In April 2011, the U.S. Supreme Court handed down its landmark opinion in AT&T Mobility v. Concepcion, holding that the Federal Arbitration Act preempted California’s Discover Bank rule, which had previously voided waivers of class arbitration in most consumer cases. In the nearly two years since Concepcion, the courts and the defense bar have been wrestling with a lengthy succession of theories by which the plaintiffs’ bar has hoped to pull the teeth of Concepcion‘s unequivocal endorsement of arbitration over costly class litigation. I wrote about one of these cases pending before the California Supreme Court, Iskanian v. CLS Transportation Los Angeles, last month for the Washington Legal Foundation. On Thursday, the Second Circuit handed down another, rejecting plaintiffs’ attempt to evade their arbitration agreement in Parisi v. Goldman, Sachs & Co.
Parisi arises from the termination by the defendant of a former managing director. Upon being promoted to managing director, the plaintiff signed an agreement promising to arbitrate "any dispute, controversy or claim arising out of or based upon or relating to Employment Related matters." The arbitration agreement said nothing one way or the other about class arbitration.
Plaintiff sued, filing a putative class complaint alleging gender discrimination in violation of Title VII of the Civil Rights Act. The defendant moved to compel arbitration, arguing that under Stolt-Nielsen S.A. v. Animal Feeds International Corp., a party could not be forced to arbitrate a class claim unless it had agreed to do so, and accordingly, plaintiff had to arbitrate her claims as an individual claim if at all. Plaintiff responded that the arbitration clause was unenforceable, at least as the defendant interpreted it, because it would effectively wipe out her right to challenge allegedly systemic discrimination at defendant’s workplace.
The magistrate invalidated the arbitration agreement on the grounds that it would make it impossible for the plaintiff to pursue a pattern-and-practice claim under Title VII, and therefore effectively operated as an unlawful waiver of substantive rights. The district court adopted the magistrate judge’s ruling.
The Second Circuit was a potentially high-risk forum for defendants in their attempt to overturn the district court’s holding. In 2012, the Second Circuit filed Am. Express Travel Related Servs. Co. v. Italian Colors Rest., in which the Court invalidated a waiver of class arbitration on the grounds that it would effectively immunize the defendant from liability for antitrust violations, since it was economically infeasible for any particular plaintiff to pursue the antitrust claims, either in court or before an arbitrator, on an individual basis. [Italian Colors is currently pending before the Supreme Court, and was argued in February.]
Nevertheless, the Second Circuit unanimously reversed in Parisi, vindicating the parties’ arbitration agreement. The problem with plaintiffs’ theory, the Court wrote, was that a class-wide "pattern or practice" claim was not a substantive cause of action belonging to the plaintiff; it was merely a method of proof. Therefore, the Supreme Court’s statement in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. that arbitration agreements could be invalidated where a plaintiff could not vindicate a statutory cause of action in an arbitral forum didn’t save plaintiff’s argument. Ultimately, since plaintiff lost no statutory right by being forced to arbitrate, the parties’ arbitration agreement was fully enforceable.
Parisi is a significant win for defense counsel in the employment bar litigating claims in the Second Circuit, and another step forward in vindicating the Supreme Court’s landmark decision in Concepcion.