UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


BAILEY, EMMANUEL

v.

FED NATL MTGE ASSN


99-7103a

D.C. Cir. 2000


*	*	*


Edwards, Chief Judge: The instant litigation involves a  claim of
employment discrimination filed by the appellee,  Emmanuel Bailey,
against the appellant, Federal National  Mortgage Association ("Fannie
Mae" or "employer"). In  response to Mr. Bailey's complaint, Fannie
Mae filed a motion  to stay litigation pending arbitration. The
District Court  denied the motion to stay, and Fannie Mae now


This case presents a new twist to an old problem. In Cole  v. Burns
Int'l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997), we  held that, if
certain conditions are met, an employer may  compel an employee to use
arbitration in lieu of litigation to  pursue a statutory claim of
employment discrimination if the  employee signed an arbitration
agreement as a condition of  hire. In this case, however, Fannie Mae
seeks to compel  arbitration pursuant to a "Dispute Resolution Policy"
that  was unilaterally promulgated by the employer after Mr.  Bailey
was hired. There is a serious question under Cole  whether an employer
may impose a condition of employment  requiring a current employee to
use arbitration before seek- ing to litigate statutory employment
discrimination claims for  no consideration save the employee's


Fortunately, we do not have to decide this troublesome  question. The
issue was not raised before the trial court,  because Fannie Mae
disclaimed any intention of terminating  Mr. Bailey if he persisted in
his refusal to arbitrate the  instant dispute. Fannie Mae contends
only that its motion to  stay should be granted because Mr. Bailey
implicitly agreed  to arbitrate statutory claims of employment
discrimination  when he continued to work for the employer after the
issu- ance of the Dispute Resolution Policy. Mr. Bailey, in turn, 
claims that he never gave his assent to be bound by the  employer's
new arbitration policy. Mr. Bailey claims further  that he made it
clear to Fannie Mae that he did not subscribe  to the employer's new


The District Court denied Fannie Mae's motion to stay,  finding that,
because there was no meeting of minds between  the parties, there was
no arbitration agreement to enforce. 


We can find no error in the judgment of the District Court. 
Accordingly, we affirm.


I. Background


On March 12, 1998, Mr. Bailey filed a memorandum with  Fannie Mae's
Office of Corporate Justice requesting an inves- tigation of various
allegations of race and gender discrimina- tion. In this memorandum,
labeled a "Formal Complaint,"  Mr. Bailey stated:


Pursuant to the Fannie Mae Employee Handbook, I  hereby submit a Formal
Complaint with respect to the  aforementioned violations of all
applicable United States  and District of Columbia Laws and the Fannie
Mae  Affirmative Action Plan. Further, I hereby retain all  redress
options available to me under the Equal Employ- ment Opportunity
Commissions (EEOC) [sic] and the  United States and/or Local Court


Request for Formal Investigation, reprinted in Joint Appen- dix
("J.A.") 39.


Fannie Mae had announced in January 1998 that it would  issue a new
arbitration policy on March 16, 1998. Subse- quently, on March 16,
1998, as promised, Fannie Mae issued a  Dispute Resolution Policy,
which required employees to pur- sue job-related claims internally,
through arbitration, before  such claims could be presented to a court
of law. In particu- lar, the Dispute Resolution Policy stated that, as
of March 16,  1998,


the Policy becomes a condition of employment for all  Fannie Mae
employees. This means that, by starting or  continuing work for Fannie
Mae on or after that date,  each employee is indicating that he or she
accepts the  Policy as a condition of employment and agrees to be 
bound by it.


Dispute Resolution Policy at 1, reprinted in J.A. 106.


Mr. Bailey never said anything to any official at Fannie  Mae to
indicate that he acceded to the Dispute Resolution 


Policy, and he never signed any agreement to that effect.  And Mr.
Bailey never did or said anything to withdraw the  position stated in
his March 12 complaint, in which he re- served the right to pursue
statutory claims with the EEOC  and in federal or state court. Indeed,
on March 30, 1998,  after the Policy was issued, Mr. Bailey's counsel
sent a letter  to Fannie Mae asserting that


Mr. Bailey's [March 12] Complaint was directed to [the  employer] on
that date specifically to avoid the effective  date on March 16 of a
new corporate policy that might  have mandated arbitration of Mr.
Bailey's issues.


