Reply Brief — Shearson Lehman/American Express Inc. v. Bird

No. 89-231 | ee LED

IN THE | OCT, *? 98

Supreme Court of the United States: °°"

—

OcToBEeR TERM. LOSY9 ‘a

SHEARSON LEHMAN/AMERICAN EXpress INC. and

RAYMOND R. CLEMENTS.

Petitioners.

Vv.

FRANK L. Brrp. Trustee of the FRANK L. Birp

PROFIT SHARING TRUST. FRANK L. Birp, Individually.

and JOAN SHEA.

Respondents.

On Petition For A Writ Of Certiorari To The United

States Court Of Appeals For The Second Circuit

REPLY BRIEF OF PETITIONERS IN SUPPORT OF

PETITION FOR A WRIT OF CERTIORARI

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

JEFFREY L. FRIEDMAN

Office of the General Counsel

Shearson Lehman Hutton Inc.

(212) 528-0650

Of Counsel

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TABLE OF CONTENTS

Table of Authorities ....

i eee.

I. The Fully Developed Conflict Among the

Circuit Courts of Appeals Regarding the

Enforceability of Agreements to Arbitrate

ERISA Disputes Warrants Immediate

Resolution by the Court. .......

II. Petitioners Have Not Sought an Advisory

Opinion by Apprising the Court That This

Case Presents It with the Opportunity to

Clarify the Distinctions Between Its

Commercial and Labor Arbitration Precedents.

Conclusion ...........

Page

g

TABLE OF AUTHORITIES

Cases

Alexander v. Gardner-Denver Co.. 415 U.S. 36

IRS oo a wssaccce. “a Ane ae

Barrentine v. Arkansas-Best Freight Sys.. Inc., 450

C5 See |

Barrowclough v. Kidder Peabody & Co., 752 F.2d

Uae (3d Cir. IOBM................... Ln

Bird v. Shearson Lehman/American Express. Inc..

S71 F.2d 292 (2d Cir. 1989) ..........

Cohen v. Cowen Securities. Inc.. No.

89-8090-CIV-PAINE (S.D. Fla. July 24, 1989) |.

Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213

SL on a

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

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

library, Courts file)......... PLE

lacono v. Drexel Burnham Lambert. Inc.. 715

F. Supp. 18 (D.R.I. 1989)... ..

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

Se Ee ECe ae

Mistretta v. United States, 109 S. Ct. 647 (1989)

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985)... _.

Moses H. Cone Memorial Hosp. v. Mercury

Constr. Corp., 460 U.S. 1 (1983)... .....

Perry v. Thomas, 482 U.S. 483 (1987) ...........

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

A gs >

Page

passim

to

to

to

Kodriguez De Quijas tv. Shearson/American

Express, Inc., 109 S. Ct. 1917 (1989) ......

Rosenblum v. Drexel Burnham Lambert. 700

. Sapp. 674 (2.0. ba: 067) 20.5

Scherk v. Alberto-Culver Co., 417 U.S. 506

[ReGR re oon deee week ee,

Securities Industry Association v. Connolly,

__— F.2d __., [Current] Fed. Sec. L. Rep.

(CCH) € 94,561 (Ist Cir. Aug. 31, 1989)... ..

Shearson/American Express, Inc. v. McMahon,

Oe Gl ae EE oil oc ees

Southland Corp. v. Keating, 465 U.S. 1 (1984) ...

Sulit +. Dean Witter Reynolds, Inc., 847 F.2d 475

See Sie I oes re ees ey dewey ke

United States v. Fruehauf, 365 U.S. 146, reh'g

denied, 365 U.S. 875 (1961) ..................

Volt Information Sciences, Inc. v. Board of

Trustees, 109 S. Ct. 1248 (1989) ....

Wilko v. Swan. 346 U.S. 427 (1953)...

Statutes and Rules

Emplovee Retirement Income Security Act of

1974, 29 U.S.C. § 1001 et seq. (1982)... ..

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

Page

- &

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on

to

8

to

Page

Rules of the Supreme Court of the United States.

NS) ee re eg Sw nS 9

Wee BT BOON 5 oo ac ck bos bees tse ee 4

Legislative Materials

H.R. Rep. No. 4960, 100th Cong.. 2d Sess. (1988) §

iv

IN THE

Supreme Court of the United States

Octosper Term, 1989

No. 89-231

SHEARSON LEHMAN AMERICAN Express INC. and

RAYMOND R. CLEMENTS.

Petitioners.

Wa

Frank L. Birp, Trustee of the Frank L. Birp

Prorit SHARING Trust, FRANK L. Burp, Individually.

and JOAN SHeEa,

Respondents.

