Kaatz v. Rainguard

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

DUSTIN KAATZ, Plaintiff/Appellee,

v.

RAINGUARD BRANDS, LLC, Defendant/Appellant.

No. 1 CA-CV 24-0286
FILED 01-16-2025

Appeal from the Superior Court in Maricopa County
No. CV2023-053274
The Honorable Joan M. Sinclair, Judge

JURISDICTION ACCEPTED; RELIEF DENIED

COUNSEL

Buchalter, A Professional Corporation, Scottsdale
By Chris M. Mason, Stephen Best
Counsel for Plaintiff/Appellee

Wilson, Elser, Moskowitz, Edelman & Dicker LLP, Phoenix
By Taylor H. Allin, Brian E. Cieniawski
Counsel for Defendant/Appellant
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Decision of the Court

MEMORANDUM DECISION

Presiding Judge Michael J. Brown delivered the decision of the Court, in
which Judge D. Steven Williams and Judge Daniel J. Kiley joined.

B R O W N, Judge:

¶1 Rainguard Brands, LLC (“Rainguard”) appeals the superior
court’s order denying its motion to compel arbitration of legal claims
asserted by Dustin Kaatz, a former employee of Rainguard. Because the
order is not appealable, in our discretion, we accept special action
jurisdiction but deny relief.

BACKGROUND

¶2 Rainguard hired Kaatz in May 2021, and he later signed the
last page of the employee handbook, titled in part “Acknowledgment.” The
handbook includes a “Purpose” section outlining the intent of the
document in part as follows:

This handbook does not constitute an “employment contract”
between the Company and any employee. This handbook is
intended to provide employees with a guide to the
Company’s policies, procedures, working conditions,
benefits, etc. That being said, the Company can add, change
or delete any policies, procedures and benefits as it deems
appropriate without the consent or agreement of any
employee.

¶3 A dispute resolution section, titled “Binding Arbitration,” is
located at the end of the 46-page handbook and includes the following:

All claims and disputes arising from or related to an
employee’s employment with the Company shall be settled
by final, binding arbitration before a single arbitrator. The
claims subject to arbitration include: a. the application,
enforceability, or interpretation of this arbitration agreement
. . . and b. claims based on contract, tort (including intentional
tort), fraud, agency, negligence, statutory provisions,
regulatory provisions, and equity.

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….

The validity, enforceability and interpretation of this
arbitration agreement is governed by the Federal Arbitration
Act (9 U.S.C. §§ 1, et seq.).

The Acknowledgment, located immediately after the arbitration provision,
states that “[b]y signing below, … [employees] accept and agree to be
bound by the Company policies set forth in this handbook.” But the
Acknowledgment also states that except for an employee’s “at-will
employment status, any and all policies or practices of [Rainguard] can be
changed at any time by the Company.” Kaatz does not dispute that he
received the handbook and signed the Acknowledgment.

¶4 Two years later, Kaatz sued Rainguard, alleging ten
contractual and tort claims arising from the breakdown of the parties’
relationship. Rainguard moved to compel arbitration. Following oral
argument and submission of supplemental briefing, the superior court
denied the motion. Relying in part on Nelson v. Cyprus Bagdad Copper Corp.,
119 F.3d 756 (9th Cir. 1997) and Kummetz v. Tech Mold, Inc., 152 F.3d 1153
(9th Cir. 1998), the court explained that the Acknowledgment does not
specifically refer to the arbitration provision, and both the handbook and
the Acknowledgment state that “no contract is being made here between
the parties.“ After noting Rainguard’s failure to distinguish the present
case from Nelson and Kummetz, the court next pointed to Rainguard’s
express right to “add, change or delete any policies, procedures and
benefits . . . without the consent or agreement of any employee.” The court
concluded that “the documents here do not, by a preponderance of the
evidence, demonstrate that [Kaatz] agreed to arbitrate [the parties’]
disputes.” Rainguard then filed a notice of appeal.

DISCUSSION

I. Jurisdiction

¶5 Rainguard asserts that this court has appellate jurisdiction
under A.R.S. § 12-2101.01(A)(1), as an appeal of an order denying a motion
to compel arbitration. In response, Kaatz argues jurisdiction is lacking
because the motion arises from the Federal Arbitration Act (“FAA”) instead
of Arizona’s arbitration statutes. Rainguard, in turn, suggests that this
court has jurisdiction because Rainguard cited both Arizona and federal
statutes in the motion to compel. However, Arizona’s versions of the
Uniform Arbitration Act and the Revised Uniform Arbitration Act “do not

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apply to arbitration agreements . . . between an employer and its
employee.” See Sec. Alarm Fin. Enter., L.P. v. Fuller, 242 Ariz. 512, 515, ¶ 5
(App. 2017). Thus, we lack appellate jurisdiction over Rainguard’s appeal.

