Petition for Writ of Certiorari — Shearson Lehman/American Express Inc. v. Bird

Supreme Court brief1989

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‘| AUG 7 3969

No. |:

O JOSEPH F. SPANIOL, JR

CLERK ;

IN THE

Supreme Court of the Muited Sighs

OcToBER TERM, 1989

SHEARSON LEHMAN/AMERICAN Express INC. and

RAYMOND R. CLEMENTS.

Petitioners.

FRANK L. Birp, Trustee of the FRANK L. Birp

PROFIT SHARING TRusT, FRANK L. Burp, Individually,

and JOAN SHEA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

THEODORE A. KREBSBACH

Counsel of Record for Petitioners

Office of the General Counsel

Shearson Lehman Hutton Inc.

Two World Trade Center

New York, New York 10048

(212) 528-0565

JerrreY L. FRIEDMAN

Office of the General Counsel

Shearson Lehman Hutton Inc.

(212) 528-0650

Of Counsel

QUESTION PRESENTED

Whether the Federal Arbitration Act, 9 U.S.C. § 1 et seq.

1982), mandates arbitration of claims asserted under the

Employee Retirement Income Security Act of 1974, 29 U.S.C.

§ 1001 et seq. (1982), when parties have agreed to resolve their

disputes by arbitration?

RULE 28.1 LIST

Non-Wholly Owned Subsidiaries and Affiliates of

Shearson Lehman Hutton Ine.

Active Subsidiaries

Eston Hambro Corp

Boulevard Investors Inc.

Boulevard Real Estate Corp

Burlington Investors Inc.

«.B. Realty Cor

Lombard Realty Corporation

Lowell Investors Inc.

Lowell Real Estate Corp

Shearson Dat-Cheong Company Limited

Shearson/KM, Ince.

Shearson/NGP Inc.

Affiliates

California S.A.

Shearson Financial Services of Oklahoma. In

Shearson Financial Services of Texas. Inc

Shearson Lehman Hutton SARL

Intermodal Equipment Associates

KCC Syndicate Managers, Inc

New World Corporation

Kex Moor Properties Incorporated

Sovran Energy Cerp.

Non-Wholly Owned Subsidiaries and Affiliates of

Shearson Lehman Hutton Holdings Inc..

the parent company of Shearson Lehman Hutton Inc.

Active Subsidiaries

FGiC Corporation

LBKL 82-1 Investors

SB Holding Corporation

Shearson Lehman Hutton Finance S.A.

Panagora Asset Management Limit -d

Vernitron Corporation

Dr. Pepper Holding Compny

The Barony Company

First Capital Holdings Corp.

Anagel-American Shipholding Limited

Affiliates

American Marketing Industries Holdings Inc.

Laurel Capital Growth Investors Corporation

Save Mart Supermarkets

O.M.B. Limited Partner Ltd.

SLH Capital Partners I Inc.

Shearson Beverage Corporation

Inactive Subsidiaries

Mideast-American Inc.

* The parent company of Shearson Lehman Hutton Holdings Inc. is the

American Express Company.

TABLE OF CONTENTS

Page

Question Presented . i

Rule 28.1 List... ii

Table of Authorities vii

Statutory Provisions Involved. . xiii

Opinions Below 2

Jurisdiction 2

Statement of the Case 3

Reasons for Granting the Writ 5

I. The Court Should Grant Certiorari to Resolve

The Fully Developed Conflict Among the

Circuit Courts of Appeals Regarding the

Enforceability of Agreements to Arbitrate

ERISA Disputes. | 8

A. The Second and Third Circuits Have

Refused to Enforce Private Agreements to

Arbitrate ERISA Disputes Based upon

Their Erroneous Belief that Congress

Intended to Prohibit Enforcement of Such

Agreements And Their Misapplication of

[he Court's Labor Arbitration

Jurisprudence. . | 10

B. The Eighth Circuit Has Enforced

Agreements to Arbitrate ERISA Disputes in

Accordance with Recent Decisions of the

Court That Uphold Private Agreements to

Arbitrate Commercial Statutory Disputes

Pursuant to the Federal Arbitration Act. l4

Il. Should the Court Grant Certiorari to Re:

The Conflict Regarding the Arbitrability

ERISA Disputes, It Will Also Have the

Opportunity to Clarify the Distinctions

Between its Commercial and Labor

Arbitration Precedents and Avoid the Need t

Address the Arbitrability of Other Federal!

Statutes on a Case-By-Case Basis

III. The Issues Presented to the Court Require

Early Resolution to Avoid Increased

Congestion and Provide Uniformity

Throughout the Lower Courts as well as |

Avoid Duplicative Proceedings Betwee

Parties to a Dispute.

Conclusion

\ ppendic es

\ Statutory Provisions Involved

Opinion of the United States Court of

Appeals for the Second Circuit, Dated

March 28, 1989

Order of the United States Court of Appeals

tor the Second Circuit Denving Petitioners

Motion For Rehearing and Suggestion For

Rehearing In Banc, Dated May 9. 1989

Opinion of the United States District Court

tor the District of Connecticut. Dated Apri!

$; JOSS

eee

Gilmer v. Interstate Securities Corp., No. C-

C-88-0396-M (W.D.N.C. Jan. 17, 1989), appeal

pending, No. 88 1796 (4th Cir. 1989)

Gorinsky v. Bear, Stearns ¢> Co., No. 89 Civ. 1224

(MBM) (S.D.N.Y. May 2, 1989) (Lexis, Fedsec

library, Courts file) . .

lacono v. Drexel BurnhamsLambert, Inc..

No. 88-0686 L (D.R.I. June 8, 1989) (Lexis,

Fedsec library, Courts file)

Jones v. Baskin, Fiaherty, Elliot & Mannino, 670

F. Supp. 597 (W.D. Pa. 1987)

McDonald v. City of West Branch. 466 U.S. 284

(1984)

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1989)

Nicholson v. CPC Int1, Inc., 877 F.2d 221 (3d

Cir. 1989)..

Pihl v. Thomson McKinnon Securities Inc.,

No. 87-7632 (E.D. Pa. May 25, 1988) (Lexis,

Fedsec library, Courts File) .

Rodriguez De Quijas v. Shearson/American

Express, Inc., 109 S. Ct. 1917 (1959)

Rosenblum v. Drexel Burnham Lambert, Inc., TOO

F. Supp. 874 (E.D. La. 1987

Shearson/American Express. Inc. v. McMahon,

482 U.S. 220 (1987)

vill

passim

Steck v. Smith Barney. Harris Upham i> Co. &t |

Fr. Supp. 943 (D.N.J. 1987 16

Steele v. L.F. Rothschild ¢> Co.. 701 F Supp 3

107 (S.D.N.Y.). appeal dismissed, 864 F.2d

2d Cir. 1988 17

Sulit v. Dean Witter Reynolds. In 847 F.2d 475

Sth Cir. 1988 passim q

Swenson v. Management Recruiters Int1. Inc... 858

F.2d 1304 (8th Cir. 1988) reh’e denied S72 9

F.2d 264 (1989 17 4

icherepin v. Knight, 389 U.S. 332 (1967 1] 4

] torl Sto lt Lor UNrr , ; eer ie - erids 9

lutea Stee workers DD. YYATTIOT < Crlil Va LOG On a}

36.3 U.S. 574 (1960 12 '

tley v. Goldman, Sachs ¢> Coe., 49 Empl. Prac

Ty ’ ‘ 5 _ 7 1 {

Dec. (CCH) 4 95,/01 (D. Mass. Jan. 17, 1989 .

appeal pending, No. 89-1218 (lst Cir. 1989 17 a

r Bi > — ~ ; R

LK { Swan $46 U.S 12 LIDS LU

Statutes and Regulations A

\ge Discrimination in Emplovment Act of 1967 ;

29 U.S.C. § 62] et seq. (1982 Lf a

ivil Rights Act of 1871, 42 U.S.C. § 1983 (1982 |]

a% 1 . 1 1 4 rsa] 4 ‘

Civil Rights Act of 1964. Title VII. 42 US :

2000e et seq. (1982 } 10 1

mplovee Retirement Income Security Act of

1974, 29 U.S.C. § 1001 et seg. (1982 2

29 U.S.C.

29 U.S.C. § 1104

1OO0l(b)...

99 U.S.C. § 1132(a) ......---

99 U.S.C. § 1132(e) ..

99 U.S.C. §

99 US.C. § 1144(d)........-.

Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1982)

ST?

—

(oN)

fa)

Sa Ed ek: Reiger ere are

Fair Labor Standards Act, 29

(1982) .

USA.

201 et seq.

Minnesota Human Rights Act, Minn. Stat

& oo Bee pope ey

New York Human Rizhts Law,

Racketeer Influenced and Corrupt Organizations

296...

Act. 18 U.S.C. § 1961 et seq. (1982) . .

Securities Act of 1933, 15 U.S.C. § 77a et seq. (1982)

Sec. 12(2), 15 U.S.C. § 771(2)..

Securities Exchange Act of 1934, 15 U.S.C. §

et seq. (1962) .....-.-.

Sec. 10(b), 15 U.S.C. § 78j(b)

Sec.

19, 18 USC. § 75s

10a

WwW

ROS

Page

Securities and Exchange Commission Rule 10b-5,

Iv CIR. (5 20 a ee es. ae 4

28 USC. § 19540) (G69) ................. 2

Articles

Shell, ERISA and Other Federal Employment

Statutes: When is Commercial Arbitration an

“Adequate Substitute” for the Courts?, 68 Tex.

L. Rev. No. 3 (forthcoming Feb. 1990) ........ 9, 12

Other Materials

Annual Report of the Director of the

Administrative Office of the United States

ek se 19

Annual Report of the Director of the

Administrative Office of the United States

oe ee eee 18, 19

Brief for Respondents, Shearson/Am»rican Express,

Inc. v. McMahon, 482 U.S. 220 (1987) ........ 1]

Petition for Writ of Certiorari, Management

Recruiters Intl, Inc. v. Swenson. No. 89-42

(Se eM es. dw. oe cucu eee. wy

Speech by Chief Justice Warren E. Burger-to the

American Arbitration Association and the

Minnesota Bar Association on August 31, 1985.

reported by UPI, August 31, 1985............. 18

Speech by Chief Justice Warren E. Burger at New

York University on March 18, 1982, reported in

the Christian Science Monitor, November 24.

eee kkk 18

STATUTORY PROVISIONS INVOLVED*

United States Arbitration Act

Section 2, 9 U.S.C. § 2

Section 3, 9 U.S.C. § 3

Employee Retirement Income Security Act

29 U.S.C. § 1001(b)

29 U.S.C. § 1104

29 U.S.C..§ 1132

29 U.S.C. § 1144

* The text of these provisions is reproduced in full at Appendix A hereto.

xii

No.

IN THE

Supreme Court of the United States

OcroBeER TERM, 1989

SHEARSON LEHMAN/AMERICAN Express INC. and

RAYMOND R. CLEMENTS.

Petitioners,

FRANK L. Birp, Trustee of the FRANK L. Birp

PROFIT SHARING Trust, FRANK L. Bip, Individually,

and JOAN SHEA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioners Shearson Lehman/American Express Inc. (“Shear-

son”) and Raymond R. Clements, defendants below, respectfully

pray that a writ of certiorari issue to review the judgment of

the United States Court of Appeals for the Second Circuit,

entered on March 28, 1989, which affirmed an order of the

United States District Court for the District of Connecticut dated

April 4, 1988. The Second Circuit denied petitioners’ motion

for rehearing and suggestion for rehearing in banc by order dated

May 9, 1989. “2

The district court partially enforced the agreement of the par-

ties to arbitrate their disputes arising from their customer-broker

relationship. The district court ordered the parties to arbitrate

respondents’ claim asserted under § 10(b) of the Securities Ex-

change Act of 1934, 15 U.S.C. § 78a et seq. (1982) (the “Exchange

Act”), but refused to enforce the parties’ arbitration agreement

with respect to respondents’ claim asserted under the Employee

Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et

seq. (1982) (“ERISA”).

