Kevin Stevens Et Al , Appellants V. Kenneth Meir Et Al, Respondents

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FILED
4/26/2021
Court of Appeals
Division |
State of Washington

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

KENNETH MEIER, an individual;
NORTHWEST RECYCLER, INC., a
Washington corporation and dba THE
RECYCLER CORE CO., INC., a
California corporation; and THE
RECYCLER CORE CO., INC., a
California corporation,

Respondents,
V.

KEVIN STEVENS, a married individual,
and IRENE FAYE STEVENS, his
spouse; NW SCRAP BUYERS, LLC, a
Washington limited liability company;
GARY LUSK, a married individual, and
DEBORAH LUSK, his spouse; KYLE
LUSK, a married individual, and JANE
DOE LUSK, his spouse; ALL BRITE
RECYCLING, LLC, a Washington
limited liability company; MID VALLEY
RECYCLING, INC., a Washington
corporation; and NW METALS, LLC aka
NW RECYCLING, LLC, a Washington
limited liability company,

Appellants.

DIVISION ONE
No. 81624-1-I

UNPUBLISHED OPINION

DwYeR, J. — Kevin Stevens appeals from an order denying his motion to

compel arbitration in a dispute between Stevens and his former employer.

Stevens sought to compel arbitration based on an arbitration agreement that the

parties entered into in 2006. The trial court ruled both that the agreement had

been rescinded by later agreements and that—if it had not been rescinded—

No. 81624-1-I/2
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Stevens had waived his right to compel arbitration. We disagree. Because
arbitration agreements cannot be unilaterally modified, the 2006 arbitration
agreement remains binding. Additionally, Stevens’ actions prior to noting his
motion to compel arbitration did not waive his right to compel arbitration.
Accordingly, we reverse.
I
The Recycling Core Co., Inc. (RCC) is a business that deals in rebuildable
automotive cores, catalytic converters, and other types of scrap. Kevin Stevens
began working for RCC in 1985, first in California and later in Washington. In
2006, Stevens and RCC executed an arbitration agreement, which provided that:
[T]he Company and the undersigned Employee are waiving the
right to a jury trial for most employment-related disputes.
The agreement was broad in scope, and applied to “all statutory,
contractual and/or common law claims arising from employment with the
Company.” The arbitration agreement was contained within an employee
handbook, but Stevens was required to execute the agreement, detach it from
the handbook, and present it to RCC’s human resources department. Stevens
also signed a separate acknowledgement of receipt of the handbook.
In 2015 and 2016, RCC issued revised handbooks which did not contain
any information about arbitration or any other method of dispute resolution. RCC
omitted this information intentionally, because it wished to rescind the arbitration
agreement. The 2015 and 2016 handbooks contained an integration clause,
stating their intent to supersede all previously issued handbooks, and stating that

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the handbook contained “the entire agreement between [Stevens] and the
Company.”
Stevens received the 2015 and 2016 handbooks by e-mail. Stevens was
required to be familiar with the contents of the handbook because he was
employed in a supervisory role and was required to enforce its provisions. For
example, Stevens issued disciplinary letters to several employees for violating
the various policies set forth in the handbook.
In February 2019, the chief executive officer of RCC, Kenneth Meier,
became concerned that Stevens was stealing from RCC. RCC terminated
Stevens. Upon Stevens’ termination, RCC shut down all of its Washington
operations and removed all equipment, inventory, and files from Stevens’ office,
including Stevens’ copy of the 2006 arbitration agreement.
In January 2020, plaintiffs (collectively RCC) filed suit against Stevens,
alleging breach of contract, tortious interference, conversion, negligent and
fraudulent concealment, breach of fiduciary duty, and unjust enrichment. On the
same day, RCC served Stevens with interrogatories and requests for production.
In March 2020, Stevens filed his answer and counterclaims and responded to
discovery requests. Stevens’ answer did not mention arbitration.
Shortly thereafter, Stevens propounded discovery requests to RCC—one
set of interrogatories and requests for production. In April, the parties met and
conferred regarding discovery. At that meeting, arbitration was not discussed. In
response to his discovery requests, RCC produced a copy of the arbitration

