# Opposition Brief — Koveleskie v. SBC Capital Markets, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1999
- **Citation:** 528 U.S. 811

## Text

Supreme Court, U.S,
FILED
A

No. 98-1778 aa we

| CLERK

IN THE
Supreme Court of the United States
MARY KOVELESKIE,
Petitioner,
v.
SBC CAPITAL MARKETS, INC.
a/k/a SBC WARBURG, INC.,
Respondent.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

RESPONDENT?’S BRIEF IN OPPOSITION

CATHERINE M. MASTERS
Counsel of Record

NEIL LLOYD

SCHIFF HARDIN & WAITE
Attorneys for Respondent

Warburg Dillon Read LLC
6600 Sears Tower
Chicago, Illinois 60606
Dated: June 4, 1999 (312) 258-5500
153309 @J Counse! Press LLC

FORMERLY LUTZ APPELLATE SERVICES
(800) 274-3321 + (800) 359-6859

i
QUESTIONS PRESENTED FOR REVIEW

1. The transaction costs attending litigation in federal
court may not be identical to the costs attending arbitration
under securities industry arbitration procedures. Is a
hypothetical risk that arbitration of Title VII claims will
involve non-identical costs a ground to hold an arbitration
agreement invalid?

2. The Court has repeatedly held that before arbitration
occurs it is premature to complain that the arbitrators may
misapply the law. Is a hypothetical risk that arbitrators may
misapply the law regarding Title VII a ground to hold an
arbitration agreement invalid?

3. Did the 1991 Civil Rights Act overrule Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), and
exempt civil rights laws, including Title VII and ADEA,
from the Federal Arbitration Act?

il

LIST OF PARTIES AND
CORPORATE AFFILIATES

The caption of the petition for writ of certiorari names
“SBC Capital Markets, Inc. a/k/a SBC Warburg, Inc.” as
the Respondent. The proper name of the Respondent is
Warburg Dillon Read LLC.

The Respondent has three equity owners: UBS AG
(52.75%), UBS (USA) Inc. (47%), and UBS Inc. (0.25%).
UBS (USA) Inc. is a Delaware corporation owned by UBS
AG (95%) and UBS Inc. (5%). UBS Inc. is a New York
corporation wholly owned by UBS AG.

iii

TABLE OF CONTENTS

Questions Presented for Review ...........+-5.
List of Parties and Corporate Affiliates ..........
y) |, ge PP errerrrrrrere eee
Table of Cited Authorities .............-+-005.
Opinions Below ..........ceccceccceesccecess
Statement of the Case .......ccccccccecccccees

A. The Petitioner’s Arbitration Agreement. ...

B. The Petitioner’s Complaint and Proceedings
DE de oue sees Cv seeerevsseUsvseves

ccc ens s ved benevenveeeves
Reasons for Denying the Writ ...............-..

I. The “Forum Fees” Issue Does Not Merit
ae ee ae og tee eae WON

A. The Petitioner Lacks Standing. ......

B. There is No Unsettled Issue of Great
rere eee eee eee eee

C. No Circuit Split Exists. .............

11

14

iv

Contents

II. The “Might Not Follow The Law” Issue Does
POUL EE SEUIS so vecevseccesedtseeres

A.

B.

The Objection is Premature. .........

There is no Circuit Split. ...........

Ill. The Effect Of The 1991 Civil Rights Act On
Arbitration Agreements Does Not Warrant
MS b4cucnbacddtanedeaousees rere

A.

Conclusion

The 1991 Civil Rights Act Does not
Address the “Forum Fee” or “Might not
Follow the Law” Issues. ............

The Effect of the 1991 Civil Rights Act
on Gilmer Does not Merit Review. ...

Page

16
17

19

20

21

23

26

Vv

TABLE OF CITED AUTHORITIES
Cases:

Alford v. Dean Witter Reynolds, Inc., 939 F.2d 229
COG, SHEE 0 6c cd kdccceussvisesesnvennes

Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265
er rrr ara epee ry fe

Austin v. Owens-Brockway Glass Container, Inc.,
78 F.3d 875 (4th Cir.), cert. denied, US. _.,
CTF Hs Gh Ge GHD kc ntoe cercnéscsvessaeei

Baker v. Carr, 369 U.S. 186 (1962) .............

Barnett v. City of Chicago, 1999 WL 138813 (N.D.
Ses NE Sy SU Gas aceevacucevenseseuten

Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698
Ces Gr SUN 6b horn Vks oes eneeeneseanes

Bunge Corp. v. Williams, 45 Ill. App. 3d 359, 359
N.E.2d 844 (Sth Dist. 1977) ..............4..

Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585
SUED 6 6 ecodeee dace hed sendieee eet ataees

Cole v. Burns Int’l Security Servs., 105 F.3d 1465
Ce ee SED do paeiseueewascsenaeeae

Contreras v. City of Chicago, 119 F.3d 1286 (7th
Se SPD Sccncanebevsduebsch eee eewerre

Page

24

1]

14

24

vi

Cited Authorities
Page
Cypress-Fairbanks Indep. School Dist. v. Michael
Fig LEG FO SOD ESR CR. IGFET) cccccccvessess 14
DeGaetano v. Smith Barney Inc., 983 F. Supp. 459
CRIs SOUTD socevecctdeccaseuvecdeenns 18
Delta Air Lines, Inc. v. August, 450 U.S. 346 (1981)
TTT TITT TIT TTTTTTT rr eee 13,14
Delta Air Lines, Inc. v. Colbert, 692 F.2d 489 (7th
Ss RED 2 veccesecsenavnunbegsanee bees 14
DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818
(2d Cir. 1997), cert. denied, U.S. _, 1185S.
Ge: Ge CREO 6 6 ccccctéceeediensaeenn esos «6S
Doctor's Assocs. v. Casarotto, 517 U.S. 681 (1996)
$nt000000nneeeneseeseesenecahdenvanenie 8
Duffield v. Robertson Stephens & Co., 1996 U.S.
Dist. LEXIS 21571 (N.D. Cal. Aug. 26, 1996),
aff'd in part, rev'd in part, 144 F.3d 1182 (9th
Cir.), cert. denied, _U.S. _, 119 S. Ct. 445
GESUEE 64.000 civnncdievasdebasushavewereenn 17
Duffield v. Robertson Stephens & Co., 144 F.3d 1182
(9th Cir.), cert. denied, U.S.__,119S. Ct. 445
CORO o06.0:060540n0nsenunes vee oe en 15, 19, 24, 25
Ezold v. Wolf, Block, Schorr & Solis-Cohen, 157
Fa 4S Gb PU SUED, 5. bec sence eksa Rear 14

Cited Authorities

Page
First Options of Chicago, Inc. v. Kaplan, 514 US.
SO COEEE Se cccebesuvssteduteedeasvacess 8
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.
i) ee er reg ee ene y= passim
Glennon v. Dean Witter Reynolds, 83 F.3d 132 (6th
Gals SEU we cecewhendeseeteestsbadeevasdes 4
Hooters of America, Inc. v. Phillips, 1999 WL
194438 (4th Cir. April 8, 1999) .............. 19, 20
Howard v. Anderson, 36 F. Supp. 2d 183 (S.D.N.Y.
Dee: Sab 4s un ensues enauenuNeneeetieuy aes 16
Hurst v. Prudential Securities Inc., 21 F.3d 1113 (9th
Cir. 1994) (table), 1994 WL 118097 .......... 24
Illyes v. John Nuveen & Co., 949 F. Supp. 580 (N.D.
ks ME tad Gov caves ound ee eeereenoaeekes 16

In re Arbitration between Owen-Williams and
Merrill Lynch, 1997 WL 34966 (NASD, Nov. 12,
SE Sa adewh Sener e ue eee ceekeewes 11

