)(2); Harter v. Iowa Grain Co.,
    supra, 220 F.3d at 553; Dawahare v. Spencer, 
    210 F.3d 666
    , 669 (6th Cir. 2000), this will be
    impossible as a practical matter to prove;
    therefore she should be permitted to sue now.
    That’s a non sequitur. The right to object to the
    composition of the tribunal on broader grounds
    than evident partiality was one of the procedural
    rights that Smith gave up when she agreed to the
    arbitration clause in the stock purchase
    agreement. By agreeing to arbitrate in a setting
    in which Argenbright if it prevailed could seek
    confirmation under the Federal Arbitration Act,
    Smith bound herself to accept the limited
    judicial review which that act allows. First
    Options of Chicago, Inc. v. Kaplan, supra, 514
    U.S. at 942; Connecticut General Life Insurance
    Co. v. Sun Life Assurance Co., 
    210 F.3d 771
    , 774
    (7th Cir. 2000); UHC Management Co. v. Computer
    Sciences Corp., 
    148 F.3d 992
    , 997 (8th Cir.
     We mentioned the principle of Batson v.
    476 U.S. 79
    , (1986), that peremptory
    challenges cannot be based on racial or other
    invidious grounds, now including gender. J.E.B.
    v. Alabama, 
    511 U.S. 127
     (1994); United States v.
    171 F.3d 514
    , 522-23 (7th Cir. 1999);
    United States v. Tipton, 
    90 F.3d 861
    , 881 (4th
    Cir. 1996). Smith argues that this principle,
    which is based on the equal protection clause
    (more precisely, where federal rather than state
    action is concerned, on the due process clause of
    the Fifth Amendment, interpreted as containing an
    equal-protection component), should be extended
    to arbitration, since the courts through the
    Federal Arbitration Act and cognate state
    statutes lend their assistance to arbitration. We
    disagree. Arbitration is a private self-help
    remedy. The American Arbitration Association is a
    private organization selling a private service to
    private parties who are under no legal obligation
    to agree to arbitrate their disputes or, if they
    decide to use arbitration to resolve disputes, to
    use the services of the Association, which is not
    the only provider of such services. Compare
    Dunham v. Frank’s Nursery & Crafts, Inc., 
    919 F.2d 1281
    , 1286 (7th Cir. 1990). When arbitrators
    issue awards, they do so pursuant to the
    disputants’ contract--in fact the award is a
    supplemental contract obligating the losing party
    to pay the winner. The fact that the courts
    enforce these contracts, just as they enforce
    other contracts, does not convert the contracts
    into state or federal action and so bring the
    equal protection clause into play. Parks v. "Mr.
    556 F.2d 132
    , 156 (3d Cir. 1977)
    (concurring opinion). This is not Shelley v.
    334 U.S. 1
     (1948), or Marsh v. Alabama,
    326 U.S. 501
     (1946), cases in which the
    enforcement of private contracts had the effect
    of establishing private governments exercising
    governmental power under delegation from the
     Smith also appeals to a provision of Minnesota’s
    arbitration statute that if the method for
    appointing arbitrators agreed upon by the parties
    fails, the court shall appoint the arbitrators.
    Minn. Stat. sec. 572.10(1). Smith’s invocation of
    the Minnesota statute is frivolous, first,
    because the invocation is premature; second,
    because the choice of law provision in the stock
    purchase agreement does not appear in the
    arbitration clause but is instead a direction to
    the arbitrators as to what law to apply (and the
    arbitrators, we are told, have so interpreted
    it); and third because the agreed method of
    selection did not fail, since there was never an
    agreement that the list of possible arbitrators
    would contain a particular number or percentage
    of women.
     Finally, Smith makes two statutory claims
    against the American Arbitration Association. The
    first is that the Association’s representations
    about gender balance violate Illinois’s Uniform
    Deceptive Trade Practices Act, 815 ILCS 510/2.
    The point we made earlier about the vagueness of
    the representations is equally applicable here.
    Laws forbidding deceptive advertising are
    inapplicable to "puffing," which is to say to
    general quality claims too vague to create
    warranted reliance. Totz v. Continental Du Page
    602 N.E.2d 1374
    , 1383 (Ill App. 1992); see
    also Lionel Trains, Inc. v. Albano, 
    831 F. Supp. 647
    , 651 (N.D. Ill. 1993), aff’d without opinion,
    35 F.3d 568
     (7th Cir. 1994). That is the nature
    of the alleged "promise" of balance and
    diversity. Moreover, the statutory remedy is an
    injunction against the deceptive advertising, 815
    ILCS 510/3; Smith v. Prime Cable of Chicago, 
    658 N.E.2d 1325
    , 1337 (Ill. App. 1995); Empire Home
    Services, Inc. v. Carpet America, Inc., 
    653 N.E.2d 852
     (Ill. App. 1995), which is not the
    relief sought here. Stated otherwise, Smith being
    undeceived and the arbitration conducted, her
    claim for prospective relief against the
    allegedly deceptive advertising, the only relief
    sought, is moot.
     The second statutory claim is of a violation of
    the prohibition against gender discrimination in
    Illinois’ Human Rights Act, 775 ILCS 5/5-102.
    Smith argues that the AAA is a "place of public
    accommodation" within the meaning of the act
    because it is a business whose services are
    "offered, sold or otherwise made available to the
    public." But there is no allegation of
    discrimination by the AAA. Argenbright is accused
    of having taken advantage of the opportunity that
    the Association created for it to strike the
    woman from the list of possible arbitrators, and
    that action (depending on the company’s motive)
    could conceivably be a form of gender
    discrimination (by analogy to Batson), though
    that we need not decide since there is no
    suggestion that Argenbright is a place of public
    accommodation. The charge against the AAA is that
    it failed to maintain gender diversity or
    balance, but such a failure, while it might
    conceivably violate an undertaking by the AAA, is
    not discrimination. Efforts to achieve gender
    diversity can constitute reverse discrimination;
    but failure to achieve diversity, failure in
    other words to engage in affirmative action,
    cannot. The law permits affirmative action in
    some circumstances, but it does not require it
    except as a remedy for discrimination by the
    defendant. E.g., Texas Dept. of Community Affairs
    v. Burdine, 
    450 U.S. 248
    , 259 (1981); Yatvin v.
    Madison Metropolitan School District, 
    840 F.2d 412
    , 415 (7th Cir. 1988).
    /* The plaintiff filed a petition for rehearing
    within 14 days following the issuance of our
    decision, without waiting for us to issue the
    opinion explaining our decision. She cannot be
    faulted for doing this, since the period for
    filing a petition for rehearing runs from the
    date of the judgment rather than from the date of
    the opinion, Fed. R. App. P. 40(a)(1), but for
    future reference we note that the court’s policy,
    in cases in which decision precedes opinion, is
    to allow the losing party a 14-day extension of
    time following the issuance of the opinion for
    seeking rehearing. We shall therefore give Smith
    14 days to file a supplementary petition if she