Letter from Pamela J. White to Stasia Kelly (Mar. 30, 1998),  reprinted
in J.A. 70-71. On May 8, 1998, after an exchange  of correspondence
between the parties over Mr. Bailey's  refusal to be bound by the new
arbitration policy, Mr. Bailey's  counsel sent another letter to
Fannie Mae to reiterate her  client's position:


Mr. Bailey retained "all redress options" available to him  with the
courts or EEO administrative agencies and,  thus, rejected Fannie
Mae's new mandatory arbitration  policy effective March 16, 1998.
Furthermore, with or  without regard to the filing date and pendency
of his  Complaint, Mr. Bailey does not agree to be bound by the  new
"Dispute Resolution Policy."


Letter from Pamela J. White to Dawn P. Marcelle (May 8,  1998),
reprinted in J.A. 186. In response to this last letter,  Fannie Mae's
counsel sent a letter to Mr. Bailey's attorney,  reiterating the
employer's position and reassuring Mr. Bailey  that he was in no
threat of losing his job:


Fannie Mae had not previously understood that Mr.  Bailey had already
decided that he would not be bound  by the Dispute Resolution Policy.
As you know, Fannie  Mae considers Mr. Bailey to be bound by that
Policy  with respect to the complaint that he made on March 12,  1998.
In the event that an employee disregards the  Policy, Fannie Mae would
enforce it by seeking appropri- ate judicial relief. As Fannie Mae
previously told em-


ployees, it will not terminate them for failing to follow  the


Letter from Fannie Mae to Pamela J. White, reprinted in  J.A. 190.


On August 6, 1998, Fannie Mae rejected Mr. Bailey's  complaint as
unmeritorious. On December 14, 1998, Mr.  Bailey filed a lawsuit in
the Superior Court of the District of  Columbia, alleging
discrimination and retaliation in violation  of 42 U.S.C. s 1981
(1994), discrimination and retaliation in  violation of the D.C. Human
Rights Act s 1-2501, and breach  of implied contract in violation of
42 U.S.C. s 1981. Fannie  Mae removed Mr. Bailey's lawsuit to the
United States  District Court for the District of Columbia on December
18,  1998. Fannie Mae then moved, pursuant to 9 U.S.C. s 3  (1994), to
stay litigation pending arbitration of Mr. Bailey's  claims. Because
Mr. Bailey had rejected the policy of man- datory arbitration as a
condition of his continued employment,  he opposed the motion to


On May 21, 1999, the District Court denied Fannie Mae's  motion,
finding that Mr. Bailey had effectively rejected the  possibility of
arbitration when he filed his complaint with  Fannie Mae on March 12,
1998. Fannie Mae then filed this  appeal pursuant to 9 U.S.C. s
16(a)(1) (1994).


II. Discussion


A. The Standard of Review


Normally, the determination of intent is a question of fact.  See
Pullman-Standard v. Swint, 456 U.S. 273, 288 (1982).  Therefore, a
district court's findings on intent are subject to  deferential review
under Federal Rule of Civil Procedure  52(a), and such findings may
not be set aside unless clearly  erroneous. See id. at 287-88. It does
not matter whether a  finding of fact is based on documentary evidence
or infer- ences from other facts; in either event, an appellate court 
must respect a trial court's finding of fact unless it concludes  that
the finding is clearly erroneous. See Anderson v. Bes- semer City, 470
U.S. 564, 574 (1985). "A finding is 'clearly 


erroneous' when although there is evidence to support it, the 
reviewing court on the entire evidence is left with the definite  and
firm conviction that a mistake has been committed."  United States v.
United States Gypsum Co., 333 U.S. 364, 395  (1948). And the burden of
establishing a clear error is on the  appellant. See, e.g., Case v.
Morrisette, 475 F.2d 1300, 1307  (D.C. Cir. 1973).


In Pullman-Standard, the Court applied Rule 52(a) to  review a lower
court's determination that the differential  impact of a seniority
system reflected an intent to discrimi- nate racially. The Court
expressly repudiated the view that  facts could be put into
distinguishable categories (i.e., either  subsidiary or ultimate) in
determining whether Rule 52(a)'s  clearly erroneous standard of review
should apply. See Pull- man Standard, 456 U.S. at 287. However, the
Court left  open the question of the standard of review for "mixed 
questions of law and fact," that is, "questions in which the 
historical facts are admitted or established, the rule of law is 
undisputed, and the issue is whether the facts satisfy the  statutory
standard, or to put it another way, whether the rule  of law as
applied to the established facts is or is not violated."  Id. at 289
n.19. It is unclear in this case whether the District  Court's finding
that Mr. Bailey never agreed to arbitration is  a simple question of
fact or a mixed question of law and fact.  At first blush, the issue
appears to raise a question of fact  regarding the parties' intent.
Unfortunately, the question is  not so simple.