In re Sinclair, 870 F.2d 1340 (7th Cir. 1989) ..... 22

Jones v. Continental Corp., 789 F.2d 1225 (6th Cir.
SES Gis ke ea bteaceorlersersdeeseeeeeen 14

vill

Cited Authorities

Page

Kewanee Prod. Credit Ass'n v. G. Larsons & Sons

Farms, 146 Ill. App. 3d 301, 496 N.E.2d 531 (3d
it Sh ccckeneveesssteeuwendeesusaeuns 9

Landgraf v. USI Film Prods., 511 U.S. 244 (1994)
TTT TT EET CETTE TT OOO TE UTEP CTE T TTT eee re 22
Lorillard v. Pons, 434 U.S. 575 (1978) ......... 22

Mago v. Shearson Lehman Hutton Inc., 956 F.2d 932
es SEED oven dsanaseeueeueeeeusess 19, 24, 25

Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
39 F.3d 1482 (10th Cir. 1994) ............... 24

Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614, 628 (1985) ......
SideeedeestNaneaaeaeren 8, 9, 13, 17, 18, 19, 20, 22

Montes v. Shearson Lehman Brothers, Inc., 128 F.3d

SE Cee Ge SEE cue ecucereesuneaeauess 18
Moose Lodge No. 107 v. Irvis, 407 U.S. 163 (1972)
Oy EN Ppt Bee eye Perce 11
Morton v. Mancari, 417 U.S. 535 (1974) ........ 23
Moses H. Cone Mem. Hosp. v. Mercury Const., 460
oo Be: SR re erry ere rete Peer 7

Cited Authorities

Page
Paladino v. Avnet Computer Techs., 134 F.3d 1054
SR GEN SOU ba cecdsadassnseteseceeenees 15,19
Patterson v. Tenet Healthcare, Inc., 113 F.3d $32
as EE 40 bde) ced eeeeten sc ceaeeesie be 24
Perry v. Thomas, 482 U.S. 483 (1987) ..........
Pion v. Liberty Dairy Co., 922 F. Supp. 48 (W.D.
Se EE doa per eed eeascaeuee ise nkenenis 14
Poe v. John Deere Co., 695 F.2d 1103 (8th Cir. 1982)
OCTET EVE Oe CIET TT ECP O TE TORT eee 14
Rodriguez de Quijas v. Shearson/American Exp.,
BOG, TPO Ue SFT CLEP a voc ccpevccvtveres 8, 22

Rosenberg v. Merrill Lynch Pierce Fenner & Smith,
Inc., 170 F.3d 1 (1st Cir. 1999) .. 6, 13, 16, 17, 22, 25

Seus v. John Nuveen & Co., 1997 WL 325792 (E.D.
Pa. June 2, 1997), aff'd, 146 F.3d 175 (3d Cir.
1998), cert. denied, _U.S. _, 119 S. Ct. 1028
SE 6 i 9-065s 0s hebaes nes eeTeeee ett 17

Seus v. John Nuveen & Co., 146 F.3d 175 (3d Cir.
1998), cert. denied, U.S. _,119S. Ct. 1028
SE 8435 k Kaaere reac paar aar 15, 23, 25

Shankle v. B.G. Maintenance Management, 163 F.3d
Seow CPO Ge BOND bp cbs cckedcseoeeoweud. 15, 19

a

Cited Authorities
Page
Shearson/American Exp., Inc. v. McMahon, 482 U.S,

BOOCISSTD ceccsrcsencvecvecetcusévers 8,9, 17, 21
Skouby v. Prudential Ins,, \30 F.3d 794 (7th Cir.

POPC va becurcdcecasuccenscavecsucereeess 5
Tatum v, Laird, 408 U.S. 1 (1972) 2.6... 6... aes 11
Valdiviezo v. Phelps Dodge, 995 F. Supp. 1060 (D.

Sa TG vs sada Vieccetsaueacenaseesaxes 18
Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer,

515 U.S. 528 (1995) ....... 11, 12, 14, 18, 19, 20, 23
Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305

Gi GG See oscnechucdnciedstacusctesa> 24
Wisconsin R.R. Comm'n v. Chicago, B. & O. R.R.,

yo gtk Re . ere or Pere 22
Statutes:

PU eB ion den cesnccese vers eaeneeriees 7
Be ae SUE sh osc dee dneedssedeseucceu a 13
RR oe Pee eee 15

Sore Gates Meee FOUR, © EG ccc cvcccvevuccunes 21,20

xi

Cited Authorities

Rules:

United States Supreme Court Rule 14.1(a)
Ps Gee Ges EE oc knoe cbeversaecseacseses
Other Authorities:
OF ee OTE 6 bw hs enced awntenceeees
137 Cong. Rec. H9505-01 (Nov. 7, 1991) ........
137 Cong. Rec. $15472-01 (Oct. 30, 1991)

American Stock Exchange Rule 600(a) (American
Stock Exchange Guide (CCH) 4 9540 (1996)) ..

Stephen Breyer, On the Uses of Legislative History
in Interpreting Statutes, 65 S. Cal. L. Rev. 845
SO A WeVene resins casi ee teoneweneneeces

CBOE Rule 18.1 (CBOE Constitution & Rules
CLASES DOPED CEOOEED ccccvcccenctcocevéses

H.R. Rep. No. 40(1)97, reprinted in 1991
Pardes GUE ccctestcevevssseceseuvess

xii

Cited Authorities

NASD Rule 10101 (NASD Manual (CCH) at 7511
CEPPODD vvcvcvcevesvevesersbeccevenvenenes '

Se ee UD oo 6.5 40 60300 bears deeee ee
SE I en vc ab bee bieeeeee cee
SE ED SED sc é-6 dw KOK Ce aR Ree

NYSE Rule 347 (NYSE Guide (CCH) 4 2347 (1995))

‘e829 4886.96 624208242 068.8 OO 26 CGO Se 2888 Pe 6 6 a So

PHLX Bylaws § 10-8 (Philadelphia Stock Exchange
Guide (CCH) 4 1232 (1996)) ....cccccccccccs

PSE Rule 12 (Pacific Stock Exchange Guide (CCH)
yi rr ree rrr rn

SEC Release No. 34-32261, 58 Fed. Reg. 27656

eu} CPO ePCrerse Cede esee@ec#t € Ct eee Beets 2 et 6.0 2 ee

SEC Rel. No. 34-40109, 63 Fed. Reg. 35299, 1998
We PONG 6 ic dkeetuncsateeeavnesete ieee

SEC Rel. No. 34-40479, 63 Fed. Reg. 52782, 1998
| rrr rrr yror rss pee re Y

Po

xiii

Cited Authorities

Page

SEC Rel, No, 34-40517, 1998 WL 681447 ....... 4
SEC Rel. No. 34-40858, 64 Fed. Reg. 1051, 1999

EE 4
SEC Rel. 34-41056, 64 Fed. Reg. 10041 (March 1,

SS 10, 11, 12, 13

SEC Rel. No. 34-41080, 1999 WL 89027 ........ 4

SEC Rel. No. 34-41350, 1999 WL 261839 ....... 4

1

OPINIONS BELOW

The District Court’s March 18, 1998 order, which denied
the Respondent’s motion to compel arbitration, was a minute
order. Appendix B to the petition reprints only the reverse side
of the minute order. The face of the minute order states:

Defendant’s motion to dismiss (4-2) and its motion
to compel arbitration (4-1) are denied. Under recent
authority, the discovery sought by plaintiff is
appropriate before a decision can be reached on the
issue of arbitration. Status hearing set for 4/17/98 at
9:45 a.m.

