Saari v. Smith Barney, Harris Upham & Co., Inc.

• Decision Date: 29 June 1992
• Docket Number: No. 90-55187,90-55187
• Parties: , 122 Lab.Cas. P 10,254, 7 IER Cases 929 Howard E. SAARI, Plaintiff-Appellee, v. SMITH BARNEY, HARRIS UPHAM & CO., INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 877

968 F.2d 877

61 USLW 2039, 122 Lab.Cas. P 10,254,

7 IER Cases 929

Howard E. SAARI, Plaintiff-Appellee, v. SMITH BARNEY, HARRIS UPHAM & CO., INC., Defendant-Appellant.

No. 90-55187.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 3, 1992.

Decided June 29, 1992.

Robert D. Feighner, Keesal, Young & Logan, Long Beach, Cal., for defendant-appellant.

Michael L. Goldberg, Mandell, Lewis, & Goldberg, McLean, Va., for plaintiff-appellee.

Appeal from the United States District Court for the Central District of California.

Before: BRUNETTI, O'SCANNLAIN, and T.G. NELSON, Circuit Judges.

T.G. NELSON, Circuit Judge:

In the employer's appeal of a district court order refusing to order arbitration of a discharged employee's claims, we hold that the Federal Employee Polygraph Protection Act does not prohibit arbitration of claims where required by contract. We further hold that the state law claims for violation of the California Labor Code and slander are likewise subject to arbitration.

FACTS AND PROCEEDINGS BELOW

Howard Saari (Saari) was employed by Smith Barney, Harris Upham & Co., Inc. (Smith Barney) as an account executive beginning in July, 1988, and alleges that at all times his work was satisfactory. According to Saari's complaint, on or about December 14, 1988, a "sum of money, supposedly belonging to a client of Smith Barney, was supposedly stolen from the desk of a Smith Barney employee." Saari alleged he was questioned about the theft and was later asked to take a polygraph test concerning the incident, which he refused. Saari claims he was then terminated for his refusal to take the polygraph examination.

Saari filed an action in federal district court, alleging (1) a violation of the Employee Polygraph Protection Act (EPPA), 29 U.S.C. §§ 2001-2009, (2) a violation of California Labor Code § 432.2, which makes it unlawful for an employer to demand or require that any employee submit to a polygraph test as a condition of continued employment, and (3) a state law claim of slander, alleging that Smith Barney or its agent had slandered him by stating that he had engaged in a theft of money, or that Saari himself had been required to publish those statements in responding to questions from prospective employers concerning the cause of his termination from Smith Barney.

As a condition of his employment with Smith Barney, Saari signed a Uniform Application for Securities Industry Registration ("U-4 Form") which provided in relevant part:

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 with which I register.

Saari became a registered representative of the New York Stock Exchange and thereby subject to its Rule 347 which provides that:

Any controversy between a registered representative and any member or member organization arising out of the employment or termination of employment of such registered representative by and with such member or member organization shall be settled by arbitration.

After filing an answer to Saari's complaint, Smith Barney filed a motion to compel arbitration and stay proceedings pending arbitration of all three claims pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. § 3. The district court denied the motion, holding the underlying purposes of EPPA, as evidenced by its enforcement scheme and anti-waiver provision, demonstrate a congressional intent that access to the courts not be precluded by arbitration. The district court further held that the state polygraph protection claims were exempt from arbitration as well, because of the "important role assigned to state law in carrying out the purposes of the EPPA." The district court later denied the motion to compel arbitration as to the slander claim.

Smith Barney timely appealed entry of the district court's order. We have jurisdiction pursuant to the Federal Arbitration Act, 9 U.S.C. § 16, and reverse the orders of the district court. ¹

STANDARD OF REVIEW

This court reviews the trial court's denial of a motion to compel arbitration de novo. Zolezzi v. Dean Witter Reynolds, Inc., 789 F.2d 1447, 1449 (9th Cir.1986).