The Second Circuit affirmed the district court’s order en-

forcing the parties’ agreement to arbitrate their § 10(b) dispute

based on the Court’s opinion in Shearson/Amencan Express, Inc.

v. McMahon, 482 U.S. 220 (1987). The Second Circuit, in a di-

vided opinion, also affirmed the district court’s order which

declined to enforce the parties’ agreement to arbitrate their

ERISA dispute, and held that Congress intended to prohibit the

enforcement of such an agreement. See Bird v. Shearson

Lehman/American Express, Inc., 817 F.2d 292 (2d Cir. 1989).

OPINIONS BELOW

The opinion of the United States Court of Appeals for the

Second Circuit is reported at 871 F.2d 292, and is reproduced

at Appendix B hereto. The order of the court of appeals deny-

ing petitioners’ motion for rehearing and suggestion for rehearing

in banc is unreported but is reproduced at Appendix C hereto.

The opinion of the United States District Court for the District

of Connecticut is unreported but is reproduced at Appendix D

hereto.

JURISDICTION

The judgment of the court of appeals was entered on March

28, 1989 and is reproduced at Appendix E hereto. The Court

has jurisdiction pursuant to 28 U.S.C. § 1254(1) (1982).

STATEMENT OF THE CASE

Respondent Frank L. Bird, the trustee as well as a participant

and a beneficiary of the Frank L. Bird Profit Sharing Trust (the

“Trust”), opened a securities account on behalf of the Trust in

or around July 1984 with Mr. Clements, a former Shearson

registered representative, in a Shearson branch office located

in Boston, Massachusetts. At or around the time Mr. Bird opened

the securities account for the Trust, he executed a Customer's

Agreement with Shearson in his capacity as trustee. The

Customer’s Agreement defines the terms and conditions of the

parties’ business relationship and includes their agreement to

arbitrate any controversy relating to the Trust's securities ac-

count at one of three designated self-regulatory organization

(“SRO”) arbitration forums':

Unless unenforceable due to federal or state law, any

controversy arising out of or relating to [the Trust's]

acccunts, to transactions with [Shearson] for [the

Trust] or to this agreement or the breach thereof, shall

be settled by arbitration in accordance with the rules

then in effect, of the National Association of Securities

Dealers, Inc. or the Boards of Directors of the New

York Stock Exchange, Inc. and/or the American Stock

Exchange, Inc. as [the Trust] may elect.

Respondents filed a complaint against Shearson and Mr.

Clements in the United States District Court for the District

of Connecticut on or around July 21, 1987. The complaint alleges

that from July 1984 through May 1986. petitioners traded the

Trust account excessively and inappropriately in light of the

Trust's investment objectives. The complaint alleges that this

conduct constitutes: (a) a breach of fiduciary duties under

ERISA, 29 U.S.C. § 1104; (b) a violation of § 10(b) of the Ex-

change Act, 15 U.S.C. § 78j(b), and Securities and Exchange

' The SROs are all overseen by the Securities and Exchange Commission. See

§ 19 of the Exchange Act, 15 U.S.C. § 78s. The Court in McMahon examined

the SRO arbitration forums and found them to be fair. efficient and fully

capable of resolving statutory disputes.

Commission Rule 10b-5 promulgated thereunder, 17 C.F.R.

§ 240-10b-5; (c) a violation of various provisions of the Connec-

ticut General Statutes; and (d) a violation of various provisions

of the Massachusetts Laws.

Respondents filed a motion for leave to file an amended com-

plaint which the district court granted on September 29, 1987.

The district court subsequently dismissed certain state law claims

of respondents, and respondents voluntarily withdrew their re-

maining state law claims.

Shearson and Mr. Clements filed a motion in the district court

on or around August 17, 1987 for an order enforcing the arbitra-

tion agreements entered into by the parties pursuant to § 3 of

the Federal Arbitration Act. 9 U.S.C. § 1 et seq. (1982). The

district court issued a bench ruling on April 4, 1988 which held,

in the first instance, that the parties’ arbitration agreement is

valid. and further held that respondents’ § 10(b) claim must be

resolved by arbitration in accordance with the Court’s opinion

in McMahon. The court, however, refused to enforce the par-

ties’ arbitration agreement with respect to respondents ERISA

claim, citing as supporting authority cases that were decided

prior to the Court's opinions in Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), McMahon, and

Rodriquez De Quiias v. Shearson/American Express, Inc., 109

S. Ct. 1917 (1989). The district court also relied on ERISA’s policy

of providing ERISA plaintiffs with “ready access” to the federal

courts through ERISA’s exclusive jurisdiction provision and its

liberal rules governing service of process, venue, attorneys fees

and statutes of limitations. See 29 U.S.C. §$§ 1001(b), 1132(e).

Finally, the district court cited as authority the Second Circuit's

opinion in American Safety Equip. Corp. v. J. P. Maguire &

Co.. 391 F.2d 821 (2d Cir. 1968) (antitrust claims nonarbitrable)

and the Court's opinion in Alexander v. Gardner-Denver Co..

415 U.S. 36 (1974) (arbitration held under a collective bargain-

ing agreement does not preclude subsequent federal action under

Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000 et

seq. (1982)). See Appendix D at A-23-24.

Petitioners filed an appeal with the court of appeals to review

the district court’s denial of their motion to compel arbitration

of the ERISA claim. A divided court of appeals affirmed this

portion of the district court’s opinion on March 28, 1989 and

ruled that Congress intended to prohibit enforcement of an

agreement to arbitrate an ERISA claim. See Bird v. Shearson

Lehman/merican Express, Inc., 817 F.2d at 295-98. The court

of appeals, in its de novo review of the district court’s order,

also found that a valid arbitration agreement exists between the

parties and affirmed the district court’s order compelling ar-

bitration of the parties’ § 10(b) dispute. Jd. at 294-95. Petitioners

filed a petition with the court of appeals for rehearing and sug-

gestion for rehearing in banc. The court denied rehearing in

an opinion dated May 9, 1989 from which Judge Cardamone

dissented. See Appendix C.

REASONS FOR GRANTING THE WRIT

The Court should grant the writ in this case to resolve the

significant and fully developed conflict among the Circuit Courts

of Appeals over the enforceability of agreements to arbitrate

ERISA claims, as well as to assist the lower courts in determin-

ing whether to enforce agreements to arbitrate claims asserted

under other statutes which have not been addressed by the

Court.

The refusal of the Second Circuit to enforce the agreement

of the parties to arbitrate their ERISA dispute follows the holding

of the Third Circuit in Barrowclough v. Kidder Peabody & Co.,

752 F.2d 923 (3d Cir. 1985) and directly conflicts with both the

Eighth Circuit’s ruling in Sudit v. Dean Witter Reynolds, Inc..,

847 F.2d 475 (8th Cir! 1988) and the Court’s modern commer-

cial arbitration jurisprudence. The Court has attempted in

numerous cases to eliminate the judiciary’s long-standing hostili-

tv towards arbitration in furtherance of congressional intent

underlying the Federal Arbitration Act, and, has in recent years,

enforced agreements of parties to arbitrate claims asserted under

the federal antitrust laws, the federal securities laws and the

Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.

§ 1961 et seq. (1982) (“RICO”). The Court has categorically re-

jected the assumption that arbitrators are not capable of en-

forcing rights afforded and obligations imposed by statutes:

rather, it assumes that an arbitration forum is capable of resolv-

ing statutory claims and has placed a burden on a party oppos-

ing arbitration to rebut this assumption by affirmatively show-

ing that Congress intended to prohibit the enforcement of an

agreement to arbitrate the particular statutory claim at issue.

See McMahon, 482 U.S. at 226-27 (citing Dean Witter Reynolds

Inc. v. Byrd, 470 U.S. 213, 217 (1985): Mitsubishi, 473 U.S. at

628, 632-37).

The Second Circuit's refusal to enforce the parties’ agreement

to arbitrate their ERISA dispute was based on various provi-

sions of ERISA which the Court has rejected as evidencing con-

gressional intent to prohibit arbitration of any statute. The

Second Circuit expressly chose to ignore the Court's pro-

nouncements in Mitsubishi, McMahon and Rodriguez. Instead

it followed the Third Circuit’s outdated opinion in Barrowclough

which mistakenly relies on the Court’s labor arbitration

jurisprudence in Alexander v. Gardner-Denver Cc., 415 U.S.

36 (1974), Barrentine v. Arkansas-Best Freight Sys., Inc., 450

U.S. 728 (1981), and McDonald v. City of West Branch, 466 U.S.

284 (1984), notwithstanding the fact that these cases are

unrelated to commercial arbitration or to the Federal Arbitra-

tion Act. The Second Circuit's opinion is premised solely on an

outdated judicial hostility to arbitration and not on any

cognizable evidence of congressional! intent to prohibit arbitra-

tion of EiuISA disputes. As the dissenting opinion acknowledged:

In the final analysis, what remains of my colleagues’

underlying premise must be that Congress could not

have envisioned arbitration of ERISA’s remedial

statutory rights because arbitrators are not up to the

task. Yet, that assumption appears untenable See

McMahon, 107 S. Ct. at 2340; Mitsubishi, 473 U.S.

at 633 : [Byrd); Moses H. Cone Memorial Hosp.

[v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983) ]

Bird, 871 F.2d at 300 (Cardamone. ].. dissenting).

The Eighth Circuit in Sulit. contrary to the Second and Third

Circuits, follows the Court's modern commercial arbitration

precedents and has enforced agreements to arbitrate ERISA

disputes:

We recognize McMahon is not an ERISA-based case.

Even so, following the Court's analytical approach to

agreements providing for arbitration of statutory

claims, we believe the parties agreements to arbitrate

ERISA claims are “enforce[able}.. .in accord with the

explicic provisions of the Arbitration Act.”

Sulit, 847 F.2d at 477 (citing McMahon).

The conflict among the circuits is fully developed. Courts

either apply the Court's rationale in Mitsubishi, McMahon. and

Rodriguez to the ERISA statute and enforce valid agreements

to arbitrate ERISA disputes — consistent with every statute the

Court has ever analyzed under the Federal Arbitration Act —

or they refuse to enforce agreements of parties to arbitrate ERISA

disputes based on an unsubstantiated mistrust of arbitration re-

jected by the Court. Only this Court can resolve the conflict

and prevent unnecessary and time-consuming litigation over this

issue, and petitioners respectfully suggest that it do so in this

case. Should certiorari not be granted, the lower courts will con-

tinue to be burdened with motions to compel arbitration and

lawsuits involving ERISA that should be resolved by arbitra-

tion, which will increase congestion in the already overcrowded

federai court system and continue to result in the inconsistent

treatment of this issue.

Furthermore, the significance of the Second and Third Cir-

cuits’ misapplication of the Court's labor arbitration precedents

extends beyond ERISA. The rationale of these courts is iden-

tical to that of courts which refuse to enforce valid agreements

of parties to arbitrate other statutory claims. These courts refuse

to adhere to the Court's directives in Mitsubishi. McMahon and

Rodriguez and instead rely on its opinions in Alexander.

