APPEAL NO. 13-10138 IN THE UNITED STATES COURT OF ...

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May 25, 2013 ... 4. C. Evidence Shows AAA Arbitration. Has Repeatedly Proved Unfair . ... Case: 13-10138 Document: 00512239891 Page: 4 Date Filed: 05/13/ ...
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APPEAL NO. 13-10138 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

SAMANTHA DIGGS, Plaintiff - Appellant, v. CITIGROUP, INC., Defendant - Appellee. BRIEF OF APPELLANT SAMANTHA DIGGS

On Appeal From The United States District Court For The Northern District of Texas Dallas Division

ORAL ARGUMENT REQUESTED

John H. Crouch KILGORE & KILGORE, PLLC 3109 Carlisle Dallas, Texas 75204 (214) 969-9099 - Telephone (214) 953-0133 - Fax ATTORNEYS FOR PLAINTIFF-APPELLANT SAMANTHA DIGGS

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CERTIFICATE OF INTERESTED PERSONS Plaintiff-Appellant hereby certifies that the following list of persons have an interest in the outcome of this case. These representations are made in order that the Judges of this Court may evaluate possible disqualification or other recusal: Plaintiff-Appellant:

Samantha Diggs

Counsel for Plaintiff-Appellant:

John H. Crouch, IV Kilgore & Kilgore, LLPC 3109 Carlisle St. Dallas, Texas 75204

Defendant-Appellee:

Citigroup, Inc. (Parent company of Citicorp Credit Services, Inc. Citicorp Credit Services, Inc.

Counsel for Defendant-Appellee:

Kristin Snyder Ogletree, Deakins, Nash, Smoak, & Stewart, P.C.

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STATEMENT REGARDING ORAL ARGUMENT Plaintiff-Appellant Samantha Diggs would show that because the legal issues presented with respect to Appellant’s appeal claim are significant, oral argument is requested.

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TABLE OF CONTENTS CERTIFICATE OF INTERESTED PERSONS . . . . . . . . . . . . . . . . . . . . . . . . . . . ii STATEMENT REGARDING ORAL ARGUMENT . . . . . . . . . . . . . . . . . . . . . . iii TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi I.

STATEMENT OF JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II.

STATEMENT OF ISSUES PRESENTED FOR REVIEW . . . . . . . . . . . . . 2 Issue No. 1: The trial court erred in ordering arbitration because state law defenses preclude an Enforceable agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Issue No. 2: The trial court erred in refusing to allow discovery regarding the fairness of AAA proceedings involving Citibank. . . . . . . . . . . . . . . . . . . . . . . . 36

III.

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

IV.

STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A.

Underlying Case Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

B.

The Arbitration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

C.

Evidence Shows AAA Arbitration Has Repeatedly Proved Unfair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

V.

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

VI.

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Issue No. 1: The Trial court erred in ordering arbitration -iv-

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because state law defenses preclude an enforceable agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 A.

Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

B.

The Trial Court Erred in Excluding Dr. Colvin’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

C.

The Trial Court Erred in Adopting a Conclusive Federal Presumption to the Formation of the Underlying Contract . . . . . . . . . . . . . 21

D.

The Agreement is Unenforceable due to Fraud, Mistake, or Prior Breach . . . . . . . . . . . . . . . . 23

E.

The Arbitration Policy is Unconscionable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

F.

Mandatory AAA Employment Arbitration Violates Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . 31

Issue No. 2: The Trial Court Erred in Refusing to Allow Discovery Regarding the Fairness of AAA Proceedings Involving Citibank . . . . . . . . . . . . . . . . . . . . . . . 36 A.

Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

B.

The Trial Court Abused Its Discretion In Denying Discovery . . . . . . . . . . . . . . . . . . . . . . . . . 36

VII. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 CERTIFICATE OF COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 -v-

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TABLE OF AUTHORITIES FEDERAL CASES: Adams v. Philip Morris, Inc., 67 F.3d 580, 584 (6th Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Ambrosini v. Labarraque, 101 F.3d 129 (D.C. Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Am. Heritage Life Ins. Co. V. Lang, 321 F.3d 533, 637 (5th Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Am. Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 708 (5th Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 105 S. Ct. 1504, 1511, 84 L. Ed. 2d 518 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Andros Compania Maritima, S.A. v. Marc Rich & Co., 579 F.2d 691, 702 (2nd Cir. 1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Bazemore v. Friday, 478 U.S. 385, 106 S. Ct. 3000, 3009, 92 L. Ed. 2d315 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Brown v. Pac. Life Ins. Co., 4621 F.3d 384, 391 (5th Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Citigroup Global Markets, Inc. v. North Carolina Eastern Municipal Power Agency, Cause No. 13-01703 (S.D.N.Y.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Citigroup Global Markets, Inc. v. Abhar, Cause No. 11-06993 (S.D.N.Y) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Claar v. Burlington N.R.R., 29 F.3d 499 (9th -vii-

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Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Cole v. Burns Int’l Sec. Servs., 105 F. 3d 1465, 1473 (D.C. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32, 34 Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993) . . . . . . . . . . . . . . . . . . . . . . 9, 12, 13, 14, 15, 16, 17, 20, 23, 38 Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 EEOC v. Waffle House, Inc., 534 U.S. 279, 293, 122 S. Ct. 754, 151, L.Ed. 2d 755 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Fidelity Federal Bank, FSB v. Durga Ma Corp., 386 F. 3d 1306, 1310 (9th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 131 L.Ed. 2d 985, 115 S. Ct. 1920 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Floss v. Ryan’s Family Steak Houses, Inc., 211 F.3d 306, 313 (6th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Ford Motor Co. v. Woods, 165 Fed. Appx. (5th Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Furnco Construction Corp. v. Waters, 438 US 567, 98 S.Ct. 2943, 57 L.Ed. 2d 957 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 24 Geiserman v. MacDonald, 893 F.2d 787, 789 (5th Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 General Elec. Co. V. Joiner, 522 U.S. 135, 146 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Granite Rock Co. v. Int’l Brotherhood of -viii-

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Teamsters, 130 S. Ct. 2847 (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Hazelwood School District v. United States, 433 U.S. 299, 307-08 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 24 Hooters of America, Inc. v. Phillips, 173 F.3d 933 (4th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 28 In re: Paoli R.R. Yard PCB Litigation, 35 F.3d 717, 744 (3d Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Italian Colors Rest. v. Am. Express Travel Related Servs. Co., 667 F.3d 204, 216 (2nd Cir. 2012) cert. Granted, 133 S. Ct. 594, 184 L. Ed 2d 390 (U.S. 2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Kendall v. Watkins, 998 F.2d 848, 851 (10th Cir. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 12, 13, 14 Lucent Technologies Inc. v. Tatung Co., 379 F.3d 24, 31 (2nd Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 MC Asset Recovery LLC v. Castex Energy, Inc. (In re Mirant Corp.), 613 F.3d 584, 588 (5th Cir. Tex. 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Moore v. Ashland Chem ical, Inc., 151 F.3d 296 (5th Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Morrison v. Amway Corp., 517 F.3d 248, 254 (5th Cir. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Mukhar v. Cal. State Univ., 319 F.3d 1073, 1074 (9th Cir. 2003), amending 299 F.3d 1053, 2066 (9th Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 -ix-

