Alliance Bernstein Inv. Res. Manage. v. Schaffran
| Decision Date | 12 April 2006 |
| Docket Number | Docket No. 05-4437-CV. |
| Citation | 445 F.3d 121 |
| Parties | ALLIANCE BERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC., Alliance Capital Management, LP, and Alliance Capital Management Corp., Plaintiffs-Appellants, v. Charles SCHAFFRAN, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
Joseph Baumgarten, Proskauer Rose LLP, New York, New York (Tracey Levy, on the brief), for Plaintiffs-Appellants.
Lee Bantle, Bantle & Levy LLP, New York, New York (Robert Levy, on the brief), for Defendant-Appellee.
Before: POOLER and B.D. PARKER, Circuit Judges, and CHIN, District Judge.*
For decades, employers and employees have been litigating the issue of the arbitrability of employment discrimination claims. When the issue first arose, employers sought to require employees to arbitrate and employees resisted, preferring to take their claims to court. In this case, the roles are reversed, as the employer seeks to compel an employee to litigate in court, while the employee prefers to pursue his claims in arbitration.
As a consequence of the parties' dispute over the forum, the employee's claims — which were submitted for arbitration in September 2004 — are nowhere near resolution. The parties have already expended much time and effort, little of it on the merits. Indeed, the issue before this Court is not even whether the claims must be arbitrated, but rather it is the preliminary issue of who will decide the arbitrability question.
The District Court held that the issue of arbitrability is to be decided by an arbitration panel rather than the court. For the reasons that follow, we agree.
The facts are undisputed, except as otherwise stated, and may be summarized as follows:
For approximately ten years ending in November 2003, defendant-appellee Charles Schaffran was employed by plaintiffs-appellants Alliance Bernstein Investment Research and Management, Inc., Alliance Capital Management, LP (the "LP"), and Alliance Capital Management Corp. (collectively, "Alliance")1 in the hedge fund business. On or about November 14, 2003, Schaffran's employment with Alliance terminated. Schaffran contends that he was wrongly discharged while Alliance contends that Schaffran resigned.
Alliance is a member of the National Association of Securities Dealers (the "NASD"). While he was employed at Alliance, Schaffran was a "person associated with a member" within the meaning of the applicable NASD rules and by-laws. When he began his employment with Alliance, Schaffran executed a Form U-4, "Uniform Application for Securities Industry Registration or Transfer." The Form U-4 contained a mandatory arbitration clause, which provided:
I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm . . . that is required to be arbitrated under the rules, constitutions, or by-laws of the [NASD] as may be amended from time to time . . . .
In September 2004, approximately ten months after his employment ended, Schaffran commenced arbitration proceedings against Alliance by filing a statement of claim with the NASD. Schaffran alleged that Alliance had discharged him because he cooperated with the Securities and Exchange Commission, the New York State Attorney General's Office, and private attorneys representing customers of Alliance in their respective investigations into alleged wrongdoing by Alliance officers. Schaffran alleged that Alliance violated § 806(a) of the Sarbanes-Oxley Act ("SOX"), 18 U.S.C. § 1514A, by terminating his employment. Schaffran also asserted claims under New York law.
In November 2004, Alliance requested that Schaffran withdraw his SOX claim and refile it in District Court. Schaffran refused.
The NASD has promulgated a Code of Arbitration Procedure (the "Code") applicable to NASD arbitrations. Several rules in the Code are applicable to this case.
Rule IM-10100(a) provides that when members of the NASD and persons associated with members "fail to submit a dispute for arbitration under the [Code] as required by that Code," they engage in "conduct inconsistent with just and equitable principles of trade" and violate the Code.
Rule 10101 provides that the Code "is prescribed and adopted . . . for the arbitration of any dispute, claim, or controversy. . . arising out of the employment or termination of employment of associated person(s) with any member."
Rule 10201(a) sets forth the matters for which arbitration is required. It provides, in pertinent part:
. . . Except as provided in paragraph (b) or Rule 10216, a dispute, claim, or controversy eligible for submission under the Rule 10100 Series between or among members and/or associated persons . . . or arising out of the employment or termination of employment of such associated person(s) with such member, shall be arbitrated under this Code, at the instance of . . . a member against a person associated with a member or a person associated with a member against a member.