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agreement to Stevens on May 4, 2020. On May 5, 2020, RCC filed a stipulated
motion to amend the complaint, with Stevens’ consent.
On June 2, 2020, Stevens filed an answer to the amended complaint and
raised mandated arbitration as a defense. The next day, Stevens filed a motion
to compel arbitration.
The trial court denied Stevens’ motion to compel arbitration, concluding
that (1) the 2015 and 2016 handbooks had replaced the 2006 handbook
containing the arbitration agreement, thereby rescinding the arbitration
agreement, and (2) if the arbitration agreement had not been rescinded, Stevens
had waived the right to compel arbitration.
Stevens appeals.
II
Stevens contends that the trial court erred by concluding that an
arbitration agreement that he entered into with RCC was rescinded. We agree.
We review de novo a trial court’s decision to compel or deny
arbitration. Burnett v. Pagliacci Pizza, Inc., 196 Wn.2d 38, 46, 470 P.3d 486
(2020). Arbitration is a matter of contract, and arbitration agreements stand on
equal footing with other contracts. McKee v. AT&T Corp., 164 Wn.2d 372, 383,
191 P.3d 845 (2008). Accordingly, parties cannot be compelled to arbitrate
unless they agreed to do so. Weiss v. Lonnquist, 153 Wn. App. 502, 510, 224
P.3d 787 (2009) (citing AT&T Techs., Inc. v. Commc’ns Workers of Am., 475
U.S. 643, 648, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986)). But when a court

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determines that an enforceable agreement to arbitrate exists, it must order the
parties to do so. RCW 7.04A.070(1).
Because arbitration agreements—like all contracts—must be formed by
mutual assent, an employer cannot “‘foist an arbitration agreement on an
employee simply by including an arbitration clause in an employee handbook that
is provided to the employee.’” Burnett, 196 Wn.2d at 53 (quoting Burnett v.
Pagliacci Pizza, Inc., 9 Wn. App. 2d 192, 208, 442 P.3d 1267 (2019)).
Accordingly, an arbitration provision that is included in an employee handbook is
enforceable only when the employee is given explicit notice of the arbitration
provision. Burnett, 196 Wn.2d at 50; see also Nelson v. Cyprus Bagdad Copper
Corp., 119 F.3d 756, 761 (9th Cir. 1997) (signed acknowledgment of receipt of
handbook which contained arbitration provision did not constitute “knowing
agreement to arbitrate”).
Here, the issue is not whether an agreement to arbitrate may be formed
merely by inclusion in an employee handbook but, rather, whether such an
agreement may be rescinded by means of a revised handbook that includes no
mention of arbitration. Because arbitration is a matter of contract, we must apply
contract principles to resolve the question.
Rescission occurs when either mutual consent exists to rescind a contract
or a demand made to rescind by one side is met with acquiescence by the
other. Woodruff v. McClellan, 95 Wn.2d 394, 397, 622 P.2d 1268 (1980). When
the same parties enter into a second contract that concerns the same subject
matter but contains terms inconsistent from those in the first contract, the effect is

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to rescind the earlier contract. In re Estate of Wimberly, 186 Wn. App. 475, 505,
349 P.3d 11 (2015).
The trial court relied on Gagliardi v. Denny’s Rests., Inc., 117 Wn.2d 426,
815 P.2d 1362 (1991), for the proposition that employers may unilaterally amend
or revoke policies in a handbook, so long as employees are given reasonable
notice. The trial court concluded that, as Stevens had received the 2015 and
2016 editions of the handbook, which did not contain an arbitration agreement,
and because of his supervisory role (requiring that Stevens be familiar with the
contents of the handbook in order to discipline other employees) he had been
given reasonable notice. However, as our Supreme Court has recently
explained:
Gagliardi does not support that notion. In Gaglidari, this court
acknowledged that “[a]n employer may unilaterally amend or
revoke policies and procedures established in an employee
handbook.” [117 Wn.2d] at 434. “However, an employer’s
unilateral change in policy will not be effective until employees
receive reasonable notice of the change.” Id. This court explained
that this “reasonable notice rule” is warranted “because it is unfair
to place the burden of discovering policy changes on the employee.
While the employee is bound by unilateral acts of the employer, it is
incumbent upon the employer to inform employees of its actions.”
Id. at 435. Gaglidari did not address arbitration, it concerned
alteration of the at-will employment relationship based on the
employer’s policy of progressive discipline as stated in the
employee handbook.
Burnett, 196 Wn.2d at 52.
Accordingly, although an employer may unilaterally modify conditions of
employment relating to employee discipline so long as employees receive
reasonable notice, an employer may not unilaterally alter an agreement to
arbitrate. See Burnett, 196 Wn.2d at 52.

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This is consistent with determinations concerning the enforceability of
arbitration agreements in which one party expressly reserves the right to modify
the agreement. Courts have generally held that such agreements are
unenforceable because they are illusory promises. Burnett, 196 Wn.2d at 53 n.4.
This suggests that employers do not retain the right to unilaterally revoke
arbitration agreements because, if they did, those agreements would be
unenforceable illusory promises. Given that valid arbitration agreements are
enforceable, RCW 7.04A.060(1), that cannot be the case.
RCC contends that the issuance of the 2015 and 2016 handbooks, each
of which contained an integration clause while not containing an arbitration
agreement, superseded the 2006 arbitration agreement. However, given that the
inclusion of an arbitration provision in an employee handbook, without explicit
notice, does not establish knowing agreement—as would be required to form a
contract—the mere omission of such a provision cannot establish the knowledge
required to acquiesce to a demand to rescind an existing agreement to arbitrate
or demonstrate the formation of a new contract with different terms regarding
dispute resolution.
RCC avers that rescission of an arbitration agreement must be distinct
from formation of such an agreement because “[r]evoking a mandatory arbitration
agreement should be favored by public policy principles,” as it is “reinstating the
employees’ broader rights to a public judicial forum and appeal.” But federal and
Washington law both express strong public policies favoring arbitration. Adler v.
Fred Lind Manor, 153 Wn.2d 331, 341, 341 n.4, 103 P.3d 773 (2004)