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Munoz v. Orr, 200 F.3d 291, 300 (5th Cir. Tex 2000), cert denied, 531 U.S. 812 (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1060 (11th Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 N. 12, 87 S.Ct. 1801, 18 L.Ed. 2d 1270 (1967) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Republic Ins. Co. V. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Ruiz-Troche v. Pepsi Cola, 161 F.3d 77, 85 (1st Cir., 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Shankle v. B-G Maint. Mgmt. Of Colo., Inc., 163 F.3d 1230, 1234 (10th Cir. 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Sheehan v. Daily Racing Form, Inc., 104 F.3d 940, 942 (7th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Sterling v. Velsicol Chem. Corp., 855 F.2d 118 (6th Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Tyler v. Union Oil Co., 304 F.3d 379, 392-393 (5th Cir. Tex. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 20 United States v. United States Gypsum Co., 333 U.S. 364, 394-95, 92 L.Ed. 746, 68 S.Ct. 525 (1948) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Volt Info. Scis., Inc.v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed 2d 488 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Walker v. Ryan’s Family Steak Houses, -x-

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Inc., 400 F.3d 370 (6th Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 28, 34 Washington Mutual Fin. Group v. Bailey, 364 F.3d 260, 266 n.4 (5th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 31 Watson v. Fort Worth Bank and Trust, 487 U.S. 977, 987, 101 L.Ed. 2d 827, 108 S.Ct. 2777 (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 24 Williams v. Cigna Fin. Advisors, 197 F.3d 752, 760-761 (5th Cir. Tex. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 STATE CASES: Associated Milk Producers v. Nelson, 624 S.W.2d 920, 926 (Tex. Civ. App. – Houston [14th Dist.] 1981, writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Currey v. Lone Star Steel Co., 676 S.W.2d 205, 213 (Tex. App.–Ft. Worth 1984, no writ) . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Goudie v. HNG Oil Co., 711 S.W.2d 716, 718 (Tex. App.– El Paso 1986, writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Hazelwood v. Mandrell Indus. Co., 596 S.W. 2d 204, 206 (Tex. Civ. App.–Houston [1st Dist.] 1990, writ ref’d n.r.e.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 In re: Advances PCS Health L.P., 172 S.W.3d 603, 605 (Tex. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 In re: Dillard Dep’t. Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 In re: First Merit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 -xi-

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In re: Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29, 30, 33 In re: Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 192 (Tex. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 In re: Morgan Stanley & Co., 293 S.W.3d 182, 185 (Tex. 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 In re: Poly-America, L.P., 262 S.W.3d 337, 352-353 (Tex. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 32, 33 Myrad Props., Inc. V. LaSalle Bank Nat’l Ass’n, 300 S.W.3d 746, 751 (Tex. 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 821 (Tex. App.– San Antonio 1996, no writ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 498 (Tex. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Tri-Star Petrol. Co. v. Tipperary Corp., 107 S.W. 3d 607 (Tex. App. – El Paso 2003, pet. denied) . . . . . . . . . . . . . . . . . . . . . . . 27, 28 FEDERAL STATUTES: 9 U.S.C. § 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 28 9 U.S.C. §16(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 28 U.S.C. §1331 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 29 C.F.R. §825.220(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 29 U.S.C. §626(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Family and Medical Leave Act of 1993, 29 U.S.C. §2601, et seq. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2, 32 -xii-

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Federal Arbitration Act, 9 U.S.C. §1 et seq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 In re: Currency Conversion Fee Antitrust Litigation, Cause No. 05 Civ. 7116 (S.D.N.Y. 2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Title VII, 42 U.S.C. 2000e, et seq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2, 32 STATE STATUTES: Texas Civil Practice & Remedies Code §171.001(b) . . . . . . . . . . . . . . . . . . . . . . 29 OTHER AUTHORITIES: “Banks vs. Consumers (Guess Who Wins),” Business Week, June 5, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 35 Fed. R. Evid. 702 Committee Notes on Rules2000 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 15, 16 Feldman, Cris, The Consumer Pitfalls of Binding Arbitration, a Report by the Texas Watch Foundation . . . . . . . . . . . . . . . . . . . . . 21 The Journal of Empirical Legal Studies, Volume 8, Issue 1, 1-23, March 20111 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Internet Article, “Judge Blocks Auction Rate Arbitration against Citigroup,” at: http:// www.reuters.com/article/2013/05/06/us-citigrouparbitration-idUSBRE9450RB20130506 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Policy Statement on Mandatory Binding Arbitration of Employment Discrimination Disputes, EEOC Notice No. 915.00 (July 10, 1997) . . . . . . . . . . . . . . . . . . . . . . . 30 Testimony offered by Cathy Ventrell-Monsees to the House Judiciary Committe on October 25, 2007 - available online at http://judiciary.house.gov/hearings/pdf/

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Ventrell-Monsees071025.pdf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 West Virginia Chief Justice Richard Neeley, “Arbitration and the Godless Bloodsuckers,” The West Virginia Lawyer . . . . . . . . . . . . . . . . . . . . 21

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I. STATEMENT OF JURISDICTION

Plaintiff-Appellant Samantha Diggs brought this action in the District Court below on May 24, 2012 for alleged violations of the Family and Medical Leave Act of 1993, 29 U.S.C. §2601, et seq. (the “FMLA”) and Title VII, 42 U.S.C. 2000e, et seq., concerning termination of her employment for complications related to her pregnancy. R 7. The trial court had jurisdiction because these matters related to a question of federal law. 28 U.S.C. §1331. The trial court did not reach the underlying merits of the case because he granted a motion to compel binding arbitration, and thereafter dismissed the case with prejudice by order dated January 8, 2013. R. 284. A Judgment was entered the same day compelling the parties to arbitration in accordance with the Defendant’s Arbitration Policy, which requires use of the American Arbitration Association. R 290. The Final Judgment was “a final decision with respect to an arbitration” subject to appeal. 9 U.S.C. §16(a)(3); Am. Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 708 (5th Cir. 2002) (holding that the district court's decision was final and appealable where it ordered arbitration, stayed proceedings, and closed the case); Brown v. Pac. Life Ins. Co, 462 F.3d 384, 391 (5th Cir. 2006)(final order where “the district court -1-

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granted the sole remedy sought by the plaintiffs in the Federal Actions--an order compelling arbitration. Although the district court did not dismiss the case, there was nothing left for the court to do but execute the judgment.”). This Court has held that failure to appeal from a final order regarding arbitration forfeits appellate rights. See Ford Motor Co. v. Woods, 165 Fed. Appx. 345 (5th Cir. 2006). Diggs timely filed a Notice of Appeal on February 7, 2013. R 291. II. Issue No. 1:

STATEMENT OF THE ISSUES

The trial court erred in ordering arbitration because state law defenses preclude an enforceable agreement.

Issue No. 2:

The trial court erred in refusing to allow discovery regarding the fairness of AAA proceedings involving Citigroup. III.

STATEMENT OF THE CASE

Plaintiff-Appellant Samantha Diggs brought this action in the District Court below on May 24, 2012 for alleged violations of the Family and Medical Leave Act of 1993, 29 U.S.C. §2601, et seq. (the “FMLA”) and Title VII, 42 U.S.C. 2000e, et seq., concerning termination of her employment for complications related to her pregnancy. R 7. Process was quickly served the following day on May 25, 2013, and proof thereof was filed with the Court. R 20.