R. 31.!
STATEMENT OF THE CASE

The Petitioner’s Title VII claims are facially subject to
arbitration because she signed an agreement to arbitrate all
employment claims, identical to the agreement held enforceable
in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991).?
In that agreement, the Petitioner agreed to arbitrate all claims
between herself and her employer, including employment-
related claims, at the instance of either party. Now she urges
three reasons why she should be relieved of her agreement:

(1) The possibility that in arbitration a claimant
might incur certain fees that have no exact

1. Citations to the Pleading Volume of the Record on Appeal are
in the form “R. __.” The Exhibits Volume of the Record on Appeal
actually contains a single plaintiffs brief (R. 11), with attached exhibits.
Citations to the Appendix to the Petition are in the form “A. __.”

2. In addition to claims under Title VII, the Petitioner also asserted
below claims under the Equal Pay Act and the New York Human «ughts
Law. The Seventh Circuit held that all of these claims are subject to
arbitration under the Petitioner’s arbitration agreement. A. 2a, 18a. The
Petitioner challenges that ruling only as it relates to her Title VII claims,
conceding that her other claims are arbitrable.

2

counterpart in litigation assertedly may chill
unemployed and impoverished claimants from
asserting Title VII claims.

(2) Though no arbitration has occurred, the
Petitioner fears that arbitrators may misapply the
law.

(3) The 1991 Civil Rights Act, enacted six months
after Gilmer and providing that arbitration of Title
VII and other civil rights claims is “encouraged . . .
where appropriate and to the extent authorized by
law,” purportedly codifies a pre-Gilmer hostility to
arbitration.

The issues urged by the Petitioner are not only fraught with
problems of standing and prematurity, but are otherwise
unworthy of review. The Federal Arbitration Act (“FAA”)
mandates enforcement of agreements to arbitrate statutory
disputes unless: (1) there are contract formation defects under
state law; or (2) Congress plainly overrode the FAA in the statute
at issue. The purported “forum fees” and “might not follow the
law” issues asserted here are not contract formation defects,
nor is there any credible reason to believe Congress intended to
exempt Title VII from the FAA on these (or any other) bases.
Nor, contrary to the Petitioner’s assertions, is there a circuit
split on whether agreements to arbitrate Title VII claims are
unenforceable on these bases.

A. The Petitioner’s Arbitration Agreement.

The Petitioner held a variety of employment positions with
the Respondent, the last of which was as a securities trader. To
protect customers, the SEC requires securities traders to register
with the exchanges on which they trade.’ In February 1995 the
Petitioner therefore registered with five exchanges: the New

3. 17 C.F.R. § 240.1567-1; see SEC Release No. 34-32261, 58
Fed. Reg. 27656.

3

York Stock Exchange (“NYSE”), the National Association of
Securities Dealers (“NASD”), the Chicago Board Options
Exchange (“CBOE”), the Philadelphia Stock Exchange
(“PHLX”), and the Pacific Stock Exchange (“PSE”). R. 5,
Ex. A.

There is a standard form for registering with any exchange,
called “Form U-4: Uniform Application for Securities Industry
Registration or Transfer.” Form U-4 (the same agreement that
the Court construed in Gilmer, 500 U.S. at 23) is a contract
between the registering trader and each designated exchange.
Id. at 25 n.2. The Form U-4 contract includes, under the heading
“THE APPLICANT MUST READ THE FOLLOWING VERY
CAREFULLY,” an agreement by the applicant to follow any
arbitration rules adopted by the designated exchanges for
resolving disputes between the applicant and his or her
employer. R. 5, Ex. A at 4. Not every exchange has such rules,‘
but at the time the dispute in this case arose, all five of the
exchanges with which the Petitioner registered had rules
requiring arbitration of disputes between the registrant and his
or her employer, if either party requested it.°

4. As the Seventh Circuit noted below, A. 16a n.2, the American
Stock Exchange does not. See American Stock Exchange Rule 600(a)
(American Stock Exchange Guide (CCH) 4 9540, at 2811 (1996))
(AMEX rules require arbitration of some disputes, but not.disputes
between associated members (i.e., traders) and their firms).

5. See NYSE Rule 347 (NYSE Guide (CCH) { 2347 (1995)):
NASD Rule 10101, 10201 (NASD Manual (CCH) at 7511 (1996));
CBOE Rule 18.1 (CBOE Constitution & Rules (CCH) J 2511) (1995));
PHLX Bylaws § 10-8 (Philadelphia Stock Exchange Guide (CCH)
{ 1232 (1996)); PSE Rule 12 (Pacific Stock Exchange Guide (CCH)
J 6435 (1993)).

The NASD and NYSE have now changed their rules to remove
the requirement that statutory claims of employment discrimination
must be arbitrated at the request of either party, though other
employment claims remain subject to arbitration, and the exchanges

(Cont’d)

4

The Petitioner has admitted that she executed her Form
U-4 agreement (R. 3, J 22), though, like the plaintiff in Gilmer,
she complains that it was “a condition of her employment.” /d.
But she does not dispute that the Court held Gilmer’s Form
U-4 agreement enforceable even though it was “required by his
employment.” 500 U.S. at 23. The Petitioner also contends that
the “language of the arbitration agreement was non-negotiable.”
Petition at 4. But she does not dispute the Seventh Circuit’s
observation that arbitration occurs under the agreement’s terms
only if the employer or the employee requests it,° and whether

(Cont'd)

still provide an arbitration forum for those who wish to arbitrate statutory
discrimination claims. The NASD Rules (Rule 10201) were amended
effective January 1, 1999. See SEC Rel. No. 34-40109, 63 Fed. Reg.
35299, 1998 WL 339422. The NASD rule change is not retroactive.
See NASD Regulation answers to frequently asked questions, . The NYSE proposed rule change (SEC
Rel. No. 34-40479, 63 Fed. Reg. 52782, 1998 WL 670164) was
approved by the SEC on December 29, 1998 (SEC Rel. No. 34-40858,
64 Fed. Reg. 1051, 1999 WL 3315), and is silent on retroactivity. See
Koveleskie, A. 3an.1.On October 1, 1998, the SEC granted accelerated
approval of the PHLX’s proposal to discontinue its independent
arbitration program. PHLX now refers member firms and registrants
to the NASD arbitration forum. SEC Rel. No. 34-40517, 1998 WL
681447. On February 22, 1999, the CBOE amended its rules, effective
that date, to provide that claims involving discrimination, including
sexual harassment, are “not appropriate for arbitration at the Exchange.”
SEC Rel. No. 34-41080, 1999 WL 89027. On February 3, 1999, the
PSE proposed an amendment to its arbitration rules to mirror the
NASD’s and NYSE’s rule changes for arbitration of statutory
employment claims. The SEC approved the PSE’s proposed rule change
on April 30, 1999. SEC Rel. No. 34-41350, 1999 WL 261839.

6. Contrary to the Petitioner’s assertion that the Form U-4 requires
arbitration “at the employer’s option,” Petition at 4, either side may
request arbitration, and sometimes it is the employee who does so. See,
e.g., Glennon v. Dean Witter Reynolds, 83 F.3d 132, 134 (6th Cir. 1996)
(employee demanded arbitration of employment-related dispute; court
affirmed arbitration award for employee, including $750,000 in punitive
damages).

:
’
italien

5

the parties choose to request it is fully negotiable. A. l6a &
n.4. Indeed, the Petitioner’s counsel have negotiated agreements
with two large bre «:age firms (Merrill Lynch and Smith
Barney) not to reque.si arbitration of employment discrimination
claims, and have publicized those negotiated agreements by
posting web sites. See ;
.