¶6 Even so, both parties acknowledge that this court may, in its
discretion, exercise special action jurisdiction. See Sec. Alarm Fin. Enter., 242
Ariz. at 515, ¶¶ 6–8; Mayes v. Tom’s Camperland, Inc., 2023 WL 4888979, 1
CA-CV 22-0753, at *2, ¶ 9 (Ariz. App. Aug. 1, 2023) (mem. decision); Ariz.
R. P. Spec. Act. 11(e). Special action jurisdiction is proper when a party has
no “equally plain, speedy, and adequate” remedy by appeal and when the
case involves “questions of first impression, statewide importance, or pure
questions of law. Ariz. R. P. Spec. Act. 12(a)–(b); State ex rel. Pennartz v.
Olcavage, 200 Ariz. 582, 585, ¶ 8 (App. 2001). In our discretion, we accept
special action jurisdiction.

II. Issues Presented for Review

¶7 Rainguard argues the arbitration provision binds Kaatz and
is enforceable against him given that the relationship between them is
governed by the handbook, and that Rainguard itself was ostensibly bound
by the arbitration provision.1 Kaatz contends the arbitration provision is
not binding because (1) the Acknowledgment does not specifically
reference the arbitration provision, and (2) the handbook and
Acknowledgment amount to an illusory contract because the handbook
states that all company policies can be changed at any time by Rainguard.

¶8 We recognize that both Arizona and federal law favor
arbitration. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 631 (1985); U.S. Insulation, Inc. v. Hilro Constr. Co., Inc., 146 Ariz.
250, 258 (App. 1985). But those policies are relevant only if a valid
agreement to arbitrate exists between the parties. See Kum Tat Ltd. v. Linden
Ox Pasture, LLC, 845 F.3d 979, 983 (9th Cir. 2017); Gray v. GC Servs. LP, 256
Ariz. 480, 484, ¶ 10 (App. 2023). Rainguard bears the burden of proving
such an agreement by the preponderance of the evidence. See Beck v. Neville, 256 Ariz. 415, 423, ¶ 27 (2024). We review the denial of a motion to compel

1 Rainguard’s position is undermined by its decision to submit only a
few pages of the lengthy handbook to the superior court. For example, the
table of contents notes a section titled “Right to Revise.” Because that
section is not included in the record, we presume it supports the superior
court’s determination that the parties did not agree to arbitrate their
disputes.

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arbitration de novo. Sun Valley Ranch 308 Ltd. P’ship ex rel. Englewood Props.,
Inc. v. Robson, 231 Ariz. 287, 291, ¶ 9 (App. 2012).

A. Knowing Waiver Doctrine

¶9 On appeal, Kaatz cites the same two cases that the superior
court relied on in denying Rainguard’s motion to compel based on the
absence of a knowing waiver of judicial remedies. See Nelson, 119 F.3d at
761 (holding that claims asserted under the Americans with Disabilities Act
are analogous to claims asserted under Title VII and require knowing
waiver of judicial remedies); Kummetz, 152 F.3d at 1155 (recognizing that an
employee does not knowingly waive his right to a judicial determination of
discrimination claims when the employee handbook acknowledgment
page does not explicitly reference an arbitration provision). At oral
argument in this court, Kaatz conceded that the knowing waiver principle
is not relevant to this dispute and asserted that Kummetz and Nelson were
cited to support his argument about the lack of mutual assent. Because
knowing waiver “applies only to a comparatively small class of claims
arising under Title VII or similar laws,” Renteria v. Prudential Ins. Co., 113
F.3d 1104, 1107 (9th Cir. 1997), we agree that Rainguard was not required
to show that Kaatz knowingly waived his judicial remedies. Instead, the
pertinent issue here is whether the parties agreed that any dispute arising
from their employment relationship would be decided by through
arbitration.

B. Absence of Mutual Assent

¶10 Under the FAA, a written arbitration agreement “shall be
valid, irrevocable, and enforceable, save upon such grounds as exist at law
or in equity for the revocation of any contract.” 9 U.S.C. § 2. Analysis of a
contract to arbitrate is conducted under state contract law. First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). And as the superior court
noted, valid contracts “must have mutuality of obligation” -- “an agreement
which permits one party to withdraw at his pleasure is void” and
“unenforceable for lack of mutuality.” Shattuck v. Precision-Toyota, Inc., 115
Ariz. 586, 588 (1977) (citation omitted).

