Opposition Brief — Baker v. Aubry

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No. 89-1941 | JO CLERK

In The

Supreme Court of the United States

October Term, 1989

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NANCY JANE BAKER,

Petitioner,

LLOYD W. AUBRY, JR., CALIFORNIA

STATE LABOR COMMISSIONER, and

FIDELITY BROKERAGE SERVICES, INC.,

Respondents.

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On Petition For Writ Of Certiorari

To The California Court Of Appeal

For The First Appellate District

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BRIEF IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

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Gary D. Roserts

MUNGER, TOLLES & OLSON

355 South Grand Avenue

Los Angeles, California 90071-1560

Telephone: (213) 683-9100

Counsel for Respondent

Fidelity Brokerage Services, Inc

BEST AVAILABLE COPY

QUESTION PRESENTED

As applied to an arbitration agreement contained ina

contract involving commerce, does the Federal Arbitra-

tion Act preempt the portion of California Labor Code

Section 229 that invalidates agreements requiring arbitra-

tion of claims for “due and unpaid wages”?!

1 Fidelity’s principal objection to Baker’s statement of the

question presented is that it suggests that Congress has given

states some special powers in this area. This erroneous sugges-

tion, made without supporting authority, has never been raised

below and is not a proper issue in Baker’s Petition.

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TABLE OF CONTENTS

Page

STATEMENT OF THE CASE............. reer 1

REASONS THE PETITION SHOULD NOT BE

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A. This Court Has Recently Addressed The

Same Issue Presented In This Case ....... 3

B. Baker Has Not Demonstrated Any Confu-

sion In The Law Or Pressing Need To

Address This Issue ...........--22seeeeees 6

1. There is no confusion in the law...... 6

2. No pressing legal issue is presented on

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TABLE OF AUTHORITIES

CASES

Alexander v. Gardner-Denver Co., 415 U.S. 36, 94

an. Sees ee Gene Bae (9978)..............

Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 105

om teen, Oo L.me.20 200 (1965)..............

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

U.S. 728, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981) ..

Evans v. Southern Pacific Transportation Co., 213

Cal.App.3d 1378, 262 Cal.Rptr. 416 (1989), cert.

denied, 58 U.S.L.W. 3800 (1990)

Gilmer v. Interstate/Johnson Lane Corp., 895 F.2d 195

(4th Cir. 1990)

McDonald v. City of West Branch, 466 U.S. 284, 104

oa ieee, Oo t.60.20 302 (1964)..............

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth

Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444

(1985)

1989)

Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96

Ds wns base ahsocenracendencene

Rodriguez de Quijas v. Shearson/American Express,

Inc.,___ U.S. ___, 109 S.Ct. 1917, 104 L.Ed.2d 526

(1989)

Shearson/American Express, Inc. v. McMahon, 482

U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987)...

Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852,

79 L.Ed.2d 1 (1984)

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TABLE OF AUTHORITIES - Continued

Page

STATUTES

California Labor Code Section 229.............. passim

Federal Arbitration Act, 9 U.S.C. § 1 et seqg....2, 3, 7, 8

New York Stock Exchange Rule 347................ 1,2

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Section 301, Labor-Management Relations Act, 2%

U.S.C. Section 185

Respondent Fidelity Brokerage Services, Inc.,

respectfully prays that a writ of certiorari not issue to

review the decision of the Court below.

I.

STATEMENT OF THE CASE

The relevant facts, as found by the Court below and

unchallenged here, can be stated briefly. Fidelity Broker-

age Services, Inc. (“Fidelity”) employed Nancy Jane

Baker (“Baker”) as a Registered Representative from

March 1986 to March 1987. In connection with her

employment as a Registered Representative, Baker exe-

cuted a Uniform Application for Securities Industry Reg-

istration, which is commonly known as a U-4 and which

is utilized throughout the securities industry. The U-4

contains the following arbitration agreement:

I agree to arbitrate any dispute, claim or contro-

versy that may arise between me and my firm,

or a customer, or any other person, that is

required to be arbitrated under the rules, consti-

tutions, or by-laws of the organizations with

which I register, as indicated in item 10 as may

be amended from time to time.