B. The Petitioner’s Complaint and Proceedings Below.

The Petitioner was employed by Respondent until April
1996, when she walked off the job, claiming “constructive
discharge” because of alleged denial of equal pay and
opportunities and alleged inappropriate comments. R. 3,
{I 4-15.’ She filed an EEOC charge, file-stamped by the EEOC
on July 2, 1996, R. 1, Ex. A, but before the EEOC made a
determination she requested a right-to-sue letter. She filed her
initial complaint on March 31, 1997. R. 1. The Respondent
promptly moved to compel arbitration in accordance with the
Petitioner’s Form U-4 arbitration agreement and the exchanges’
rules. R. 4, 5. In response, the Petitioner filed an amended
complaint, R. 3, challenging the enforceability of her arbitration
agreement on numerous grounds, most of which are not raised -
in this Court. The Respondent renewed its motion to compel
arbitration, R. 7, 8, and the motion was fully briefed by May
29, 1997. R. 13.

The District Court held two brief status hearings in August
1997 (8-7-97 Tr.; 8-12-97 Tr.), but did not entertain argument
on the motion. On March 18, 1998 the District Court denied
the motion to compel arbitration in a brief minute order. R. 31.

The Respondent appealed the denial, and on February 4,
1999 the Seventh Circuit reversed, rejecting each of the

7. Many of the alleged incidents are alleged to have occurred as
early as 1986, far outside the 300 day period preceding the filing of the
Petitioner’s EEOC charge. Such claims are untimely. See Skouby v.
Prudential Ins., 130 F.3d 794, 796, 797 (7th Cir. 1997).

6

Petitioner’s arguments why she should be excused from her
agreement to arbitrate. A. 1a.

C. The Record. ~

The Petitioner asserts that she sought to take discovery and
that the record contains “undisputed record evidence.” Petition
at 5. In fact, the Petitioner never propounded any discovery at
all, and the District Court held no hearings so as to create any
evidentiary record.

In her response to the Respondent’s renewed motion to
compel arbitration, R. 11, the Petitioner attached a variety of
documents, which she now calls the “undisputed record
evidence.” Those attachments are not, of course, necessary or
dispositive of such matters as the rules of the exchanges, which
are published and readily available.

The Petitioner also refers to another attachment, a collection
of 33 photocopies of NYSE arbitration awards, R. 11 at Ex. J,
from which she invites conclusions about the imposition of fees
in arbitration. The same collection of 33 awards (selected and
assembled by undisclosed means) has been presented to other
courts, including the First Circuit, which observed that “it does
not appear to be the usual situation that a plaintiff is asked to
bear forum fees. . . . [I]n the thirty-three arbitration cases ...
only one plaintiff who prevailed on statutory grounds was denied
fees and costs.” Rosenberg v. Merrill Lynch Pierce Fenner &
Smith, Inc., 170 F.3d 1, 15-16 (1st Cir. 1999). Nor are securities
industry arbitrations limited to these 33 cases. NASD and NYSE
arbitration decisions are published by Westlaw in the FSEC-
ARB database, and those published results reinforce the First
Circuit’s conclusion.

The Petitioner also refers to R. 11, Ex. I, a photocopy of
an Arbitrator’s Manual (misidentified as dated 1996; Ex. I is
actually dated 1992), “compiled by members of the Securities
Industry Conference on Arbitration (SICA) as a guide for

a a

7

arbitrators” (R. 11, Ex. 1, Preface), as “undisputed evidence.”
Petition at 6. She emphasizes a single sentence in the 50-page
manual, stating that arbitrators “are not strictly bound by case
precedent or statutory law,” but omits all context. In fact, the
manual stresses on the one hand the informality of arbitration,
including the familiar principle that “strict rules of evidence”
need not be applied and that “generally arbitration proceedings
should be more informal and should permit more liberal
introduction of evidence than would be permitted in courts”
(Ex. I at 22-23), and on the other hand the arbitrator’s duty to
follow applicable statutes on matters of liability or attorney’s
fees (seeking guidance from the parties through briefs and oral
argument) (id. at 24, 28), strengthened by an admonition that
an award may be vacated if the arbitrator disregards the law
(id. at 26).

The record does contain some undisputed facts: the
admissions contained in the amended complaint. Among those
admissions is the Petitioner’s acknowledgment that, so far from
being “a worker who has lost her job and is without gainful
employment” who allegedly may be chilled from asserting Title
VII claims (Petition at 11; see also id. at 8), the Petitioner was
promptly reemployed in a securities position following her
resignation from the Respondent. R. 3, { 71.

REASONS FOR DENYING THE WRIT

The FAA provides that arbitration agreements are “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.
§ 2. The Court has recognized that the FAA embodies a “liberal
federal policy favoring arbitration agreements” and “establishes
that, as a matter of federal law, any doubts concerning the scope
of arbitrable issues should be resolved in favor of arbitration.”
Moses H. Cone Mem. Hosp. v. Mercury Const., 460 U.S. 1,
24-25 (1983). This is true even when the claims to be arbitrated
involve important statutory rights. Gilmer, 500 U.S. at 26. As
the Court has repeatedly emphasized,

By agreeing to arbitrate a statutory claim, a party
does not forgo the substantive rights afforded by
the statute; it only submits to their resolution in an
arbitral, rather than a judicial, forum.

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 628 (1985). See also Gilmer, 500 U.S. at 26; Rodriguez .

de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477, 481
(1989); Shearson/American Exp., Inc. v. McMahon, 482 U.S.
220, 229-30 (1987).

The Court has made clear that a party may challenge the
enforceability of an arbitration agreement only on limited
grounds. The first is suggested by the terms of the FAA itself:
contract formation defects (“such grounds as exist at law or in
equity for the revocation of any contract”) may prevent the
formation of a valid arbitration agreement. See Gilmer, 500 U.S.
at 33 (“the FAA’s purpose was to place arbitration agreements
on the same footing as other contracts,” subject to contract-
formation defenses such as fraud). Such challenges must be
evaluated under state contract-formation law (see First Options
of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1993)), and the
state law cannot single out arbitration agreements, but must be
applicable to “any contract,” or it is preempted by the FAA
(see Doctor’s Assocs. v. Casarotto, 517 U.S. 681, 686-88
(1996); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265,
281 (1995); Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987)).

The Petitioner’s complaints about arbitration — that she
might incur forum fees or that the arbitrators might misapply
the law — are not complaints about contract formation under
state law.®

8. The Petitioner does offer comments that she lacked knowledge
about the workings of securities industry arbitration when she signed
her Form U-4, that she “had no choice,” and that the agreement was
“non-negotiable.” Petition at 4. She does not expressly urge these as
grounds to invalidate her contract, and they are not grounds to invalidate

(Cont'd)

9

The second ground on which a party may challenge the
enforceability of an agreement to arbitrate statutory claims is
by showing that Congress intended to exempt the statute at issue
from the FAA. As the Court explained in McMahon:

The Arbitration Act, standing alone, . . . mandates
enforcement of agreements to arbitrate statutory
claims. Like any statutory directive, the Arbitration
Act’s mandate may be overridden by a contrary
congressional command. The burden is on the party
opposing arbitration, however, to show that
Congress intended to preclude a waiver of judicial
remedies for the statutory rights at issue.... If
Congress did intend to limit or prohibit waiver of a
judicial forum for a particular claim, such an intent
“will be deducible from [the statute’s] text or
legislative history,” . . . or from an inherent conflict
between arbitration and the statute’s underlying

purposes.

McMahon, 482 U.S. at 226-27, quoting Mitsubishi, 473 U.S. at
628. See also Gilmer, 500 U.S. at 26-32 (finding no
inconsistency between ADEA and FAA to indicate that
Congress intended to exempt ADEA from FAA).

