Amicus Curiae Brief — Circuit City Stores, Inc. v. Adams

Supreme Court, U.S.

— FILED

9

No. 99-1379 AUG ~ 4 2000

— | CLERK

Supreme Court of the United States

—

CIRCUIT CITY STORES, INC.,

Petitioner,

v.

SAINT CLAIR ADAMS,

Respondent.

On WrRiIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

BRIEF OF AMICUS CURIAE

SECURITIES INDUSTRY ASSOCIATION

IN SUPPORT OF PETITIONER

MICHAEL DELIKAT

Counsel of Record

Of Counsel: RENE KATHAWALA

STUART J. KASWELL Orrick HERRINGTON

Senior Vice President and & Sutcuirre LLP

General Counsel 666 Fifth Avenue

GEORGE KRAMER New York, NY 10103-0001

Vice President and Associate (212) 506-5000

General Counsel

SECURITIES INDUSTRY ASSOCIATION

1401 I Street, N.W., Suite 1000

Washington, D.C. 20005

(202) 296-9410

Counsel for Amicus Curiae

Securities Industry Association

TABLE OF CONTENTS

Table Of Cited Authorities .......ccccccsccsees

I. Permission To File Amicus Curiae Brief ......

Hi. Statement Of Interest ..... ccc cece cccesess

IIIl. Summary Of Argument ...................

Fe MRPUTTUUT ST TTT ELC TE TTT TIT Tee

A. The Circuit City Stores, Inc. Decision Was

Wrongly Decided and Conflicts With

Supreme Court Precedent And All The Other

EE £55 eNc06x00044%0600000008

B. The Ninth Circuit’s Decisions in Circuit City

Stores, Inc. and Previously in Duffield v.

Robertson Stephens & Co. Nullify This

Court’s Gilmer Decision And Are Calculated

To Eliminate Arbitration As A Resolution

Mechanism For Employment Disputes ....

1. The Effects of this Court’s Decision to

Affirm the Ninth Circuit Would be

PD ccicceetiekessienhes

2. Empirical Evidence Establishes That

Arbitration Provides A Fair and

Impartial Dispute Resolution Forum ..

10

11

13°

Contents

C. The Ninth Circuit’s Decision in Circuit City

Stores, Inc. Creates Troubling Issues Peculiar

to SIA MemberS ... wc scccccccccccccces

V. Conclusion

Page

il

TABLE OF CITED AUTHORITIES

Page

Cases:

Aspluadh Tree Expert Co. v. Bates, 71 F.3d 592

EE 6,7,9

Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465

EEE 7

Craft v. Campbell Soup Co., 177 F.3d 1083 (9th Cir.

ee en doc cc ccecceececes 11

Dickstein v. duPont, 443 F.2d 783 (1st Cir. 1971)

Se Eee ee ee eebncceeceocecccecce 6

Duffield v. Robertson Stephens & Co., 144 F.3d 1182

(9th Cir.), cert. denied, 525 U.S. 982, 119 S. Ct.

ko ccc ccccecces 3, 10

Erving v. Virginia Squires Basketball Club, 468 F.2d

EEE 6, 7,8

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

Ee Oe Es BEE GEOUED co cccccccccccccccs passim

Great W. Mortgage Corp. v. Peacock, 110 F.3d 222

(3d Cir.), cert. denied, 522 U.S. 915, 118 S. Ct.

oo. cc cceneece 6

Koveleskie v. SBC Capital Mkts., Inc., 167 F.3d 361

(7th Cir.), cert. denied, 120 S. Ct. 44 (1999) ... 7

iv

Cited Authorities

McWilliams v. Logicon, Inc., 143 F.3d 573 (10th Cir.

Par ee

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614, 105 S. Ct. 3346

GERD cccncccbcececccccevescsseccoesesses

Moses H. Cone Mem'l Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 103 S. Ct. 927 (1983) ......

O'Neil v. Hilton Head Hosp., 115 F.3d 272 (4th Cir.

SEED ceccndsdbsanssecocecsesveeusecasnes

Paladino v. Avnet Computer Techs., Inc., 134 F.3d

SES CERI GER, GHGED ccccdcccccscccscecesns

Patterson v. Tenet Healthcare, Inc., 113 F.3d 832

SG, BEDE cc cccveccccccctssccecdscvces

Prima Paint Corp. v. Flood & Conklin Mfg. Co.,

388 U.S. 395, 87 S. Ct. 1801 (1967) ..........

Rojas v. TK Communications, Inc., 87 F.3d 745

Le B SPPrrrrriTririirriri eee

Shearson/American Express, Inc. v. McMahon,

482 U.S. 220, 107 S. Ct. 2332 (1985) .........

Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct.

