Fletcher v. Kidder, Peabody & Co., Inc.

• Citation: 81 N.Y.2d 623,619 N.E.2d 998,601 N.Y.S.2d 686
• Court: New York Court of Appeals
• Decision Date: 09 July 1993
• Parties: , 619 N.E.2d 998, 62 Fair Empl.Prac.Cas. (BNA) 599, 62 Empl. Prac. Dec. P 42,610, 62 USLW 2051 Alphonse FLETCHER, Jr., Appellant, v. KIDDER, PEABODY & COMPANY, INC., Respondent. Rita REID, Appellant, v. GOLDMAN, SACHS & CO. et al., Respondents

Page 686

601 N.Y.S.2d 686

81 N.Y.2d 623, 619 N.E.2d 998, 62

Fair Empl.Prac.Cas. (BNA) 599,

62 Empl. Prac. Dec. P 42,610, 62 USLW 2051

Alphonse FLETCHER, Jr., Appellant, v. KIDDER, PEABODY & COMPANY, INC., Respondent.

Rita REID, Appellant, v. GOLDMAN, SACHS & CO. et al., Respondents.

Court of Appeals of New York

July 9, 1993.

Chadbourne & Parke, New York City (Stanley S. Arkin, Robert J. Hausen, James T. Wicks and Foster J. Gibbons of counsel), for appellant in first above-entitled action.

Epstein Becker & Green, P.C., New York City (Ronald M. Green of counsel), and Thomas A. Dubbs, New York City, for respondent in first above-entitled action.

Douglas S. McDowell and Robert E. Williams, of Dist. of Columbia Bar, admitted pro hac vice, for Equal Employment Advisory Council, amicus curiae, in first above-entitled action.

Brown & Wood, New York City (A. Robert Pietrzak and Michele L. McNichol of counsel), for Securities Industry Ass'n, Inc., amicus curiae, in first above-entitled action.

Shiff & Tisman, New York City (Stephen E. Tisman and Laurence Shiff of counsel), for appellant in second above-entitled action.

Sullivan & Cromwell, New York City (Theodore O. Rogers, Jr., and Tariq Mundiya of counsel), for respondents in second above-entitled action.

Vladeck, Waldman, Elias & Engelhard, P.C., New York City (Laura S. Schnell and Ellen A. Harnick of counsel), for Nat. Employment Lawyers Ass'n/New York, amicus curiae, in second above-entitled action.

OPINION OF THE COURT

TITONE, Judge.

In Matter of Wertheim & Co. v. Halpert, 48 N.Y.2d 681, 421 N.Y.S.2d 876, 397 N.E.2d 386, this Court held that because of the strong public policies embodied in Federal, State and local antidiscrimination laws, anticipatory agreements to arbitrate are unenforceable in the context of disputes involving claims of unlawful discrimination. The issue before us on these appeals is whether subsequent case law has rendered that holding obsolete in cases where the enforceability of the arbitration clause is governed by the Federal Arbitration Act (the FAA) (9 USC § 1 et seq.). We hold that, in light of recent Supreme Court decisions, most notably the Court's decision in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. ----, 111 S.Ct. 1647, 114 L.Ed.2d 26, our 1979 decision in Wertheim should no longer be followed in cases governed by the FAA. Instead, the arbitrability of statutory discrimination claims is henceforth to be determined by reference to Congress' intent with regard to alternative dispute resolution of that class of claims.

Fletcher v. Kidder, Peabody & Co.

Plaintiff, an African-American formerly employed in defendant's equity trading department, commenced this judicial action under the State Human Rights Law, alleging that he had been the victim of racial discrimination in employment in violation of Executive Law § 296(1)(a). In response, defendant moved to stay the action and compel arbitration on the basis of the broad arbitration clause contained in the Uniform Application for Securities Industry Registration or Transfer (the U-4 Form) that plaintiff had signed as part of his application for registration with the various securities exchanges. ¹ The motion was predicated on defendant's contention that the FAA, which preempts State law, is applicable and that that Federal statute mandates enforcement of plaintiff's promise to submit "controvers[ies] * * * arising out of [his] employment" to arbitration.

The IAS Court denied the motion, reasoning that "it would be against public policy to contract in advance for a [waiver of the right to obtain judicial redress of alleged racial discrimination]." The Appellate Division, however, reversed and granted the requested relief after concluding that the FAA and the cases decided under that statute mandated enforcement of plaintiff's arbitration agreement (184 A.D.2d 359, 584 N.Y.S.2d 838).

Reid v. Goldman, Sachs & Co.

Initially hired as a research assistant, plaintiff subsequently became a registered securities representative for defendant investment firm. As part of her registration application filed with the New York Stock Exchange, plaintiff was required to execute a U-4 Form containing a broad agreement to submit disputes arising out of her employment to arbitration. Some 13 years later, plaintiff was terminated from her position as a vice-president within defendant's firm.