Barrentine and McDonald, notwithstanding the fact that these

two lines of cases are clearly distinguishable. The Court applies

the former line of cases to commercial arbitration under the

Federal Arbitration Act and the latter to labor arbitration under

a collective bargaining agreement. Should the Court grant cer-

tiorari to resolve the conflict among the circuits as to the en-

forceability of agreements to arbitrate ERISA disputes, it will

also have the opportunity — if it so chooses — to clarify the distinc-

tions between its commercial and labor arbitration precedents.

This would eliminate the need for the Court to continuously

resolve, on a case-by-case basis, the enforceability of agreements

to arbitrate claims under other federal statutes, and remove even

more arbitrable cases from the dockets of the lower federa!

courts.

1. The Court Should Grant Certiorari to Resolve the Ful-

ly Developed Conflict Among the Circuit Courts of Ap-

peals Regarding the Enforceability of Agreements to Ar-

bitrate ERISA Disputes.

The enforceability of agreements to arbitrate commercial

statutory disputes pursuant to the Federal Arbitration Act has

been definitively resolved by the Court in Mitsubishi, McMahon

and Rodriguez.’ Notwithstanding this precedent, the Circuit

Courts of Appeals have rendered conflicting opinions regarding

the enforceability of agreements to arbitrate ERISA disputes.

The Third Circuit in Barrowclough and the Second Circuit in

the present case have refused to enforce agreements to arbitrate

ERISA disputes. The Eighth Circuit in Sulit has enforced

agreements to arbitrate ERISA disputes.

Those courts that refuse to enforce valid agreements of parties

to arbitrate their ERISA disputes are thwarting the principles

* See Mitsubishi (agreements to arbitrate federal antitrust law claims en-

forceable); McMahon (agreements to arbitrate claims under § 10(b) of the

Exchange Act and RICO enforceable); Rodriguez (agreements to arbitrate

claims under § 12/2) of the Securities Act of 1933, 15 USC. § 7712

enforceable)

articulated by the Court in Mitsubishi, McMahon and

Rodriguez. They are also thwarting explicit congressional in-

tent underlying ERISA. When Congress enacted ERISA, it ex-

pressly stated that it had no intent to “alter. amend, modify,

invalidate, impair, or supersede any law of the United States.”

29 U.S.C. § 1l44(d). The Federal Arbitration Act is one exam-

ple of a law not displaced by ERISA. See Rosenblum v. Drexel

Burnham Lambert, Inc., 700 F Supp. 874, 876 (E.D. La. 1987)

(“[T]he express intent of ERISA is not to prevent the applica-

tion of the arbitration act... .”)

The conflict among the circuits is fully developed. Since the

statutory text and legislative history of ERISA do not even men-

tion arbitration, courts either enforce agreements to arbitrate

ERISA disputes under the Court's modern commercial arbitra-

tion precedents or refuse to enforce such agreements due to their

mistrust of arbitration and misplaced reliance on the Court's

labor arbitration precedents.’ There are no further arguments

to be developed. Courts will continue to be burdened with un-

necessary motions to compel arbitration and lawsuits asserting

claims that should be resolved through arbitration due to the

Second and Third Circuits’ opinions. The Court should end this

waste of judicial resources by granting certiorari to review and

reverse the Second Circuit's opinion in this case and protect the

congressional policies underlying ERISA and the Arbitration Act.

' For a complete discussion of the reasons why agreements to arbitrate ERISA

disputes are enforceable under the Court's modern commercial arbitration

precedents as well as the distinctions between these cases and the Court's labor

arbitration precedents, see Shell, ERISA and Other Federal Employment

Statutes: When is Commercial Arbitration an “Adequate Substitute” for the

Courts? 68 Tex. L. Rev. No. 3 (forthcoming Feb. 1990) (hereinaft:. ‘Shell,

Commercial Arbitration”). A copy of this article has been provided to the Court

by petitioners in a Lodging submitted along with their petition for a writ of

cert.orari

A. The Second and Third Circuits Have Refused to Enforce

Private Agreements to Arbitrate ERISA Disputes Based

upon Their Erroneous Belief that Congress Intended to

Prohibit Enforcement of Such Agreements and Their

Misapplication of the Court’s Labor Arbitration

Jurisprudence.

The Second and Third Circuits have refused to enforce private

agreements to arbitrate claims based on violations of the substan-

tive statutory provisions of ERISA,* while enforcing agreements

to arbitrate claims to establish or enforce contractual rights to

benefits under ERISA, 29 U.S.C. § 1132(a). See Bird, 871 F.2d

at 298; Barrowclough, 752 F.2d at 939-41. Both circuits sup-

port their decision to treat statutorily-based ERISA claims dif-

ferently from contractually-based ERISA claims by relying on

outdated cases sucii as Wilko v. Swan, 346 U.S. 427 (1953) which

held that statutory claims are not subject to arbitration as well

as the fact that Congress provided exclusive jurisdiction in the

federal district courts to enforce statutory violations of ERISA,

29 U.S.C. § 1132(e)(1). See Bird, 871 F.2d at 297; Barrowclough,

752 F.2d at 940 ¢- n.17. The Second Circuit also supports its

finding of congressional intent to prohibit arbitration of ERISA

disputes on the remedial nature of ERISA and on various pro-

cedural provisions of ERISA.‘ Finally, both the Second and Third

Circuits rely on the Court’s opinions in Alexander, Barrentine

and McDonald, finding that the Court “reached a similar con-

clusion with regard to analogous federal protective statutes.” Bar-

rowclough, 752 F.2d at 940; Bird, 871 F.2d at 297-98. The Court

in these cases held that labor arbitration conducted pursuant

to a collective bargaining agreement does not preclude a subse-

quent federal action based on Title VII of the Civil Rights Act

‘ A claim for breach of fiduciary duties under 29 U.S.C. § 1104, such as that

asserted by respondents herein, is a statutorily-based ERISA claim as opposed

to a contractually-based ERISA claim

’ See Bird, 871 F.2d at 295, 297 (relying on ERISA’s remedial nature and its

liberal provisions governing service of process, venue, attorneys fees and statutes

of limitations as well as the lack of diversity or amount in controversy re-

quirements, many of which are attributes of all federal statutes

of 1964, 42 U.S.C. § 2000e et seg. (1982) (“Title VII”), the Fair

Labor Standards Act, 29 U.S.C. § 201 et seq. (1982) (“FLSA”),

and the Civil Rights Act of 1871 42 U.S.C. § 1983 (1982).

The Court has rejected th. Second and Third Circuits’ ra-

tionale for refusing to enforce ai agreement to arbitrate a

statutory dispute that is covered by the Federal Arbitration Act.

Specifically, the Court has unequivocaily rejected the notion that

claims premised on statutory rights cannot be resolved by ar-

bitration. See McMahon, 482 U.S. at 226. The Court has re-

jected the argument that the existence of an exclusive jurisdic-

tion provision to enforce a statute evidences congressional in-

tent to prohibit a waiver of the judicial forum to enforce rights

afforded by the statute. See McMahon (agreements to arbitrate

§ 10(b) claims enforceable notwithstanding the Exchange Act's

exclusive jurisdiction provision); Mitsubishi (agreements to ar-

bitrate federal antitrust law claims enforceable notwithstanding

the federal district court’s exclusive jurisdiction over these

statutes). The Court has also, on more than one occasion. ex-

plicitly rejected the argument that a statute’s remedial nature

is a basis to render it nonarbitrable. See McMahon, 482 U.S.

at 240-4] (RICO arbitrable despite its remedial nature); Mitsu-

bishi, 473 U.S. at 636-37 (federal arititrust laws arbitrable despite

their remedial nature); see also Bird, 871 F.2d at 299-300 (Car-

damone, J., dissenting) (criticizing majority for relying on

ERISA’s remedial nature).’ And the Court in Mitsubishi and

McMahon did not accept the argument that its opinions in Alex-

ander, Barrentine and McDonald precluded arbitration of

statutory commercial disputes covered by the Federal Arbitra-

tion Act. See Mitsubishi, 473 U.S. at 647-51 (Stevens, J., dissent-

ing) (relying on Alexander, Barrentine and McDonala): see also

Brief for Respondents, Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220 (1987) at 8. 15. 43 (relying on Alex-

ander, Barrentine and McDonald).

* The Court also rendered agreements to arbitrate claims asserted under § 10(b)

of the Exchange Act enforceable in McMahon even though it has held the Ex-

change Act to be a remedial statute. See Tcherepin v. Knight, 389 U.S. 332

1967

The reliance by the Second and Third Circuits on the Court's

labor arbitration decisions contained in Alexander, Barrentine

and McDonald is misplaced and frustrates the Court’s attempt

to treat labor arbitration under a collective bargaining agree-

ment differently than commercial arbitration under the Federal

Arbitration Act. The Court has never relied on its labor arbitra-

tion precedents in analyzing whether the Federal Arbitration

Act mandates enforcement of an agreement to arbitrate a

statutory dispute. See Shell, Commercial Arbiiration at 73. The

Court has clearly articulated the vast differences between labor

and commercial arbitration. Commercial arbitration under the

Federal Arbitration Act is a form of trial wherein arbitrators

act as fact finders and judges. See Shell, Commercial Arbitra-

tion at 3-4.

In contrast, the Court has recognized that labor arbitration

under a collective bargaining agreement is a specialized form

of dispute resolution that involves considerations that are not

present in commercial arbitration under the Federal Arbitra-

tion Act:

Labor arbitration is at the very heart of the system

of industrial self-government. The processing of

disputes through the grievance machinery is actually

a vehicle by which meaning and content are given to

the collective bargaining agreement.

United Steelworkers v. Warrior <> Gulf Navigation Co., 363 U.S.

574, 581 (1960).

The collective bargaining agreements in the Court’s labor ar-

bitraticn cases restricted the power of the arbitrators by limiting

them to the resolution of contractual issues through the inter-

pretation of the collective bargaining agreements. These col-

lective bargaining agreements prohibited the arbitrators from

addressing statutory issues; in fact, any award which addressed

statutory issues would be subject to avoidance because the ar-

bitrator exceeded his authority. See Alexander, 415 U.S. at 53-54:

Barrentine, 450 U.S. at 744-45; McDonald, 466 U.S. at 291. As

the Court described in Alexander, the labor arbitrator's

special role is to interpret and apply a collective bargaining

agreement in accordance with the intent of the parties and the

“industrial common law of the shop,” rather than the re-

quirements of a statute. “Where the collective-bargaining agree-

ment conflicts with [a statute], the arbitrator must follow the

agreement.” Alexander, 415 U.S. at 53, 56-57. Unlike the strict

limitations placed on labor arbitrators, commercial arbitrators

have the authority to enforce statutory rights and they are ful-

ly capable of doing so. This is a primary reason why the Court

enforced the agreements to arbitrate the statutory disputes in-

volved in Mitsubishi, McMahon and Rodriguez.

Labor arbitration is also treated differently by the Court than

commercial arbitration because a union exclusively controls the

manner and extent to which an individual grievance is presented.

Alexander, 415 U.S. at 58 n.19. The interests of an individual

employee, therefore, may conflict with or be subordinated to

the collective interests of all empioyees covered by the agree-

ment. Jd. In commercial arbitration, private agreements to ar-

bitrate disputes are entered into by an individual who can pur-

sue his own claim and protect his personal interests.

These are the primary reasons why Alexander, Barrentine and

McDonald are clearly inapposite to the present case, were not

relied on by the Court in Mitsubishi, McMahon and Rodriguez,

and should not have been relied on by the Second and Third

Circuits. Moreover, the Alexander line of cases, unlike the pre-

sent case, does not analyze or even mention the Federal Arbitra-

tion Act, which even the Second Circuit recognizes involves an

analysis of ERISA to ascertain whether Congress intended to

exempt ERISA from the Federal Arbitration Act. Unlike the

Second and Third Circuits, the Eighth Circuit in Sulit did not

rely on these cases in rendering agreements to arbitrate ERISA

disputes enforceable under the Federal Arbitration Act. The

Eighth Circuit relied on Mitsubishi and McMahon. See Sulit.