SGN cccccececcsetsonsaccéecestcasw

Page

v

Cited Authorities

Statutes:

9 U.S.C. § 1 (1994 & 2000 Supp.) ..............

9 U.S.C. § 2 (1994 & 2000 Supp.) ..........6...

United States Arbitration Act, ch. 213, 43 Stat. 883

DE n6tcekedeet dddessedmenesinananddee

Other Authorities:

Administrative Office of the United States, Judicial

Business of the United States Courts 1997 .....

Arbitration: SEC approves NASD Proposal To Find

Mandatory Arbitration of Bias Claims, Daily Lab.

Rep. (BNA) No. 121 (June 24, 1998) .........

Michael Delikat, An Empirical Study of Dispute

Resolution Mechanisms For Employment

Disputes: Do Plaintiffs Better Vindicate Their

Rights in Litigation?, Alternative Dispute

Resolution in. the Employment Arena,

Proceedings, 53rd Annual NYU Conference on

Labor (S. Estreicher, Editor, forthcoming 2000)

David Lewin, Dispute Resolution in Non Union

Organizations: Key Empirical Findings,

Alternative Dispute Resolution in the

Employment Arena, Proceedings, 53rd Annual

NYU Conference on Labor (S. Estreicher, Editor,

EEE: sévasdéncedbaukantostece

Page

12

17

14

13

vi

Cited Authorities

Page

Lewis Maltby, Employment Arbitration: Is it Really

Second Class Justice?, 6 No. 1 Disp. RESOL. MAG.

23 (1999) ccc cccccccccccccecccscsccccces 15

Leonidas Ralph Mecham, JupIcIAL BUSINESS OF THE

Unitep States Courts, Report of the Director

(Administrative Office of the United States

Courts, Sept. 30, 1999) .. 2.2... cee ee eens 12, 13

U.S. General Accounting Office, Alternative Dispute

Resolution: Employers’ Experiences with ADR in

the Workplace, GAO/GGD-97-157 (1997) ..... 12

U.S. General Accounting Office, Employment

Discrimination: How Registered Representatives

Fare in Discrimination Disputes, GAO/HEHS-94-

AT CIDDE) nc cccvcccccccccccccccceveccveses 12

U.S. General Accounting Office, Employment

Discrimination: Most Private-Sector Employers

Use Alternative Dispute Resolution, GAO/HEHS-

95-150 (1995S) ...... cc eccecccccrcccccccees 12

l

I. PERMISSION TO FILE AMICUS CURIAE BRIEF

‘The Securities Industry Association (“SIA”) files this

amicus curiae brief with the automatic consent of all parties,

a copy of which has been lodged herein.

Il. STATEMENT OF INTEREST'

The SIA brings together the shared interests of more than

740 securities firms to accomplish common goals. SIA

member-firms (including investment banks, broker-dealers,

and mutual fund companies) are active in all United States

and foreign markets and in all phases of corporate and public

finance. The United States securities industry manages the

accounts of approximately 50 million investors directly and

tens of millions of investors indirectly through corporate,

thrift, and pension plans. The industry generates in excess

of $300 billion of revenues yearly in the United States.

. This decision below precludes employers operating

within the geographic area encompassed by the Ninth Circuit

Court of Appeals — the states of Alaska, Arizona, California,

Hawaii, Idaho, Montana, Nevada, Oregon, Washington, and

the territories of Guam and the Northern Mariana Islands —

from relying on the Federal Arbitration Act (“FAA” or the

“Act’) in federal court to enforce arbitration agreements with

employees who are not directly engaged in the channels of

interstate commerce. Currently, employers and employees

in all jurisdictions outside the Ninth Circuit — forty-one

states and Puerto Rico — may utilize the FAA to enforce

arbitration agreements in federal court.

| 1. This amicus curiae brief filed in support of the Petitioner

Circuit City Stores, Inc. was funded solely by the SIA and authored

entirely by counsel for the SIA.