REPLY BRIEF OF PETITIONERS IN SUPPORT OF

PETITION FOR A WRIT OF CERTIORARI

ARGUMENT

1. The Fully Developed Conflict Among the Circuit Courts

of Appeals Regarding the Enforceability of Agreements

to Arbitrate ERISA Disputes W arrants Immediate Resolu-

tion by the Court.

Petitioners have requested that the Court resolve the fully

developed conflict among the circuit courts of appeals regard-

ing the enforceability of agreements to arbitrate disputes under

the Employee Retirement Income Security Act of 1974, 29

U.S.C. § 1001 et seq. (1982) (“ERISA”). See Petition for a Writ

of Certiorari (“Petition”) at 5-15. The conflict among the circuits

is represented in Bird v. Shearson Lehman/American Express.

Inc.. S71 F.2d 292 (2d Cir. 1989). Barrowclough v. Kidder

Peabody & Co., 752 F.2d 923 (3d Cir. 1985). and Sulit v. Dean

Witter Reynolds, Inc., 847 F.2d 475 (8th Cir. 1988). The con-

flict is mirrored by a conflict among the district courts. See

Rosenblum v. Drexel Burnham Lambert, 700 F. Supp. 874 (E.D.

La. 1987) (agreements to arbitrate ERISA claims enforceable):

see also lacono v. Drexel Burnham Lambert, Inc.. 715 F. Supp.

IS (D.R.1. 1989); Cohen v. Cowen Securities. Inc.. No

89-8090-CIV-PAINE (S.D. Fla. July 24. 1989): but see Gorinsky

t. Bear. Stearns © Co., No. 89 Civ. 1224 (MBM) (S.D.N-Y. May

2. 1989) (Lexis, Fedsec library. Courts file).

Respondents, in their Brief in Opposition. conclude that a fully

developed conflict regarding this issue does not exist since peti-

tioners have cited “only two appellate level cases related to the

issues currently before this Court” and “[g}iven this short and

premature history it would be unwise for the Court to consider

the merits of this controversy at this time.” Brief in Opposition

(“Opp.”) at 2! In addition to incorrectly stating that only two

federal courts of appeals, rather than three. have decided the issue

presented to the Court, respondents have failed to recognize that

a conflict warranting review by the Court exists when “a federa!

court of appeals has rendered a decision in conflict with the deci-

sion of another federal court of appeals on the same matter.” Se:

Rules of the Supreme Court of the United States (“Supreme Court

Rules”), Rule 17.1(a).

There is thus no requirement for more than two courts of ap-

peals to render conflicting opinions on the same issue for the

Court to consider granting certiorari to resolve the conflict. The

Respondents also contest petitioners recitation of the underlying facts of this

case to the extent it “implies” that certain respondents executed the arbitration

agreement binding the parties. Opp. at 1. This assertion is not relevant to the

issue presented to the Court since the court of appeals ruled that respondent

Frank L. Bird. who executed the arbitration agreement in his capacity as trustee.

bound all participants and beneficiaries to the agreement. including non-

signatories. See Bird, 87] F.2d at 294. Respondents have not filed a cross-petition

on this issue and it is not before ihe Court

Court has even granted certiorari to review circuit court opinions

that refused to enforce valid arbitration agreements that did not

conflict with the opinion of any other court. See. e.g.. Volt In-

formation Sciences, Inc. v. Board of Trustees, 109 S. Ct. 1248

(1989); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,

473 U.S. 614 (1985): Scherk v. Alberto-Culver Co., 417 U.S. 506

(1974).

The conflict among the federal courts of appeals is fullv

developed. The federal courts of appeals either apply the Court's

directives in Mitsubishi and Shearson/American Express. Inc. v.

McMahon, 482 U.S. 220 (1987) to ERISA and enforce valid

agreements of parties to arbitrate their ERISA disputes or they

refuse to enforce such agreements without relying on any

cognizable evidence of congressional intent to prohibit arbitra-

tion of ERISA. See Petition at 8-15.

The Second Circuit in Bird refused to enforce the agreement

of the parties in the present case to arbitrate their ERISA dispute.

The Petition asserts that the Second Circuit's opinion is premised

on a judicial hostility to arbitration that the Court has categorical-

ly rejected in Mitsubishi, McMahon and Rodriguez De Ouijas

t. Shearson/American Express, Inc., 109 S. Ct. 1917 (1989). The

Second Circuit in Bird explicitly disagreed with the Eighth Cir-

cuit's opinion in Sulit which adopted the rationale underlying

McMahon and Mitsubishi:

[To] the extent the Sulit court could “find no hint in

[ERISA's) legislative history” of Congress's intent that

substantive ERISA claims not be subject to compulsory

arbitration, we disagree.