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Defendant-Appellee Citigroup, Inc. filed an answer on June 14, 2012, and indicated therein that the correct name of the immediate employer was a subsidiary named Citicorp Credit Services, Inc. R 81. It also responded by filing a Motion to Dismiss and Compel Arbitration on June 14, 2012 on the basis of a pre-suit mandatory arbitration policy which required arbitration before the American Arbitration Association (the “AAA”). R 22. The Motion was referred to United States Magistrate Judge Renee Harris Toliver for proposed findings and recommendations on June 18, 2012. R 91. Plaintiff timely responded to the Motion with competent evidence that mandatory employment arbitrations before the AAA were systematically biased in favor of large employers such as Citigroup, and that the agreement was therefore unenforceable under the state law defenses of fraud and/or mistake. R 92. PlaintiffAppellant relied on an affidavit and report by Dr. Alexander Colvin showing that the expected value of Plaintiff’s claim in AAA arbitration was only 16% of the expected value in federal court. The magistrate recommended arbitration without holding a hearing to evaluate the evidence, and without allowing Plaintiff any discovery as to Citigroup’s actual track record in arbitration on September 13, 2012. R 14. Plaintiff timely objected to the magistrate’s recommendations. R 246. The trial court overturned the magistrate’s groundless recommendation of sanctions, but otherwise affirmed the recommendations, and dismissed the case. R 284-90. -3-

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IV. A.

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STATEMENT OF FACTS

Underlying Case Background.

Plaintiff is a young African American woman who worked for either Defendant-Appellee or its subsidiary, Citicorp Credit Services, Inc. (USA)("CCSI"). She filed this action complaining of FMLA violations and pregnancy discrimination following various acts leading up to her termination immediately upon returning to work after a hospitalization for a fall and pregnancy complications. Original Complaint, ¶¶4.01-12. Her manager told her she was under orders to fire her if she missed any more work due to herself or her children. Original Complaint, ¶4.12. B.

The Arbitration Agreement.

Defendant-Appellee moved to dismiss and to compel arbitration before the AAA based on a collection of compulsory arbitration policies contained in its evolving Employee Handbook. The original Handbook provides in relevant part: 2. Appointment of neutral arbitrator The AAA shall appoint one neutral arbitrator from its Employment Dispute Resolution Roster unless both parties request that a panel of three (3) arbitrators be appointed. If the parties can't agree on the number of arbitrators, the AAA shall have the authority to determine the number of arbitrators. In the event a panel of arbitrators is appointed, all decisions of the panel must be by a Majority and the use of the word "arbitrator" shall refer to the panel. It's the intent of the Company that the prospective arbitrators be diverse, experienced, knowledgeable with respect to -4-

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employment-related claims, neutral, and duly qualified to serve as arbitrators under the AAA's Rules. Defendant's Appendix at 6 (emphasis added), R 40. The expectation of the parties that the arbitrator should actually be neutral and fair is further emphasized in ¶3, which provides in relevant part: 3. Qualifications of neutral arbitrator No person shall serve as a neutral arbitrator in any matter in which that person has any financial or personal interest in the result of the proceeding. Prior to accepting appointment the prospective arbitrator shall disclose any circumstance likely to prevent a prompt hearing or to create a presumption of bias. Upon receipt of such information, the AAA either will replace that person or communicate the information to the parties for comment. Thereafter, the AAA may disqualify that person and its decision shall be conclusive. Defendant's Appendix at 6, R40. Later versions of the Arbitration Policy contain similar provisions, and defer the arbitrator selection procedure completely to AAA rules. Defendant's Appendix at 12, ¶¶ 2-3, R 46. C.

Evidence Shows AAA Arbitration Has Repeatedly Proved Unfair.

Courts have enforced mandatory arbitration policies under Texas law and under the Federal Arbitration Act, 9 U.S.C. §1 et seq., on the assumption that arbitration offers a fair and faster alternative to traditional litigation. Recent litigation and statistical evidence have uncovered powerful evidence to the contrary. -5-

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Plaintiff submitted an unrebutted affidavit to demonstrate the systematic bias of AAA proceedings. R 115-21. Using national information obtained through the AAA by virtue of disclosures mandated under California law, Cornell University Professor and lawyer Alex Colvin has reviewed thousands of AAA employment arbitrations, and previously offered affidavit testimony in another case filed in the Northern District. His complete opinions are contained in his affidavit, which sets forth his qualifications as an expert witness. R 115-21. Briefly, however, Dr. Colvin confirmed through statistics that AAA employment arbitrations and arbitrators through compelled agreements are systematically biased against employees, with the effect being magnified in the case of “repeat” litigators. Summarizing his research findings, which have been peer reviewed, Dr. Colvin has found: •

The employee win rate in arbitrations was only 21.4%, compared to win rates of 36.4% in federal court, or 43.8% in state court for discrimination cases.



In cases where a recovery was obtained, the mean award in arbitration was only $109,858, versus $394,223 for federal litigation, or $595,594 for state cases.



Combining win rates and damage awards, the expected outcome in arbitration was only $23,548, versus an expected outcome of $143,497 for federal court, and $260,871 for state court.



Thus, an employee required to use AAA employment arbitration can expect to recover only 9% of the amount she could get for her claims in state court, or 16.4% of her expected recovery in federal court. -6-

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These results are statistically significant, so that Dr. Colvin can say with 99% certainty that AAA arbitrations are biased against employees in both their outcomes and damage awards.



Independent studies have shown employment arbitrators to be significantly less likely to side with employees than other decision makers, including former jurors.



Arbitrator bias is particularly likely where there is a "repeat player" as the employer. In such situations, the employee win rate drops to 16.9%, versus 31.6% against “one-shot” employers.



Where the employer had used an arbitrator before, the employee win rate fell to 12.0%, showing statistical significance at a 95% confidence level.



In such cases, the damage expectation also fell, so that the expected recovery for an employee fell to $7,451, or about 5% of the expected recovery in federal court, or 2.9% of the expected recovery in state court.



Dr. Colvin's conclusion is that the evidence supports the argument that there is a danger of arbitrator bias out of hopes of being selected as the arbitrator for multiple cases.

R 115-21. Dr. Colvin's report comes at a time when consumer credit card arbitration has also come under scrutiny by the Attorney General of Minnesota. Diggs requests the Court take judicial notice that similar statistical studies have shown bias by the National Arbitration Forum in the context of credit card consumer disputes, where consumers win just .2% of the time. See "Banks vs. Consumers (Guess Who Wins)," Business Week, June 5, 2008, R 161-90. The NAF was sued by the Attorney General for the State of Minnesota for its handling of consumer disputes, and how it promoted -7-

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its services to credit card companies and their attorneys. In response, the NAF has agreed to a consent decree by which it will no longer handle credit card consumer arbitration disputes. The AAA has announced it will no longer handle such claims as well, apparently under threat of being added to that suit. There is substantial reason to believe that Defendant-Appellee was aware of the strong bias of the AAA in finding for employers and large companies that frequent AAA arbitration. In fact, Defendant is currently the subject of an antitrust lawsuit alleging it conspired with other credit card companies to universally require arbitration of credit card disputes, virtually assuring it would win all such disputes. The trial court in In re: Currency Conversion Fee Antitrust Litigation, Cause No. 05 Civ. 7116 (S.D. N.Y. 2012) denied summary judgment to Defendant on these claims. A copy of this decision is included in the Record at 201. The matter was tried to the court, and final arguments are set on May 7, 2013 according to the docket on PACER. Based on the statistical findings of Dr. Colvin and the practices uncovered by the Attorney General for Minnesota, Plaintiff believes Citigroup, Inc. and/or CCSI knew, or had reason to know, that arbitration under the AAA would be substantially biased against Diggs both at the time when it sought to contract for arbitration, and when it filed its motion to compel arbitration. Plaintiff requested in its original Response at 6 to the magistrate, and again to the district court, the right to conduct -8-

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discovery on the track record of Defendant in arbitration,1 as well as its knowledge of AAA overall statistics to further develop this issue before the trial court issued its decision. R 263. The Magistrate ignored this request, declined to hold any kind of evidentiary hearing on the merits of Dr. Colvin's findings, and did not conduct the traditional analysis required under Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993) to consider the reliability of Dr. Colvin's testimony. The trial court did review Dr. Colvin’s report, and summarily rejected it without explaining any deficiencies in the report’s methodology. R 285-86. The trial court also declined to allow any discovery of Citigroup’s track record in AAA arbitrations, or its knowledge as to systemic bias against employees. V.