2

Perhaps more so than any other industry in the United

States, employers and employees in the financial services

industry have relied on arbitration as the process for resolving

workplace and customer disputes. Significantly, the vast

majority of SIA members have nationwide operations and

have implemented or are considering the implementation of

bilateral arbitration agreements entered into as a condition

of employment. The decision in Circuit City Stores, Inc. v.

Saint Clair Adams, if affirmed by this Court, would

effectively eliminate arbitration as a viable method of

employment dispute resolution in the financial services

industry because SIA members and their employees would

be unable to enforce arbitration agreements pursuant to the

FAA, a right which they are currently free to exercise in all

courts outside the Ninth Circuit.

In the securities industry, employment claims are almost

’ always intertwined with performance issues that may have

regulatory significance. For these reasons, arbitration of

employment claims is an important part of how SIA’s

members conduct business.

The SIA is familiar with the issue presented by this case

and believes that it would be helpful to the Court to file this

amicus curiae brief in order to assist the Court in the

resolution of this case. The SIA, therefore, submits this

memorandum to demonstrate to the Court why the Ninth

Circuit’s decision in Circuit City Stores, Inc. should ¢

reversed.

Ill. SUMMARY OF ARGUMENT

In its 1991 Gilmer v. Interstate/Johnson Lane Corp.

decision, this Court clearly held that the FAA could be used

3

to compel employees to arbitrate their Age Discrimination

in Employment Act claims. Subsequently, lower courts,

including those in all Circuit Courts of Appeals — with the

exception of the Ninth Circuit — have made it clear that

other statutory discrimination claims, including those arising

under Title VII of the Civil Rights Act of 1964, as amended

by the Civil Rights Act of 1991, may be the subject of an

arbitration agreement enforceable pursuant to the FAA.

Moreover, since Gilmer, all Circuit Courts of Appeals —

with the exception of the Ninth Circuit — have expressly

ruled, or affirmed previous decisions pre-dating Gilmer, that

the FAA applies to employment contracts, except those

covering employees directly engaged in the movement of

goods in interstate commerce.

-The Ninth Circuit in its decision below in Circuit City

Stores, Inc. and its previous decision in Duffield v. Robertson

Stephens & Co., 144 F.3d 1182 (9th Cir.), cert. denied,

525 U.S. 982, 119 S. Ct. 445 (1998), where it ruled that

discrimination claims brought under Title VII would not be

compelled to arbitration, has effectively nullified this Court’s

unqualified endorsement of arbitration as a means of

resolving employment disputes expressed in Gilmer and

destroyed the right of employers and employees to agree,

and then enforce their agreement, to resolve employment

related disputes in arbitration. As this Court noted in Gilmer,

“[i]t is by now clear that statutory claims may be subject of

an arbitration agreement, enforceable pursuant to the FAA.”

$00 U.S. 20, 26, 111 S. Ct. 1647, 1652 (1991). To allow the

Ninth Circuit’s implicit judicial hostility to arbitration of

employment disputes to stand is not only contrary to Gilmer

and the holdings of every other judicial circuit, but directly

contradicts the liberal federal policy favoring arbitration

agreemenis expressed by the FAA.

4

As set forth more fully in the brief of Petitioner, the Ninth

Circuit in Circuit City Stores, Inc. erroneously interpreted

the exclusion contained in section | of the FAA.

Moreover, if this Court adopts the Ninth Circuit’s

position that the FAA does not apply to arbitration

agreements contained in employment contracts,’ Gilmer's

unequivocal support of arbitration as a dispute resolution

mechanism for controversies arising between employer and

employee would effectively be rendered dead-letter law and

the ability of parties to enforce arbitration agreements under

the FAA would be destroyed. The policy implications of such

a ruling would be devastating.

First, the court dockets would be further overburdened

with employment claims due to the addition of the many

employment claims which otherwise would have been

resolved in arbitration. Moreover, in one fell swoop, the

principal advantages of arbitration, supported by empirical

evidence — shorter time to final resolution of disputes and

the ability to resolve disputes while repairing or maintaining

employment relationships, with some degree of

confidentiality and enormous cost savings to both sides —

would be vitiated.

Further, the Court’s ruling below creates intractable

problems unique to the securities industry. Effective January

2. Like the arbitration agreement at issue in Gilmer, which was

contained in a securities registration application, the arbitration

agreement here was not contained in a “contract of employment” as

that term is commonly understood. The arbitration agreement which

Circuit City Stores, Inc. asked its employees to sign simply

established the obligation to arbitrate, but had no further impact on

setting terms and conditions of employment.

