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Sarbanes-Oxley whistleblowing - Arbitrator to decide arbitrability
April 12, 2006 by Ross Runkel at LawMemo
An alleged Sarbanes-Oxley whistleblower has to let an arbitrator decide whether his claim will be arbitrated, says the 2nd Circuit.
Who decides the question of arbitrability? Court or arbitrator?
- General rule: Courts decide whether parties have agreed to arbitrate a specific dispute.
- Exception: Arbitrator gets to decide the issue if the arbitration agreement clearly says so.
But there's some confusion when the arbitration rules are the NASD rules and the underlying issue is Sarbanes-Oxley whistleblowing.
The facts in Alliance Bernstein Investment v. Schaffran (2nd Cir 04/12/2004): Schaffran claimed his employer fired him in violation of the Sarbanes-Oxley Act whistleblower provision. The employer said he quit. Schaffran filed a demand for arbitration under the NASD arbitration rules. The employer resisted. So Schaffran went to court to compel the employer to arbitrate.
The employer cited an NASD rule that says a statutory "employment discrimination" claim can be arbitrated only if both parties agree to arbitrate it.
Schaffran argued that his claim was not an "employment discrimination" claim and that it came under the NASD rule that requires arbitration of all disputes.
So somebody has to interpret the NASD rules to decide where Schaffran's claim fits. Does a court do this? Does an arbitrator do this?
The answer is easy. The NASD rules themselves say that it is for the arbitrator to "interpret and determine the applicability of all provisions" of the NASD rules.
The parties agreed to be bound by the rules. The rules say the arbitrator interprets the rules. So it's for the arbitrator to decide the question of whether this case comes under the rules' general requirement to arbitrate or whether there is an exception because it's an employment discrimination case.
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