847 F.2d at 477-79. Petitioners presented these arguments to

the Second Circuit which chose not to rely on Mitsubishi and

McMahon, but chose to rely on the Third Circuit's outdated opi-

nion in Barrowclough.

The Court has clearly rejected the underpinnings of the Sec-

ond and Third Circuits’ holding that agreements to arbitrate

ERISA disputes are unenforceable. The Second and Third Cir-

cuits are simply out of step with the Court’s modern commer-

cial arbitration jurisprudence:

[The court’s] finding of Congressional design is un-

supported by [its] citations to ERISA’s text or its

legislative history--neither source even mentions ar-

bitration. Further, it defies the Supreme Court’s pro-

nouncement that our “duty to enforce arbitration

agreements is not diminished when a party bound by

an agreement raises a claim founded on statutory

rights.”

Bird, 871 F.2d at 299 (Cardamone, J., dissenting) (citing

McMahon) (emphasis in original). The Court should grant cer-

tiorari to review and reverse the Second Circuit’s opinion and

remove the possibility that other courts will rely on it.

B. The Eighth Circuit Has Enforced Agreements to Ar-

bitrate ERISA Disputes in: Accordance with Recent Deci-

sions of the Court That Uphold Private Agreements to

Arbitrate Commercial Statutory Disputes Pursuant to

the Federal Arbitration Act.

The Eighth Circuit in Sulit has enforced agreements to ar-

bitrate ERISA disputes. In so doing, it articulated and proper-

ly applied the Court's test for construing the arbitrability of a

statute by scrutinizing the statutory language and legislative

history of ERISA and finding ERISA devoid of any evidence of

congressional intent to prohibit enforcement of agreements to

arbitrate disputes under the statute. The Eighth Circuit found

no conflict between arbitration of ERISA claims and the statute's

purposes that would undermine the suitability of arbitration

to enforce ERISA rights, and further found arbitrators to be

“readily capable” of resolving ERISA disputes. Sulit, 847 F.2d

at 479.

The Second Circuit was fully aware of the Eighth Circuit’s

opinion in Sulit and explicitly disagreed with it, choosing in-

stead to rely on the Third Circuit’s outdated opinion in Bar-

rowclough. See Bird, 871 F.2d at 298 n.8. The result is a clear

and direct conflict among the circuits, all of which have reviewed

the same legal arguments. This conflict is mirrored by a con-

flict among the district courts on the issue. See Rosenblum, 700

F. Supp. at 876-77 (agreements to arbitrate ERISA claims en-

forceable); Iacono v. Drexel Burnham Lambert, Inc., No.

88-0686 L (D.R.I. June 8, 1989)(Lexis, Fedsec library, Courts

file)(ERISA claim ordered to arbitration); but see Gorinsky v.

Bear, Stearns & Co., No. 89 Civ. 1224 (MBM)(S.D.N.Y. May 2,

1989) (Lexis, Fedsec library, Courts file)(agreements to arbitrate

statutory violations of ERISA unenforceable based on Bird).

The Court should grant certiorari to review and reverse the

Second Circuit’s opinion in the present case and resolve the

significant conflict among the Circuit Courts of Appeals in a

manner consistent with the Court’s arbitration precedents.

II. Should the Court Grant Certiorari to Resolve the Con-

flict Regarding the Arbitrability of ERISA Disputes, It

Will Also Have the Opportunity to Clarify the Distinc-

tions Between Its Commercial and Labor Arbitration

Precedents and Avoid the Need to Address the Arbitra-

bility of Other Federal Statutes on a Case-By-Case Basis.

The Court has the opportunity in the present case to resolve

an additional conflict among the Circuit Courts of Appeals apart

from the conflict surrounding the enforceability of agreements

to arbitrate ERISA disputes. In addition to the conflict among

the circuits regarding the applicability of the Court’s labor ar-

bitration cases to the enforceability of agreements to arbitrate

ERISA disputes, the lower courts are divided as to the ap-

plicability of these cases to other statutory disputes that are the

subject of commercial arbitration agreements.’ The lower federal

courts, for example, have rendered conflicting opinions as to

whether the Court’s labor arbitration cases preclude enforce-

ment of private commercial agreements to arbitrate disputes

under the Age Discrimination in Employment Act of 1967, 29

U.S.C.§ 621 et seg. (1982)(“ADEA”) which are subject to the

Federal Arbitration Act and do not involve labor arbitration held

under a collective bargaining agreement.* Courts have also

reached conflicting opinions regarding the enforceability

’ Should the Court grant certiorari in the present case to resolve the conflict

among the circuits surrounding the enforceability of agreements to arbitrate

ERISA disputes, it does not have to resolve the broader issue regarding the

applicability of its labor arbitration precedents to agreements to arbitrate other

‘tatutory disputes covered by the Federal Arbitration Act, although petitioners

respectfully suggest that it do so.

* See Nicholson v. CPC Int, Inc., 877 F.2d 221 (3d Cir. 1989)(ADEA claims

nonarbitrable in a non-collective bargaining setting); ste also Burte v. Shear-

son Lehman/American Express, Inc., No. 86 Civ. 2392 (VLB) (S.D.N.Y. May

3, 1989), appeal pending, No. 89-7554 (2d Cir. 1989); Steck v. Smith Barney,

Harris Upham & Co., 661 F. Supp. 543 (D.N.J. 1987); Gilmer v. Interstate

Securities Corp., No. C-C-88-0396-M (W.D.N.C. Jan. 17, 1989), appeal pend-

ing, No. 88-1796 (4th Cir. 1989); Jones v. Baskin, Flaherty, Elliot & Mannino,

(footnote continued)

of agreements to arbitrate other statutes in light of the Court's

labor arbitration cases.’

The conflict among the circuits regarding the proper applica-

tion of the Court’s labor arbitration precedents is clear, direct and

fully developed. Courts either strictly apply this line of cases to

labor arbitration held under a collective bargaining agreement or

apply it to any agreement to arbitrate a statutory dispute, includ-

ing private agreements under the Federal Arbitration Act which

are governed by the Court’s commercial arbitration precedents.”

(footnote continued)

670 F. Supp. 597, 604 (W.D. Pa. 1987); but see Pihl v. Thomson McKinnon

Securities Inc., No. 87-7632 (E.D. Pa. May 25, 1988) (Lexis, Fedsec library,

Courts file) (ADEA claims arbitrable in non-collective bargaining setting under

Federal Arbitration Act and McMahon); Garfield v. Thomson McKinnon

Securities, Inc., No. 88 C 3027 (N.D. Ill. Dec. 16, 1988); Nicholson, 877 F.2d

221 (3d Cir. 1989) (Becker, J., dissenting).

* See Swenson v. Management Recruiters Int1, Inc., 858 F.2d 1304 (8th Cir.

1988), reh'g denied, 872 F.2d 264 (1989) (Alexander, Barrentine and McDonald

render Title VII and Minnesota Human Rights Act claims outside collective

bargaining setting nonarbitrable); see also Utley v. Goldman, Sachs ¢ Co..

49 Empl. Prac. Dec. (CCH) 4 38,701 (D. Mass. Jan. 17, 1989), appeai pen-

ding, No. 89-1218 (1st Cir. 1989) (Title VII claims subject to Federal Arbitra-

tion Act in non-collective bargaining setting nonarbitrable); Alford v. Dean

Witter Reynolds, Inc., 712 F. Supp. 547 (S.D. Tex. 1989) (Swenson rationale

“ollowed and Title VII claims nonarbitrable in non-collective bargaining set-

ting despite Mitsubishi and McMahon rationale); DeScpio v. Josephthal ¢

Co., 540 N.Y.S.2d 932 (1988) (followed Alexander and Swenson in holding

claims under § 296 of the New York Human Rights Law nonarbitrable in non-

collective bargaining setting, rejecting Mitsubishi and McMahon); but see

Steele v. L.F. Rothschild & Co., 701 F. Supp. 407 (S.D.N.Y.), appeal dismissed,

864 F.2d 1 (2d Cir. 1988) (claims under the FLSA arbitrable under Mitsubishi.

McMahon and Federal Arbitration Act, rejecting Barrentine’s applicability

in non-collective bargaining setting); Bruno v. Prudential-Bache Securities

Inc., No. E005087 (Cal. Ct. App. Nov. 28, 1988) (state law claims of sexual

discrimination arbitrable under Federal Arbitration Act in non-collective

bargaining setting).

The Court has been asked in another case to resolve the issue of whether the

Federal Arbitration Act applies to claims under Title VII and the Minr.esota

Human Rights Act, Minn. Stat. § 363.06, when an arbitration agreement is not

contained in a collective bargaining agreement. See Petition for Writ of Certio-

rari, Management Recruiters Int1, Inc. v. Swenson, No. 89-42 (July 10, 1989).

Should the Court grant certiorari in this case, it can guide

the lower courts as to the proper application of its commercial

arbitration precedents and its labor arbitration precedents to

statutory disputes, and thereby foreclose continued unnecessary

litigation on this issue” Once the lower courts receive such

guidance from the Court, the Court will no longer have to ad-

dress the arbitrability of other federal statutes on a case-by-case

basis. Furthermore, arbitrable cases involving this issue will be

removed from the overcrowded dockets of the lower courts as

those courts enforce valid agreements of parties to arbitrate their

statutory disputes.

III. The Issues Presented to the Court Require Early Resolu-

tion to Avoid Increased Congestion and Provide Uni-

formity Throughout the Lower Courts as well as to Avoid

Duplicative Proceedings Between Parties to a Dispute.

The enforceability of agreements to arbitrate ERISA disputes

will continue to be the subject of motion and appellate prac-

tice consuming unnecessary amounts of judicial resources until

it is resolved by the Court. The lower courts are already con-

gested, and this congestion is one of the most serious problems

facing the federal judiciary today.” The Administrative Office

of the United States Courts reported that 239,634 total civil cases

and 43,503 total criminal cases were commenced in 1988 alone.

See Annual Report of the Director of the Administrative Office

of the United States Courts (1988) at 12, 17.

" Petitioners do not suggest that the Alexander line of cases be overruled. Peti-

tioners recognize that these cases govern labor arbitration held under a col-

lective bargaining agreement, and merely request that the Court clarify the

applicability of these cases to private commercial agreements to arbitrate

disputes under the Federal Arbitration Act in a non-collective bargaining

setting.

* See Speech by Chief Justice Warren E. Burger to the American Arbitration

Association and the Minnesota Bar Association on August 31, 1985, reported

by UPI on the same date; Speech by Chief Justice Warren E. Burger at New

York University on November 18, 1982, reported in the Christian Science

Monitor on November 24, 1982.

There were a total of 6,704 ERISA suits in 1988. Id. at 10.

The Director of the Administrative Office of the United States

Courts reported that the filings of ERISA suits in 1988

represented a “notable increase” of 625 cases from 1987 when

6,079 ERISA suits were filed.” Id. Additionally, there are millions

of ERISA accounts maintained with brokerage firms nationwide.

The Second and Third Circuits’ opinions leave open the poten-

tial for suits premised on losses occuring in any of these accounts

to serve as the basis for a federal court action. It makes little

sense to have the federal courts, whose dockets are already overly

crowded, resolve disputes of parties who have agreed to arbitrate

at a forum which the Court in McMahon has already ruled vo

be fully capable of resolving statutory disputes.