5

1, 1999, the Securities and Exchange Commission (“SEC”)

approved a change to the Form U-4’ registration agreement

whereby registered representatives were no longer required

to arbitrate statutory discrimination claims as a condition of

working in the securities industry, while at the same time,

requiring that non-discrimipation employment claims

between employees and employees still be arbitrated.

However, the change in this rule permitted continued

arbitration of both statutory discrimination and other non-

discrimination claims via bilateral agreements between

employers and their employees. This Court’s decision to

affirm the Ninth Circuit’s ruling in Circuit City Stores, Inc.

would therefore prevent employers and employees in the

financial services and other industries from enforcing their

agreements to arbitrate disputes involving statutory

employment discrimination claims under the FAA, but still

require that non-statutory discrimination claims be arbitrated

pursuant to the Form U-4 between the exchange and the

employee. This bifurcation caused by Circuit City Stores,

Inc. nullifies the ability of employers and employees to

decide that all employment related claims should be resolved

in a single forum, with all of the attendant problems

associated with bifurcation of claims.

3. The Form U-4, Uniform Application for Securities Industry

Registration, is a uniform standardized form which must be

completed by anyone seeking to work as a broker in the securities

industry, regardless of the jurisdiction in which they work.

6

IV. ARGUMENT

A. The Circuit City Stores, Inc. Decision Was Wrongly

Decided and Conflicts With Supreme Court

Precedent And All The Other Circuit Courts

Every other circuit court that has addressed the issue

presented in this case has disagreed with the Ninth Circuit’s

holding that the FAA precludes the enforcement of arbitration

agreements contained in employment contracts.

Section 2 of the FAA, 9 U.S.C. § 2 (1994 & 2000 Supp.),

states that the FAA applies to all “written provision[s] in

any maritime transaction or a contract evidencing a

transaction involving commerce.” Section 1 of the FAA,

however, excludes from coverage all “contracts of

employment of seamen, railroad employees, or any other

class of workers engaged in foreign or interstate commerce.”

9 U.S.C. § 1 (1994 & 2000 Supp.). Accordingly, the question

which the Court has agreed to review hinges on the

interpretation of the clause “any other class of workers

engaged in foreign or interstate commerce” that is contained

in section 1 of the FAA. All of the circuit courts with the

exception of the Ninth Circuit have determined that the

exclusionary langua,,; present in section | of the FAA is to

be narrowly construed to workers literally involved in

interstate commerce. See, e.g., Dickstein v. duPont, 443 F.2d

783, 785 (1st Cir. 1971); Erving v. Virginia Squires

Basketball Club, 468 F.2d 1064, 1069 (2d Cir. 1972); Great

W. Mortgage Corp. v. Peacock, 110 F.3d 222, 227 (3d Cir.),

cert. denied, 522 U.S. 915, 118 S. Ct. 299 (1997); O'Neil v.

Hilton Head Hosp., 115 F.3d 272, 274 (4th Cir. 1997); Rojas

v. TK Communications, Inc., 87 F.3d 745, 748 (Sth Cir.

1996); Asplundh Tree Expert Co. v. Bates, 71 F.3d 592,

7

600-01 (6th Cir. 1995); Koveleskie v. SBC Capital Mkts.,

Inc., 167 F.3d 361, 363-64 (7th Cir.), cert. denied, 120

S. Ct. 44 (1999); Patterson v. Tenet Healthcare, Inc., 113

F.3d 832, 835 (8th Cir. 1997); McWilliams v. Logicon, Inc.,

143 F.3d 573, 576 (10th Cir. 1998); Paladino v. Avnet

Computer Techs., Inc., 134 F.3d 1054, 1060-61 (11th Cir.

1998); Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465, 1472

(D.C. Cir. 1997).

A leading case supporting the position which all of the

Circuit Courts of Appeals have adopted, with the exception

of the Ninth Circuit, is Erving v. Virginia Squires Basketball

Club, 468 F.2d 1064 (2d Cir. 1972). In 1971, Erving left the

University of Massachusetts and signed a contract to play

basketball for the Virginia Squires of the American

Basketball Association. See id. at 1066. Erving’s contract

provided that any dispute would be settled by arbitration.

