Arbitration Law Memo March 2005
by Ross Runkel at LawMemo
9th - California's ethics standards for arbitrators are preempted by Securities and Exchange Act of 1934.
Credit Suisse v.
Grunwald (9th Cir 03/01/2005)
The primary issue on appeal was whether California's recently adopted ethics standards for neutral arbitrators (Ethics Standards for Neutral Arbitrators in Contractual Arbitration) apply to arbitrations conducted in California by the National Association of Securities Dealers (NASD). The 9th Circuit concluded that "the California legislature intended the new ethics standards to apply to NASD-appointed neutral arbitrators." The court also concluded, however, that "the Securities and Exchange Act of 1934 ..., as amended, preempts application of California's Ethics standards to NASD arbitrations," and that "the NASD rules approved by the Securities and Exchange Commission have preemptive force over conflicting state law." [Editor's Note: Jevne v. Superior Court, pending in the California Supreme Court (oral arguments on March 8, 2005), raises similar preemption issues in a non-employment case.]
Rent-A-Center (11th Cir 02/04/2005)
Hill sued the employer for employment race discrimination. The trial court compelled arbitration. The 11th Circuit affirmed. The issue on appeal was whether Hill, an accounts manager who made deliveries of furniture and appliances across state lines, was a transportation worker for purposes of the Federal Arbitration Act (FAA). The court noted that the exemption to the FAA applied to a "class of workers engaged in ... interstate commerce" within the meaning of the FAA. The court found there was no indication Congress meant to exempt workers from the FAA who incidentally transported good interstate.
Alliance Title v. Boucher (California Ct App 03/02/2005)
Boucher sued his original employer and a successor employer for breach of contract and various other claims. The employers filed a petition to compel arbitration. The trial court granted the petition as to the original employer but not as to the new employer. The California Court of Appeal reversed as to the new employer. The question presented under the Federal Arbitration Act (FAA) was whether the new employer, a nonsignatory to the employment agreement, could rely on it to compel arbitration of Boucher's claims. The court noted that the new employer relied only on equitable principles and that the federal circuit courts held in those circumstances that a signatory to an agreement containing an arbitration clause could be compelled to arbitrate its claims against a nonsignatory when the relevant causes of action relied on, and presumed the existence of, the contract. The court found that Boucher's claims against the new employer presumed the existence of an employment contract.
Simon v. Pfizer (6th cir 02/18/2005)
Simon sued the employer for
violation of ERISA (retaliatory discharge, discrimination, and breach of
fiduciary duty), improper denial of benefits under the employer's benefit plan,
and failure to provide timely notice of COBRA benefits. The trial court granted
the employer's motion to dismiss on the breach of fiduciary claim only and held
that arbitration was not required. The 6th Circuit Court reversed in part and
affirmed in part.
The central issue was whether
Simon's claims sufficiently fit within the employer's enhanced severance plan's
(ESP) arbitration clauses. The court noted that the ESP expressly mandated
arbitration for disputes concerning constructive discharge and discharge for
just cause. The court found that the improper denial of benefits claim was
required to be arbitrated because it involved discharge for just cause. The
court stated that it had not decided whether ERISA preempted arbitration under
the Federal Arbitration Act (FAA) and declined to do so here where an
arbitration clause extended only to a specific type of dispute. The court noted
that the majority of courts had decided that disputes under ERISA were subject
to arbitration under the FAA. The court found that the ESP did not contain a
general arbitration clause. The court stated that where one claim was
specifically covered by an arbitration agreement, and a second claim was not,
the arbitrability of the second was governed by the extent to which the second
claim was substantially identical to the first. The court found that the ERISA
section 501 claims (retaliatory discharge and discrimination) and the COBRA
claim were not simply claims for violation of the ESP that were recharacterized
in order to avoid arbitration; they were independent claims that were
statutorily authorized and that depended upon different legal standards.
Parker v. McCaw
(California Ct App 01/27/2005)
Parker sued the employer for breach of contract of two agreements and other claims. The trial court compelled arbitration before one arbitrator, although one agreement required three arbitrators. The California Court of Appeal reversed that part of the arbitration award relating to the agreement requiring three arbitrators. The court found that the right to a three-arbitrator panel was a substantial right. The court stated a three-arbitrator panel minimized the risk of factual or legal error, which error generally was not reviewable pursuant to the law of arbitration. The court noted that trial court ordered consolidation substantially altered the employer's contractual rights.
