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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2001
- **Citation:** 532 U.S. 105

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0355%3A11. Public record. Not legal advice.