In United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir.  1998),
the court observed that "[i]nterpretation of an ambigu- ous contract
term on the basis of extrinsic evidence is gener- ally treated as a
question of fact, and the district court's  findings as to the
parties' intent are reviewed deferentially,  i.e., reversed only for
clear error." Id. at 945 n.7. The  majority opinion notes, however,
that there are a number of  cases in which the appellate court has
engaged in de novo  review of district court interpretations. See id.
Microsoft  assumes that "de novo review of legal analysis is in
principle  compatible with deference to factual findings"; but the
opin- ion then expresses concern that, under a "mixed approach" in 


a case involving a question of intent, "the centrality of intent  would
often make the deference swallow the de novo review, a  result our
cases do not seem to contemplate." Id.


The problem here is complicated even more, because this is  not a case
in which the parties disagree over the meaning of  an existing
agreement. Rather, the legal battle here is over  the existence of a
contract, not its meaning. In fact, both  sides seem to agree that if
the Dispute Resolution Policy  constitutes an enforceable agreement,
there is no disagree- ment over the meaning of the arbitration policy.
The District  Court found that Mr. Bailey never assented to the new 
arbitration policy. We must now decide whether the District  Court's
decision on this question is subject to deferential  review under Rule


One of our sister circuits has held that an appellate court  engages in
de novo review when considering a district court's  order denying a
stay of a federal suit pending arbitration  pursuant to 9 U.S.C. s 3.
See, e.g., Riley Mfg. Co. v. Anchor  Glass Container Corp., 157 F.3d
775, 779 (10th Cir. 1998).  According to the Tenth Circuit, such
review requires the  appellate court to evaluate "whether the district
court cor- rectly found that no valid and enforceable agreement to 
arbitrate the parties' dispute exists." Id. The Second Cir- cuit, on
the other hand, has held that a determination as to  whether the
parties entered into an enforceable agreement to  arbitrate raises a
mixed question of law and fact. See  Chelsea Square Textiles, Inc. v.
Bombay Dyeing and Mfg.  Co., 189 F.3d 289, 295 (2d Cir. 1999). Fannie
Mae contends  that this court is required to review the judgment of
the  District Court de novo. Mr. Bailey, citing Walker v. J.C. 
Bradford & Co., 938 F.2d 575, 576-77 (5th Cir. 1991), appears  to
suggest that the matter involves a mixed question of law  and fact.


The D.C. Circuit has yet to address this precise question.  In Gardner
v. Benefits Communications Corp., 175 F.3d 155  (D.C. Cir. 1999), the
court reversed a trial court's decision  compelling arbitration,
holding that the employee had never 


agreed to use arbitration in lieu of litigation. Gardner is 
inconclusive on the standard of review, however.


Now that we must squarely face the issue, we hold in  accord with the
Second Circuit


that the determination that parties have contractually  bound
themselves to arbitrate disputes--a determination  involving
interpretation of state law--is a legal conclu- sion subject to our de
novo review, ... but that the  findings upon which that conclusion is
based are factual  and thus may not be overturned unless clearly


Chelsea Square, 189 F.3d at 295. As we noted in Microsoft,  "the
centrality of intent" may in some cases "make the  deference swallow
the de novo review." 147 F.3d at 945 n.7.  The Second Circuit
recognized, however, that cases of this  genre often involve an
interpretation of state law, which is a  legal conclusion subject to
de novo review. See Chelsea  Square, 189 F.3d at 295.


B. The Parties Never Agreed to Contractually Bind Them- selves to
Arbitrate


Fannie Mae had announced in January 1998 that it would  issue the new
arbitration policy on March 16, so the District  Court found that Mr.
Bailey "knew this [new] arbitration  process was coming" when he filed
his complaint with Fannie  Mae on March 12, 1998. Trial Tr. at 5,
reprinted in J.A. 203.  The District Court therefore found that Mr.
Bailey "made a  timely election against arbitration" when he filed his
com- plaint. Id. at 2, reprinted in J.A. 200. And, most important- ly,
the District Court found that Mr. Bailey's internal com- plaint
"clearly signal[ed] ... that he was intending to invoke  his rights to
reject arbitration." Id. at 5, reprinted in J.A.  203. In other words,
the District Court found that Fannie  Mae was "put ... on notice" that
Mr. Bailey rejected the new  arbitration policy. Id. at 6, reprinted
in J.A. 204. The  District Court's findings are supported by the
record and  easily survive review under Rule 52(a).