SUMMARY OF THE ARGUMENT

1

This information can be probative. For example, according to testimony offered by Cathy Ventrell-Monsees to the House Judiciary Committee on October 25, 2007, Pfizer won 97% of all AAA employment arbitrations, while Halliburton won 82% of its arbitrations. The testimony is available online at http://judiciary.house.gov/hearings/pdf/Ventrell-Monsees071025.pdf. -9-

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The cartoon at left summarizes the injustice described below. The trial

court

arbitration

erred to

a

in

ordering

forum

which

Plaintiff-Appellant

demonstrated

through

evidence

statistical

systemically

biased

is

against

employees subjected to mandatory employment arbitration policies. The statistical findings are particularly significant in cases where the employer is a large corporation, which is a “repeat player” within the context of arbitrations. The trial court erred in ignoring competent statistical evidence showing bias to a 99% level of certainty both as to findings of liability and lower damage amounts.

The combined effects lower Plaintiff-

Appellant’s expected recovery in arbitration to only 13-16% of what she could expect in federal court. This evidence is a defense to formation of an agreement to arbitrate under Texas law, and violates federal policy. The trial court further erred in denying any discovery to further bolster the statistical findings, and refine them for this case. VI.

ARGUMENT -10-

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Issue No. 1: A.

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The trial court erred in ordering arbitration because state law defenses preclude an enforceable agreement. Standard of Review.

The Court generally reviews a district court's grant or denial of a motion to compel arbitration de novo. Am. Heritage Life Ins. Co. v. Lang, 321 F.3d 533, 536 (5th Cir. 2003). However, although the determination is reviewed de novo, the standard of review for any factual findings underlying that determination is “clear error.” Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004)(reviewing factual finding of detriment and prejudice for clear error). MC Asset Recovery LLC v. Castex Energy, Inc. (In re Mirant Corp.), 613 F.3d 584, 588 (5th Cir. Tex. 2010). A finding is clearly erroneous “when although there is evidence to support it, the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed.” Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 105 S. Ct. 1504, 1511, 84 L. Ed. 2d 518 (1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 394-95, 92 L. Ed. 746, 68 S. Ct. 525 (1948)). B.

The Trial Court Erred in Excluding Dr. Colvin’s Report.

The trial court erred by summarily excluding the affidavit and report of Dr. Alexander Colvin under its purported analysis using Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) and Kumho Tire Co. v. Carmichael, 526 -11-

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U.S. 137 (1999) to evaluate the admissibility of expert testimony under Rule 702. R 285-86. Rule 702 of the Federal Rules of Evidence provides: Rule 702. Testimony by Expert Witnesses A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case. Fed. R. Evid. 702. Daubert set forth a non-exclusive checklist for trial courts to use in assessing the reliability of scientific expert testimony. The specific factors explicated by the Daubert court are (1) whether the expert's technique or theory can be or has been tested—that is, whether the expert's theory can be challenged in some objective sense, or whether it is instead simply a subjective, conclusory approach that cannot reasonably be assessed for reliability; (2) whether the technique or theory has been subject to peer review and publication; (3) the known or potential rate of error -12-

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of the technique or theory when applied; (4) the existence and maintenance of standards and controls; and (5) whether the technique or theory has been generally accepted in the scientific community. The court in Kumho held that these factors might also be applicable in assessing the reliability of nonscientific expert testimony, depending upon “the particular circumstances of the particular case at issue.” 526 U.S. at 151. As noted in the Committee Notes to the 2000 rule changes, courts have found other facts relevant in determining whether expert testimony is sufficiently reliable to be considered by the trier of fact. These factors include: (1) Whether experts are “proposing to testify about matters growing naturally and directly out of research they have conducted independent of the litigation, or whether they have developed their opinions expressly for purposes of testifying.” Daubert v. Merrell Dow Pharmaceuticals, Inc., 43 F.3d 1311, 1317 (9th Cir. 1995). (2) Whether the expert has unjustifiably extrapolated from an accepted premise to an unfounded conclusion. See General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997) (noting that in some cases a trial court “may conclude that there is simply too great an analytical gap between the data and the opinion proffered”). (3) Whether the expert has adequately accounted for obvious alternative explanations. See Claar v. Burlington N.R.R., 29 F.3d 499 (9th Cir. 1994) (testimony excluded where the expert failed to consider other obvious causes for the plaintiff's condition). Compare Ambrosini v. Labarraque, 101 F.3d 129 (D.C.Cir. 1996) (the possibility -13-

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of some uneliminated causes presents a question of weight, so long as the most obvious causes have been considered and reasonably ruled out by the expert). (4) Whether the expert “is being as careful as he would be in his regular professional work outside his paid litigation consulting.” Sheehan v. Daily Racing Form, Inc., 104 F.3d 940, 942 (7th Cir. 1997). See Kumho Tire Co. v. Carmichael, 119 S.Ct. 1167, 1176 (1999) (Daubert requires the trial court to assure itself that the expert “employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field”). (5) Whether the field of expertise claimed by the expert is known to reach reliable results for the type of opinion the expert would give. See Kumho Tire Co. v. Carmichael, 119 S.Ct. 1167, 1175 (1999) (Daubert's general acceptance factor does not “help show that an expert's testimony is reliable where the discipline itself lacks reliability, as, for example, do theories grounded in any so-called generally accepted principles of astrology or necromancy.”); Moore v. Ashland Chemical, Inc., 151 F.3d 269 (5th Cir. 1998) (en banc) (clinical doctor was properly precluded from testifying to the toxicological cause of the plaintiff's respiratory problem, where the opinion was not sufficiently grounded in scientific methodology); Sterling v. Velsicol Chem. Corp., 855 F.2d 1188 (6th Cir. 1988) (rejecting testimony based on “clinical ecology” as unfounded and unreliable). Fed. R. Evid. 702 Committee Notes on Rules - 2000 Amendment. As the court stated in In re Paoli R.R. Yard PCB Litigation, 35 F.3d 717, 744 (3d Cir. 1994), proponents “do not have to demonstrate to the judge by a preponderance of the evidence that the assessments of their experts are correct, they -14-

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only have to demonstrate by a preponderance of evidence that their opinions are reliable. . . . The evidentiary requirement of reliability is lower than the merits standard of correctness.” See also Daubert v. Merrell Dow Pharmaceuticals, Inc., 43 F.3d 1311, 1318 (9th Cir. 1995) (scientific experts might be permitted to testify if they could show that the methods they used were also employed by “a recognized minority of scientists in their field.”); Ruiz-Troche v. Pepsi Cola, 161 F.3d 77, 85 (1st Cir. 1998) (“Daubert neither requires nor empowers trial courts to determine which of several competing scientific theories has the best provenance.”). The Supreme Court in Daubert declared that the “focus, of course, must be solely on principles and methodology, not on the conclusions they generate.” 509 U.S. at 595. The Committee Notes also explain: The amendment does not alter the venerable practice of using expert testimony to educate the factfinder on general principles. For this kind of generalized testimony, Rule 702 simply requires that: (1) the expert be qualified; (2) the testimony address a subject matter on which the factfinder can be assisted by an expert; (3) the testimony be reliable; and (4) the testimony “fit” the facts of the case. Fed. R. Evid. 702 Committee Notes on Rules - 2000 Amendment. This Court should reject the trial court’s summary dismissal of Dr. Colvin’s findings. R. 285-86. The trial court notably fails to address any specific deficiency