I. EPPA CLAIMS

In denying arbitration to Smith Barney, the district court relied on Nicholson v. CPC Int'l Inc., 877 F.2d 221 (3d Cir.1989). The Third Circuit there held that Congress did not intend that the right to a judicial forum under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-34, could be displaced by arbitration, concluding that "ADEA is one of the statutory schemes that present the 'inherent conflict [with] arbitration' referred to by the Supreme Court in Shearson [/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) ]." Id. at 227.

In resolving a conflict between a Fourth Circuit case and the Nicholson case from the Third Circuit, the Supreme Court in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. ----, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), held that ADEA claims were subject to arbitration, impliedly overruling Nicholson. 111 S.Ct. at 1657. The Court emphasized that the Federal Arbitration Act (FAA) manifests a "liberal federal policy favoring arbitration agreements." 111 S.Ct. at 1651 (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983)).

Similar to Saari's situation here, the plaintiff in Gilmer was required to register as a securities representative with the New York Stock Exchange, and was subject to N.Y.S.E. Rule 347. The Court held that "statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the FAA." Id. 111 S.Ct. at 1652. The Court noted that " '[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.' " Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444 (1985)). The Court also noted that it had upheld arbitration agreements relating to claims arising under the Sherman Act, the Securities Exchange Act of 1934, RICO, and the Securities Act of 1933. Id. 111 S.Ct. at 1652.

The Court recognized that not all statutory claims may be appropriate for arbitration under the FAA, but " '[h]aving made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.' " Id. (quoting Mitsubishi, 473 U.S. at 628, 105 S.Ct. at 3354). The Court placed the burden on the plaintiff to show that Congress intended to preclude a waiver of a judicial forum for ADEA claims, and noted that if such an intention exists, it would be discoverable in the text of ADEA, its legislative history, or an "inherent conflict" between arbitration and ADEA's underlying purposes. Id.

Saari's reliance on Nicholson in the court below proved to be misplaced. As a substitute, Saari argues that the Court's rationale in Gilmer is specific to ADEA, and is not dispositive of the ability to arbitrate claims under EPPA. Saari attempts, contrary to his arguments in the district court, to distinguish EPPA from ADEA, on the basis of the analysis set forth in Gilmer.

A. The Text and Legislative History of EPPA

Saari notes the statement of the Gilmer Court that ADEA's flexible approach to resolution of claims and the role of the EEOC under ADEA in "informal methods of conciliation, conference, and persuasion" indicates that "out-of-court dispute resolution, such as arbitration, is consistent with the statutory scheme established by Congress." Gilmer, 111 S.Ct. at 1654. Saari contends that the enforcement provisions of EPPA show no such flexibility.

Section 2002 of EPPA contains a broad general prohibition of employer use of lie detector tests. The prohibition is subject to exceptions listed in Sections 2006 and 2007 relating to governmental employers, national defense and security, F.B.I. contractors, certain private security firms, and a limited exemption for ongoing investigations. ² The enforcement provisions in Section 2005 permit an assessment of a civil penalty by the Secretary of Labor in an amount not to exceed $10,000 and injunctive actions by the Secretary to restrain violations of the Act. The redress the Secretary may seek includes orders of employment, reinstatement, promotion, and payment of lost wages and benefits. The enforcement provisions also include a private civil action to be brought by the employee or prospective employee affected by such violation. See 29 U.S.C. § 2005(c). The available relief is identical to that available to the Secretary by injunctive action under Section 2005(b). The enforcement provisions also include a bar on the waiver of rights which provides:

The rights and procedures provided by this chapter may not be waived by contract or otherwise, unless such waiver is part of a written settlement agreed to and signed by the parties to the pending action or complaint under this Act.

29 U.S.C. § 2005(d).

Saari contends that unlike the Gilmer Court's finding of ADEA's flexible approach to the resolution of claims, EPPA relies on the judicial process for the resolution of claims. We think, however, that Saari's reliance on the flexibility comment by the Court in Gilmer is misplaced. The Court made it very clear in Gilmer that the fact that a particular statute embodies a judicial enforcement process does not exclude arbitration. The Supreme Court rejected Saari's argument when it was made by Gilmer:

Gilmer also argues that compulsory arbitration is improper because it deprives claimants of the judicial forum provided for by the ADEA. Congress, however, did not explicitly preclude arbitration or...