Fannie Mae, however, claims that Mr. Bailey's determina- tion to retain
his right to pursue statutory claims before the  EEOC and in the
courts was not inconsistent with the  employer's policy requiring
employees to use arbitration.  This assertion is simply wrong. Absent
an agreement to  arbitrate, an employee is not required to exhaust
arbitration  as a condition precedent to pursuing his statutory
remedies  before the EEOC and the courts. Therefore, Mr. Bailey's so-
called "redress options" would be dramatically changed--in  terms of
cost, time delays, and, possibly, inadequate adjudica- tory
processes--if he were barred from litigation until after  he pursued
his claims in arbitration. And, if forced to use  arbitration, there
is always the possibility that a reviewing  court might give some
deference to an arbitrator's findings,  arguably to the detriment of a
litigant like Mr. Bailey. See  Cole, 105 F.3d at 1486-87 (discussing
the scope of judicial  review and deference to arbitration); see also
Harry T.  Edwards, Where Are We Heading With Mandatory Arbitra- tion
of Statutory Claims in Employment?, 16 Ga. St. U. L.  Rev. 293, 304-06
(2000) (discussing different judicial ap- proaches to the scope of
review and deference to arbitration  awards). There are many parties
and their advocates who  abhor arbitration precisely because it often
adversely affects  redress options. See discussion and citations in
Cole, 105  F.3d at 1477-79. See generally A Focus Issue on Mandatory 
Arbitration Clauses, The Consumer Advocate (Nat'l Associa- tion of
Consumer Advocates, Washington, D.C.) Sept./Oct.  1999; Ethan A.
Brecher, Putting the Reins on Employment  Arbitration: Courts
Safeguard Employee Rights, N.Y. L.J.  Aug. 24, 1999, at 1; Harry T.
Edwards, Where Are We  Heading With Mandatory Arbitration of Statutory
Claims in  Employment, 16 Ga. St. U. L. Rev. 293; Morton H. Orenstein,
 Mandatory Arbitration: Alive and Well or Withering on the  Vine?, 54
Disp. Resol. J. 57 (Aug. 1999); Debra Parker,  Tangled Up in Ticker


Quite apart from Mr. Bailey's complaint and what it sig- naled to
Fannie Mae, there are several other telling facts in  the record of
this case. It is undisputed that Mr. Bailey  never executed any
written agreement with Fannie Mae to 


arbitrate statutory claims of employment discrimination. In- deed, it
is uncontested that the parties never purported to  reach an
understanding by oral agreement. It is also unques- tioned that Mr.
Bailey never said or wrote anything after  Fannie Mae issued its new
arbitration policy, either to rescind  what he had said in his written
complaint or to otherwise  indicate that he subscribed to the Dispute
Resolution Policy.  In fact, after the new policy was issued, Mr.
Bailey's counsel  wrote to officials at Fannie Mae to make it clear
that Mr.  Bailey was not bound to pursue his claims in arbitration.


In short, there are no disputes between the parties over  these
material facts. The only remaining question, therefore,  is whether
the District Court erred in concluding that Fannie  Mae failed to
fulfill its burden of proving that there was an  agreement as to all
material terms and that both parties  intended to be bound by the
arbitration policy. Whether we  apply a de novo standard of review or
"clearly erroneous"  review under Rule 52(a), it is clear here that
the judgment of  the District Court must be affirmed.


Fannie Mae persists in arguing that there was an "agree- ment" between
the parties because Mr. Bailey did not un- equivocally and effectively
voice his opposition to the new  arbitration policy. There are two
problems with this argu- ment: First, the District Court found
otherwise, and that  finding is not clearly erroneous. Second, the
argument has a  false premise. The question here is not whether Mr.
Bailey  effectively rejected what his employer proposed, for he had 
no obligation even to respond to Fannie Mae's proposal. The  issue is
whether Mr. Bailey did something to indicate that he  intended to
enter into an agreement with Fannie Mae so as to  bind himself to
pursue his statutory claims of employment  discrimination in


The Supreme Court has instructed in First Options of  Chicago, Inc. v.
Kaplan, 514 U.S. 938 (1995), that "[w]hen  deciding whether the
parties agreed to arbitrate a certain  matter, ... courts generally
... should apply ordinary state- law principles that govern the
formation of contracts." Id. at  944. Thus, in this case, we must look
to the law of the 


District of Columbia to determine whether the employer's  Dispute
Resolution Policy reflects a binding agreement be- tween Mr. Bailey
and Fannie Mae.