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in Dr. Colvin’s methodology, which should be the focus of any proper Daubert analysis. It is well settled that statistical evidence is routinely considered by courts in the context of discrimination litigation. See Furnco Construction Corp. v. Waters, 438 US 567, 98 S.Ct. 2943, 57 L.Ed. 2nd 957 (1978). The Supreme Court and the Fifth Circuit have noted that claims of disparate impact under Title VII must, of necessity, rely heavily on statistical proof. See Watson v. Fort Worth Bank and Trust, 487 U.S. 977, 987, 101 L. Ed. 2d 827, 108 S. Ct. 2777 (1988); Munoz v. Orr, 200 F.3d 291, 300 (5th Cir. Tex. 2000), cert denied, 531 U.S. 812 (2000). Where gross statistical disparities can be shown, they alone may in a proper case constitute prima facie proof of a pattern or practice of discrimination. Hazelwood School District v. United States, 433 U.S. 299, 307-08 (1977). Thus, it is appropriate to demonstrate through statistics that expected recoveries in compelled employment arbitration using the AAA results in drastically reduced expectations of recovery. Defendant has not rebutted Dr. Colvin’s affidavit with a competent expert witness, and the trial court has not identified any flaws in his findings or methodologies. The trial court declined an offer from Dr. Colvin to testify in support of his research in this case, and seemingly ignored that his research has been accepted

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by peer review publications, most recently in The Journal of Empirical Legal Studies.2 R 262. Such a publication is precisely where one would expect serious academic studies of this nature to be published. Dr. Colvin’s report clearly passes muster under the traditional Daubert tests for reliability. Dr. Colvin is both a lawyer and a professor at Cornell University, a well regarded academic institution. R 115. The statistical analysis used by Dr. Colvin is a mainstay of modern academic research. His research was developed initially for academic purposes independent of the litigation, and has been subjected to peer review. R 115. His findings are based principally on a 99% level of statistical certainty, and he notes where findings are only significant to a 95% level of certainty. R 117-20. Dr. Colvin addresses various potential alternative reasons for the findings. R 118-20. Even if his review of alternative explanations were not fully exhaustive, it should be noted that: “Omission of variables may render an analysis less probative than it might otherwise be, but, absent some other infirmity, an analysis that accounts for the major factors will be admissible.” Bazemore v. Friday, 478 U.S. 385, 106 S. Ct. 3000, 3009, 92 L. Ed. 2d 315 (1986) (Brennan, J., joined by all other members of the Court, concurring in part); Tyler v. Union Oil Co., 304 F.3d 379, 392-393 (5th Cir. Tex. 2002).

2

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Dr. Colvin’s statistics are specifically addressed to the AAA, which is the exclusive organization identified in the arbitration policy in this case. R 115-16. His statistics were taken from published data relating to employment litigation under mandatory policies, such as the one at issue in this case. R 115-16. Citigroup is precisely the type of “repeat party” which his research indicates is likely to benefit most from arbitration. R 115-21. The trial court ignored Plaintiff’s request to conduct discovery specifically tailored to Defendant-Appellee’s win rate in arbitration, and to its knowledge as to the advantages AAA arbitration was giving it over its employees. R 263. Further, it should be noted that other writers, researchers and even former judges have expressed concern about the practical effects of the “repeat player” phenomena. As noted in a report by the Texas Watch Foundation: Arbitrators must also grapple with the "repeat player" phenomena, where one arbitrator is repeatedly chosen to hear a company's disputes. Once a company wins a dispute before a certain arbitrator, the company may repeatedly choose the arbitrator.30 This gives the arbitrator the financial incentive to rule for the company. According to Michael Young, co-chair of JAM's Committee on Professional Standards and Public Policy, "the risks of the repeat player advantage are real and can be disturbing."31

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Feldman, Cris, The Consumer Pitfalls of Binding Arbitration, A Report by the Texas Watch Foundation.3 The referenced footnotes explain: 30 The inverse is true as well. When an arbitrator rules for a plaintiff the defendant will not rehire the arbitrator. In a study of HMO disputes in California, arbitrators who awarded damages exceeding $1 million for the plaintiff did not hear additional HMO cases. Marcus Nieto & Margaret Hosel, Arbitration In California Managed Health Care Systems, 22-23 (2000). 31 Id. Id. Similar comments were noted by former West Virginia Chief Justice Richard Neely in his article entitled “Arbitration and the Godless Bloodsuckers” printed in The West Virginia Lawyer recounting his experience as an arbitrator when he limited his award of costs to credit card companies on two occasions.4 Simply stated, he was never picked again. Thus, the trial court has clearly erred in excluding Dr. Colvin’s affidavit and report under Daubert without a hearing, and without so much as mentioning any infirmity in his methodology. See, Mukhtar v. Cal. State Univ., 319 F.3d 1073, 1074 3

Article available on the Internet at the following website: http://www.texaswatch.org/wordpress/wp-content/uploads/2009/12/Abitrationreportfinal-2.pdf. 4

Neely, Richard, “Arbitration and the Godless Bloodsuckers”, The West Virginia Lawyer, September/October 2006, available on the Internet at the following website: http://educationcenter2000.com/debt_collectors/bloodsuckers.pdf. -19-

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(9th Cir. 2003), amending 299 F.3d 1053, 2066 (9th Cir. 2002)(holding some reliability determination must be apparent from the record before a decision can be upheld); see also Tyler v. Union Oil Co. of Cal., 304 F.3d 379 (5th Cir. 2002)(trial court affirmed in admitting statistical data, noting that “Omission of variables may render an analysis less probative than it might otherwise be, but, absent some other infirmity, an analysis that accounts for the major factors will be admissible.”). C.

The Trial Court Erred in Adopting a Conclusive Federal Presumption to the Formation of the Underlying Contract.

The trial court erroneously applied the federal policy of favoring arbitration agreements to disregard Plaintiff’s defenses to the formation of an agreement to arbitrate. R 287. A party attempting to compel arbitration must establish a valid arbitration agreement whose scope includes the claims asserted. In re AdvancePCS Health L.P., 172 S.W.3d 603, 605 (Tex. 2005). Under the FAA, an agreement to arbitrate is valid if it meets the requirements of the general contract law of the applicable state. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 131 L. Ed. 2d 985, 115 S. Ct. 1920 (1995); In re AdvancePCS Health L.P., 172 S.W.3d 603, 606 (Tex. 2005). Under the FAA, an arbitration agreement may be invalidated and deemed unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Typical contract defenses, “such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements -20-