An express declaration by the Court that its modern commer-

cial arbitration jurisprudence mandates enforcement of private

agreements to arbitrate ERISA disputes will eliminate another

source of waste —the maintenance of duplicative proceedings

in separate forums. The Court’s opinions in Byrd, McMahon

and Rodriguez require courts to enforce agreements of parties

to arbitrate claims asserted under state and common law, the

federal securities laws and RICO. Those courts that refuse to

enforce agreements of parties to arbitrate an ERISA claim

asserted in the same lawsuit as these other claims will require

parties to litigate the ERISA claim in court while simultaneously

arbitrating the other claims, even Jiough arbitrators are fully

capable of resolving ERISA disputes:

We do not find either in the purposes of the statute

or in [McMahon] a compelling basis to treat

® ERISA disputes filed in the district courts number approximately twice the

amount of federal securities law disputes that were filed in 1987 and i988.

In 1987, a total of 2,844 “Securities, Commodities, and Exchange” private

civil actions were filed in the district courts during the twelve month period

ended June 30, 1987. See Annual Report of the Director of the Administrative

Office of the United States Courts, Table C2 (1987). A total of 2,439 similar

suits were filed in the district courts during the twelve month period ended

June 30, 1988. See Annual Report of the Director of the Administrative Of-

fice of the United States Courts, Table C2 (1988).

agreements to arbitrate - RISA claims differently from

those cases in which the Supreme Court has enforced

agreements made between private parties to arbitrate

antitrust, Exchange Act, and RICO claims. Like other

essentially fact-based claims for fiduciary mismanage-

ment, we believe arbitrators “are readily capable of

handling the factual and legal complexities” of ERISA

claims, see [McMahon], and that those claims are not

by their nature beyond the ken of arbitrators.

Sulit, 847 F.2d at 479. When all of these claims are based on

the same underlying factual allegations, these types of parallel

and duplicative proceedings are extremely wasteful. The pre-

sent case is illustrative. Under the Second Circuit's opinion, the

parties must litigate their ERISA dispute in court while

simultaneously resolving their § 10(b) dispute in an arbitration

forum even though both claims are premised on respondents’

assertion that petitioners entered into excessive, unauthorized

and unsuitable transactions for the Trust account.

Only explicit congressional intent should prohibit enforcement

of an agreement to arbitrate a statutory dispute and require the

expenditure of the time and resources required by litigation in

a judicial forum. The Second and Third Circuits have failed

to rely on any such intent. The Court should grant certiorari

and direct the lower courts to apply its modern commercial ar-

bitration jurisprudence to ERISA, thereby rendering agreements

to arbitrate ERISA disputes enforceable and removing these cases

from the federal court dockets. Should the Court clarify the

distinctions between its labor arbitration precedents and its com-

mercial arbitration precedents, the impact of its decision will

extend beyond ERISA and result in even more arbitrable cases

being removed from the dockets of the courts.

CONCLUSION

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APPENDIX a

STATUTORY PROVISIONS INVOLVED

United States Arbitration Act

9 U.S.C. § 2:

A written provision in any maritime transaction or

a contract evidencing a transaction involving com-

merce to settle by arbitration a controversy thereafter

arising out of such contract or transaction, or the

refusal to perform the whole or any part thereof, or

an agreement in writing to submit to arbitration an

existing controversy arising out of such a contract,

transaction, or refusal, shall be valid, irrevocable and

enforceable, save upon such grounds as exist at law

or in equity for the revocation of any contract.

9° U.S.C, § 3:

If any suit or proceeding be brought in any of the

courts of the United States upon any issue referable

to arbitration under an agreement in writing for such

arbitration, the court in which such suit is pending,

upon being satisfied that the issue involved in such

suit or proceeding is referable to arbitration under

such an agreement, shall on application of one of the

parties stay the trial of the action unti! such arbitra-

tion has been had in accordance with the terms of the

agreement, provicling the applicant for the stay is not

in default in proceeding with such arbitration.

A-l

Employee Retirement Income Security Act

29 U.S.C. § 1001. Congressional findings and declaration of policy

(b) Protection of interstate commerce and beneficiaries by

requiring disclosure and reporting, setting standards

of conduct, etc., for fiduciaries

It is hereby declared to be the policy of this chapter to pro-

tect interstate commerce and the interests of participants in

employee benefit plans and their beneficiaries, by requiring the

disclosure and reporting to participants and beneficiaries of

financial and other information with respect thereto, by

establishing standards of conduct, responsibility, and obligation

for fiduciaries of employee benefit plans, and by providing for

appropriate remedies, sanctions, and ready access to the Federal

courts.

29 U.S.C. § 1104. Fiduciary duties

(a) Prudent man standard of care

(1) Subject to sections 1103(c) and (d), 1342, and 1344 of this

title, a fiduciary shall discharge his duties with respect to a plan

solely in the interest of the participants and beneficiaries and —

(A) for the exclusive purpose of:

(i) providing benefits to participants and

their beneficiaries; and

(ii) defraying reasonable expenses of ad-

ministering the plan;

(B) with the care, skill, prudence, and diligence

under the circumstances then prevailing that a pru-

dent man acting in a like capacity and familiar with

such matters would use in the conduct of an enter-

prise of a like character and with like aims;

as to minimize the risk of large losses, unless under

the circumstances it is clearly prudent not to do so; and

(D) in accordance with the documents and in-

struments governing the plan insofar as such

documents and instruments are consistent with the

provisions of this subchapter or subchapter III of this

chapter.

(2) In the case of an eligible individual account plan (as de-

fined in section 1107(d)(3) of this title), the diversification re-

quirement of paragraph (1)(C) and the prudence requirement

(only to the extent that it requires diversification) of paragraph

(1)(B) is not violated by acquisition or holding of qualifying

employer real property or qualifying emplover securities (as

defined in section 1107(d)(4) and (5) of this title).

(b) Indicia of ownership of assets outside

jurisdiction of district courts

Except as authorized by the Secretary by regulation, no

fiduciary may maintain the indicia of ownership of any assets

of a plan outside the jurisdiction of the district courts of the

United States.

In the case of a pension plan which provides for individual

accounts and permits a participant or beneficiary to exercise

control over the assets in his account, if a participant or

beneficiary exercises control over the assets in his account (as

determined under regulations of the Secretary) —

(1) such participant or beneficiary shall not be

deemed to be a fiduciary by reason of such exercise.

and

(2) no person who is otherwise a fiduciary shall be

liable under this part for any loss, or by reason of any

breach, which results from such participant’s or

beneficiary’s exercise of control.

29 U.S.C. § 1132. Civil enforcement

(e) Jurisdiction

(1) Except for actions under subsection (a)(1)(B) of this sec-

tion, the district courts of the United States shall have exclusive

jurisdiction of civil actions under this subchapter brought by

the Secretary or by a participant, beneficiary, or fiduciary. State

courts of competent jurisdiction and district courts of the United

States shall have concurrent jurisdiction of actions under subsec-

tion (a)(1)(B) of this section.

(2) Where an action under this subchapter is brought in a

district court of the United States, it may be brought in the

district where the plan is administered, where the breach took

place, or where a defendant resides or may be found, and pro-

cess may be served in any other district where a defendant resides

or may be found.

29 U.S.C. § 1144. Other laws

(d) Alteration, amendment, modification, invalidation,

impairment, or supersedure of any law

of United States prohibited

Nothing in this subchapter shall be construed to alter, amend,

modify, invalidate, impair, or supersede any law of the United

States (except as provided in sections 1031 and 1137(b) of this

title) or any rule or regulation issued under any such law.

A-+

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

No. 498 August Term, 1988

(Argued February 3, i989 Decided March 28, 1989)

Docket No. 88-7704

FRANK L. BIRD, Trustee of the FRANK L. BIRD PROFIT

SHARING TRUST, FRANK L. BIRD, Individually,

and JOAN SHEA,

Plaintiffs-Appellees,

SHEARSON LEHMAN/AMERICAN EXPRESS, INC.,

and RAYMOND R. CLEMENTS,

Defendants-Appellants.

Before:

KAUFMAN, TIMB#BS, and CARDAMONE, Circuit Judges.

Appeal from an order of the United States District Court for

the District of Connecticut, Jose A. Cabranes, J., denying ap-

pellants’ motion to stay proceedings pending arbitration of ap-

pellees’ claim pursuant to the Employee Retirement Income

Security Act of 1974, 29 U.S.C. § 1001 et seq. (1985)(“ERISA’).

Affirmed.

Judge Cardamone dissents in a separate opinion.

DONALD R. HOLTMAN, Hartford, Connecticut

(Lester A. Katz, Katz & Seligman,

Hartford, Connecticut, of counsel),

for Plaintiffs-Appellees.

JEFFREY L. FRIEDMAN, New York, New York

(Theodore A. Krebsbach, Shearson

Lehman Hutton Inc., Office of the

General Counsel, New York, New York,

of counsel), for Defendants-Appellants.

KAUFMAN, Circuit Judge:

We are asked to determine whether a statutory claim created

by the Employee Retirement Income Security Act (ERISA) is

subject to compulsory arbitration. Because Congress envisioned

a judicial forum, particularly a federal court, as the central arena

for implementing ERISA’s underlying purpose — providing max-

imum protection to pension plan participants and

beneficiaries — we hold that statutory ERISA claims are not com-

pulsorily arbitrable.

Briefly, the background of this case is as follows. Appellants,

Shearson Lehman/American Express (“Shearson”)' and Raymond

Clements, a Shearson Vice President, allegedly solicited Frank

L. Bird, as trustee of the Frank L. Bird Profit Sharing Trust (the

“Trust” or “Pension Plan”), to invest the assets of the Trust with

them. Like his co-appellee, Joan Shea, Bird is also a participant

and beneficiary of the Trust. Bird claims that during the first

meeting with Clements, he emphasized that, because the Trust

was a retirement fund, its investment objectives were long-term

growth and safety of the corpus. Clements allegedly also knew

that Bird was an unsophisticated investor who would rely on

Shearson’s skill and experience in investing securities.

Upon opening the account, Bird, in his capacity as trustee,

signed Shearson’s standard “Customer’s Agreement.” The

' Now known as Shearson Lehman Hutton, Inc.

A-6

contract contained a broad arbitration clause, under which

Shearson’s clients foreswore recourse to the courts.’ Bird invested

assets of the Trust tota'ling $62,205.56. After 55 transactions over

a 22 month period, it is alleged the account entrusted to

Clements and Shearson dwindled to a value of $13,427.53. Many

of the purchases and sales, it is claimed, included high risk in-

vestments such as airline securities, warrants and options. Each

transaction generated commissions for appellants and some

yielded interest on margin advances.

Specifically, the complaint charged that appellants’ conduct

constituted a breach of fiduciary duties under ERISA, 29 U.S.C.

§ 1104, and “churning,” excess trading of an account in viola-

tion of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.

§ 78j, and Rule 10b-5, 17 C.F.R. § 240-10b-5. Instead of sub-

mitting the claims to arbitration, appellees brought this action

in the District of Connecticut.’ On the basis of the arbitration

provision, Clements and Shearson moved to stay the district court

proceedings pending arbitration of the ERISA and securities

claims.

? The provision reads:

Unless unenforceable due to federal or state law, any controversy

arising out of or relating to my accounts, to transactions with you

for me or to this agreement or the breach thereof, shall be settled

by arbitration in accordance with the rules then in effect, of the

National Association of Securities Dealers, Inc. or the Boards of

Directors of the New York Stock Exchange, Inc. and/or the

American Stock Exchange, Inc. as I may elect. If I do not make

such election by registered mail addressed to you at your main

office within 5 days after demarid by you that I make such elec-

tion, then you may make such election. Judgment upon any award

rendered by the arbitrators [sic] may be entered in any court hav-

ing jurisdictic»: thereof. This agreement to arbitrate does not apply

to any controversy with a public customer for which a remedy

may exist pursuant to an expressed or implied right of action under

certain of the federal securities laws.