The prime questions posed by the Petition are whether the
identified issues — the risks that arbitrators will impose forum

(Cont'd)

a contract under Illinois law. See, e.g., Bunge Corp. v. Williams, 45 Ill.
App. 3d 359, 364-65, 359 N.E.2d 844, 847-48 (Sth Dist. 1977)
(upholding arbitration agreement despite plaintiff's claim he did not
appreciate what he signed); Kewanee Prod. Credit Ass'n v. G. Larsons
& Sons Farms, 146 Ill. App. 3d 301, 305, 496 N.E.2d 531, 534 (3d
Dist. 1986) (cited by Seventh Circuit, A. 12a-13a, for the proposition
that “Illinois law does not void contracts when the parties have unequal
bargaining power, even if the proposed contract is a so-called ‘take-it-
or-leave-it’ deal and ‘consent to [the] agreement is secured because of
hard bargaining positions or the pressure of financial circumstances’ ”’).

10

fees or misapply the law — demonstrate congressional intent
to exempt Title VII from the FAA. These questions do not merit
review. Nor does the final question —- whether the 1991 Civil
Rights Act’s provision that arbitration is “encouraged . . . where
appropriate and to the extent authorized by law” actually shows
a congressional intent to bar arbitration — merit review.

I.

THE “FORUM FEES” ISSUE
DOES NOT MERIT REVIEW.

The Petitioner asserts that a claimant in securities arbitration
may incur expenses — filing and forum fees — that have no
direct counterpart in federal court litigation, and that the risk
such fees will be imposed may chill unemployed claimants of
straitened means from asserting Title VII claims. Review of
this claim should be denied because: (1) the Petitioner lacks
standing to assert it; (2) the issue is not an unsettled one of
great importance; and (3) the asserted circuit split does not exist.

A. The Petitioner Lacks Standing.

The Petitioner asserts that “the possibility that expensive
fees may be assessed against a worker who has lost her job and
is without gainful employment will chill her willingness to
arbitrate her discrimination claims.” Petition at 11. Even if this
“possibility” were real,® the Petitioner lacks standing to

9. In fact, fees may be waived in case of hardship and arbitrators
retain discretion how to allocate fees between the parties. See SEC
Rel. 34-41056, 64 Fed. Reg. 10041, 10048 & n.95 (March 1, 1999):

NASD Regulation has stated it will waive the initial filing
fee and hearing session deposit at the time of filing if a
party can demonstrate financial hardship. Arbitrators also
may order a respondent to reimburse a claimant for the
amount of the filing fee paid at the beginning of the case.

(Cont'd)

11

challenge the chill experienced by the unemployed, for she is
employed. R. 3, { 71.

A party “has standing to seek redress for injuries done to
him, but may not seek redress for injuries done to others.” Moose
Lodge No. 107 v. Irvis, 407 U.S. 163, 166 (1972). When a
plaintiff herself is “not chilled, but seek[s] only to represent
those ‘millions’ who[m] [she] believe[s] are so chilled, [she]
clearly lack[s] that ‘personal stake in the outcome of the
controversy essential to stanc.ng.’ ” Tatum v. Laird, 408 U.S.
1, 14 n.7 (1972), quoting Baker v. Carr, 369 U.S. 186, 204
(1962).

B. There is No Unsettled Issue of Great Importance.

Apart from the question of chill, the Petitioner suggests
that it would violate the substantive statute (Title VII) to enforce
an agreement to arbitrate, when the arbitral forum may involve
expenses without counterpart in litigation. The Court rejected
precisely such an argument in Vimar Seguros y Reaseguros
S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995). The petitioner
there had entered an agreement to arbitrate disputes about a
shipment of goods from Morocco to Boston before a panel of
Japanese arbitrators in Tokyo, but sought instead to litigate a
dispute in federal court in Boston. The petitioner argued that
the “inconvenience and costs of proceeding in Japan” would
undermine the substantive protections of the governing statute
(the Carriage of Goods by Sea Act (“COGSA”)), and that

(Cont'd)

See, e.g., In re Arbitration between Owen-Williams and Merrill Lynch,
1997 WL 34966 (NASD, Nov. 12, 1997), at *2 (waiving fees because
of hardship). See also SEC Rel. No. 34-41056, 64 Fed. Reg. at 10048,
10050 (“fees are not automatically imposed on either party... .
[Arbitrators make fee allocations after a hearing on the record”); id. at
10050 (“it is the arbitrators who decide who will pay [fees] in any
individual case”); NASD Rules 10205, 10332; NYSE Rule 629.
Published arbitration decisions suggest that employers usually bear all
or a substantial portion of forum fees even when they prevail.

12

COGSA therefore took priority over the FAA. Jd. at 532. The
Court rejected this argument, holding that there is a difference
“between explicit statutory guarantees and the procedure for
enforcing them, between applicable liability principles and the
forum in which they are to be vindicated,” and any
“inconvenience and costs” associated with the arbitral forum

were no reason to invalidate the agreement to arbitrate. Jd. at
534.

The Court reached a similar conclusion in Carnival Cruise
Lines, Inc. v. Shute, 499 U.S. 585 (1991). Shute held a pre-
printed form agreement with a forum-selection clause
enforceable, despite the inconvenience and expense of the forum
(Florida) to the plaintiff (a resident of Washington State). The
Court rejected the plaintiff's argument that “unreasonable
hardship in asserting [substantive statutory] rights” would
undermine the substantive protections of the governing statute
(the Limitation of Vessel Owners’ Liability Act). Jd. at 596.

The issue asserted here — whether the transaction cost of
resolving a statutory claim in an alternative forum compromises
substantive statutory rights, so as to support an inference that
the alternative forum is irreconcilable with the statute — is not
an unsettled issue of great importance, for the Court has already
resolved it in Vimar Seguros and Shute.

Indeed, the Petitioner’s assumption that arbitration is more
expensive than litigation is hardly established. Though arbitral
forum fees (if they are imposed on a claimant at all) may have
no precise litigation counterpart, they are only one component
of the possible expenses of arbitration versus litigation.'° The
Court has recognized that arbitration and litigation procedures
are not identical, and that there are trade-offs of advantages

10. See SEC Rel. No. 34-41056, 64 Fed. Reg. at 10050 n.107
(“Litigation is likely to involve other significant costs associated with
depositions and attorney fees that would likely be lower in an arbitration
setting.”).

13

between the two. Gilmer, 500 U.S. at 31. The aim of arbitration
is to seek “streamlined proceedings and expeditious results” in
order “to keep the effort and expense required to resolve a
dispute within manageable bounds.” Mitsubishi, 473 U.S. at
633. Arbitration “is usually cheaper and faster than litigation.”
Allied-Bruce Terminix, 573 U.S. at 280. See also Rosenberg,
170 F.3d at 16 (“arbitration is often far more affordable to
plaintiffs and defendants alike than is pursuing a claim in
court”).!!

Apart from the speed of proceedings, litigation may involve
expenses not found in arbitration. In court, a losing plaintiff's
liability for the other side’s costs under Fed. R. Civ. P. 54(d)
(including, e.g., filing fees, deposition transcript costs, witness
fees, copying charges; see 28 U.S.C. § 1920) is virtually
automatic, and may be substantial.'* The published NYSE and

11. Even if the forum fees are viewed in isolation, the Petitioner’s
asserted contrast between a litigation forum subsidized by taxpayers
and an unsubsidized arbitral forum is a false one. The entire cost of
securities industry arbitration is not imposed on the litigants. See SEC
Rel. 34-41056, 64 Fed. Reg. at 10047 (“[T]he filing fees and hearing
session deposits . . . do not cover the cost of administering the [NASD
arbitration] program”); id. at 10047 n.89 (“filing and hearing session
fees” pay for approximately 50-68% of the direct costs for administering
individual cases); id. at 10047 n.89, 10048 n.97 (filing fee and hearing
session fees do not cover “NASD Regulation’s general costs for
administering the arbitration department, including costs for arbitrator
recruitment and training, computer systems, office space, senior
management, and legal services;” member surcharges pay for NASD
Regulation’s general costs for arbitration administration and for the
shortfall (estimated to be $6.1 million per year) between fees assessed
in individual cases and the direct costs for administering those cases).
See also id. at 10048 (“the arbitration program is subsidized by the
NASD and its members”); NASD Notice to Members 99-23 (March
18, 1999) (“Since its adoption of the Code in 1968, the NASD has
subsidized a substantial portion of the cost of the arbitration program
from general member assessment revenue.”).

