Johnson v. Piper Jaffray, Inc., C4-93-2270

• Decision Date: 05 May 1995
• Docket Number: No. C4-93-2270,C4-93-2270
• Parties: 70 Fair Empl.Prac.Cas. (BNA) 407 Kristin L. JOHNSON, Petitioner, Appellant, v. PIPER JAFFRAY, INC., a Wholly Owned Subsidiary of Piper Jaffray Companies, Respondent.
• Court: Minnesota Supreme Court

Page 790

530 N.W.2d 790

70 Fair Empl.Prac.Cas. (BNA) 407

Kristin L. JOHNSON, Petitioner, Appellant, v. PIPER JAFFRAY, INC., a Wholly Owned Subsidiary of Piper Jaffray Companies, Respondent.

No. C4-93-2270.

Supreme Court of Minnesota.

May 5, 1995.

Syllabus by the Court

An application for securities registration executed by an employee is not a contract of employment within the meaning of Section 1 of the Federal Arbitration Act (FAA).

The FAA requires an employee, who has executed an application for securities registration containing an agreement to arbitrate pursuant to the Arbitration Code of the National Association of Securities Dealers, to arbitrate both her defamation claim and her state statutory discrimination claims against her employer.

The FAA pre-empts the Minnesota Human Rights Act (MHRA) to the extent the MHRA voids agreements that purport to waive the right to a judicial forum.

Leslie Lyn Lienemann, Sue B. Stingley Law Offices, Minneapolis, for appellant.

Carol A. Peterson, Kathleen Sheehy, Sonja G. Lemmer, Dorsey & Whitney, Minneapolis, for respondent.

Richard L. Varco, Jr., St. Paul (for amicus curiae State of MN).

Heard, considered and decided by the court en banc.

OPINION

ANDERSON, Justice.

Plaintiff, Kristin Johnson, commenced this action against her former employer, Piper Jaffray, Inc., asserting state statutory age and gender discrimination claims under the Minnesota Human Rights Act and also asserting a defamation claim. Maintaining that Johnson's execution of a Uniform Application for Securities Registration required her to arbitrate her claims, Piper Jaffray moved for an order staying the action and for an order compelling Johnson to arbitrate. The district court denied Piper Jaffray's motions, concluding that the parties had not agreed to arbitrate. The Minnesota Court of Appeals reversed, holding that Johnson was required to arbitrate her claims against Piper Jaffray. Johnson appeals, advancing several arguments why she should not be required to submit her claims to compulsory arbitration. We conclude that Johnson must arbitrate all of her claims against Piper Jaffray, and we affirm.

On March 9, 1992, Piper Jaffray, Inc. hired Kristin Johnson, a 21-year-old female, as a corporate bond trader. Before being hired by Piper Jaffray, Johnson had attended The American University in Washington, D.C., had worked as a foreign account representative for the Austrian Laenderbank in Salzburg Austria, and had worked as a commodity merchant for Cargill, Inc. in Kansas City, Missouri. To qualify for her new position at Piper Jaffray, Johnson was required to complete a "Uniform Application for Securities Industry Registration or Transfer," known as a "Form U-4." Johnson completed this Form U-4 on March 23, 1992. This Form U-4 contained a written agreement to arbitrate. Specifically, Item 23, paragraph number 5 provided:

I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organizations indicated in Item 10 as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgement [sic] in any court of competent jurisdiction.

Item 10 on Johnson's Form U-4 indicates that she applied "to be registered with" two self-regulating organizations: the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE).

On May 5, 1992, Piper Jaffray terminated Johnson's employment. As required by NASD rules, Piper Jaffray filed with the NASD a U-5 termination notice, which indicated Johnson had been terminated for "unsatisfactory performance." During the short duration of her employment, Johnson was never allowed to trade securities. On at least one occasion, Johnson complained that she felt that other employees did not treat her like a corporate bond trader, but instead treated her like a secretary.

On April 14, 1993, Johnson commenced this action against Piper Jaffray in Hennepin County District Court, claiming that Piper Jaffray had discriminated against her on the basis of both her age and her gender in violation of the Minnesota Human Rights Act (MHRA), Minn.Stat. § 363.03, subd. 2 (1992). Johnson also alleged a defamation claim based on Piper Jaffray's filing of the U-5 termination notice.