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without contravening § 2 [of the FAA].” Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). Issues related to whether a binding contract to arbitrate has been formed and, if so, whether there are any viable defenses to the enforcement of the arbitration agreement are generally determined by state contract law. In re Dillard Dep’t Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006). Notably, the often invoked “policy in favor of arbitration agreements” upon which the trial court and magistrate relied does not apply under state or federal law when a court is examining the threshold question of whether an arbitration agreement exists. Granite Rock Co. v. Int’l Brotherhood of Teamsters, 130 S. Ct. 2847 (2010); Morrison v. Amway Corp., 517 F.3d 248, 254 (5th Cir. 2008); In re Morgan Stanley & Co., 293 S.W.3d 182, 185 (Tex. 2009). As the Texas Supreme Court has explained: ... the United States Supreme Court has ... repeatedly emphasized that arbitration “is a matter of consent, not coercion,” that the Act “does not require parties to arbitrate when they have not agreed to do so,” and its purpose is to make arbitration agreements “as enforceable as other contracts, but not more so.” In re Merrill Lych Trust Co. FSB, 235 S.W.3d 185, 192 (Tex. 2007), citing Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989), EEOC v. Waffle House, Inc., 534 U.S. 279, 293, 122 S. Ct. 754, 151 L. Ed. 2d 755 (2002) (quoting Volt, 489 U.S. at 478), and Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12, 87 S. Ct. 1801, 18 -21-

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L. Ed. 2d 1270 (1967). Thus, the trial court erred in applying a supposed federal policy to ignore evidence of fraud, mistake, or unconscionability, which are defenses to the formation of a contract. D.

The Agreement is Unenforceable due to Fraud, Mistake, or Prior Breach.

The trial court erred by enforcing an alleged agreement to arbitrate despite competent expert statistical evidence of fraud or mistake which was not contradicted by testimony from the Defendant. He did so without holding any hearings, listening to any testimony, or identifying any specific deficiencies under Daubert to discredit the reliability of Dr. Colvin’s testimony. Plaintiff presented competent evidence in support of her contention the agreement to arbitrate should be set aside due to fraud or mistake. In light of the findings of Dr. Colvin which were presented in a competent affidavit, the agreement to arbitrate is unenforceable due to fraud or mistake which touches directly upon the agreement to arbitrate itself. See Washington Mutual Fin. Group v. Bailey, 364 F.3d 260, 266 n.4 (5th Cir. 2004). The Employment Arbitration Policy clearly calls for the appointment of a neutral arbitrator, with the apparent expectation of the parties that any proceedings be a fair substitute for rights litigated in court. R 40, 223. Defendant retained the right to modify the rules of arbitration, and had a duty of good faith and fair dealing to promulgate or adopt rules which would lead to a fair and neutral -22-

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proceeding. R 40; see Goudie v. HNG Oil Co., 711 S.W.2d 716, 718 (Tex. App.-El Paso 1986, writ ref'd n.r.e.) (employment contract containing provisions that make employer's determination final and binding may be attacked by showing bad faith); Associated Milk Producers v. Nelson, 624 S.W.2d 920, 926 (Tex. Civ. App.-Houston [14th Dist.] 1981, writ ref'd n.r.e.) (same). As noted above, statistical evidence is routinely considered by courts in the context of discrimination litigation. See Furnco Construction Corp. v. Waters, 438 US 567, 98 S.Ct. 2943, 57 L.Ed. 2nd 957 (1978). Where gross statistical disparities can be shown, they alone may in a proper case constitute prima facie proof of a pattern or practice of discrimination. Hazelwood School District v. United States, 433 U.S. 299, 307-08 (1977). Indeed, in disparate impact cases, statistical evidence is the norm. See Watson v. Fort Worth Bank and Trust, 487 U.S. 977, 987, 101 L. Ed. 2d 827, 108 S. Ct. 2777 (1988); Munoz v. Orr, 200 F.3d 291, 300 (5th Cir. Tex. 2000), cert denied, 531 U.S. 812 (2000). In this case, use of statistics is virtually the only practical way to show systemic organizational bias against employees by an arbitration organization. Dr. Colvin’s statistics show the promises and/or expectations of fairness were simply false, in that AAA arbitrations are and have been systematically biased in favor of large employers such as Defendant. R 115-21. Indeed, his affidavit demonstrates -23-

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Plaintiff’s claims in AAA arbitration would be worth, on average, only 16.4% as much if she were allowed to bring them in federal court. R 118. By requiring arbitration using rules and arbitrators which have proven so substantially biased in its favor, Defendant essentially sought to steal Plaintiff’s claims, and leave her with a tip. When the “repeat player” effect of Defendant as a large corporation using AAA on multiple occasions is factored in, the expected recovery drops even further, to 13.3% of a federal court expected recovery.5 Pl. App. pp. 3-6, R 117-20. Thus, at a minimum, Defendant has breached its duty to provide rules leading to fair arbitration results. Based on Dr. Colvin’s findings, and in light of the pending litigation alleging a conspiracy by major banks to force arbitration agreements upon credit card holders, Plaintiff-Appellant believes Defendant knows, and has known, that it is substantially more likely to win in AAA employment arbitration, and that this is why it has continued to promulgate its policy both in the context of employment agreements and in connection with its credit card business. Notably, Defendant has not been bashful in seeking to escape other arbitral forums such as FINRA, where it believes there is a substantial risk of a sizeable award against it. See e.g., Citigroup Global Markets, Inc. v. North Carolina Eastern Municipal Power Agency, Cause No. 13-01703

5

Expected recovery of $19,146 vs. $143,497 in federal court. -24-

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(S.D.N.Y. 2013); Citigroup Global Markets, Inc v. Abbar, Cause No. 11-06993 (S.D.N.Y. 2013).6 Plaintiff was unaware of the systematic bias of AAA in favor of large employers, and relied on the representation of neutrality in her decision to enter the contract. R 223-24. It was never her intention to simply waive her statutory right to work in a discrimination free workplace. R 224. Even if Defendant was not aware that its arbitration policy was fundamentally flawed through systematic AAA bias, an agreement must be set aside under Texas law where there is a mutual material mistake of fact. Myrad Props., Inc. v. LaSalle Bank Nat’l Ass’n, 300 S.W.3d 746, 751 (Tex. 2009). A mutual mistake occurs when both parties to an agreement were under a misconception or ignorance of a material fact. Id. Given the repeated assurances of neutrality and fairness in the Policy as well as the 84-87% reduction in the value of her claims, the Court must find that such misconceptions were material, and set aside the agreement. The trial court erred in disregarding competent Circuit and state appellate authority in support of Plaintiff’s contention that Courts have repeatedly refused to enforce arbitration agreements where either the rules of arbitration or evidence shows

6

See also Internet article “Judge Blocks Auction Rate Arbitration against Citigroup” at: http://www.reuters.com/article/2013/05/06/us-citigroup-arbitration-idUSBRE9450RB20130506. -25-

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systematic bias in favor of the employer. For example, the court in Hooters of America, Inc. v. Phillips, 173 F.3d 933 (4th Cir. 1999) refused to enforce an arbitration agreement where Hooters failed to promulgate adequate rules of arbitration, choosing instead to make one-sided rules more burdensome to plaintiffs, and then providing that the employee could only pick an arbitrator from a companyapproved list. The result was a system which the court denounced as one where “the selection of an impartial decision maker would be a surprising result.” 173 F.3d at 939. Finding that the plaintiff in that case could legitimately expect that arbitration would entail procedures so wholly one-sided as to present a “stacked deck,” the court rescinded the agreement. 173 F.3d at 940. The court in Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d. 370 (6th Cir. 2005) followed the decision in Hooters, supra, and declined to enforce an arbitration agreement where the defendant selected an arbitration provider for which it supplied 42% of the provider’s business, thereby exercising an undue influence over the selection of arbitrators. In Tri-Star Petrol. Co. v. Tipperary Corp., 107 S.W.3d 607 (Tex. App. – El Paso 2003, pet. denied), the court found that a party exercised undue influence over an accounting firm that had been hired under an arbitration agreement to perform an accounting of production on a natural gas project. The court found that the party’s -26-

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interference constituted a material breach of the arbitration agreement sufficient to justify (1) vacation of the arbitration award based on the accounting and (2) a refusal to order re-arbitration. If anything, Dr. Colvin’s extensive analysis of actual data is stronger than the conclusions reached in Hooters, Walker, and Tri-Star Petrol, which were based merely on the surmise that stacked rules and selection procedures or financial influence would result in unfair outcomes. Dr. Colvin’s research involves the review of actual outcomes, and has concluded that forced AAA arbitrations have actually resulted in a biased forum with skewed results in favor of employers. As in Hooters, supra, the statistics suggest Plaintiff’s chance of getting a truly neutral arbitrator under AAA proceedings would be a statistical fluke, since Dr. Colvin shows statistical bias to a 99% level of confidence. Accordingly, the trial court’s decision to order arbitration must be reversed. E.