In item 10, Baker indicated that she was registering

with the New York Stock Exchange (“NYSE”). NYSE Rule

347 requires arbitration as follows:

Any controversy between a registered represen-

tative and any member or member organization

arising out of the employment or termination of

employment of such registered representative

by and with such member or member organiza-

tion shall be settled by arbitration, at the

2

instance of any such party, in accordance with

the arbitration procedure prescribed elsewhere

in these rules.

After leaving Fidelity, Baker filed a Complaint with

the California Labor Commissioner in August 1987 alleg-

ing that she was improperly denied overtime pay in

violation of state law. Fidelity answered this Complaint,

denying the claim on the merits but simultaneously

asserting its right to arbitrate the claim. A hearing before

a Deputy Commissioner was held on January 27, 1988.

After briefing of the issue by all the parties, the Labor

Commissioner dismissed Baker’s wage claim for want of

statutory jurisdiction in light of her arbitration agree-

ment. Baker sought review of this decision in the Califor-

nia courts by writ of mandate.

Both the California Court of Appeal and the Superior

Court held that Baker’s U-4 and Rule 347 operated

together to create a valid arbitration agreement under

California law. The Courts below also held that this arbi-

tration agreement involved commerce and was therefore

subject to the Federal Arbitration Act. The Courts, apply-

ing that Act, found that this arbitration agreement was

sufficiently broad to encompass Baker’s claim for over-

time under state law.

Il.

REASONS THE PETITION SHOULD

NOT BE GRANTED

A. This Court Has Recently Addressed The Same Issue

Presented In This Case.

In light of the factual findings below, which are

unchallenged here, the only issue presented is whether

the provision of California Labor Code Section 229

invalidating certain arbitration agreements is preempted

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

This Court has recently addressed precisely this issue

in Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d

426 (1987). In Perry, the plaintiff brought a claim for

wages due. The plaintiff in Perry had executed the stan-

dard U-4 arbitration agreement presented in this case. In

an attempt to avoid arbitration, he had also relied on

California Labor Code Section 229, the same statute at

issue here. Section 229 exempts from arbitration claims

brought under the “provisions of this article [of the Labor

Code] for the collection of due and unpaid wages... . ”

Thus, Perry presented exactly the same issue presented by

this case: how should a court reconcile a direct conflict

between an arbitration agreement found to affect com-

merce (and thus subject to the Federal Arbitration Act)

and Labor Code Section 229, a state statute, that purports

to exempt certain classes of claims from arbitration?

This Court in Perry analyzed the issue, applying stan-

dard preemption doctrine. Under the Federal Arbitration

Act, arbitration clauses are specifically enforceable as a

matter of federal law. California Labor Code Section 229,

a state statute, plainly states that various claims relating

to wages are not arbitrable. In light of the Supremacy

Clause, this Court held that the Federal Arbitration Act

(rather than any inconsistent state law) must be given

effect:

“(t]he preeminent concern of Congress in pass-

ing the [Federal Arbitration] Act was to enforce

private agreements into which parties had

entered. We have accordingly held that these

agreements must be ‘rigorously enforce[d].’ ”

This clear federal policy places § 2 of the Act in

unmistakable conflict with California’s § 229

requirement that litigants be provided a judicial

forum for resolving wage disputes. Therefore,

under the Supremacy Clause, the state statute

must give way.

Id. at 2526 (citations omitted).

It is plain from the Perry opinion that the federal

policy favoring arbitration requires the preemption of all

conflicting state laws:

“liln enacting § 2 of the federal Act, Congress

declared a national policy favoring arbitration

and withdrew the power of the states to require a

judicial forum for the resolution of claims which the

contracting parties agreed to resolve by arbitration.

Congress intended to foreclose state legislative

attempts to undercut the enforceability of arbi-

tration agreements.”