Maintaining that the rules, constitutions, or by-laws of either the NASD or the NYSE required Johnson to arbitrate all of her claims, Piper Jaffray moved for an order staying the action and for an order compelling Johnson to arbitrate her claims. The district court denied Piper Jaffray's motions, concluding that the parties had not agreed to arbitrate Johnson's claims.

Piper Jaffray appealed, and the Minnesota Court of Appeals reversed, holding that Johnson's execution of the Form U-4, standing alone, required her to arbitrate her claims against Piper Jaffray. Johnson v. Piper Jaffray, Inc., 515 N.W.2d 752, 755 (Minn.App.1994). The court also held that Johnson's claims under the MHRA were subject to compulsory arbitration. Id. at 754. Johnson appeals, advancing several arguments why her claims against Piper Jaffray are not subject to compulsory arbitration.

First, contrary to the general rule that the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-9 (1988), governs agreements to arbitrate contained in a Form U-4, Johnson argues that the FAA's own provisions exclude from its purview the Form U-4 that she signed. Specifically, Johnson contends the Form U-4 that she signed constitutes a "contract of employment," excluded from the purview of the FAA by Section 1 of the FAA. Second, even if the FAA does apply, Johnson argues she is not required to arbitrate any of her claims because the relevant rules of the NASD and the NYSE, to which she agreed to be bound, do not require her to arbitrate her claims. Third, even if the relevant rules of the NASD and the NYSE purport to require her to arbitrate her claims, Johnson contends that discrimination claims brought under the MHRA are not subject to compulsory arbitration under the FAA because they are part of a class of claims not subject to arbitration. Fourth, Johnson argues that her agreement to arbitrate is not enforceable. Johnson specifically argues that general contract principles of enforceability remain applicable under the FAA, and generalized unequal bargaining power, being one of those principles, is sufficient to invalidate her agreement to arbitrate. Johnson further maintains that she should not be compelled to arbitrate her claims against Piper Jaffray because of alleged procedural deficiencies existing in the arbitration process. Johnson finally argues that her agreement to arbitrate her discrimination claims brought under the MHRA is unenforceable because the MHRA voids any agreement purporting to prospectively waive the right to a judicial forum for claims brought under the MHRA. Minn.Stat. §§ 363.031, 363.14 (1992). Johnson contends the MHRA's voiding provision is not pre-empted by the FAA.

I.

Generally, the FAA governs the enforceability of agreements to arbitrate contained in a Uniform Application for Securities Industry Registration or Transfer, known as a Form U-4. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (applying FAA to enforce agreement to arbitrate contained in Form U-4). Section 1 of the FAA explicitly excludes certain employment contracts from the FAA's purview. That section provides in pertinent part:

[N]othing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.

9 U.S.C. § 1. Thus, if an agreement to arbitrate is contained in a "contract[ ] of employment" of one of the specified classes of workers, the FAA does not govern the arbitration agreement. Contrary to the general rule that the FAA governs agreements to arbitrate contained in a Form U-4, Johnson contends that the Form U-4, which she signed as an alleged condition of her employment, constitutes a contract of employment with Piper Jaffray, excluded from the purview of the FAA by Section 1.

In Gilmer v. Interstate/Johnson Lane Corp., the Supreme Court expressly addressed and rejected this argument. Narrowly defining "contract of employment," the Court held that the Form U-4 is not a "contract of employment" within the meaning of Section 1 of the FAA. The Court reasoned as follows:

Several amici curiae in support of Gilmer argue that [Section 1] excludes from the coverage of the FAA all "contracts of employment." * * * [I]t would be inappropriate to address the scope of the § 1 exclusion because the arbitration clause being enforced here is not contained in a contract of employment. * * * Rather, the arbitration clause at issue is in Gilmer's securities registration application, which is a contract with the securities exchanges, not with [his employer]. * * * [T]he exclusionary clause in § 1 of the FAA is inapplicable to arbitration clauses contained in such registration applications. * * * [W]e therefore hold that § 1's exclusionary clause does not apply to Gilmer's arbitration agreement. Consequently, we leave for another day the issue raised by amici curiae.

500 U.S. at 25 n. 2, 111 S.Ct. at 1651 n. 2. (citations omitted); accord Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1488 (10th Cir.1994) (citing Gilmer and holding the Section 1 exclusion from the FAA for contracts of employment does not apply to securities registration application); Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305, 312 (6th Cir.1991) (holding Gilmer clearly forecloses the position that the securities registration application constitutes a contract of employment).

Notwithstanding Gilmer 's holding that a Form U-4 does not constitute a contract of employment within the meaning of Section...