The Arbitration Policy is Unconscionable.

The trial court erred in failing to set aside the arbitration agreement as unconscionable. Because arbitration agreements are only valid if they are enforceable under general contract principles, they may be set aside when they are unconscionable. 9 U.S.C. § 2 (arbitration agreements under FAA are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for -27-

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the revocation of any contract”); Tex. Civ. Prac. and Rem. Code § 171.001(b) (arbitration agreements can be revoked “on a ground that exists at law or in equity for the revocation of a contract”). While the term “unconscionable” has no precise legal definition, see Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 498 (Tex. 1991), it generally describes a “contract that is unfair because of its overall one-sidedness or the gross one-sidedness of its terms.” Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 821 (Tex. App.–San Antonio 1996, no writ) (Gonzales, J., concurring) (citing Currey v. Lone Star Steel Co., 676 S.W.2d 205, 213 (Tex. App.–Ft. Worth 1984, no writ)). The basic test for unconscionability is whether, considering the parties’ general commercial background and commercial needs of the particular case or trade, the clause at issue is so one-sided that it is unconscionable under the circumstances existing at the time the contract was made. In re First Merit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001) (orig. proceeding). Unconscionability includes two aspects: (1) procedural unconscionability, which refers to the circumstances surrounding the adoption of the arbitration provision, and (2) substantive unconscionability, which refers to the fairness of the arbitration provision itself. In re Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002). Courts may consider both procedural and substantive unconscionability of an

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arbitration clause in evaluating the validity of an arbitration provision. In re Halliburton Co., 80 S.W.3d 566, 571-572 (Tex. 2002). In this case, the arbitration policy was mandatory, non-negotiable, and made a condition of employment by its express terms. R 57, 223. Although the EEOC has expressed concern about such policies in the past, courts have allowed employers to use such policies. Policy Statement on Mandatory Binding Arbitration of Employment Discrimination Disputes, EEOC Notice No. 915.00 (July 10, 1997); In re Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002). Nevertheless, the Court may consider the procedural aspect of the policy when reviewing the substantive unconscionability of the claim. An arbitration agreement covering statutory claims is valid so long as “the arbitration agreement does not waive substantive rights and remedies of the statute and the arbitration procedures are fair so that the employee may effectively vindicate his statutory rights.” In re Halliburton, 80 S.W.3d at 572; In re Poly-America, L.P., 262 S.W.3d 337, 352 (Tex. 2008). Where an arbitration policy incorporates a scheme to limit an employer’s damages or risk of liability in a fashion where the scales of justice are “tipped so that the employee’s benefits under the statute are substantially reduced,” the policy cannot be enforced. In re Poly-America, L.P., 262 S.W.3d 337,

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352-353 (Tex. 2008), quoting Hazelwood v. Mandrell Indus. Co., 596 S.W.2d 204, 206 (Tex. Civ. App.--Houston [1st Dist.] 1990, writ ref'd n.r.e.). Dr. Colvin’s statistical evidence demonstrates that mandatory employment arbitration polices requiring use of the AAA are, in fact, substantively unconscionable because they systematically tip the scales in favor of employers. His affidavit concludes with 99% statistical certainty that mandatory employment claims are more likely to be decided in favor of the employer than in state or federal courts, and that even if a plaintiff is able to recover in arbitration, her damages will be less. His analysis of thousands of AAA cases establishes that the expected recovery for an employee in mandatory arbitration is only 16% of that expected in federal court, or 9% versus state court. R 115-21. The expected recovery drops even more to approximately 12.9% of the expected federal recovery where, as here, Defendant is a large corporation likely to be viewed as a “repeat player” before the AAA. R 119. Defendant’s arbitration policy has essentially stolen Plaintiff’s claims, and left her a tip. Such a result is unconscionable, and should not be enforced by the Court. F.

Mandatory AAA Employment Arbitration Violates Public Policy.

Even if the Court finds that the parties agreed to arbitrate, it must consider whether any federal statute or policy renders the claims nonarbitrable. Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 263 (5th Cir. Miss. 2004). In light of Dr. -30-

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Colvin’s statistical findings, it is clear that enforcing mandatory AAA employment arbitration policies is undermining the public policies of enforcing employment statutes. See, In re Poly-America, L.P., 262 S.W.3d 337, 352 (Tex. 2008). Whether a contract violates public policy is a question of law. Id. The public policy of enforcing employment discrimination laws is well known, and is frequently protected by statutes or regulations which expressly prevent their substantive waiver. See, e.g. 29 C.F.R. §825.220(d)(“Employees cannot waive, nor may employers induce employees to waive, their rights under FMLA.”); 29 U.S.C. §626(f)(ADEA non-waiver provision); see also, In re: Poly-America, L.P., 262 S.W.3d 337 (noting courts view anti-retaliation provisions of Worker’s Compensation laws to be non-waivable). Case law also confirms an employee may not be required to waive Title VII rights as a condition of employment. See e.g. Adams v. Philip Morris, Inc., 67 F.3d 580, 584 (6th Cir. 1995) (“It is the general rule in this circuit that an employee may not prospectively waive his or her rights under either Title VII or the ADEA.”); Kendall v. Watkins, 998 F.2d 848, 851 (10th Cir. 1993)(same). In cases involving statutory rights, blind enforcement of arbitration agreements in the fashion the trial court undertook would undermine congressional intent as reflected in Title VII and the FMLA. See Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465, 1473 (D.C. Cir. 1997). As the Fifth Circuit explained in Williams v. Cigna Fin. -31-

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Advisors, 197 F.3d 752, 760-761 (5th Cir. Tex. 1999), the whole argument in allowing arbitration of employment disputes rests upon the assumption that arbitrations will be a fair alternative to litigation in the courts. As the Texas Supreme Court recently concurred in In re: Poly-America, L.P., 262 S.W.3d 337 (Tex. 2008): An arbitration agreement covering statutory claims is valid so long as “the arbitration agreement does not waive substantive rights and remedies of the statute and the arbitration procedures are fair so that the employee may effectively vindicate his statutory rights.” Id., quoting In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002). As the Tenth Circuit explained along similar lines: Thus, Gilmer reaffirmed the Arbitration Act's presumption in favor of enforcing agreements to arbitrate-even where those agreements cover statutory claims. While we recognize this presumption, we conclude that it is not without limits. As Gilmer emphasized, arbitration of statutory claims works because potential litigants have an adequate forum in which to resolve their statutory claims and because the broader social purposes behind the statute are adhered to. This supposition falls apart, however, if the terms of an arbitration agreement actually prevent an individual from effectively vindicating his or her statutory rights. Shankle v. B-G Maint. Mgmt. of Colo., Inc., 163 F.3d 1230, 1234 (10th Cir. 1990) (citations omitted); see also Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1060 (11th Cir. 1998) (holding that arbitration agreement which proscribed award of Title VII damages was unenforceable because it was fundamentally at odds with the -32-