Id. at 1066 n.1. In April of 1972, Erving signed a contract to

play with the National Basketball Association’s Atlanta

Hawks. /d. at 1066. The Squires sought to enforce Erving’s

contract through arbitration. Erving sought to avoid

arbitration and have the court set aside his original contract.

In his attempt to avoid arbitration, Erving argued that his

contract fell under the FAA’s section 1 exclusion.

In rejecting this argument, the court set forth in definitive

terms the limits of the exclusion: “the exclusionary clause

in Section | applied only to those actually in the

transportation industry. Erving clearly is not involved in the

transportation industry.” The court therefore affirmed an

order staying the player’s action to rescind his contract

pending arbitration. /d. at 1069. In reaching its decision, the

court said the following which should bear directly on this

Court’s consideration of the issue presented here: “[i]n light

8

of the strong national policy in favor of arbitration as a means

of settling private disputes, we see no reason to give an

expansive interpretation to the exclusionary language of

Section 1.” Jd.

Indeed, if this Court were to affirm the Ninth Circuit’s

ruling, and effectively eviscerate the right of parties to

contract freely to arbitrate employment disputes, the decision

would undermine the purposes of the FAA, which expresses

a strong federal policy favoring arbitration. That policy has

been articulated at all levels of the federal judicial system,

including repeated pronouncements which this Court has

issued. See, e.g., Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20, 28-29, 111 S. Ct. 1647, 1653 (1991); Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,

637, 105 S. Ct. 3346, 3358 (1985); Southland Corp. v.

Keating, 465 U.S. 1, 16, 104 S. Ct. 852, 861 (1984); Prima

Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,

401-02, 87 S. Ct. 1801, 1805 (1967). In fact, the stated

purpose of the FAA — originally titled the United States

Arbitration Act — is “[t]o make valid and enforceable written

provisions or agreements for arbitration of disputes arising

out of contracts.” United States Arbitration Act, ch. 213,

43 Stat. 883 (1925). Accordingly, an agreement between an

employer and employee to arbitrate all employment claims

not only impacts the individual contractual interests of the

parties, but also implicates the federal policy favoring

arbitration. See, e.g., Moses H. Cone Mem'l Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941 (1983)

(“the Courts of Appeals have . . . consistently concluded that

questions of arbitrability must be addressed with a healthy

regard for the federal policy of arbitration”).

9

Therefore, contrary to the Ninth Circuit’s holding, the

language of section 1 of the FAA and the reference to

“seamen, railroad employees, or any other class of workers

engaged in foreign or interstate commerce” suggests that

Congress intended to refer to workers engaged in commerce

in the same way that seamen and railroad workers are. Indeed,

in Asplundh Tree Expert Co. v. Bates, 71 F.3d 592, 600-01

(6th Cir. 1995), the court, after a thorough analysis of the

treatment of this issue by the other circuit courts of appeals,

came to this very conclusion which should be adopted by

this Court:

[T]he exclusionary clause of § 1 of the Arbitration

Act should be narrowly construed to apply to

employment contracts of seamen, railroad

workers, and any other class of workers actually

engaged in the movement of goods in interstate

commerce in the same way that seamen and

railroad workers are. We believe this

interpretation comports with the actual language

of the statute and the apparent intent of the

Congress which enacted it. The meaning of the

phrase ‘workers engaged in foreign or interstate

commerce’ is illustrated by the context in which

it is used, particularly the two specific examples

given, seamen and railroad employees, those

being two classes of employees engaged in the

movement of goods in commerce.

10

B. The Ninth Circuit’s Decisions in Circuit City Stores,

Inc. and Previously in Duffield v. Robertson Stephens

& Co. Nullify This Court’s Gilmer Decision And Are

Calculated To Eliminate Arbitration As A Resolution

Mechanism For Employment Disputes

In two decisions handed down within one year of each

other, the Ninth Circuit has effectively nullified this Court's

Gilmer decision and unjustifiably destroyed the right of

employers and employees to agree to resolve all of their

disputes in arbitration. First, in Duffield v. Robertson

Stephens & Co., 144 F.3d 1182 (9th Cir.), cert. denied,

525 U.S. 982, 119 S. Ct. 445 (1998), the Ninth Circuit, again

contrary to every other circuit court to have addressed the

issue, held that the Civil Rights Act of 1991 (the “1991 Act”)

prohibits the enforcement of pre-dispute arbitration

agreements governing statutory claims of employment

discrimination. To compound the Ninth Circuit’s isolation

on this issue, the decision in Circuit City Stores, Inc. now

removes other non-discrimination claims from arbitration

that survived Duffield’s prohibitions, namely common-law

and non-statutory employment claims. The result is the

evisceration of this Court’s long-standing commitment to

the federal policy favoring arbitration and an unprecedented

assault on the long-standing method of dispute resolutions

for claims arising between financial services industry

employees and their employers, as well as other industries

that have embraced arbitration to resolve their employment

disputes. See, e.g., Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220, 226, 107 S. Ct. 2332, 2337 (1985).

