Panel Weighs In on Contractual Arbitration Before SCOTUS Ruling
ALM Media
Updated
In a ruling of first impression affecting state class action litigants, a Manhattan appeals court on Tuesday decided that a former insurance company agent cannot be forced to arbitrate with her employer despite her contract's arbitration provision.
The 3-2 ruling by the Appellate Division, First Department, panel normally would have struck a blow for employees' rights to bring collective actions against their employers.
But the detailed analysis in Gold v. New York Life Insurance, 653923/12, is only temporary. The U.S. Supreme Court is expected to decide the same issue in a matter of months, and, in fact, some lawyers on Tuesday were left wondering why the First Department weighed in at all.
"It is somewhat surprising to me that any court would issue a ruling knowing that the Supreme Court is going to resolve this issue in the relatively near time, and that that will be dispositive," said Jeffrey Schwartz, an Atlanta-based partner at Jackson Lewis who is representing Murphy Oil USA in one of three consolidated cases pending before the Supreme Court on the arbitration/class action lawsuit issue.
"Many courts have been issuing stay orders, pending Supreme Court resolution," he added.
Nevertheless, in the First Department, at least, the majority's decision is state law for the time being.
Justices Karla Moskowitz, Rolando Acosta and Angela Mazzarelli ruled that employment arbitration provisions, such as one found in plaintiff Melek Kartal's contract prohibiting class, collective or representative claims, violate the National Labor Relations Act (NLRA) and are therefore unenforceable.
The ruling brought with it a lengthy dissent by Justices Richard Andrias and David Friedman and, according to the majority's own decision, the operative ruling on the issue by the U.S. Court of Appeals for the Second Circuit stands in disagreement to its own.
What's more, the Fifth and Eighth Circuits have also taken opposite positions to the panel's majority view.
But the Seventh and Ninth Circuits have handed down decisions in recent years that the panel found to be soundly reasoned, and that is where the justices hung their hats on Tuesday, especially by citing the Seventh Circuit's analysis in Lewis v. Epic Systems, another of the three consolidated cases pending before the U.S. Supreme Court.
"The Seventh Circuit ... declin[ed] to enforce a clause that precluded employees from seeking any class, collective or representative remedies to wage-and-hour disputes because the clause violated Sections 7 and 8 of the NLRA," Moskowitz wrote.
"According to the court, Section 7 of the NLRA provided that employees have the right to engage in concerted activities, and concerted activities have long been held to include resort to judicial forums," she added. "Accordingly, the court held, contracts such as the one at issue were unenforceable under the NLRA because they stipulate away employees section 7 rights or otherwise require actions unlawful under the NLRA."
Moskowitz said the Seventh Circuit also found the clause was unenforceable under the Federal Arbitration Act, which enforces the principle that illegal promises will not be enforced in cases controlled by the federal law.
The panel picked apart the Fifth Circuit ruling in D.R. Horton v. Nat. Labor Relations Bd., writing that the decision "contains an internal contradiction on the one hand, the court states that the availability of collective claims under the NLRA cannot fit within the FAA's saving clause because that requirement creates a scheme inconsistent with the FAA, but at the same time, finds that there is no conflict between the FAA and the NLRA."
But Andrias, in his dissent, said that in the case before the panel, "Kartal has not met her burden of showing that Congress intended her employment claims to fall outside the FAA," while noting that "neither the NLRA's statutory text nor its legislative history contains a congressional command against application of the FAA," and there is no "inherent conflict between the FAA and the NLRA's purpose."
In addition, he said, the right to bring a collective action on behalf of others is a litigation mechanism, and therefore merely a procedural right.
Richard Rosenblatt, a Morgan, Lewis & Bockius partner who represented defendant New York Life Insurance Co. in its lawsuit with Kartal and other plaintiffs, who claimed that they were cheated out of overtime and other payments by the company, said on Tuesday that his client would appeal to the state Court of Appeals on the arbitration issue. But he noted that the U.S. Supreme Court will probably rule before briefing to the Court of Appeals would be done.
John Halebian, a mostly plaintiffs-side class action attorney and partner at Lovell Stewart Halebian Jacobson in Manhattan, represented the plaintiffs. He said that in his day-to-day practice, "this is an extremely important decision by the First Department," and he added, "I hope it holds up and contributes to when the [U.S.] Supreme Court considers this, I guess in the next term."
He also said, "It's an extremely important case because it impacts untold numbers of employees who are laboring under this arbitration class-action waiver clause [in their contracts], which is really stripping them of their rights."