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purposes of Title VII); Cole v. Burns Int'l Sec. Servs.,105 F.3d 1465, 1468, 323 U.S. App. D.C. 133 (D.C. Cir. 1997) (“We do not read Gilmer as mandating enforcement of all mandatory agreements to arbitrate statutory claims; rather we read Gilmer as requiring the enforcement of arbitration agreements that do not undermine the relevant statutory scheme.”). The Second Circuit recently relied on this rationale in setting aside a class action waiver of anti-trust claims, holding that it would essentially frustrate the ability of plaintiffs to enforce their rights. See Italian Colors Rest. v. Am. Express Travel Related Servs. Co., 667 F.3d 204, 216 (2d Cir. 2012), cert. granted, 133 S. Ct. 594, 184 L. Ed. 2d 390 (U.S. 2012). Oral argument before the Supreme Court occurred in February, and a decision is expected this term. Thus, a court cannot enforce an agreement to arbitrate if the specific arbitral forum provided under the agreement does not “allow for the effective vindication of that claim.” Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 313 (6th Cir. 2000); Walker, 400 F.3d at 313. “At a minimum, statutory rights include both a substantive protection and access to a neutral forum in which to enforce those protections.” Cole, 105 F.3d at 1482. Thus, where the forum is not neutral, the agreement to arbitrate is unenforceable. Walker, 400 F.3d at 313. Professor Colvin’s statistical research shows that despite the notoriety of the AAA, employment arbitrations with the AAA under mandatory policies are inherently -33-

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unfair to employees. By hoodwinking employees such as Diggs into accepting arbitration, the statistics show with a 99% level of confidence she is prejudiced in arbitration both in terms of her likelihood to win and her expected total recovery. Indeed, her expected total recovery in arbitration against any employer is only 16.4% of what she could expect in federal court, and 9% of what she could expect in state court. R 118. Where, as here, she is pitted against an obvious repeat player so that the arbitrator is tempted by the potential fruit of repeat business, her expected recovery drops even further to 12.9% of her expected recovery in federal court. Further, were the Court to adopt the trial court and magistrate’s approach of simply ignoring any statistical evidence of unfairness, it would effectively allow employers to “opt out” of civil rights altogether. The Defendant and its consortium of banks succeeded in doing this within the realm of credit card disputes by driving the win rate for consumers all the way to .2% before the Attorney General for Minnesota stopped them. See “Banks vs. Consumers (Guess Who Wins),” Business Week, June 5, 2008. R 161-90. Such a result in employment litigation would effectively make all of Plaintiff’s federal civil rights economically unenforceable. Indeed, one could argue that the expected recovery from AAA arbitrations is already so low as to seriously inhibit the ability to enforce her rights.

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Since Diggs has shown by competent evidence that the agreement to arbitrate in this case has substantively impaired her ability to enforce her statutory employment rights, the Court should reverse the trial court, and remand this case for trial on the merits. Issue No. 2: A.

The trial court erred in refusing to allow discovery regarding the fairness of AAA proceedings involving Citigroup. Standard of Review.

The Court generally reviews a district court's grant or denial of discovery under a deferential abuse of discretion standard. See Geiserman v. MacDonald, 893 F.2d 787, 789 (5th Cir. 1990); see also Hodges v. United States, 597 F.2d 1014, 1018 (5th Cir. 1979). B.

The Trial Court Abused its Discretion in Denying Discovery.

The trial court abused its discretion in refusing to allow Plaintiff to conduct discovery regarding the specific record of Defendant-Appellee in past AAA arbitrations, as well as its knowledge of bias in favor of large employers. Plaintiff timely made this request in her response to the original Motion, and again in her objections to the Magistrate’s recommendations. R 102, 104, 263. At least limited discovery has been allowed by other circuit courts into the related issue of evident partiality following an adverse award. For example, the Ninth Circuit allowed limited discovery on such issues in Fidelity Federal Bank, FSB v. -35-

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Durga Ma Corp., 386 F.3d 1306, 1310 (9th Cir. 2004). The Second Circuit has held that “clear evidence of impropriety” must be presented before post-award discovery into potential arbitrator bias will be permitted. Lucent Technologies Inc. v. Tatung Co., 379 F.3d 24, 31 (2d Cir. 2004), citing with approval, Andros Compania Maritima, S.A. v. Marc Rich & Co., 579 F.2d 691, 702 (2d Cir. 1978). However, even under the Second Circuit’s more restrictive “clear evidence of impropriety,” Dr. Colvin’s findings of systemic bias to a 99% statistical level of certainly are sufficient to justify an examination of the specific track record of Defendant-Appellee in employment arbitrations before the AAA. Discovery would further be warranted in light of the pending anti-trust litigation alleging a conspiracy to impose binding arbitration of credit card disputes. Thus, the trial court abused its discretion by denying the requested discovery, and this Court should reverse and remand to the trial court to allow discovery into the track record and knowledge of Defendant-Appellee. VII. CONCLUSION This Court should reverse the trial court’s judgment, and remand this case to the district court for trial on the merits. Alternatively, the Court should reverse and remand for further development of the record, including a full Daubert hearing, and full discovery on the track record of Defendant-Appellee in employment arbitration before the AAA, as well as its knowledge of systemic bias.

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Respectfully submitted, KILGORE & KILGORE, PLLC By: /s/ John H. Crouch, IV JOHN H. CROUCH, IV State Bar No. 00783906 Kilgore Law Center 3109 Carlisle, Suite 200 Dallas, Texas 75204 Telephone: 214/969-9099 Telecopier: 214/953-0133 ATTORNEYS FOR PLAINTIFFAPPELLANT SAMANTHA DIGGS Certificate of Service The undersigned attorney hereby certifies that on May 13, 2013, a true and correct copy of the foregoing document was filed with the ECF system, so that an electronic copy of the document was automatically transmitted to counsel for the opposing party. Kristin M. Snyder Ogletree Deakins 8117 Preston Road, Suite 500 Dallas, Texas 75225 /s/ John H. Crouch, IV John H. Crouch, IV

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Certificate of Compliance 1.

2.

EXCLUSIVE OF THE EXEMPTED PORTIONS IN 5TH Cir. R. 32.2, THE BRIEF CONTAINS (select one): A.

8,398 words, OR

B.

N/A

lines of text in monospaced typeface.

THE BRIEF HAS BEEN PREPARED (select one): A.

in proportionally spaced typeface using: Software Name and Version:

WordPerfect X6

in (Typeface Name and Font Size): Times New Roman - 14 , OR B.

in monospaced (nonproportionally spaced) typeface using: Typeface name and number of characters per inch: N/A

3.

THE UNDERSIGNED UNDERSTANDS A MATERIAL MISREPRESENTATION IN COMPLETING THIS CERTIFICATE, OR CIRCUMVENTION OF THE TYPE-VOLUME LIMITS IN Fed. R. App. P. IMPOSING SANCTIONS AGAINST THE PERSON SIGNING THE BRIEF. /s/ John H. Crouch, IV John H. Crouch, IV

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