¶11 Multiple jurisdictions have found that employee handbooks
containing a unilateral right to modify policies or procedures are merely
illusory, and thus unenforceable, contracts. See, e.g., Carey v. 24 Hour Fitness,
USA, Inc., 669 F.3d 202, 205–06 (5th Cir. 2012) (holding that an arbitration
agreement contained in an employee handbook was illusory because it
could be changed and thus retroactively impact claims in progress); Salazar

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v. Citadel Commc’ns. Corp., 90 P.3d 466, 469–70 (N.M. 2004) (explaining that
an employee handbook which gave an employer a unilateral right to
modify any handbook provision, with no limitations, is an illusory and
unenforceable promise); Douglas v. Johnson Real Est. Investors, LLC, 470 Fed.
Appx. 823, 826 (11th Cir. 2012) (holding that an arbitration provision was
illusory given its placement in an employee handbook that could be
unilaterally modified by the employer). As explained by the Fifth Circuit,
“where one party to an arbitration agreement seeks to invoke arbitration to
settle a dispute, if the other party can suddenly change the terms of the
agreement to avoid arbitration, then the agreement was illusory from the
outset,” effectively allowing an employer to “hold its employees to the
promise to arbitrate while reserving its own escape hatch.” Carey, 669 F.3d
at 205–06.

¶12 Some courts have upheld arbitration provisions placed in
employee handbooks, but they have done so because the employer’s right
to modify provisions of the handbook was subject to specific limitations.
See e.g., Asmus v. Pac. Bell, 999 P.2d 71, 79 (Cal. 2000) (holding that
arbitration policy in employee handbook was not illusory because
employer’s right to modify was subject to reasonable notice and fairness);
In re Whataburger Rests., LLC, 645 S.W.3d 188, 195–96 (Tex. 2022) (concluding
that an arbitration policy in an employee handbook was not illusory
because the employer was prohibited from making retroactive changes to
the policy once a cognizable claim or dispute occurred, and had to provide
notice of any alterations or amendments to the policy). In contrast, the
handbook here includes no such limitations. Both the Purpose and the
Acknowledgment confirm Rainguard’s unqualified right to unilaterally
change or eliminate every policy contained in the handbook “without the
consent or agreement of any employee.” Arizona contract law requires
mutual assent, and Rainguard failed to make that showing. Shattuck, 115
Ariz. at 589 (explaining that agreeing “to do something” while reserving
“the right to cancel . . . is no agreement at all”).

¶13 Rainguard references the doctrine of separability, asserting
that the arbitration provision must be considered as a separate contract. See
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402 (1967). But
Rainguard has waived its reliance on this theory because it failed to raise it
in the superior court. See Harris v. Cochise Health Sys., 215 Ariz. 344, 349,
¶ 17 (App. 2007). Waiver aside, if we consider the arbitration provision as
a separate contract, the only question before us is whether an agreement to
arbitrate exists. The Ninth Circuit has explained the distinction between
validity and existence, holding that “[i]ssues regarding the validity or
enforcement of a putative contract mandating arbitration should be

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referred to an arbitrator, but challenges to the existence of a contract as a
whole must be determined by the court prior to ordering arbitration.”
Sanford v. MemberWorks, Inc., 483 F.3d 956, 962 (9th Cir. 2007). “Although
challenges to the validity of a contract with an arbitration clause are to be
decided by the arbitrator, see Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.
440, 444–46 & n.1 (2006), challenges to the very existence of the contract are,
in general, properly directed to the court.” Kum Tat Ltd., 845 F.3d at 983.
The superior court did not err by implicitly concluding that Rainguard
failed to meet its burden of proving the existence of an agreement to
arbitrate.

C. Attorneys’ Fees

¶14 Both parties request an award of their attorneys’ fees incurred
in pursuing appellate relief under A.R.S. § 12-341.01. Because Rainguard
has not prevailed, we deny its request. We also deny Kaatz’s request for
attorneys’ fees, deferring his request to the superior court’s discretion
pending resolution of this matter on the merits. See Tierra Ranchos
Homeowners Ass’n v. Kitchukov, 216 Ariz. 195, 204, ¶ 37 (App. 2007).

CONCLUSION

¶15 Because the superior court did not err in denying Rainguard’s
motion to compel arbitration, we accept jurisdiction but deny relief.

AMY M. WOOD • Clerk of the Court
FILED: JR

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