Bird, 871 F.2d at 298 n.8. The Second Circuit instead relied on

(i) the Third Circuit's opinion in Barrowclough which predated

Mitsubishi. McMahon and Rodriguez and (ii) aspects of ERISA

that the Court has rejected as evidencing congressional intent

to prohibit arbitration of any statute. Jd. at 297. The result is

a clear and direct conflict among the circuits regarding the en-

forceablility of agreements to arbitrate ERISA disputes.

Respondents also argue that a fully developed conflict among

the federal courts of appeals does not exist since the Second and

Eighth Circuits were presented with different factual settings and

legal arguments. Opp. at 4. This argument of respondents is also

misplaced. The Second, Third and Eighth Circuits all resolved

the identica! legal issue; namely, whether Congress intended to

prohibit arbitration of ERISA disputes. The facts underlying these

cases, moreover. had no impact on the legal issue confronting

the circuits and have no relevance to the legal issue presented

to the Court.

Respondents have also failed to recognize that review by the

Court of the Second Circuit's opinion is also warranted since the

Second Circuit “has decided a federal question in a way in con-

flict with applicable decisions of this Court.” See Supreme Court

Rules, Rule 17.1(c). The Court in Mitsubishi, McMahon and

Rodriguez removed any doubt as to the enforceability of an agree-

ment to arbitrate a statutory claim unless Congress expressed an

intention to preclude arbitration of the particular statutory claim

at issue. See McMahon, 482 U.S. at 226-27. The Court in

Rodriguez overruled Wilko v. Swan, 346 U.S. 427 (1953), in an

attempt to eliminate “the old judicial hostility to arbitration.”

Rodriguez, 109 S. Ct. at 1920. The Second Circuit's opinion con-

flicts with the Court’s modern arbitration jurisprudence since

it did not rely on any cognizable evidence of congressional in-

tent to prohibit arbitration of ERISA disputes, continuing to foster

a hostility to and mistrust of arbitration. This was recognized

by the dissenting opinion in Bird:

In the final analysis, what remains of my colleagues”

underlying premise must be that Congress would not

have envisioned arbitration of ERISA’s remediai

statutory rights because arbitrators are not up to the

task. Yet, that assumption appears untenable....Sec

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

633...; [Dean Witter Reynolds Inc. v. Byrd, 470 U.S.

213 (1985): Moses H. Cone Memorial Hosp. v. Mer-

cury Constr. Corp., 460 U.S. 1, 24 (1983)]....

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

The Second Circuit's opinion further conflicts with decisions

of the Court by finding congressional intent to prohibit arbitra-

tion of ERISA disputes in aspects of ERISA that the Court has

examined in construing the arbitrability of other statutes and re-

jected as evidencing such congressional intent. See Petition at 10-1]

& n.5. The dissenting opinion in Bird recognized the conflict be-

tween the majority’s finding of congressional intent and deci-

sions of the Court:

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

ported by [its] citations to ERISA’s text or its legislative

history — neither source even mentions arbitration. Fur-

ther, it defies the Supreme Court's pronouncement 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 Second Circuit's opinion is clearly

in conflict with decisions of the Court and is reviewable under

Rule 17.1(c).

_ Finally, respondents have failed to recognize that review by

the Court is further warranted since the Second Circuit “has

decided an important question of federal law which has not been,

but should be, settled by this Court....” See Supreme Court Rules,

Rule 17.1(c). The Court has developed significant jurisprudence

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

ir furtherance of the strong federal policy in favor of arbitra-

tic , requiring the rigorous enforcement of arbitration

agreements. See McMahon, 482 USS. at 226 (citing Dean Witter

Reynolds Inc. v. Byrd, 470 U.S. 213, 221 (1985); Moses H. Cone

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

The issue presented in the Petition is as important as any of the

arbitration issues the Court has reviewed in recent vears. See,

e.g., Rodriguez (arbitrability of claims asserted under § 12(2) of

t!.e Securities Act of 1933); Volt (validity of state statute allow-

ing a court to stay arbitration pending resolution of related litiga-

tion); McMahon (arbitrability of § 10(b) of the Securities Ex-

change Act of 1934 and RICO); Perry v. Thomas, 482 U.S. 483

un

(1987) (enforceability of state law prohibiting agreements to ar-

bitrate wage claims); Mitsubishi (arbitrability of federal antitrust

laws); Southland Corp, v. Keating, 465 U.S. 1 (1984) (enforceabili-

ty of state law prohibiting agreements to arbitrate franchise

disputes); Moses H. Cone (propriety of staying a federal action

in deference to a parallel state court action); Scherk (arbitrability

of § 10(b) claims in international context); Prima Paint Corp.

v. Flood ¢ Conklin Mfg. Co., 388 U.S. 395 (1967) (whether a

federal court or an arbitrator is to resolve a claim of “fraud in

the inducement” of a contract). Should the Court grant certiorari

and decide the issues presented in the Petition, it can once and

for all remove any further hostility to arbitration by mandating

that the lower courts, including the Second Circuit, follow its

directives in Mitsubishi, McMahon and Rodriguez.

