Koveleskie v. SBC Capital Markets, Inc.

• Decision Date: 04 February 1999
• Docket Number: No. 98-1793,98-1793
• Citation: 167 F.3d 361
• Parties: 79 Fair Empl.Prac.Cas. (BNA) 73, 74 Empl. Prac. Dec. P 45,719 Mary KOVELESKIE, Plaintiff-Appellee, v. SBC CAPITAL MARKETS, INC. a/k/a SBC Warburg, Inc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 361

167 F.3d 361

79 Fair Empl.Prac.Cas. (BNA) 73, 74 Empl.

Prac. Dec. P 45,719

Mary KOVELESKIE, Plaintiff-Appellee, v. SBC CAPITAL MARKETS, INC. a/k/a SBC Warburg, Inc.,

Defendant-Appellant.

No. 98-1793.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 12, 1998.

Decided Feb. 4, 1999.

Mary Stowell, Linda Friedman (argued), Leng, Stowell, Friedman & Vernon, Chicago, IL, for Plaintiff-Appellee.

Catherine M. Masters (argued), Schiff, Hardin & Waite, Chicago, IL, for Defendant-Appellant.

Before FLAUM, EASTERBROOK and KANNE, Circuit Judges.

FLAUM, Circuit Judge.

SBC Capital Markets, Inc. ("SBC") appeals from the district court's denial of its motion to dismiss and to compel arbitration of Mary Koveleskie's employment-related sexual discrimination claims under Title VII of the Civil Right Act of 1964 ("Title VII"), 42 U.S.C. §§ 2000 et seq. We now reverse and remand, holding that Title VII claims can be subject to mandatory arbitration and that the parties' agreement to arbitrate is an enforceable contract. In the context of this opinion, we employ the term "mandatory arbitration" to reflect the contractual situation where if one party to a dispute requests arbitration, the other party is obliged to arbitrate.

I. BACKGROUND

Mary Koveleskie worked for SBC and one of its predecessor companies from 1986 until 1996, when she resigned, claiming constructive discharge. Koveleskie asserts that during her employment she was subjected to a continued pattern of unlawful sexual discrimination, the facts of which do not bear on this appeal. At the time of her resignation she held the title of Director and worked in a securities trading position.

Koveleskie's job required her to register as a securities representative with several securities exchanges or organizations ("exchanges" or "SROs"), using the securities industry's "Form U-4." In 1995, Koveleskie signed the Form U-4, registering with five SROs: the New York Stock Exchange ("NYSE"), the National Association of Securities Dealers ("NASD"), the Chicago Board of Options Exchange ("CBOE"), the Philadelphia Stock Exchange ("PHLX") and the Pacific Stock Exchange ("PSE"). The Form U-4 required, among other things, that a securities trader arbitrate before a panel of securities industry arbitrators any dispute with his or her employer that had to be arbitrated under the rules of the exchanges of which the employer is a member. The rules of all of the SROs Koveleskie registered with required arbitration of all disputes, including employment disputes, between members, like SBC, and registered representatives, like Koveleskie. ¹

Koveleskie filed a charge with the EEOC on June 28, 1996, received a right to sue letter, and filed this action in federal court on April 1, 1997. Koveleskie sought relief under Title VII, the Equal Pay Act and the New York Human Rights Law for sexual discrimination, sexual harassment, wage discrimination and retaliation. She also sought to invalidate the mandatory arbitration clause applicable through the Form U-4, and she sought a declaratory judgment that mandatory arbitration of discrimination claims under existing securities industry procedures violates the Constitution and Title VII.

SBC moved to dismiss the complaint and to compel arbitration. In a minute order, the district court refused to compel arbitration, concluding that "under recent authority, the discovery sought by plaintiff is appropriate before a decision can be reached on the arbitration issue."

II. DISCUSSION

As an initial matter, we find jurisdiction for this appeal under section 16(a)(1)(C) of the Federal Arbitration Act ("FAA"), which provides that appeal may be taken from an order denying a motion to compel arbitration. 9 U.S.C. § 16(a)(1)(C). While the district court's order stated that discovery was needed "before a decision can be reached on the arbitration issue," there is no doubt from the record that the district court denied the defendant's motion and clearly meant to foreclose arbitration. Thus, in such a setting, this appeal was appropriate under the FAA. We acknowledge that our finding of jurisdiction is in disagreement with the Ninth Circuit, which recently held that all contracts of employment are outside the scope of the FAA. See Craft v. Campbell Soup Co., 161 F.3d 1199 (9th Cir.1998). However, other circuits which have addressed this issue, see McWilliams v. Logicon, Inc., 143 F.3d 573, 576 (10th Cir.1998); O'Neil v. Hilton Head Hosp., 115 F.3d 272, 274 (4th Cir.1997); Cole v. Burns International Security Services, 105 F.3d 1465 (D.C.Cir.1997); Rojas v. TK Communications, Inc., 87 F.3d 745, 747-48 (5th Cir.1996); Asplundh Tree Expert Co. v. Bates, 71 F.3d 592, 596-601 (6th Cir.1995); Erving v. Virginia Squires Basketball Club, 468 F.2d 1064, 1069 (2d Cir.1972); Dickstein v. duPont, 443 F.2d 783, 785 (1st Cir.1971), have concluded, as we have, see Pryner v. Tractor Supply Co., 109 F.3d 354, 358 (7th Cir.1997); Briggs & Stratton Corp. v. Local 232, International Union, Allied Industrial Workers of America (AFL-CIO), 36 F.3d 712, 714-15 (7th Cir.1994); Pietro Scalzitti Co. v. Operating Engineers, 351 F.2d 576 (7th Cir.1965), that such employment contracts are not excluded from the purview of the FAA.