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(citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24,
103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)). Given this strong public policy
preference for arbitration, RCC fails to establish that public policy interests
militate in favor of a view that rescission of arbitration agreements may be
accomplished unilaterally.
Because the 2006 arbitration provision was never effectively rescinded,
the trial court erred by ruling that no arbitration obligation existed.
III
Stevens next contends that the trial court also erred by ruling that he
waived his right to arbitrate the dispute. We agree.
We review de novo whether an agreement to arbitrate has been
waived. Romney v. Franciscan Med. Grp., 199 Wn. App. 589, 602, 399 P.3d
1220 (2017) (citing Steele v. Lundgren, 85 Wn. App. 845, 850, 935 P.2d 671
(1997)). Waiver of a contractual right to arbitration is disfavored, and a party
seeking to establish such a waiver has a “‘heavy burden of proof.’” Steele, 85
Wn. App. at 852 (quoting Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694
(9th Cir. 1986)). To establish waiver, on the part of its opponent, the party
opposing arbitration must demonstrate that the opponent (1) had knowledge of
the existing right to compel arbitration, (2) acted inconsistently with that right, and
(3) those inconsistent acts prejudiced the party opposing arbitration. Romney,
199 Wn. App. at 601-02. Whether a party has waived its right by its conduct
depends on the particular facts of the case and is not susceptible to bright line

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rules. Romney, 199 Wn. App at 602 (quoting Canal Station N. Condo. Ass’n v.
Ballard Leary Phase II, LP, 179 Wn. App. 289, 298, 322 P.3d 1229 (2013)).
Here, the record does not establish that Stevens, at the outset of the
litigation, had knowledge of his right to arbitrate or the scope of that right.
Although the law presumes that someone who signs a document knows and
understands its contents, Kinsey v. Bradley, 53 Wn. App. 167, 171, 765 P.2d
1329 (1989), the fact that Stevens signed the 2006 agreement is not dispositive.
It is undisputed that—upon his firing—RCC seized his business records. This left
Stevens without a copy of the 2006 agreement. There is no indication in the
record that Stevens then possessed the information necessary to determine
whether the claims in the lawsuit all fell within the scope of the agreement.
Stevens signed the document 14 years earlier and the evidence in the record
suggests that Stevens did not have access to a copy of the agreement until it
was provided to him in discovery. It was at this time that Stevens was
chargeable with the knowledge necessary to assert or waive his right to
arbitration.
Nor did Stevens engage in acts inconsistent with the right to arbitrate.
Engaging in discovery was necessary to inform himself of the scope of his right
to arbitrate. Indeed, Stevens filed a motion to compel arbitration within a month
of receiving a copy of the 2006 document. While we have held that “overly
aggressive” discovery requests “aimed at getting information that the defendants
could not get in an arbitration proceeding” can be inconsistent with an assertion
of an intent to arbitrate, Steele, 85 Wn. App. at 854, Stevens’ limited actions prior

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to seeking arbitration, including his delay in asserting his right to arbitration and
his participation in discovery, were reasonable under the circumstances and
were not inconsistent with his assertion of his right to arbitrate within a month of
obtaining a copy of the 2006 arbitration agreement.
RCC does not identify any case in which such a brief delay resulted in
waiver. Compare Adler, 153 Wn.2d at 362 (right to arbitrate not waived when
defendant filed motion to compel arbitration approximately three months after
complaint filed in superior court), and Wiese v. Cach, LLC, 189 Wn. App. 466,
481, 358 P.3d 1213 (2015) (same), with Jeoung Lee v. Evergreen Hosp. Med.
Ctr., 7 Wn. App. 2d 566, 584, 434 P.3d (2019) (nine month delay, while aware of
right to arbitrate, waived right to compel arbitration), and Steele, 85 Wn. App. at
859 (“unnecessary” delay of ten months, along with “abusive” discovery tactics
waived right to arbitrate).
Because Stevens did not, with full knowledge of his right to arbitrate, act
inconsistently with an exercise of that right, no examination is necessary of the
question of whether RCC will be prejudiced by arbitrating its claims. RCC
contracted to do so. It never effectively modified that contractual obligation.
Stevens did not waive his right under that contract. No more need be said.

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Reversed and remanded.

WE CONCUR:

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