A failure to review the Second Circuit’s opinion, moreover,

would conflict with the desire of Congress, which, through its

enactment of the Federal Arbitration Act, allowed parties to an

arbitration agreement to resolve their dispute in an expeditious

manner outside of a judicial forum. This is one of the reasons

the Court granted certiorari in Keating to review a decision that

refused to enforce an arbitration agreement. See Keating, 465

US. at 7.

Respondents have failed to recognize the significance of the

fully developed conflict among the federal courts of appeals and

these other aspects of the Second Circuit’s opinion that warrant

immediate review by the Court.

II. Petitioners Have Not Sought an Advisory Opinion by Ap-

prising the Court That This Case Presents It with the Op-

portunity to Clarify the Distinctions Between Its Com-

mercial and Labor Arbitration Precedents.

The Second and Third Circuits’ refusal to enforce agreements

to arbitrate ERISA dispuies was partially based on the Court's

labor arbitration jurisprudence represented in Alexander v.

Gardner-Denver Co., 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). See Bird, 871 F.2d at

297-98; Barrowclough, 752 F.2d at 940. The Court's labor ar-

bitration jurisprudence is distinguishable from its commercial ar-

bitration jurisprudence under the Federal Arbitration Act and

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

cuits. See Petition at 10-13. Other federal courts of appeals have

also inappropriately relied on the Court's labor arbitration cases

to support their refusal to enforce valid agreements of parties

to arbitrate various statutory disputes. Jd. at 16-17 & nn.8-9. Since

the Second Circuit expressly relied on the Court’s labor arbitra-

tion cases in refusing to enforce the parties’ arbitration agree-

ment, the Court, should it grant certiorari, will examine the ap-

plicability of these cases to the issue presented in the Petition.

Petitioners have apprised the Court that should it decide to review

the Second Circuit’s opinion in the present case, it will have the

opportunity, should it so choose, to clarify the distinctions bet-

ween its commercial and labor arbitration precedents which will

guide the lower courts in future cases.

Respondents have argued that this aspect of the Petition re-

quests “an advisory opinion in violation of justiciability re-

quirements for Article III courts.” See Opp. at 7. Article III of

the Constitution limits the judicial power of the United States

Courts to “cases” and “controversies” and courts cannot issue ad-

visory opinions which resolve issues that are not before them.

See Mistretta v. United States, 109 S. Ct. 647 (1989): United States

v. Fruehauf, 365 U.S. 146, 157, reh’g denied, 365 U.S. 875 (1961).

Petitioners have not sought an advisory opinion since the ap-

plicability of the Court's labor arbitration cases to commercial

~)

arbitration under the Federal Arbitration Act is an issue directly

involved in this case. Petitioners have not asked the Court to

speculate on an issue not before it, but have merely apprised the

Court of the effect its resolution of this issue will have on the

lower courts.’

* Respondents have also argued that the Court should not grant certiorari since

Congress and various states have introduced legislation to regulate securities

arbitration. Opp. at 9. The Bill respondents have referred to, H.R. Rep. No.

4960, 100th Cong., 2d Sess. (1988), was not passed by Congress and there is

no similar legislation presently pending before Congress. Moreover, the state

regulation respondents have relied on has recently been held to be unconstitu-

tional. See Securities Industry Association v. Connolly, ____ F.2d. __, [Cur-

rent] Fed. Sec. L. Rep. (CCH) 4 94,561 (Ist Cir. Aug. 31, 1989).

CONCLUSION

Based on the foregoing reasons, as well as those contained in

the Petition for a Writ of Certiorari, the judgment of the United

States Court of Appeals for the Second Circuit should be reversed

insofar as it refused to enforce the contractual agreement of the

parties to arbitrate their ERISA dispute.

DATED: New York, New York

October 2, 1989

THEODORE A. KREBSBACH

Counsel of Record for Petitioners

Shearson Lehman Hutton Inc.

Office of the General Counsel

Two Worid Trade Center

New York, New York 10048

(212) 528-0565

JEFFREY L. FRIEDMAN

Office of the General Counsel

Shearson Lehman Hutton Inc.

(212) 528-0650

Of Counsel