Id. at 2525 (citation omitted; emphasis added; quoting

Southland Corp. v. Keating, 465 U.S. 1, 10, 16, 104 S.Ct. 852,

79 L.Ed.2d 1 (1984).

The California courts correctly applied Perry in this

case, holding that Baker must arbitrate her claim under

Labor Code Section 229, notwithstanding any California

policy to the contrary.

Baker attempts to avert the clear holding of the Perry

case by arguing that only contractual claims — not statu-

tory claims — are covered by that decision. The short

answer to this argument is that Perry itself involved a

claim under the same statute relied upon by Baker here:

Labor Code Section 229.2 In Perry, the plaintiff attempted

to invoke Section 229 to obtain a judicial resolution of

claims for certain commission payments. Here, Baker

seeks to invoke Section 229 to obtain a judicial resolution

of her overtime pay claim. There is simply no basis to

distinguish this case from Perry.

In short, this case is Perry. Baker has made no attempt

to argue that Perry should be overruled. Its holding is

completely in step with this Court’s other recent pro-

nouncements on arbitration. See footnote 2, supra. Thus,

there is no reason whatever that this Court should again

examine California Labor Code Section 229 only three

years after Perry.

2 It should be noted that the argument that statutory

claims are not arbitrable has been rejected repeatedly in the

recent past, both before and after Perry. Rodriguez de Quijas v.

Shearson/American Express, Inc., U.S. __, 109 S.Ct. 1917,

1921, 104 L.Ed.2d 526 (1989) (holding ‘that sta statutory securities

claims are arbitrable); Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987)

(holding that statutory claims for securities fraud and RICO

claims are arbitrable); Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444

(1985) (holding that antitrust claims are arbitrable); Southland

Corp. v. Keating, supra, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1

(1984) (holding that claims under the California Franchise

Investment Act are arbitrable, notwithstanding a contrary state

statute).

B. Baker Has Not Demonstrated Any Confusion In

The Law Or Pressing Need To Address This Issue.

1. There is no confusion in the law.

Baker’s Petition alludes to the need to clarify the law.

This contention has no substance, for she has failed to

identify any confusion in this area.

Baker relies primarily on Barrentine v. Arkansas-Best

Freight System, Inc., 450 U.S. 728, 101 S.Ct. 1437, 67

L.Ed.2d 641 (1981), in support of this argument. Barren-

tine addressed the question of whether a member of a

collective bargaining unit must arbitrate his federal wage

claims and is readily distinguishable.

First, Barrentine involved a narrow arbitration agreement

typical of a collective bargaining agreement rather than the

broad private arbitration agreement involved in this case.

Under Section 301 of the Labor-Management Relations Act,

29 US.C. Section 185, only claims that require interpretation

of the collective bargaining agreement are subject to arbitra-

tion in the collective bargaining context. Id. at 737; see also

Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 105 S.Ct. 1904, 85

L.Ed.2d 206 (1985) (arbitration proper in collective bargain-

ing context only as to claims “inextricably intertwined” with

the collective bargaining agreement). Barrentine says nothing

about arbitration under the Federal Arbitration Act, which

empowers arbitrators to hear virtually any claim. See Perry,

supra, 107 S.Ct. at 2525-2527. See also footnote 2, supra.

Sound policy underlies the distinction between col-

lective bargaining arbitration and private arbitration

under the Federal Arbitration Act, as shown by a compar-

ison of this case with Barrentine. In Barrentine, in ruling

that claims under the Fair Labor Standards Act are not

subject to collective bargaining arbitration, this Court

noted that, first, the union controls the right to bring a

grievance to arbitration in the collective bargaining con-

text; thus, if limited to the arbitral remedy, the individual

might lose his claim by the union’s failure to pursue it. Id.

at 1446. Second, this Court emphasized that a collective-

bargaining arbitrator’s sole duty is to interpret the con-

tract; a collective bargaining arbitrator’s decision based

on his view of statutory law — rather than the contract — is

unenforceable. Id. at 1446-47. Finally, the Court noted that

collective bargaining arbitrators lack the power to grant a

full range of remedies. Id. Based on these considerations,

Barrentine held the federal wage claims in question were

not arbitrable.