In Duffield, the Ninth Circuit largely ignored this Court’s

endorsement of arbitration as a method of resolving statutory

discrimination claims in Gilmer and found that the legislative

1]

history to the 1991 Civil Rights Act established that Title

Vil discrimination claims could not be compelled to

arbitration by a federal court. Similarly, in Circuit City

Stores, Inc. and its predecessor, Craft v. Campbell Soup Co.

177 F.3d 1083 (9th Cir. 1999), the Ninth Circuit again

contorts the plain meaning of statutory language to hold that

the FAA excludes all em

— Sew ployment contracts fr

jurisdiction. = os

As is shown below, if employers and employees were

unable to enforce arbitration agreements under the FAA

overburdened courts would be deluged with additional

employment lawsuits. Moreover, the empirical evidence

demonstrates, contrary to the Ninth Circuit’s implicit

hostility towards the process, that arbitration offers many

advantages to both employers and employees.

» a he Effects of this Court's Decision to Affirm the

Ninth Circuit Would be Overwhelming

This Court's decision to affirm the Ninth Circuit’s latest

assault on arbitration of employment disputes would further

overburden the courts with thousands of employment

disputes. This Court in Gilmer recognized that arbitration

“can further broader social purposes.” 500 U.S. at 28. 11]

S. Ct. at 1653. Indeed, this Court’s long-standing support of

arbitration as a matter of feccral policy has as one of its bases

the desire have alternative dispute resolution mechanisms

ease the burden on an overcrowded court system. See Moses

H. Cone Mem’! Hosp. v. Mercu

.v. ry Constr. Corp., 460 U.S.

24-25, 103 S. Ct. 927, 941 (1983). _

In fact, since this Court’s 1991 Gilmer decision, more

and more employers have implemented arbitration programs.

12

A 1994 General Accounting Office (“GAO”) survey of

private employers found that approximately 10% of

employers utilize arbitration to resolve employment disputes.

U.S. General Accounting Office, Employment Discrimination:

Most Private-Sector Employers Use Alternative Dispute

Resolution, GAO/HEHS-95-150 at 7 (1995). By 1997, the

GAO estimated that the figure had almos: dcubled to 19%.

U.S. General Accounting Office, Alternative Dispute

Resolution: Employers’ Experiences with ADR in the

Workplace, GAO/GGD-97-157 at 2 (1997) (“ADR in the

Workplace”). In the securities industry alone, some 32% of

the employees of the largest 50 securities firms in the United

States had agreed to arbitrate all claims arising out of their

employment by virtue of signing a Form U-4. U.S. General

Accounting Office, Employment Discrimination: How

Registered Representatives Fare in Discrimination Disputes,

GAO/HEHS-94-17 at 3 (1994). Some of those firms also

require non-registered employees to sign individual

arbitration agreements as a condition of employment.

Accordingly, if this Court were to accept the Ninth

Circuit’s latest blow against the arbitration of employment

disputes in Circuit City Stores, Inc., the result would be a

dramatic increase in the number of employment claims that

are brought in court. For example, the Administrative Office

of the United States Courts estimates that the number of

employment cases filed annually in the federal courts

increased approximately 55% from 1992 to 1997.

Administrative Office of the United States, Judicial Business

of the United States Courts 1997 at Table C-2. Moreover,

approximately 10% of the docket of the federal courts today

already involves employment issues. Leonidas Ralph

Mecham, JupiciaL Business OF THE UNITED States Courts,

Report of the Director (Administrative Office of the United

ee He

13

States Courts, Sept. 30, 1999) (statistic compiled from Table

C-2, reporting total employment civil rights actions and total

cases filed in the United States District Courts during the

twelve month period ending September 30, 1999).