12. See, e.g., Delta Air Lines, Inc. v. August, 450 U.S. 346, 352
(Cont'd)

14

NASD arbitration decisions show that in arbitration, unlike in
litigation, losing claimants are rarely assessed costs (suggesting
that arbitrators’ freedom from strict adherence to the rules of
litigation benefits plaintiffs).

Even if there were reason to believe arbitration is more
expensive overall than litigation (which appears doubtful), it
would be no reason to hold that Congress intended to preclude
agreements to arbitrate Title VII claims, as Vimar Seguros
makes clear. Because this issue is not an important unsettled
one, the Court should deny review.

C. No Circuit Split Exists.

The Petitioner asserts that a circuit split exists on the
question whether a risk of incurring forum fees renders an

(Cont'd)

(1981) (even for a civil rights plaintiff, “liability for costs is a normal
incident of defeat”); Contreras v. City of Chicago, 119 F.3d 1286, 1295
(7th Cir. 1997) (civil rights plaintiff who loses is liable for costs unless
narrow exception such as indigence applies; chilling effect on civil
rights claims is not a reason to deny costs); Cypress-Fairbanks Indep.
School Dist. v. Michael F., 118 F.3d 245, 256-57 (Sth Cir. 1997) (chilling
effect is no reason to deny a prevailing defendant Rule 54(d) costs;
costs of $6,770 imposed on losing disabilities/civil rights plaintiff);
Jones v. Continental Corp., 789 F.2d 1225, 1233 (6th Cir. 1986)
(rejecting argument that “taxing costs against a losing civil rights
plaintiff would conflict with the remedial purposes of Title VII’);
Poe v. John Deere Co., 695 F.2d 1103, 1108 (8th Cir. 1982) (same);
Delta Air Lines, Inc. v. Colbert, 692 F.2d 489, 490-91 (7th Cir. 1982)
(same); Barnett v. City of Chicago, 1999 WL 138813, at *7-8, 10 (N.D.
Ill. March 5, 1999) ($11,674.89 in costs imposed on losing plaintiffs,
despite claims of hardship and chilling effect on assertion of important
civil rights claims); Pion v. Liberty Dairy Co., 922 F. Supp. 48, 50-51
(W.D. Mich. 1996) (same; costs of more than $8,000 awarded against
losing plaintiff); Ezold v. Wolf, Block, Schorr & Solis-Cohen, 157 F.R.D.
13, 18 (E.D. Pa. 1994) (same; more than $12,000 in costs imposed on
losing plaintiff).

en ee

15

arbitration agreement unenforceable. The supposed split of
authority does not exist.

Shankle v. B.G. Maintenance Management, 163 F.3d 1230,
1234-35 (10th Cir. 1999), held an arbitration agreement invalid,
but only because it mandated in advance that the employee must
pay forum fees regardless of outcome (a result that may be an
improper prospective waiver of a prevailing Title VII plaintiff’ s
right to recover costs, 42 U.S.C. § 2000e-5(k)). Shankle
expressly stated that other arbitral schemes are not invalid, citing
Gilmer and the securities arbitration scheme at issue here.
163 F.3d at 1234 & n.3. In contrast to Shankle, under securities
arbitration the arbitrator remains free to waive or allocate costs
as appropriate, as the Seventh Circuit held below. A. 10a.

Paladino v. Avnet Computer Techs., 134 F.3d 1054
(11th Cir. 1998), also denied arbitration, but on the ground that
the arbitration agreement forbade arbitrators from awarding Title
VII or ADEA remedies, making the agreement either not extend
to Title VII or ADEA claims (id. at 1058), or contain an unlawful
limitation of remedies (id. at 1060-62). Although the
concurrence expressed additional concern about the cost of
arbitration to plaintiffs, the court’s holding was based on the
limitation of remedies.

No other case cited by the Petitioner denied arbitration
because of potential forum fees. The Petitioner assumes that
the Ninth Circuit would do so, Petition at 10, simply because it
denied arbitration of certain claims on different grounds.
Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir.
1998). Since the Ninth Circuit did not address the forum fees
issue at all (and actually compelled the plaintiff to arbitrate
certain other claims, id. at 1200, 1203) it cannot fairly be said
to have “split” with any court. Nor can the Third Circuit be said
to have “split” the other way, simply because it allowed
arbitration in Seus v. John Nuveen & Co., 146 F.3d 175
(3d Cir. 1998), for Seus likewise did not address this issue.

16

Nor did the D.C. Circuit deny arbitration on this ground.
Instead, in Cole v. Burns Int’l Security Servs., 105 F.3d 1465,
1483-86 (D.C. Cir. 1997), the court construed an AAA
arbitration agreement as not allowing employees to bear forum
fees, and compelled arbitration.

Contrary to the Petitioner’s assertion, neither of the
remaining circuits she identifies (the Seventh Circuit (below)
and the First Circuit (Rosenberg)) held that securities arbitration
“requires employees to pay expensive forum or filing fees.”"’
Petition at 9. Instead, they recognized that securities arbitrators
have discretion to waive or shift fees, and that it is premature to
complain of burdensome fees when none have been imposed.
A. 10a; Rosenberg, 170 F.3d at 15.

The asserted circuit split is illusory and no reason to grant
review.

Il.

THE “MIGHT NOT FOLLOW THE LAW”
ISSUE DOES NOT MERIT REVIEW.

The Petitioner fears that arbitrators will misapply the law.
Petition at 14-16. She bases this fear on a single phrase from
the 50-page Arbitrator’s Manual, taken out of context. Courts
have repeatedly recognized that the manual does not counsel
arbitrators to ignore the law.'* In any event, no arbitrator has

13. The Petitioner cites no case to support her contention that an
arbitral filing fee being higher than a court filing fee invalidates an
arbitration agreement, much less a circuit split on the issue. In fact, the
D.C. Circuit found no problem with an arbitral filing fee. Cole, 105
F.3d at 152 n.12. See also Howard v. Anderson, 36 F. Supp. 2d 183,
186 (S.D.N.Y. 1999) ($500 arbitral filing fee is not inconsistent with
Title VII).

14. See, e.g., Illyes v. John Nuveen & Co., 949 F. Supp. 580, 584
(N.D. Ill. 1996):

(Cont'd)

aint te me

OR ES eR ee es eee See SO

ee re ae

ee =

17

applied any law in this case, because no arbitration has occurred.
Review of this issue is unwarranted because: (1) the objection
is premature; and (2) there is no circuit split.

A. The Objection is Premature.

The Court has repeatedly stated that “there is no reason to
assume at the outset that arbitrators will not follow the law.””
Instead, the review stage after arbitration has occurred is the
proper time to consider this issue: “[A]lthough judicial scrutiny
of arbitration awards necessarily is limited, such review is
sufficient to ensure that arbitrators comply with the requirements
of the statute.”’°

(Cont'd)
[T]he NASD arbitration manual does not instruct arbitrators
that they do not have to follow the law; it merely states
that they are not “strictly bound by case precedent or
statutory law.” The arbitrators are also told that if they
manifestly disregard the law, the award may be vacated.