' All substantive ERISA claims may be brought only in the federal district

court. 29 U.S.C. § 1132(e)(1). Suits to recover benefits due or to enforce rights

under the terms of a particular plan may also be brought in state courts. Id.

In a ruling from the bench, Judge Cabranes found that

because the arbitration clause was valid and binding upon Bird

and Shea, the claims asserted pursuant to the 1934 Act were to

be resolved by arbitration. The court determined, however, that

the arbitration provision did not obligate appellees to arbitrate

the ERISA claim.* We are of the view that claims asserting

substantive ERISA violations can be brought in a federal forum

notwithstanding an agreement to arbitrate.

Before reaching the arbitrability of ERISA claims, we con-

sider other contentions of the parties. In Genesco, Inc. v.

Kakiuchi & Co., 815 F.2d 840 (2d Cir. 1987), we set forth the

factors to be considered on an application to compel arbitra-

tion. We must determine whether a valid arbitration agreement

existed and, if so, the scope of that agreement. Jd. at 844. Then,

an assessment is made whether Congress intended the applicable

claims to be nonarbitrable. Id. If only some of the claims are

arbitrable, the court decides whether to stay the balance of the

proceedings pending arbitration. /d.

We agree with the district court’s determination that a valid

arbitration agreement which bound all the parties continued

in being. Seeking to free nonsignatories from the terms of the

customer agreement, appellees argued that Bird lacked the

authority to compel all of the participants and beneficiaries of

the Trust to abide by the arbitration clause. The court properly

noted, however, that Bird, as trustee, could bind all participants

and beneficiaries of the Trust to arbitration of “any controver-

sy arising out of or relating to” the Trust. See Barrowclough v.

Kidder, Peabody & Co., 752 F.2d 923, 938 (3d Cir. 1985); Fisser

v. Intl Bank, 282 F.2d 231, 233-234 (2d Cir. 1960).

* The issue of the compulsory arbitrability of ERISA claims is before us on

Judge Cabranes’s certification for appeal pursuant to 28 U.S.C. § 1292(b) and

Rule 5(a) of Federal Rules of Appellate Procedure. In reviewing the district

court’s order, we are not bound by the “clearly erroneous” standard of Rule

52(a) of the Federal Rules of Civil Procedure. A denial of a motion to compel

arbitration is subject to de novo review. Genesco, Inc. v. Kakiuchi & Co., 815

F.2d 840, 846 (2d Cir. 1987).

A-8

The Supreme Court recently determined that the legislative

intent underlying the Securities Exchange Act of 1934 did not

bar compulsory arbitration of securities claims pursuant to sec-

tion 10(b). Shearson Lehman/American Express v. McMahon,

482 U.S. 220 (1987). Accordingly, we affirm the district court’s

decision to compel arbitration of appellees’ securities claims.‘

We now turn to the question whether Congress intended to

afford non-waivable access to a federal court for those asserting

statutory violations of ERISA. In considering this issue, a discus-

sion of the development of arbitrability doctrine will be helpful.

Although the Federal Arbitration Act, 9 U.S.C. §§ 1-14 (1988)

(“Arbitration Act”), is “a congressional declaration of a liberal

federal policy favoring arbitration agreements,” Moses H. Cone

Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1,

24 (1983), it is, nevertheless, subject to a showing “that Con-

gress intended to preclude a waiver of judicial remedies for the

statutory rights at issue.” McMahon, 482 U.S. at 225. The ar-

bitrability of statutory claims is thus essentially a question

whether, in enacting the statute upon which the claim is based,

Congress intended the federal courts to be the exclusive forum

for resolving disputes of substantive rights.

The requisite intent “will be deducible from [the act’s] text

or legislative history,” Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth. Inc., 473 U.S. 614, 628 (1985), or “from an inherent

conflict between arbitration and the statute’s underlying pur-

poses.” McMahon, 482 U.S. at 225. The burden of demonstrating

this intent is on the party opposing arbitration. Id.

When enacting remedial legislation, Congress has limited or

prohibited waiver of a judicial forum. Most often these injunc-

tions occur in statutes designed to provide minimum substan-

tive guarantees. See. e.g., Barrentine v. Arkansas-Best Freight

* The court below also correctly determined that the final sentence of the ar-

bitration provision did not remove appellees’ securities claims from the ambit

of the agreement to arbitrate. Rather, that staterient was merely a disclosure

required by the Securities and Exchange Commission. See 17 C.F.R.

§ 240.15c2-2; Finkle and Ross v. A.G. Becker Paribas, Inc., 622 F. Supp. 1505,

1510 (S.D.N.Y. 1985).

A-9

System, 450 U.S. 728, 737 (1981). In Barrentine, the Supreme

Court conchuided that claims asserted pursuant to minimum

wage provisions of the Fair Labor Standards Act were not com-

pulsorily arbitrable and could be maintained in federal court,

notwithstanding an arbitration clause in the underlying collec-

tive bargaining agreement and an adverse ruling by a neutral

arbitrator. 450 U.S. at 728. The Court declared: “[D]ifferent

eonsiderations apply where the employee's claim is based on

rights arising out of a statute designed to provide minimum

substantive guarantees to individual workers.” Jd. at 737.

In making this statement, Justice Brennan referred to policy

considerations espoused by Justice Powell, writing for a

unanimous Court in Alexander v. Gardner-Denver Co., 415 U.S.

36 (1974). Despite an adverse arbitration decision, the Court

held an individual could bring a wrongful termination claim

under Title VII of the Civil Rights Act of 1964. Id. Justice Powell

stated: “The purposes and procedures of Title VII indicate that

Congress intended federal courts to exercise final responsibility

for enforcement of Title VII; deferral to arbitral decisions would

be inconsistent with that goal.” Jd. at 56. Indeed, he noted,

“(t]his conclusion rests first on the special role of the arbitrator,

whose task is to effectuate the intent of the parties rather than

the requirements of enacted legislation.” Jd. at 56-57. The

remedial intent of Congress tempers the right to privately order

one’s affairs.

In a more recent and unanimous pronouncement, the high

court concluded that federal courts were not to accord preclusive

effect to unappealed arbitration awards in suits brought pur-

suant to 42 U.S.C. § 1983. McDonald v. City of West Branch,

466 U.S. 284 (1984). Justice Brennan offered a partial list of con-

siderations supporting the Court’s conclusion: an arbitrator may

not possess the requisite expertise “to resolve the complex legal

questions that arise in § 1983 actions”; because an arbitrator's

authority derives solely from the contract, he may not have the

authority to enforce § 1983; when the union has control over

the grievance procedure, the interests of the union and those

of the individual emplovee may conflict; and “arbitral factfind-

ing is generally not equivalent to judicial factfinding.” Id. at

A-10

290-91. These considerations illustrate the multifaceted concerns

underlying Congress's desire to allow resolution of certain federal

substantive rights in an Article III forum.*

Prior to the establishment of ERISA, pension issues were

generally held arbitrable. See Schneider, Surviving ERISA

Preemption: Pension Arbitration in the 1980's, 16 Colum.J.L.

& Soc. Probs. 269, 276-77 (1980). But, in response to injustices

in the treatment of pension plan participants, Congress created

a federal legal remedy. The text of ERISA enumerates several

of the most prominent problems and concerns. Congress deter-

mined that:

_.. [MJany employees with long years of employment

are losing anticipated retirement benefits owing to the

lack of vesting provisions in such plans; that owing

to the inadequacy of current minimum standards, the

soundness and stability of plans with respect to ade-

quate funds to pay promised benefits may be en-

dangered; that owing to the termination of plans

before requisite funds have been accumulated,

employees and their beneficiaries have been deprived

of anticipated benefits .. .

29 U.S.C. § 1001 (a).

The source of these ills, in the statute’s words, was often “the

lack of employee information and adequate safeguards con-

cerning ... operation” of the plans. /d.

Consequently, Congress stated:

It is hereby declared to be the policy of this chapter

to protect interstate commerce and the interests of

participants in employee benefit plans and their

* Following these general principles, claims pursuant to statutes not evincing

a Congressional intent to preclude arbitration have been held compulsorily

arbitrable. See, e.g., McMahon, 482 U.S. 220 (1987) (claims under the Securities

Exchange Act of 1934 arbitrable); Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, 473 U.S. 614 (1985) (federal antitrust issues arbitrable); Dean Witter

Reynolds Inc. v. Byrd, 470 U.S. 213 (1985) (lower federal courts may not stay

arbitration pending resolution of the non-arbitrable claims by the court).

A-l]

benericiaries, by requiring the disclosure and report-

ing to participants and beneficiaries of financial and

other information with respect thereto, by establishing

standards of conduct, responsibility, and obligation

for fiduciaries of employee benefit plans, and by pro-

viding for appropriate remedies, sanctions, and ready

access to the Federal courts. [Emphasis added].

29 U.S.C. § 1001(b)(1982).

The federal courts have consistently interpreted ERISA as a

remedial statute designed to “curb the funding and disclosure

abuses of employee pension and welfare benefit plans by

establishing minimum federal standards.” Taggert Corp. v. Efros,

475 F. Supp. 124 (D. Tx. 1978). In Pompano v. Michael Schiavone

& Sons. Inc. 680 F.2d 911, 914 (2d Cir. 1982), we stated. “A

reading of the statute's legislative history compels the conclu-

sion that ERISA’s purpose is to secure guaranteed pension

payments to participants by insuring the honest administration

of financially sound plans.” See, e.g., United Ass'n of Journeymen

and Apprentices of Plumbing and Pipefitting Industry of U.S.

and Canada Local 198 AFL-CIO Pension Plan v. Myers, 488

F. Supp. 704 (M.D. La. 1980), affd, 645 F.2d 532 (5th Cir. 1981).

In addition to the panoply of substantive rights and protec-

tions, Federal court access for pension claimants and

beneficiaries was explicitly included as a key ingredient of the

solution. That Congress envisioned the federal courts as the cen-

tral forum for enforcement of the statute is the inescapable con-

clusion from the piain meaning of the wording of ERISA. Sec-

tion 1001(a) unequivocally stated that to enforce its substantive

terms, ERISA mandated “ready access to the federal courts.”

Access to a federal judicial forum has been construed as essen-

tial to assuring the minimum standards guaranteed pension par-

ticipants by ERISA. See Barrowclough v. Kidder, Peabody <-

Co., 752 F.2d 923, 941 (3d Cir. 1985) (“[statutory ERISA] rights

may not be foreclosed by a contractual arbitration agreement.”);

Amaro v. Continental Can Co., 724 F.2d 747, 752 (9th Cir. 1984)

(“[wJe do not believe Congress intended that these minimum

standards [set forth in ERISA] could be eliminated by contract.”):

A-12

Senco of Florida, Inc. v. Clark, 473 F. Supp. 902 (M.D. Fla.

1979) (intent of Congress in enacting [ERISA] was to protect

employees and their families from bargaining away benefits pro-

vided by pension plans); Lewis v. Merrill Lynch, Pierce, Fen-

ner & Smith. Inc., 431 F. Supp. 271 (E.D. Pa. 1977) (“in pass-

ing ERISA Congress intended to protect plan participants from

arbitration and similar agreements, often unilaterally imposed,

which ‘snip and whittle’ at federally granted rights”).