Under applicable District of Columbia law, "[a]rbitration is 
predicated upon the consent of the parties to a dispute, and  the
determination of whether the parties have consented to  arbitrate is a
matter to be determined by the courts on the  basis of the contracts
between the parties." Ballard &  Assocs., Inc. v. Mangum, 368 A.2d
548, 551 (D.C. 1977).  Furthermore, under District law, an enforceable
contract  does not exist unless there has been a "meeting of the
minds"  as to all material terms. In other words, a contract is not 
formed unless the parties reach an accord on all material  terms and
indicate an intention to be bound. See Jack Baker,  Inc. v. Office
Space Dev. Corp., 664 A.2d 1236, 1238 (D.C.  1995). With respect to
proof of intent, the D.C. Court of  Appeals has held that "the
parties' intention to be bound must  be 'closely' examined." Id. at


In evaluating contract formation, we also look closely at  the parties'
intention to be bound. In order to form a  binding agreement, both
parties must have the distinct  intention to be bound; without such
intent, there can be  no assent and therefore no contract.


Id. (quoting Edmund J. Flynn Co. v. LaVay, 431 A.2d 543,  547 (D.C.
1981)). Finally, the party asserting the existence of  a contract has
the burden of proving its existence. See  Ekedahl v. Corestaff, Inc.,
183 F.3d 855, 858 (D.C. Cir. 1999)  (per curiam). In this case, Fannie
Mae has not come close to  satisfying the requirements of District of
Columbia law in its  attempt to prove the existence of an agreement
between the  employer and Mr. Bailey.


Fannie Mae's principal claim is that Mr. Bailey agreed to  the new
arbitration policy because he did not positively reject  it. This is a
non sequitur. Even if we accepted the prem- ise--which we do not,
because the District Court's finding to  the contrary is not cleary
erroneous--it would not follow that  Mr. Bailey's failure to reject a
proposal, without more, evi- denced his assent to be bound. District
of Columbia law 


clearly requires a "meeting of the minds" as to all material  terms for
a contract to be formed. There was no "meeting of  the minds" in this
case, because Mr. Bailey did nothing  whatsoever to embrace the
employer's proposal.


Fannie Mae also claims that when Mr. Bailey continued in  his job with
the employer, this showed that he acceded the  Dispute Resolution
Policy, because the Policy itself was pro- claimed to be a "condition
of employment." This, too, is a  flawed argument. First, as counsel
acknowledged at oral  argument, there is a question as to whether
Fannie Mae  could terminate a current employee solely because of his
or  her refusal to accept the new arbitration policy. The Ninth 
Circuit has held that


the unilateral promulgation by an employer of arbitration  provisions
in an Employee Handbook does not constitute  a "knowing agreement" on
the part of an employee to  waive a statutory remedy provided by a
civil rights law.


Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756, 762  (9th Cir.
1997); see also Wright v. Universal Maritime Serv.  Corp., 525 U.S.
70, 79-82 (1998) (holding that a general  arbitration clause in a
collective bargaining agreement does  not waive an employee's right to
judicial forum for claim of  employment discrimination; an employee
does not waive a  statutorily protected right unless the undertaking
is "explicit- ly stated," and any such "waiver must be clear and
unmistak- able"); Mohave Elec. Coop. v. NLRB, 2000 WL 287822 (D.C. 
Cir. Mar. 28, 2000) (same); Cole, 105 F.3d at 1482 (noting  that the
Supreme Court's decision in "Gilmer cannot be read  as holding that an
arbitration agreement is enforceable no  matter what rights it waives
or what burdens it imposes").  In other words, Mr. Bailey had reason
to assume that, under  existing law, his job was not in jeopardy. This
being the  case, Mr. Bailey signaled nothing when he remained in the 
employ of Fannie Mae following the issuance of the arbitra- tion
policy. Furthermore, to be sure that there was no  confusion on this
point, Mr. Bailey's lawyer specifically raised  the issue with the
employer; in response, Fannie Mae's  attorney assured Mr. Bailey that
he was in no threat of losing 


his job over his refusal to subscribe to the employer's arbitra- tion
policy. Given these considerations, Mr. Bailey's contin- ued
employment with Fannie Mae surely was not an indica- tion that he
intended to be bound by the arbitration policy.


In light of the undisputed facts in this case and the  applicable law
of the District of Columbia, we are constrained  to find that the
District Court was correct in rejecting Fannie  Mae's motion to stay
litigation pending arbitration.


III. Conclusion


For the foregoing reasons, we affirm the judgment of the  District
Court.


So ordered.