See also Seus v. John Nuveen & Co., 1997 WL 325792, at *7 (E.D. Pa.
June 2, 1997) (“In fact, the arbitrator’s training guide does not tell
arbitrators that they do not have to follow the law”), aff'd, 146 F.3d
175 (3d Cir. 1998), cert. denied, U.S. _, 119 S. Ct. 1028 (1999);
Rosenberg, 170 F.3d at 16n.10; Koveleskie, A. 9a; Duffield v. Robertson
Stephens & Co., 1996 U.S. Dist. LEXIS 21571, at *17-18 (N.D. Cal.
Aug. 26, 1996) (rejecting claim based on instructions in the Arbitrator’s
Manual, court holds that “NYSE arbitration scheme does adequately
protect plaintiff's Title VII rights”), aff'd in part, rev'd in part on other
grounds, 144 F.3d 1182, 1190 n.7 (9th Cir.), cert. denied, US. _,
119 S. Ct. 445 (1998).

15. McMahon, 482 U.S. at 232 (1987). See also Mitsubishi, 473
U.S. at 634 (“We decline to indulge the presumption that the parties
and arbitral body conducting a proceeding will be unable or unwilling
to retain competent, conscientious, and impartial arbitrators”);
id. at 636.

16. McMahon, 482 U.S. at 232. See also Gilmer, 500 U.S.
at 32 n.4; Mitsubishi, 473 U.S. at 636-37 & n.19.

18

The Court recently considered this issue again in Vimar
Seguros, where the arbitration agreement specified a Japanese
arbitral forum. The plaintiff acutely feared that the arbitrators
would fail to apply the applicable U.S. statutory law and
therefore argued that his arbitration agreement was invalid. The
Court held this claim “premature,” reaffirming that the time to
consider the arbitrators’ compliance with the law was on review
because the court “will have the opportunity at the award-
enforcement stage to ensure that the legitimate interest in the
enforcement of the ... laws has been addressed.” Vimar
Seguros, 515 U.S. at 540, quoting Mitsubishi, 473 U.S. at 638.

The Petitioner contests the Court’s repeated conclusion that
review will be sufficient, arguing that the standard of review is
too strict. For example, the Petitioner argues that a prevailing
plaintiff may be entitled to attorneys’ fees as a matter of law,
yet not be awarded them by an arbitrator. Petition at 14-16.
Review is sufficient, however, not only when arbitrators are
expressly urged to disregard the law, Montes v. Shearson
Lehman Brothers, Inc., 128 F.3d 1456, 1464 (11th Cir. 1997),
but also when they are advised of the law and do not follow it.
The cases demonstrate that if a plaintiff has an entitlement
(for example, to attorneys’ fees) and specifically advises the
arbitrator of the law, an erroneous denial of fees may be reversed,
even under a strict standard of review. Contrast DiRussa v. Dean
Witter Reynolds, Inc., 121 F.3d 818, 822 (2d Cir. 1997), cert.
denied, __ U.S. __, 118 S. Ct. 695 (1998) (arbitrator did not
manifestly disregard the law because plaintiff did not tell
arbitrator of basis for entitlement to fees), with DeGaetano v.
Smith Barney Inc., 983 F. Supp. 459, 462-64 (S.D.N.Y. 1997)
(when plaintiff did advise arbitrator of law creating entitlement
to fees, the arbitrator’s failure to award fees was reversible under
the manifest disregard standard)."’

17. A party will have every opportunity to advise the arbitrators
of the law. Arbitrators are free and even encouraged to accept briefs.
See Valdiviezo v. Phelps Dodge, 995 F. Supp. 1060, 1070-71 (D. Ariz.
1997).

ee nO ene 7 ed

19

Because the Petitioner’s objection is premature, this issue
does not merit review.

B. There is no Circuit Split.

The Petitioner admits that there is no circuit split on the
“may not follow the law” issue, but she urges review because
“it is likely” there will be one in the future, based on an asserted
“shared reasoning” among decisions that have denied arbitration
on other grounds. Petition at 15. It is not appropriate to grant
review of an issue based on a party’s prediction of future circuit
conflicts that do not and may never exist.

Indeed, the Petitioner’s predictions that four courts “would
reject” the reasoning of the Seventh Circuit (Petition at 15)
cannot withstand scrutiny. For example, she asserts that the
Ninth Circuit would “[nJaturally” reject securities arbitration
on the “may not follow the law” theory, but overlooks the fact
that the Ninth Circuit compelled arbitration of a plaintiffs non-
statutory claims (Duffield, 144 F.3d at 1200, 1203), and has
compelled arbitration of Title VII claims in the past (Mago v.
Shearson Lehman Hutton Inc., 956 F.2d 932, 935 (9th Cir.
1992)). Similarly, Shankle and Paladino did not void arbitration
agreements because of supposed inadequate procedures, but
rather because of a “ ‘prospective waiver of a party’s right to
pursue statutory remedies,’ ” which the Court has condemned
as against public policy. Vimar Seguros, 515 U.S. at 540,
quoting Mitsubishi, 473 U.S. at 637 n.19.

And while the Fourth Circuit in Hooters of America, Inc.
v. Phillips did reject an arbitral forum because of its procedural
inadequacies, the court stated that its decision was based on
generally-applicable contract principles (the employer’s breach
of its promise to draft fair procedures), not on Title VII.
1999 WL 194438 (4th Cir. April 8, 1999), at *7. Otherwise, it
acknowledged, “[p]redispute agreements to arbitrate Title VII
claims are ... valid and enforceable.” Jd. at *3-4. The court
specifically cautioned that its decision should not “be

20

misunderstood as permitting” the kind of “full-scale assault on
the fairness of proceedings before a matter is submitted to
arbitration” (id. at *7) that the Petitioner has advocated.

This Court has stated that “insular distrust of the ability of
... arbitrators to apply the law” is not a basis for relieving a
party of its agreement to arbitrate. Vimar Seguros, 515 U.S. at
539. There is no reason to presume that the Petitioner and
Respondent will be “unable or unwilling to retain competent,
conscientious, and impartial arbitrators” to resolve their dispute.
Mitsubishi, 473 U.S. at 676. Rather, the Court of Appeals below
correctly applied controlling precedent when it concluded that,
in the unlikely event of an error, “judicial review of arbitration
awards is sufficient to protect statutory rights.” A. 1 la.

Il.

THE EFFECT OF THE 1991 CIVIL RIGHTS ACT ON
ARBITRATION AGREEMENTS DOES NOT
WARRANT REVIEW.

As discussed above, the FAA makes arbitration agreements
presumptively enforceable, unless: (1) no valid agreement exists
under state contract law (an issue not raised here); or
(2) Congress overrode the FAA in another statute. Having
argued in Sections I.A and I.B of the Petition that her arbitration
agreement is unenforceable on “forum fees” and “might not
follow the law” bases, without reference to the necessary legal
standard (whether Congress intended to override the FAA on
these bases), the Petitioner argues in the final section of her
Petition that in the 1991 Civil Rights Act amendments to Title
VII Congress did so intend. This argument cannot be
independent of the earlier “forum fees” and “might not follow
the law” arguments. Nor do the Petitioner’s arguments, when
directly addressed to the critical issue of Congress’s intent, add
any compelling reason to grant review: (1) the 1991 Act does
not address the “forum fees” or “might not follow the law”

21

issues, but rather “encourages” arbitration; and (2) while there
is a circuit split on whether the 1991 Act overrode the FAA for
Title VII claims, the clear trend in the circuits is to enforce
agreements to arbitrate Title VII claims.