ERISA'’s liberal provisions governing service of process, venue,

attorney fees and statutes of limitation also provide persuasive

evidence that Congress intended disputes under the statute to

be resolved in a federal judicial forum. Cf., Barrentine, 450 U.S.

at 740. Section 1132(a)(3) specifically empowers any participant

or beneficiary of a plan to bring a civil action for any violation

of the statute, including breach of fiduciary duties imposed by

29 U.S.C. § 1104. Moreover, a wide choice of venue is allowed.

29 U.S.C. § 1132(e)(2). There are no diversity or amount in con-

troversy requirements. Jd. at § 1132(f). Courts may award at-

torneys fees to successful participants and beneficiaries. Jd. at

§ 1132(g). And, under some circumstances, the Secretary of

Labor may maintain an action on behalf of a participant or

beneficiary. Jd. at 1132(a)(5) & (b)(1). Congress clearly sought

to lower the barriers that might otherwise restrict access to the

federal courts.

These jurisdictional provisions also distinguish between suits

brought to redress violations of substantive provisions of ERISA

and actions to declare the rights of those covered and benefits

due under a particular pension plan. Ciaims which are basically

issues of contract law are within the concurrent jurisdiction of

federal and state courts, while violations of the ERISA statute

itself are exclusively the province of ihe federal courts. See 29

U.S.C. § 1132(e). Although this division indicates that not every

dispute concerning an ERISA regulated plan must be heard in

federal court, it in no way obfuscates the clarity of Congress's

intent to make a judicial forum availabie.

In Barrowclough v. Kidder, Peabody & Co., the Third Cir-

cuit concluded that in enacting § 1132(e), Congress intended

A-13

to follow the model of § 301 of the Labor Management Rela-

tions Act (“LMRA”), 29 U.S.C. § 185 (1978), which governs suits

arising under a collective-bargaining agreement. 752 F.2d at 936.

Indeed, the House Conference Report refers to § 301 in outlin-

ing the proposed structure of § 1132(e).’ Section 301 provides

that the applicable law for the breach of a collective bargain-

ing agreement is federal common law. See Local 174 Teamsters,

Chauffeurs, Warehousemen and Helpers of America v. Lucas

Flour Co., 369 U.S. 95, 101-04 (1962). The importance of federal

labor policy and the necessity for uniformity of its application

made the development of federal law governing such disputes

imperative. Id. at 103-04. With the prologue that Congress

deemed employee pension plan law “affected with a national

public interest,” 29 U.S.C. § 1001(a), the same reasoning requires

the development of federal common law in this area. See Amato

v. Bernard, 618 F.2d 559 (9th Cir. 1980); Barrowclough, 752 F.2d

at 936.°

’ The Conference Report reads:

The U.S. district courts are to have exclusive jurisdiction with

respect to actions involving breach of fiduciary responsibility as

well as exclusive jurisdiction over other actions to enforce or clarify

benefit rights provided under title I. However, with respect to suits

to enforce benefit rights under the plan... which do not involve

application of the title I provisions, they may be brought not on-

ly in U.S. district »ourts but also in State courts of competent

jurisdiction. All such actions in Federal or State courts are to be

regarded as arising under the laws of the United States in similar

fashion to those brought under section 301 of the Labor-

Management Relations Act of 1947. The U.S. district courts are

to have jurisdiction of these actions without regard to the amount

in controversy and without regard to the citizenship of the parties.

H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess. 327, reprinted in 1974 U.S.

Code Cong. & Admin. News at 5107.

* Appellants rely on Sulit ». Dean Witter Reynolds, 847 F.2d 475 (8th Cir.

1988), for the proposition that arbitration agreements are enforceable in the

context of statutory ERISA claims. But, the key issue before the Eighth Cir-

cuit in that case was whether 29 U.S.C. § 1110(a) constituted a “no-waiver”

(footnote continued)

Al4

We do not suggest that arbitration of purely contractual claims

asserted pursuant to ERISA cannot be compelled. Suits to

establish or enforce rights to benefits that are independent of

claims predicated on substantive violations of ERISA are ap-

propriately resolved through arbitration. See Air Line Pilots Ass’n

v. Northwest Airlines. Inc., 627 F.2d 272, 275-76 (D.C. Cir.

1980). The parailel between § 1132(a) and § 301 of LMRA sug-

gests Congress intended these contractual pension claims to re-

main subject to arbitration in the same manner that claims for

breach of a collective-bargaining agreement have been held to

be. See Barrowclough, 752 F.2d at 939.°

We conclude, therefore, that a federal judicial forum cannot

be cut off to those asserting claims created as part of a com-

prehensive federal scheme protecting the rights of individual

participants or beneficiaries of a pension plan and which fall

within the exclusive jurisdiction of the federal courts. Ac-

cordingly, we affirm.

(footnote continued)

provision prohibiting enforcement of agreements relinquishing access to the

federal courts provided by the statute. Jd. The panel relied on McMahon, supra,

which held that a similar provision in the Securities Exchange Act of 1934,

15 U.S.C. § 78ce(a), did not block arbitration of substantive claims under that

statute. However, to the extent the Sulit court could “find no hint in the

legislative history” of Congress’s intent that substantive ERISA claims not be

subject to compulsory arbitration, we disagree.

* The district court properly determined that the arbitration and the federal

litigation should proceed concurrently. See Dean Witter Reynolds, Inc. v. Byrd,

470 U.S. 213, 221 (1985).

CARDAMONE, Circuit Judge, dissenting:

Because I think the majority’s affirmance rests on both a

mistaken view of the role of arbitration, one which the Supreme

Court has recently abandoned, and on an incorrect inference

it draws from Congressional purpose, I respectfully dissent.

The majority says that it recognizes the “liberal federal policy

favoring arbitration agreements.” Moses H. Cone Memorial

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). This

policy, which provides that a party who agrees to arbitrate is

bound to that agreement, absent fraud or duress. See Shear-

son/American Express, Inc. v. McMahon, 107 S. Ct. 2332, 2337

(1987). This rule has been codified as the United States Arbitra-

tion Act, 9 U.S.C. § 1 et seq. (1982), and creates a presumption

permitting arbitration that the majority ignores. The exception

to the ability to agree to arbitration is found when Congress

creates a right that it wants vindicated in court, and thus pro-

hibits a waiver of that forum. In those cases arbitration is barred.

As the party seeking to avoid arbitration, Bird bears the burden

of establishing Congress’ purpose to exclude ERISA from the

Arbitration Act. This purpose must be discernible from the text

of ERISA, or its legislative history, or its underlying policies.

See McMahon, 107 S. Ct. at 2337. In my view, Bird has failed

to meet this burden.

The linchpin of the majority’s position is the distinction it

draws between contractual rights relating to an ERISA plan —

that can be brought in either federal or state court — and

statutory rights created by ERISA which, the majority believes,

may only be brought in federal court. Hence, it emphasizes the

statutory nature of the rights that Bird asserts. The majority

correctly notes that if a plaintiff goes to court to enforce a right

created by ERISA, rather than by the pension plan, federal

jurisdiction is exclusive rather than concurrent. See 29 U.S.C.

§ 1132(e). It then seems to take a leap in logic to a proposition

with which I am unable to agree: Congress’ preference for

federal courts to state courts in the above instance compels the

conclusion that Congress also prefers federal courts over arbitra-

tion tribunals, so much so that private parties cannot contract

to the contrary.

A-16

This finding of Congressional design is unsupported by the

majority’s citations to ERISA’s text or its legislative history —

neither source even mentions arbitration. Further, it defies the

Supreme Court’s pronouncement that our “duty to enforce ar-

bitration agreements is not diminished when a party bound by

an agreement raises a claim founded on statuvory rights.”

McMahon, 107 S. Ct. at 2337 (emphasis added); see also Mit-

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

614, 625-27 (1985) (stating that presumption of arbitrability ap-

plies to statutory claims); Local 210, Laborers Intern. v. Labor

Relations Div. Asscc'd Gen. Contractors of America, 844 F.2d

69, 74 (2d Cir. 1988) (dictum).

Obviously, this is not to say that all statutory claims must be

arbitrable — Congress may require exclusive federal court

jurisdiction. See Barrentine v. Arkansas Best Freight Sys., Inc.,

450 U.S. 728, 742, 745 (1981) (holding that Congress envision-

ed a plaintiff who loses compulsory arbitration may still bring

federal court claim arising under the Fair Labor Standards Act,

29 U.S.C. § 201, particularly because unions that represent plain-

tiffs in arbitration may not always do so vigorouslv). But it does

not follow that from the presence of a federal statutory right,

and the existence of a federal judicial forum with “ready ac-

cess” to it, that plaintiffs are mandated to use that forum ex-

clusively. See McMahon, 1076 S. Ct. at 2338 (stating that the

exclusive jurisdiction provision of the Securities Exchange Act

of 1934, 15 U.S.C. § 78j(b) (1982), is waivable by compulsory

arbitration agreement). There is no suggestion in the statute or

the circumstances leading to its enactment that when Congress

gave ERISA plaintiffs “ready access” to the federal courts, it was

issuing an invitation to plaintiffs that they could not refuse.

In an effort to portray “an inherent conflict between arbitra-

tion and the statute’s underlying purposes,” McMahon, 107 S.

Ct. at 2337, the majority characterizes ERISA as a “remedial”

statute, and then sets forth a number of reasons why Congress

enacted ERISA. Concededly, the legislative goal of protecting

pension fund participants and beneficiaries is laudable. But that

does not answer the question of what means a party may select

to vindicate those statutory rights. Cf. Mitsubishi, 473 U.S. at

A-17

628 (stating that a party who agrees to arbitrate does not forego

substantive rights under a statute, but merely alters the means

of resolving the dispute). Simply labeling ERISA as “remedial”

is insufficient, it seems to me, to rebut the heavy presumption

in favor of freedom of contract to arbitrate, particularly as the

High Court has sustained the validity of compulsory arbitra-

tion agreements under other “remedial” statutes. See McMahon,

107 S. Ct at 2345 (describing the Racketeer Influenced and Cor-

rupt Organizations Act (RICO), 18 U.S.C. § 1964(c) (1982), as

rermedial, but nonetheless enforcing compulsory arbitration

agreement); Mitsubishi, 473 U.S. at 637 (holding that enforce-

ment of compulsory arbitration provision would not prevent the

Clayton Act, 15 U.S.C. § 15, from serving its remedial function).

In the final analysis, what remains of my colleagues’ underly-

ing premise must be that Congress could not have envisioned

arbitration of ERISA’s remedial statutory rights because ar-

bitrators are not up to the task. Yet, that assumption appears

untenable too. See McMahon, 107 S. Ct. at 2340; Mitsubishi,

473 U.S. at 633. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S.

213, 219-20 (1985); Moses H. Cone Memorial Hosp. 460 U.S.

at 24.

Here, Bird signed a contract agreeing to submit his disputes

to arbitration. Because there is no hint that Congress planned

to deprive him of that option, he should be heid to the bargain

he made. See McMahon, 107 S. Ct at 2346; Mitsubishi, 473 U.S.

at 640. I would adopt the approach of the Eight Circuit in Sulit

v. Dean Witter Reynolds, Inc., 847 F.2d 47 (8th Cir. 1988) (en-

forcing agreement for compulsory arbitration of ERISA claim),

in light of our duty to “rigorously enforce agreements to ar-

bitrate.” See Dean Witter Reynolds, Inc., 470 U.S. at 221.

Accordingly, I vote to reverse the order denying appellant’s

motion to compel arbitration, and to remand to the district court

for it to direct that the agreement to arbitrate be enforced.