Following her termination, plaintiff commenced the present action, alleging that she had been the victim of gender-based discrimination in violation of the State Human Rights Law (Executive Law § 290 et seq.). In response, defendant invoked the arbitration clause in the U-4 Form plaintiff had signed, contending that the dispute fell within the clause's terms and that the FAA mandated the clause's enforcement.

The IAS Court held in defendant's favor, concluding that plaintiff was obliged to arbitrate the discrimination claim. On plaintiff's appeal, the Appellate Division affirmed. Relying on Gilmer v. Interstate/Johnson Lane Corp., supra, the Court reasoned that plaintiff could be "compelled to arbitrate a State-based sex discrimination claim under the [FAA]" (188 A.D.2d 350, 590 N.Y.S.2d 497).

I.

We begin with the premise, which is now well embedded in our case law, that the enforceability of the arbitration clause contained in these plaintiffs' U-4 Form applications is governed by the FAA (see, Singer v. Jefferies & Co., 78 N.Y.2d 76, 81, 571 N.Y.S.2d 680, 575 N.E.2d 98; Flanagan v. Prudential-Bache Sec., 67 N.Y.2d 500, 504 N.Y.S.2d 82, 495 N.E.2d 345). A further basic principle that is essential to our analysis is the corollary tenet that, in situations where the FAA is applicable, it preempts State law on the subject of the enforceability of arbitration clauses (Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1; see, Singer v. Jefferies & Co., supra, 78 N.Y.2d at 81, 571 N.Y.S.2d 680, 575 N.E.2d 98). Indeed, the provisions of the FAA are controlling even though the dispute itself may arise under State law (see, Southland Corp. v. Keating, supra). Thus, regardless of what our own State's policies or case law might dictate in other circumstances, we are bound by the policies embodied in the Federal statute and the accompanying case law, and our prior State law holdings remain independently operative only to the extent that they have not been preempted by Federal law and policy.

In Matter of Wertheim & Co. v. Halpert, supra, this Court held that an arbitration clause contained in a U-4 Form similar to those signed by plaintiffs was unenforceable in a dispute concerning a claim of discriminatory conduct in employment. At that time, the Court reasoned that important public policies are implicated in this area "where particular remedies are afforded by both State and Federal statutes" and, further, that allowing the employer to force the employee into arbitration "risks chilling the exercise of the statutory right" (id., 48 N.Y.2d at 683, 421 N.Y.S.2d 876, 397 N.E.2d 386). The FAA and the impact of Federal law were not discussed, although the Court did make passing reference to Alexander v. Gardner-Denver Co., 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147, an employment discrimination case involving an arbitration clause that was not governed by the FAA.

The legal developments in the 13 years since Wertheim was decided necessitate a reexamination of that precedent. Although the United States Supreme Court has not squarely and directly addressed the enforceability of anticipatory arbitration clauses for disputes involving statutory prohibitions against racial and gender discrimination, it has considered the same issue in the context of a statutory age discrimination dispute and, in the process, has established a clear analytical framework for use in all cases in which an FAA-governed arbitration contract is invoked to force a nonjudicial resolution of a claim arising from statute (Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. ----, 111 S.Ct. 1647, supra).

Contrary to the dissent's urgings, we cannot cling to the 13-year-old holding in Wertheim in the face of this recent definitive Supreme Court ruling solely because the nature of the statutorily prohibited discrimination alleged in Gilmer differs from the types of statutorily prohibited discrimination challenged in these two cases (see, Dean Witter Reynolds, Inc. v. Alford, --- U.S. ----, 111 S.Ct. 2050, 114 L.Ed.2d 456, on remand, 5th Cir., 939 F.2d 229 [remanding for reconsideration of arbitrability of title VII gender discrimination claim in light of Gilmer v. Interstate/Johnson Lane Corp., supra]. While adherence to State precedent may be justified in the absence of clear guidance from the Supreme Court (see, Herzog Bros. Trucking v. State Tax Commn., 72 N.Y.2d 720, 536 N.Y.S.2d 416, 533 N.E.2d 255), we are bound to follow both the holding and the rationale of the Nation's highest Court on this and other questions of Federal law when, as here, there is no ambiguity in the Court's position (see, Flanagan v. Prudential-Bache Sec., supra, 67 N.Y.2d at 505-506, 504 N.Y.S.2d 82, 495 N.E.2d 345). ² Indeed, any argument about the continued vitality of Wertheim is, necessarily, a "red herring," since, as the dissent itself acknowledges, even the plaintiff in Fletcher would utilize the methodology mandated in Gilmer v. Interstate/Johnson Lane Corp., supra, to establish his right to be relieved of the obligations imposed by his agreement to arbitrate (dissenting opn., at 640, at 695 of 601 N.Y.S.2d, at 1007 of 619 N.E.2d). ³

Under that methodology, the party seeking to avoid enforcement of an arbitration clause governed by the FAA must demonstrate a congressional intent "to preclude a waiver of a judicial forum" for disputes based on a particular statutory right (Gilmer v. Interstate/Johnson Lane Corp., 500 U.S., at ----, 111 S.Ct. at 1652, supra; see also, Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614...