Paragraph (b) of Rule 10201 provides an exception to mandatory arbitration for employment discrimination claims:
A claim alleging employment discrimination, including a sexual harassment claim, in violation of a statute is not required to be arbitrated. Such a claim may be arbitrated only if the parties have agreed to arbitrate it, either before or after the dispute arose.
The exception was added by an amendment that became effective on January 1, 1999. See Desiderio v. NASD, 191 F.3d 198, 201 (2d Cir.1999).
Rule 10324 governs the interpretation of the provisions of the Code and provides:
The arbitrators shall be empowered to interpret and determine the applicability of all provisions under this Code and to take appropriate action to obtain compliance with any ruling by the arbitrator(s). Such interpretations and actions to obtain compliance shall be final and binding upon the parties.
Alliance commenced this action below by filing a complaint on November 12, 2004 seeking a declaratory judgment that it was not required to arbitrate Schaffran's SOX claims before the NASD. On December 20, 2004, Schaffran moved to dismiss the complaint and to compel arbitration. On January 10, 2005, Alliance opposed the motion and cross-moved for summary judgment.
By order docketed March 14, 2005, the District Court denied Schaffran's motion to dismiss and compel arbitration and granted the declaratory relief sought by Alliance, holding that Alliance was not required to arbitrate the SOX claims.
Schaffran moved for reconsideration and reargument or to alter or amend the judgment. By order dated July 14, 2005, and entered on July 18, 2005, the District Court granted the motion, holding that the issue of arbitrability should be decided by an arbitrator. The District Court withdrew its March 14, 2005, decision and dismissed the complaint. Although it did not explicitly say that it was doing so, the District Court effectively granted Schaffran's initial motion to dismiss. Alliance filed a timely notice of appeal on August 15, 2005. By order filed August 24, 2005, the District Court stayed the arbitration proceedings pending appeal.
The crux of the dispute over arbitrability is whether a SOX claim is an "employment discrimination" claim within the meaning of Rule 10201(b) of the Code. If it is, then the claim is excepted from the mandatory arbitration provisions of the Code and Alliance can decline to arbitrate. If it is not, then the claim does not fit within the exception and Alliance has no choice but to arbitrate. The threshold question, however, and the only issue before this Court, is who decides arbitrability, i.e., whether a court or an arbitration panel decides whether a SOX claim falls within the exception set forth in Rule 10201(b).
Because the District Court resolved the question of arbitrability on motions without making factual findings, we review its decision de novo. See Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278, 281 (2d Cir.2005) (); Gold v. Deutsche Aktiengesellschaft, 365 F.3d 144, 147 (2d Cir.2004) (same); see also First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (); Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir.2003) ().
Both federal and state law apply. First, the Federal Arbitration Act (the "FAA") creates a "body of federal substantive law of arbitrability" applicable to arbitration agreements, such as the one at issue here, affecting interstate commerce. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); see also Paine-Webber, Inc. v. Bybyk, 81 F.3d 1193, 1198 (2d Cir.1996). Second, New York contracts law applies, as courts generally look to state law for guidance as they seek to ascertain the parties' intent. See First Options, 514 U.S. at 944, 115 S.Ct. 1920; John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48, 58 (2d Cir.2001) (). Here, it is appropriate to look to New York law as Schaffran was employed in New York and filed the arbitration proceedings with the NASD in New York.
As the courts have repeatedly made clear, "arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes — but only those disputes — that the parties have agreed to submit to arbitration." First Options, 514 U.S. at 943, 115 S.Ct. 1920; accord Bybyk, 81 F.3d at 1198. This concept...
To continue reading
Request your trial
-
Kowalewski v. Samandarov
... ... affecting interstate commerce." Alliance Bernstein Inv. Research & Mgmt., Inc. v ... ...
-
In re Actions
... ... affecting interstate commerce.” Alliance Bernstein Inv. Research & Mgmt., Inc. v ... ...
- Belnap v. Iasis Healthcare
- Mumin v. Uber Techs., Inc.