Document Info

DocketNumber: 00-1204

Judges: Per Curiam

Filed Date: 12/1/2000

Precedential Status: Precedential

Modified Date: 9/24/2015

Authorities (28)

Marsh v. Alabama , 326 U.S. 501 ( 1946 )

Shelley v. Kraemer , 334 U.S. 1 ( 1948 )

First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938 ( 1995 )

Batson v. Kentucky , 476 U.S. 79 ( 1986 )

Texas Dept. of Community Affairs v. Burdine , 450 U.S. 248 ( 1981 )

JEB v. Alabama Ex Rel. TB , 511 U.S. 127 ( 1994 )

in-the-matter-of-the-arbitration-between-e-b-michaels-and-ralph-michaels , 624 F.2d 411 ( 1980 )

Dan Beraha, M.D. v. Baxter Health Care Corporation , 956 F.2d 1436 ( 1992 )

united-states-v-richard-tipton-aka-whittey-two-cases-united-states , 90 F.3d 861 ( 1996 )

gilbert-parks-v-mr-ford-dba-fords-speed-shop-william-muldowney-jr , 556 F.2d 132 ( 1977 )

Joanne Yatvin v. Madison Metropolitan School District, a ... , 840 F.2d 412 ( 1988 )

Architectural Metal Systems, Incorporated v. Consolidated ... , 58 F.3d 1227 ( 1995 )

Martha Dunham and Preston Dunham v. Frank's Nursery & ... , 919 F.2d 1281 ( 1990 )

International Union of Operating Engineers, Local No. 841 v.... , 82 F.3d 185 ( 1996 )

Clinton Cole v. Burns International Security Services , 105 F.3d 1465 ( 1997 )

raymond-c-dean-an-individual-and-raymond-c-dean-company-an-illinois , 118 F.3d 1170 ( 1997 )

uhc-management-company-inc-v-computer-sciences-corporation-computer , 148 F.3d 992 ( 1998 )

United States v. Patricia M. Brisk, Lucy A. Beauprey, ... , 171 F.3d 514 ( 1999 )

terrence-f-shields-individually-and-on-behalf-of-all-others-similarly , 188 F.3d 895 ( 1999 )

Generica Limited v. Pharmaceutical Basics, Inc. , 125 F.3d 1123 ( 1997 )

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