Koveleskie argues that arbitration of her discrimination claims is improper because (1) Congress intended to preclude Title VII claims from the FAA, 9 U.S.C. § 1 et seq.; (2) the arbitration agreement is an unconscionable contract of adhesion; (3) the securities industry arbitration procedures are inadequate to protect the rights of a civil rights plaintiff and (4) the agreement violates the "unconstitutional conditions" doctrine.

A. Title VII and the FAA.

The Federal Arbitration Act provides that predispute arbitration is enforceable and valid. The plaintiff argues that its use is prohibited in the Title VII setting. In order to resolve this challenge, we must consider whether Congress intended Title VII to preclude the use of pre-dispute arbitration agreements. If not, the FAA's presumption in favor of arbitrability applies to Title VII claims.

Section 118 of the 1991 Civil Rights Act (the "CRA"), passed on November 21, 1991, provides that "Where appropriate and to the extent authorized by law, the use of alternative dispute resolution, including ... arbitration, is encouraged to resolve disputes arising under [Title VII]." Koveleskie argues that the language and legislative history of the CRA indicate that Congress did not intend to authorize compelled, involuntary arbitration in discrimination cases. However, the weight of authority strongly suggests otherwise.

In Gilmer v. Interstate/Johnson Lane Corporation, 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), which involved a claim of age discrimination brought under the Age Discrimination in Employment Act ("ADEA"), the Supreme Court held that the FAA required the enforcement of the pre-dispute mandatory enforcement clause in a Form U-4 identical to the one signed by Koveleskie. When his employer sought to compel arbitration of Gilmer's ADEA claims, Gilmer challenged the application of arbitration to statutory civil rights claims. Id. The Court, noting that there was no reason to treat civil rights statutes any differently than other important statutes that may be the subject of enforceable arbitration agreements, held that pre-dispute arbitration clauses should be enforced unless the plaintiff showed that Congress specifically intended to preclude arbitration. Id. at 26, 111 S.Ct. 1647.

In holding that statutory discrimination claims could be the subject of enforceable arbitration clauses, the Gilmer Court stated that arbitration of such claims may be limited in three situations. First, if Congress has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue, an arbitration agreement will not be enforced. Thus, the court must determine if the statute at issue precludes arbitration. The party challenging arbitration has the burden of showing that it is precluded. Second, an arbitration agreement may be challenged if there was a defect in contract formation (discussed below). Third, Gilmer left open the possibility that a plaintiff could challenge the adequacy of particular arbitration proceedings (discussed below).

Courts after Gilmer have routinely endorsed arbitration of discrimination claims, including those brought pursuant to Title VII. For instance, in a recent decision, the First Circuit held that Title VII does not, as a matter of law, prohibit pre-dispute arbitration agreements. See Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 163 F.3d 53 (1st Cir.1998). Rosenberg held that "neither the language of the statute nor the legislative history demonstrates an intent in the 1991 CRA to preclude pre-dispute arbitration agreements." Id. at 63. Moreover, the Rosenberg court concluded that mandatory arbitration was not at odds with the structure and purpose of the 1991 CRA, noting that "[i]t is difficult to see why the purposes of Title VII present a stronger case for rejecting arbitration than do the purposes of ... the ADEA ..." which was construed by the Supreme Court in Gilmer not to preclude arbitration. Id. at 63.

In another recent case involving a Form U-4 arbitration clause, the Third Circuit concluded that § 118 of the CRA endorsed arbitration on its face, and that "no amount of commentary from individual legislators or committees would justify a court in reaching the result" urged by the plaintiff in this case. Seus v. John Nuveen & Co., 146 F.3d 175, 182 (3d Cir.1998). See also Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305 (6th Cir.1991) (holding that Title VII claims were subject to an arbitration clause based on a Form U-4); Patterson v. Tenet Healthcare, Inc., 113 F.3d 832 (8th Cir.1997) (holding that Title VII claims are subject to pre-dispute arbitration agreements under the FAA); Cole v. Burns...