2. Empirical Evidence Establishes That Arbitration

Provides A Fair and Impartial Dispute Resolution

Forum |

Contrary to the Ninth Circuit’s decided aversion to

arbitration of employment disputes, the empirical evidence

reveals that arbitration provides employees and employers

many benefits. As one observer has noted:

[A]lternative employment dispute resolution has

the potential to be more cooperative or less

adversarial than litigating employment disputes

and, still further, employment relationships

between companies and aggrieved employees are

potentially more likely to continue or be re-

established under alternative dispute resolution

systems than under litigation.

See David Lewin, Dispute Resolution in Non Union

Organizations: Key Empirical Findings, Alternative Dispute

Resolution in the Employment Arena, Proceedings, 53rd

Annual NYU Conference on Labor (S. Estreicher, Editor,

forthcoming 2000).

Other empirical evidence of the advantages of arbitration

of employment disputes compared to litigation of such

disputes are revealed in another recent study prepared by

SIA’s counsel prior to his retention on this matter. This study

included: (i) a review of outcomes for all employment

14

discrimination cases filed and resolved in the United States

District Court for the Southern District of New York for the

period April 1, 1997 to November 30, 1999, and (ii) a survey

of securities industry arbitration awards based on available

National Association of Securities Dealers (“NASD”) and

New York Stock Exchange (“NYSE”) arbitration awards

involving discrimination claims during the same time period.

See Michael Delikat, An Empirical Study of Dispute

Resolution Mechanisms For Employment Disputes: Do

Plaintiffs Better Vindicate Their Rights in Litigation?,

Alternative Dispute Resolution in the Employment Arena,

Proceedings, 53rd Annual NYU Conference on Labor

(S. Estreicher, Editor, forthcoming 2000). This study found

that employee-claimants in arbitration before the NASD and

NYSE prevailed in 48% of the cases filed, yet only 30% of

all employees filing discrimination cases in the United States

District Court for the Southern District of New York

prevailed in litigation. Additionally, this study found that it

took approximately 50% longer to resolve employment

disputes in court compared to arbitration (even though the

study only tracked outcomes through verdict, not post-verdict

modifications or appeals which would further lengthen the

time for complete judicial resolution) and that claimants

incurred almost 50% more attorneys’ fees in pursuing all

claims in court compared to arbitration. See id.

Further, a recently issued study which compared the

advantages of arbitration compared to litigation, conducted

by Lewis Maltby, the Director of the American Civil

Liberties Union’s National Task force on Civil Liberties in

the Workplace, confirmed the results of the study performed

by SIA’s counsel. Mr. Maltby’s study revealed that

15

[t]he entire class of employees who take their

disputes to court collectively receive 10.4 percent

of their total demand. Employees who take their

disputes to arbitration receive 18 percent of their

total demand. Employees who take their dispute

to arbitration receive almost twice as much of their

demands as the employees who take their dispute

to court ... [FJar more employees win in

arbitration than in court, and, overall, employees

who take their disputes to arbitration collect more

than those who go to court.

See Lewis Maltby, Employment Arbitration: Is it Really

Second Class Justice?, 6 No. 1 Disp

(1999). . Resou. Mac. 23, 23-24

Accordingly, the studies — conduct indivi

representing the interests of both penn nt eros

reveal the following about arbitration: (1) employees

prevail more frequently in arbitration than in federal court

and receive a higher percentage of their original demand in

arbitration than they do in federal court; (2) employees

alleging discrimination claims see their claims resolved

substantially faster in arbitration than in federal court: (3)

transactional costs in the form of attorneys’ fees are

substantially lower in arbitration; and (4) victims of

discrimination are more likely to have the opportunity to

present their claim to the factfinder in arbitration than in

litigation.* In short, despite the Ninth Circuit’s implicit

4. By contrast to litigation, the rules of the various institutions

. * . ’ ¥

which hear arbitration claims, e.g., the NYSE, the NASD. Seaaa

do not explicitly provide for motions for summary judgment or

(Cont'd)

16

blacklisting of arbitration as being unfair to employees,

arbitration resolves disputes fairly, quickly and efficiently.

In sum, affirming the Ninth Circuit’s decision in Circuit

City Stores, Inc. would ignore the many benefits of arbitration

established by empirical studies and the many years of fair

dispute resolution that financial service industry employers

and employees have enjoyed. In the absence of any statutory

support or policy reason to eviscerate this system, this Court

should not sanction this obvious effort by the Ninth Circuit

to destroy arbitration of employment disputes.