NY - Modification of arbitration agreement was valid, but "carve out" provisions of modification required arbitration under NYSE rules.
Credit Suisse First Boston v. Pitofsky (New York
Pitofsky sought arbitration of his employment claim under New York Stock Exchange (NYSE) rules as provided in his Form U-4. The employer sought arbitration through JAMS/Endispute as provided in the employer's handbook which was part of Pitofsky's employment agreement.
The trial court granted the employer's application to stay
the NYSE arbitration and ordered arbitration by JAMS. The Appellate Division
reversed; the Court of Appeals affirmed the Appellate Division. The court found
that the employer and Pitofsky were free to modify the arbitration requirements
set forth in Form U-4 and that there was a valid, enforceable modification of an
earlier agreement by a later one. The court noted that the "carve out"
provisions exempted registered representatives if they were subject to a legal
requirement to arbitrate employment related claims to particular rules or in a
particular forum to the exclusion of other rules and forums. The court found
that NYSE Rule 347 provided that legal requirement and, thus, the employer was
required to arbitrate the dispute under the NYSE rules.
CA - State agency didn't violate private employee's right to a jury trial when it approved health care service plans containing mandatory binding arbitration clauses.
Viola v. Department of Managed Health Care (California Ct
The California Department of
Managed Health Care has approved health care service plans containing mandatory
binding arbitration clauses. Viola's
employer attempted to obtain a plan without such a clause, but was unable to do
so. Viola sued the Department,
alleging that her state and federal constitutional rights to a jury trial and
her right to due process were violated by state action when the department
approved plans containing mandatory binding arbitration clauses. She argued that the Department was compelled to insist that
health care plan contracts provide insureds with a choice to decline mandatory
arbitration. The court disagreed,
stating "the action cannot be maintained because, under established law, an
employer has the authority to negotiate ... a contract [containing a mandatory
binding arbitration clause] on behalf of its employees."
Dept of Corrections v. Rhode Island Correction Union (Rhode
An arbitrator reinstated a discharged corrections officer, finding that taking blankets and towels was not "theft." The trial court confirmed the arbitrator's award except for prejudgment interest. The Rhode Island Supreme Court reversed. The court found that the arbitrator's award was irrational in that the taking of blankets and towels violated the code of ethics and conduct of the Department of Corrections, and the arbitrator substituted his judgment for the judgment of the Director of the Department. The DISSENT argued that the majority of the court had substituted its judgment for the judgment of the arbitrator.
187 Concourse Associates v. Fishman (2nd Cir 02/28/2005)
The union appealed the trial court's vacatur of a grievance arbitration award rendered in the union's favor. The grievance centered on the discharge of an employee - with the union alleging that the discharge decision was not supported by "good cause" as required under the collective bargaining agreement. The 2nd Circuit affirmed. The court noted that the arbitrator apparently found "good cause" for the employee's dismissal, and reasoned that the arbitrator had no authority (once that finding was made) to reduce the discharge to a lesser form of discipline.
AFSCME v. Metropolitan Water Dist (California Ct App
The union representing employees of a metropolitan water district petitioned to compel arbitration of a grievance with the employer pursuant to the grievance procedure set forth in a "memorandum of understanding." The union also sought a writ of mandate relating to the same grievance. The grievance related to the employer's decision to automatically place certain employees in some newly created positions. The trial court denied the relief sought by the union. The court affirmed. The court concluded that the memorandum of understanding was not an agreement to arbitrate, and that the union was not entitled to a writ of mandate.
AFSCME Council 4 Local 704 v. Dept of Public Health
The union granted a time extension for a decision to the arbitrator and the employer did not. The arbitrator ruled in favor of the employer. The union sought to vacate the award. The issue on appeal was whether the union waived its right to challenge an unfavorable arbitration award as untimely when it expressly granted the arbitrator's request for an extension. The Connecticut Supreme Court ruled that the union waived its right to challenge the award. The court noted that the collective bargaining agreement (CBA) required mutual consent to extend deadlines for a decision, but that this language did not similarly suggest that unilateral consent could not operate as a waiver. The court found there was sufficient evidence to find that the union waived the time limitation.
U.A. Local 342 Apprenticeship & Training Trust v.
Babcock & Wilcox (9th Cir 02/01/2005)
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