## Facts

- Circuit City employed Monir Najd as a retail sales associate beginning in 1985.
- In 1995, Circuit City implemented an “Associate Issue Resolution Program” containing a written Dispute Resolution Agreement (DRA) requiring final and binding arbitration of all employment-related disputes.
- The program allowed existing employees to opt out by submitting a form to corporate headquarters within a specified period; failure to opt out would bind the employee to arbitration.
- Najd signed a written acknowledgment that he received the materials but did not submit an opt-out form and continued working.
- Najd alleged that a supervisor harassed him based on ethnicity and that Circuit City terminated him in 1998.
- Najd filed suit in California state court asserting common-law tort claims and a discrimination claim under the California Fair Employment and Housing Act (FEHA), Cal. Gov’t Code § 12940(a).
- Circuit City filed a federal action under the Federal Arbitration Act (FAA) seeking to stay the state case and compel arbitration.
- The district court compelled arbitration and imposed Rule 11 sanctions against Najd for opposing the petition.

## Issues

1. Whether FEHA employment-discrimination claims may be compelled to arbitration under the FAA even when no Title VII claim is alleged.
2. Whether the DRA was enforceable against Najd, including whether he assented to it and whether it was supported by consideration (and otherwise invalid under generally applicable contract defenses).
3. Whether Rule 11 sanctions were proper based on Najd’s arguments opposing arbitration.

## Decision

- The court held the FAA applied because Najd was not a transportation worker within the FAA § 1 exemption.
- The court held FEHA claims may be subject to compulsory arbitration under a valid FAA-governed agreement, even absent a Title VII claim.
- The court held Najd assented to the DRA by receiving clear notice, having an opt-out opportunity, declining to opt out, and continuing employment.
- The court held the DRA was supported by adequate consideration, including mutual promises to arbitrate and continued employment.
- The order compelling arbitration was affirmed.
- The Rule 11 sanctions order was vacated and remanded because Najd’s arguments, though unsuccessful, were not frivolous.

## Legal Principles

- The FAA’s § 1 exemption is limited to transportation workers; retail employees’ arbitration agreements are generally covered by the FAA.
- State statutory employment-discrimination claims (including FEHA claims) may be compelled to arbitration under the FAA if the arbitral forum permits effective vindication of statutory rights.
- An opt-out arbitration program can form an enforceable agreement where the employer provides clear notice and a meaningful opt-out mechanism and the employee continues employment without opting out.
- Mutual obligations to arbitrate, together with continued employment under the new dispute-resolution terms, can supply adequate consideration for an employment arbitration agreement.
- Rule 11 sanctions are inappropriate where legal arguments are nonfrivolous in a contested or developing area, even if ultimately rejected.

## Conclusion

The Ninth Circuit enforced Circuit City’s opt-out arbitration agreement and required arbitration of Najd’s FEHA and related claims under the FAA, but vacated Rule 11 sanctions because Najd’s opposition was not sanctionably frivolous.


Circuit City Stores, Inc. v. Najd, 294 F.3d 1104 (9th Cir. 2002)