None of the factors conclusively relied upon in Bar-

rentine is present in arbitration under the Federal Arbitra-

tion Act. First, the individual — not a third party such as a

union — fully controls his claim. Second, the arbitrator

under the Federal Arbitration Act is not required to

ignore statutory law but, in fact, is bound to apply it. See

cases cited in footnote 2, supra. Finally, the arbitrator

under the Federal Arbitration Act has plenary power to

award all appropriate relief. E.g., McMahon, supra (arbi-

trator may award treble damages and attorney’s fees

under RICO). Thus, the distinction between the rule

applicable in individual arbitration under Perry versus

the rule applicable in collective bargaining arbitration

under Barrentine is founded on sound public policy.

Barrentine is distinguishable in one other regard, vital

under federal supremacy principles: it involved two

federal statutes (Section 301 and the Fair Labor Standards

Act), which this Court was attempting to harmonize. This

case involves a direct clash between a state statute and a

federal statute. Under the Supremacy Clause, the federal

statute (the Federal Arbitration Act) controls.?

2. No pressing legal issue is presented on these

facts.

Baker’s attempt to justify a writ of certiorari based on

the importance of the issue presented also fails. Baker’s

argument that a whole panoply of state labor protections

will be lost is without substance.

First, the unspoken premise of Baker’s argument is

that an arbitrator will be unfair in applying California’s

labor law. That argument is wholly insubstantial: Baker

has made no effort at any time during this proceeding to

challenge the fairness of the arbitral tribunal. There is no

evidence that any substantive right will be lost or threat-

ened if she is forced to abide by her arbitration agree-

ment; the dispute will simply be adjudicated in an

3 The other cases on which Baker seeks to rely are distin-

guishable on the same bases as Barrentine. McDonald v. City of

West Branch, 466 U.S. 284, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984)

(employee need not arbitrate federal discrimination claim

under his collective bargaining agreement); Alexander v. Gard-

ner-Denver Co., 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974)

(same); Evans v. Southern Pacific Transportation Co., 213

Cal.App.3d 1378, 262 Cal.Rptr. 416 (1989), cert. denied, 58

U.S.L.W. 3800 (1990) (same under analogous provisions of Rail-

way Labor Act).

arbitral forum. In light of the strong federal policy favor-

ing arbitration that has evolved over the last few decades,

it is simply too late in the day to argue that merely

compelling a party to comply with an arbitration agree-

ment violates any fundamental tenet of public policy.

Second, Baker’s argument that important questions

are left unanswered by the current state of the law misses

the mark. It may be that, after extensive experience with

Perry, the lower courts will need additional guidance in

refining or even limiting the scope of federal preemption

in some areas. It may even be that, under some future

circumstances, arbitration might be shown to resuli in the

loss or infringement of important contractual or statutory

rights. But this case does not present any such circum-

stances. There is no confusion, after Perry, on the issue

presented here.

In short, this Court should not revisit the Perry case

only three years after it was decided. Prior to attempting

to define the precise contours of the Perry rule, this Court

should await future cases that actually probe the limits of

the wisdom and soundness of Perry’s teaching. Only then,

with the aid of lower court experience in the interim, will

this Court be in an ideal position to cast further light on

this issue.4

*

4 Baker’s reliance on Gilmer v. Interstate/Johnson Lane Corp.,

895 F.2d 195 (4th Cir. 1990) and Nicholson v. CCP Int'l Inc., 877

F.2d 221 (3d Cir. 1989), is simply baffling. Both of those cases

address the issue of whether federal age claims must be arbi-

trated. This case, regardless of how determined, would not

serve to answer that question or clarify it in any way.

10

Il.

CONCLUSION

Based on the foregoing, Respondent Fidelity Broker-

age Services, Inc., respectfully requests that the Petition

for Writ of Certiorari be denied.

DATED: July 16, 1990

Respectfully submitted,

Gary D. Roserts

Muncer, TOLies & OLSON

355 South Grand Avenue, 35th Floor

Los Angeles, California 90071

Telephone: (213) 683-9100

Attorneys for Respondent

Fidelity Brokerage

Services, Inc.