A-18

APPENDIX C

UNITED STATES COURT OF APPEALS

i FOR THE SECOND CIRCUIT

At a stated term of the United States Court of Appeals for

the Second Circuit, held at the United States Courthouse, in

the City of New York, on the ninth day of May, one thousand

nine hundred and eighty-nine.

FRANK L. BIRD, Trustee of the FRANK L. BIRD

PROFIT SHARING TRUST, FRANK L. BIRD,

Individualiy, and JOAN SHEA,

Plaintiffs-Appellees.

SHEARSON LEHMAN/AMERICAN EXPRESS, INC.,

and RAYMOND R. CLEMENTS,

Defendants-Appellants.

DOCKET NUMBER 88-7704

A petition for rehearing containing a suggestion that the ac-

SHEAKSON LEHMAN ET AL.

Upon consideration by the panel that heard the appeal, it is

Ordered that said petition for rehearing is DENIED.

Judge Cardamone dissenting.

It is further noted that the suggestion for rehearing in banc

has been transmitted to the judges of the court in regular ac-

tive service and to any other judge that heard the appeal and

that no such judge has requested that a vote be taken thereon.

s/Elaine B. Goldsmith

ELAINE B. GOLDSMITH

Clerk

A-19

APPENDIX D

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

FRANK L. BIRD, TRUSTEE of the

FRANK L. BIRD PROFIT SHARING

TRUST, FRANK L. BIRD,

INDIVIDUALLY, and JOAN SHEA,

Plaintiffs,

vs.

CIVIL H-87-

SHEARSON LEHMAN/AMERICAN 530 (JAC)

EXPRESS, INC. and RAYMOND R. ;

CLEMENTS,

Defendants.

APRIL 4, 1988

NEW HAVEN, CONNECTICUT

BEFORE:

HON. JOSE A CABRANES, U.S.DJ.

RULING OF THE COURT

Appearances:

For the Plaintiffs:

LESTER KATZ, ESQ.

Katz & Seligman

130 Washington Street

Hartford, Connecticut 06106

For the Defendants:

KEVIN McCANN, ESQ.

Tyler, Cooper & Alcorn

City Place

Hartford, Connecticut 06103

Paul Collard

Official Court Reporter.

A-20

THE COURT: Thank you. Please be seated.

The Court is prepared to rule now on the pending Motion

to Compel Arbitration, based upon a consideration of the full

record of this case, including the arguments of counsel at to-

day’s hearing.

In Shearson/American Express, Inc. v. McMahon, 107 S.Ct.

2332 (1987), the Supreme Court reaffirmed that The Federal

Arbitration Act, 9 U.S.C. sections 1 et seq., “standing alone, man-

dates enforcement of agreements to arbitrate statutory claims.”

Id. at 2337.

Our Court of Appeals has set forth the issues to be addressed

by a district court upon a motion to compel arbitration: “first,

(the court) must determine whether the parties agreed to ar-

bitrate .. .; second, it must determine the scope of that agree-

ment; third, if federal statutory claims are asserted, it must con-

sider whether Congress intended those claims to be nonar-

bitrable ...; and fourth, if the court concludes that some, but

not all, of the claims in the case are arbitrable, it must then deter-

mine whether to stay the balance of the proceedings pending

arbitration.” Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d

840, 844 (2d Cir. 1987).

As to the first factor—whether the parties agreed to

arbitrate — plaintiffs contend that, as Trust participants and

beneficiaries, they did not sign the Customer Agreement and

thus were not parties to the arbitration agreement.

As Trustee, however, Frank L. Bird had the authority to bind

the participants and beneficiaries to arbitration of “any con-

troversy arising out of or relating to” the Trust Account. See Bar-

rowclough v. Kidder, Peabody & Co., Inc., 752 F-2d 923, 928

(3d Cir. 1985) (observing that “a variety of non-signatories of

arbitration agreements have been held to be bound by such

agreements under ordinary common law contract and agency

principles”); Fisser v. International Bank, 232 F.2d 231, 233-34

(2d Cir. 1960); Steinberg v. Illinois Co., Inc., 635 F.Supp. 615,

617 (N.D. Ill. 1986).

A-21

The Court finds, therefore, that plaintiffs agreed to arbitrate.

The second issue to be addressed is the scope of the agree-

ment. The final sentence of the arbitration provision reads:

“This agreement to arbitrate does not apply to any controversy

with a public customer for which a remedy may exist pursuant

to an expressed or implied right of action under certain of the

federal securities laws.”

Relying on this final sentence, plaintiffs contend that their

claims brought under the federal securities laws, namely sec-

tion 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. sec-

tion 78j and Ruie 10b-5 of the Securities and Exchange Com-

mission, 17 C.F.P. section 240-l10b-5, are not within the scope

of the agreement.

The Court finds, however, that this provision of the arbitra-

tion agreement was simply a disclosure statement mandated by

Rule 15c2-2 of the Securities and Exchange Commission, 17

C.F.R. section 240.15c2-2. See Fisher v. Prudential-Bache

Securities, Inc., 635 F Supp. 234, 236-37 (S.D.N-Y. 1986); Finkle

and Ross v. A.G. Becker Paribas, Inc., 632 F.Supp. 1505, 1510

(S.D.N.Y. 1985).

The third factor to be considered is whether Congress intended

plaintiffs’ claims under section 10(b) and ERISA to be

nonarbitrable.

The United States Arbitration Act, 9 U.S.C. sections 1-14, con-

stitutes “a congressional declaration of a liberal federal policy

favoring arbitration agreements.” Moses H. Cone Memorial

Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983).

To override the Arbitration Act, the party opposing arbitra-

tion must “show that Congress intended to preclude a waiver

of judicial remedies for the statutory rights at issue.” McMahon,

107 S.Ct. at 2337. Such“an intent may be deduced from the

statute’s text or legislative history, or from an inherent conflict

A-22

between arbitration and the statute’s underlying purpose. See

Id. The Supreme Court has resolved the issue with respect to

section 10(b) by holding that agreements to arbitrate claims

under that statute are enforceable. See id. at 2343.

With respect to statutory claims under ERISA, however, this

Court comes to a different conclusion. While recognizing that

“any doubts concerning the scope of arbitrable issues should be

resolved in favor of arbitrability,’ Moses H. Cone Memorial

Hospital, 460 U.S. at 24-25, the Court nevertheless concludes

that access to a federal judicial forum is central to ERISA’s

underlying purpose to provide maximum protection to plan par-

ticipants and beneficiaries. See 29 U.S.C. section 1001(b) (stating

congressional policy to provide “ready access to the Federal

courts”); see also Barrowclough, 752 F.2d at 936 (holding that

statutory claims are not arbitrable under ERISA); Lewis v. Mer-

rill Lynch, 431 F.Supp. 271, 276 (E.D.Pa. 1977) (finding that

“in passing ERISA Congress intended to protect plan participants

from arbitration and similar agreements, often unilaterally im-

posed, which ‘snip and whittle’ at federally granted rights”).

This policy of “ready access” can also be discerned in ERISA’s

provision for exclusive federal court jurisdiction over claims alleg-

ing statutory violations and its liberal rules governing service

of process, venue, attorney fees and statutes of limitation. See

Murphy, The Impact of ERISA on Arbitration, 32 Arb. J. 123,

129 (1977); see also Schneider, Surviving ERISA Preemption:

Pension Arbitration in the 1980's, 16 Columbia Journal of Law

and Soc. Prob. 193, 284-85 (1980).

Similar agreements to arbitrate have been held unenforceable

under the antitrust laws, see American Safety Equipment Corp.

v. J.P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968), and Title

VII of the Civil Rights Act of 1964, see Alexander v. Gardner-

Denver Co., 415 U.S. 36 (1974).

Accordingly, the Court holds that statutory claims brought

to enforce the fiduciary responsibility provisions of ERISA are

not subject to arbitration.

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Finally, because the section 10(b) claims are subject to ar-

bitration and the ERISA claims are not, the Court must deter-

mine whether to stay the federal proceedings pending

arbitration.

In the interest of a speedy resolution to this controversy, and

because the section 10(b) and the ERISA claims are not clearly

identical and neither have any necessary temporal priority over

the other, the Court concludes that the arbitration and the

lawsuit should each proceed in its normal course. See Dean Wit-

ter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985); Dimenstien

v. Whiteman, 759 F.2d 1514, 1517 (llth Cir. 1985); Steinberg,

735 F.Supp. at 620.

Accordingly, for the reasons already stated, defendants’ mo-

tion to compel the section 10(b) claims is granted.

Defendants’ motion to compel the ERISA claims is denied.

The Motion to Stay Action Pending Arbitration is also denied.

Finally, based upon a consideration of the full record of this

case, plaintiffs’ oral application for costs pursuant to Federal

Rules of Civil Procedure 11 is denied.

It is so ordered.

We are adjourned.

COURT REPORTER'S TRANSCRIPT CERTIFICATE

I hereby certify that the within and foregoing is a true and

accurate transcript taken from the proceedings held on April

4, 1988, in the United States District Court, for the District of

Connecticut, at New Haven, before the Hon. Jose A. Cabranes,

US.D.J.

‘s/Paul Collard

Official Court Reporter.

DATED: June 7, 1988.

A-24

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

FRANK L. BIRD, TRUSTEE,

ET AL

Plaintiffs,

sie CIVIL NO.

SHEARSON LEHMAN BROTHERS. : H-87 530 (JAC)

INC. ET AL :

Defendants. :

—_—— «<= <= «ae <a ae «ee cee «ee au cue au aes ces cee cue ce x

AUGUST 17, 1987

MOTION TO COMPEL ARBITRATION

AND TO STAY ACTION PENDING ARBITRATION

Pursuant to the Federal Arbitration Acts 9 U.S.C. §§ 1 et seq.,

defendants Shearsons Lehman Brothers, Inc. (“Shearson”) and

Raymond R. Clements respectfully move this Court to compel

arbitration of all claims in the above-captioned action, and to

stay this action pending said arbitration.

In support of the foregoing, defendants represent that:

1. This action arises out of a dispute regarding the broker-

customer relationship between the plaintiffs and defendants and

securities transactions in the plaintiffs’ account with Shearson.

ORAL ARGUMENT IS NOT REQUESTED

GRANTED IN PART and DENIED IN PART, in accordance

with the court’s oral ruling today in open court and on the

record. It is so ordered.

s/Jose A. Cabranes

Jose A. Cabranes, U.S.D.].

New Haven, CT

April 4, 1988

APPENDIX E

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

At a stated Term of the United States Court of Appeals for

the Second Circuit, held at the United States Courthouse in the

City of New York, on the twenty-eighth day of March one thou-

sand nine hundred and eighty-nine.

Present:

Hon. Irving R. Kaufman

Hon. William H. Timbers

Hon. Richard J. Cardamone

Circuit Judges.

FRANK L. BIRD. Trustee of the FRANK L. BIRD PROFIT SHAR-

ING TRUST, FRANK L. BIRD, Individually, and JOAN SHEA,

Plaintiffs-Appellees,

-V.-

SHEARSON LEHMAN/AMERICAN EXPRESS, INC., and

RAYMOND R. CLEMENTS,

Defendants-Appellants.

88-7704

Appeal from the United States District Court for the District

of Connecticut.

This cause came on to be heard on the transcript of record

from the United States District Court for the District of Con-

necticut, and was argued by counsel.

ON CONSIDERATION WHEREOF, it is now hereby

ordered, adjudged, and decreed that the Order of said District

Court be and it hereby is affirmed in accordance with the opi-

nion of this court with costs to be taxed against the appellants.

ELAINE B. GOLDSMITH,

Clerk

s/Edward J. Guardaro

By: EDWARD J. GUARDARO.

Deputy Clerk

A-26

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.