Sisneros v. Citadel Broadcasting Co.
140 N.M. 266, 2006 NMCA 102, 142 P.3d 34 (2006)
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Rule of Law:
An arbitration agreement that allows an employer to unilaterally amend or terminate the policy is not illusory if it prohibits such changes from applying to claims that have already accrued, as this restriction constitutes valid consideration.
Facts:
- Phillip Sisneros, a radio personality, worked for Citadel Broadcasting Company for over twenty years under a series of employment agreements.
- Eight months before signing the final employment agreement, Sisneros signed a form acknowledging receipt of Citadel's employee handbook, which contained an arbitration policy.
- The handbook's arbitration policy stated Citadel reserved the right to amend or terminate the policy, but specified that any change "will not apply to claims which accrued before the amendment or termination."
- In September 2002, Sisneros and Citadel entered into a written two-year employment agreement that incorporated the handbook's arbitration policy by reference in a clause titled 'Resolving Disputes' (paragraph 22).
- During negotiations, Sisneros objected to a separate paragraph (26(h)) that explicitly waived his right to a judicial determination, stating that compulsory arbitration was a 'deal breaker.'
- Citadel's representatives allegedly told Sisneros the compulsory arbitration requirement had been removed from the revised agreement; they removed paragraph 26(h), but paragraph 22 remained.
- Relying on these representations, Sisneros signed the final agreement.
- On January 7, 2003, Citadel terminated Sisneros's employment without cause and paid him six months' salary as required by the contract.
Procedural Posture:
- Phillip Sisneros filed a complaint for breach of contract and other claims against Citadel Broadcasting Company in district court.
- Citadel filed a motion to compel arbitration and, in the alternative, to dismiss the complaint.
- After limited discovery, Citadel filed a motion for partial summary judgment against Sisneros's claim that misrepresentation invalidated the arbitration clause.
- Sisneros filed a cross-motion for partial summary judgment on the issue of compulsory arbitration.
- The district court granted Citadel’s motion for partial summary judgment, granted its motion to compel arbitration, and denied Sisneros’s motion.
- Sisneros, as Plaintiff-Appellant, appealed the district court's final order to the New Mexico Court of Appeals.
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Issue:
Is an arbitration agreement illusory when it allows the employer to amend or terminate the arbitration policy at any time, but explicitly states that any such amendment or termination will not apply to claims that have already accrued?
Opinions:
Majority - Fry, Judge.
No, an arbitration agreement is not illusory if the employer's right to unilaterally modify it is restricted by a provision stating that changes will not apply to claims that have already accrued. While an unfettered right to modify or revoke an agreement makes it illusory and unenforceable, Citadel's policy was explicitly restricted. The policy stated that any termination or amendment would not apply to claims that had accrued before the change. This restriction constitutes valid consideration because Citadel gave up its legal right to change the policy with respect to accrued claims. Once Sisneros's claim accrued upon his termination, Citadel was bound to arbitrate under the existing policy, creating the necessary mutuality of obligation. However, the court also held that summary judgment compelling arbitration was improper because Sisneros raised genuine issues of material fact as to whether Citadel misrepresented that the arbitration requirement had been removed from the contract to induce his signature. A party's duty to read a contract is not absolute and does not bar a claim for misrepresentation if the party's reliance on the misrepresentation was justified.
Analysis:
This decision refines the illusory promise doctrine in New Mexico concerning employer arbitration agreements. It clarifies the holding of a prior case, Salazar, by establishing a clear 'safe harbor' for employers: including a clause that prevents retroactive application of policy changes to accrued claims saves the arbitration agreement from being illusory. This provides practical drafting guidance for employers and sets a distinct boundary for when an employer's unilateral modification rights become unenforceable. The decision also reinforces the principle that fundamental contract defenses, like misrepresentation, are to be decided by a court, not an arbitrator, and that a party’s failure to read a contract does not automatically preclude a claim of justifiable reliance on a misrepresentation.