C. The Ninth Circuit’s Decision in Circuit City Stores,

Inc. Creates Troubling Issues Peculiar to SIA

Members

The Ninth Circuit’s decision in Circuit City Stores, Inc.

has profound consequences for SIA members for another

reason. Effective January 1, 1999, the NASD and NYSE

ended the long-standing requirement in the securities

industry, contained in the Form U-4, that broker-dealer

employees arbitrate statutory claims of employment

discrimination against their member firms. In announcing

the adoption of the new ruic, SEC Commissioner Isaac C.

Hunt, Jr. stated that the rule change “will not address all the

(Cont’d)

dismissal and, in actual practice, pre-hearing dismissals on

substantive motions are extremely rare. This means that some claims

which otherwise would have been dismissed in court on legal

grounds are presented to arbitrators, allowing the claimant an

opportunity which he or she otherwise may not have — the

opportunity to attempt to persuade the arbitrators that “fairness”

dictates that the claimant be granted relief, even where strict legal

elements may be lacking.

17

issues,” because although the NASD (and NYSE) are now

taken out of the business of enforcing industry-wide pre-

dispute arbitration agreements relating to statutory

employment claims, the rule change does not prevent any

brokerage firm from including pre-dispute arbitration

agreements in individual contracts. See, e.g., Arbitration:

SEC approves NASD Proposal To Find Mandatory

Arbitration of Bias Claims, Daily Lab. Rep. (BNA) No. 121

at A-10 (June 24, 1998). The consequence of this rule change

— that SIA member firms, all of whom belong to at least

one of the self-regulatory organizations, would still be able

to continue existing or enter into “private” pre-dispute

arbitration agreements with their employees — moderated

opposition from securities industry employers to the adoption

of the rule. Indeed, in providing its support to the rule change,

and a one year phase-in period from the time the SEC

approved the rule until its effective date, the SIA expressly

noted that “employers and firms need this time to consider

what agreements they may wish to enter into directly with

each other with regard to dispute resolution.”

Accordingly, in assenting to the SEC’s decision to revise

radically the securities industry practice with respect to

arbitration of statutory discrimination claims, SLA members

concluded that they would have the option of continuing

arbitration, but would be required to do so through private,

bilateral agreements they reach with their employees. This

shift — away from the certainty that Gilmer had provided in

its holding that arbitration agreements between employers

and regulatory or licensing bodies are enforceable to compel

arbitration of statutory employment discrimination claims

through use of the FAA — was only palatable to securities

18

industry employers if the courts had the power under the

FAA to enforce the private, bilateral arbitration agreements

that could, and for many SIA members, have replaced the

arbitration clause contained in the Form U-4.

However, the decision in Circuit City Stores, Inc. now

nullifies the option of allowing employers and employees to

enter into bilateral agreements to resolve all of their

employment disputes in a single arbitral forum — an option

specifically sanctioned by the SEC. If Circuit City Stores,

Inc. is affirmed, the ability to enforce these private arbitration

agreements in the securities industry under the FAA would

be largely a dead letter — as would this Court’s decision in

Gilmer. Moreover, because the Form U-4 still mandates that

non-discrimination claims between registered representatives

and their employers be arbitrated before the NASD or NYSE,

those cases where both discrimination and non-discrimination

claims are asserted will be bifurcated, even where the parties

have entered into private bilateral agreements to resolve all

claims in a single forum. As such, Circuit City Stores, Inc.

poses unique and intractable problems for alternative dispute

resolution of employment claims for security industry

members.

19

Vv. CONCLUSION

For the foregoing reasons, the SIA respectfully asks this

Court to reverse the Ninth Circuit’s decision in Circuit City

Stores, Inc. v. Saint Clair Adams.

Respectfully submitted,

MICHAEL DELIKAT

Counsel of Record

RENE KATHAWALA

ORRICK HERRINGTON

& Sutciirre LLP

666 Fifth Avenue

New York, NY 10103-0001

(212) 506-5000

Of Counsel:

STUART J. KASWELL

Senior Vice President and

General Counsel

GEORGE KRAMER

Vice President and Associate

General Counsel

SECURITIES INDUSTRY ASSOCIATION

1401 I Street, N.W., Suite 1000

Washington, D.C. 20005

(202) 296-9410

Counsel for Amicus Curiae

Securities Industry Association