A. The 1991 Civil Rights Act Does not Address the “Forum
Fee” or “Might not Follow the Law” Issues.

Section 118 of the 1991 Act states:

Where appropriate and to the extent authorized by
law, the use of alternative means of dispute
resolution, including . . . arbitration, is encouraged
to resolve disputes arising under [Title VII and other
civil rights statutes].

A. 42a. This section, the Petitioner argues, evinces a
congressional intent to override the FAA, carving out as
unenforceable those arbitration agreements affected by the
“forum fees” and “might not follow the law” issues. Petition at
17-19.

The Petitioner cites no statutory language to support her
position. The text of Section 118 nowhere refers either to forum
fees or to the possibility that arbitrators might not follow the
law. Indeed, the text of Section 118, so far from placing limits
on the enforceability of arbitration agreements, expressly
“encourages” arbitration.

The Court has made clear that if a statute’s text does not
evidence a congressional intent to preclude arbitration, the party
seeking to avoid arbitration must show “an irreconcilable
conflict” between arbitration and the statute’s underlying
purposes. McMahon, 482 U.S. at 238-39. The Petitioner asserts
that the purpose of the 1991 Act was to strengthen Title VII
(Petition at 17),'* but she does not explain why arbitration would

18. In particular, she mentions the addition of rights to damages
and a jury trial, and enhanced rights to attorney's fees. Any substantive
(Cont'd)

22

be inconsistent with that purpose, particularly when the statute
“encourages” arbitration. “ ‘By agreeing to arbitrate a statutory
claim, a party does not forgo the substantive rights afforded by
the statute; it only submits to their resolution in an arbitral,
rather than a judicial, forum.’ ” Rodriguez, 490 U.S. at 481,
quoting Mitsubishi, 473 U.S. at 628.

Instead of relying on the text, the Petitioner seeks refuge in
pieces of legislative history, which she asserts “demonstrate
Congress’s belief” that her particular agreement is
unenforceable. Petition at 18. But the text of Section 118 is not
ambiguous, particularly when viewed, as it must be, “with a
healthy regard for the federal policy favoring arbitration.”
Gilmer, 500 U.S. at 26. Absent such ambiguity, resort to
legislative history is neither legitimate nor appropriate, for
“legislative history is ‘only admissible to resolve doubt and not
to create it.’ In re Sinclair, 870 F.2d 1340, 1343 (7th Cir.
1989), quoting Wisconsin R.R. Comm'n v. Chicago, B. & O.
R.R., 257 U.S. 563, 589 (1922).

Even if it were appropriate to consider legislative history,
however, nothing in the legislative history of the 1991 Act
remotely addresses the issues of forum fees and the possibility
that arbitrators might not follow the law. Rather, the legislative
history reveals sharp debate about whether Title VII claims
should be arbitrable at all. Compare H.R. Rep. No. 40(1)97,
reprinted in 1991 U.S.C.C.A.N. 635; 137 Cong. Rec. H9505-
01, *H9530 (Nov. 7, 1991) (Rep. Edwards) (“No approval is

(Cont'd)

right to damages and attorney’s fees can be resolved in an arbitral forum.
See Gilmer, 500 U.S. at 32. Jury trial is a procedural, not a substantive,
matter (see Landgraf v. USI Film Prods., 511 U.S. 244, 280 (1994)),
and parties are free to forgo that procedure by electing an arbitral forum.
Indeed, the Court found no problem enforcing such an election in
Gilmer, even though the substantive statute there at issue (ADEA)
already featured a jury trial right (see Lorillard v. Pons, 434 U.S. 575,
580-85 (1978)). See Rosenberg, 170 F.3d at 11.

23

intended of the Supreme Court’s recent decision in Gilmer’)
with 137 Cong. Rec. H9505-01, *H9548 (Nov. 7, 1991) (Rep.
Hyde) (Section 118 “encourages the use of alternative means
of dispute resolution, including binding arbitration . . . . [T]here
is no reason to disfavor the use of such forums. See Gilmer’);
and 137 Cong. Rec. $15472-01, *S15478 (Oct. 30, 1991)
(Sen. Dole) (same).'? But “[t]he text adopted by the full Congress
declares that lawful ‘arbitration ... is encouraged to resolve
disputes arising from [Title VII].” Seus, 146 F.3d at 182
(brackets in original).

As the Court observed in Vimar Seguros, “ ‘when [the FAA
and another statute] are capable of co-existence, ... it is the
duty of the courts, absent a clearly expressed congressional
intention to the contrary, to regard each as effective.’ ” 515 U.S.
at 533, quoting Morton v. Mancari, 417 U.S. 535, 551 (1974).
Here, there is not even a hint of congressional intention, from
the text, purpose, or legislative history of Title VII, to make
Title VII override the FAA when a claimant might incur forum
expenses or an arbitrator might fail to follow the law — just as
the Court found no congressional intention to override the FAA
in precisely these circumstances in Vimar Seguros. Nor has the
Petitioner cited any case to the contrary. Without an unsettled
important issue or a conflict in the courts, there is no basis to
grant review of this issue.

B. The Effect of the 1991 Civil Rights Act on Gilmer Does
not Merit Review.

Rule 14.1(a) provides that “[t]he statement of any question
presented is deemed to comprise every subsidiary question fairly.

19. See Stephen Breyer, On the Uses of Legislative History in
Interpreting Statutes, 65 S. Cal. L. Rev. 845, 861-62 (1992) (observing
that such use of legislative history is like “looking over a crowd and
picking out your friends,” and noting that where the legislative history
of a statute is so confusing and contradictory that it is of no use in
ascertaining Congress's intent, courts should not attempt to use it).

24

included therein.” Although the Petitioner does not address it,
whether the 1991 Act overruled Gilmer presents such a question.

In the wake of Gilmer, and before Duffield, every circuit
court to consider the issue, including the Ninth Circuit, held
that a predispute agreement to arbitrate Title VII claims was
enforceable under the FAA.”°

In Duffield, a separate panel of the Ninth Circuit (Reinhardt,
Canby, and Restani, JJ.) held that the 1991 Act overruled
Gilmer, without attempting to distinguish Mago.”' Reasoning
that the legislative history of Section 118 demonstrated an intent
to codify pre-Gilmer law, which was hostile to arbitration, Judge
Reinhardt held that predispute agreements to arbitrate Title VII
claims, entered into as a condition of employment, are
unenforceable. 144 F.3d at 1189-90. Although the Petitioner
urged the Court of Appeals below to follow Duffield in this

20. See Cole, 105 F.3d at 1468-69; Austin v. Owens-Brockway
Glass Container, Inc., 78 F.3d 875, 881-82 (4th Cir.), cert. denied, _
U.S. __, 117 S. Ct. 432 (1996); Alford v. Dean Witter Reynolds, Inc.,
939 F.2d 229, 229-30 (Sth Cir. 1991) (opinion after Supreme Court
granted certiorari, vacated decision refusing to compel arbitration of
Title VII claim, and remanded for further consideration in light of
Gilmer); Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305, 307, 312
(6th Cir. 1991); Patterson v. Tenet Healthcare, Inc., 113 F.3d 832, 837
(8th Cir. 1997); Mago v. Shearson Lehman Hutton Inc., 956 F.2d 932,
935 (9th Cir. 1992) (Wallace, C.J., Goodwin and Kozinski, JJ.); Metz
v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1486-87
(10th Cir. 1994); Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698,
700 (11th Cir. 1992).

21. In fact, in an unpublished 1994 disposition the Ninth Circuit
considered and rejected the very arguments that persuaded a separate
panel of the court in Duffield. The court held that the plaintiff's “citation
to the legislative history, by which she attempts to distinguish Gilmer
and Mago, is unavailing.” Hurst v. Prudential Securities Inc., 21 F.3d
1113 (9th Cir. 1994) (table) (Lay, S.J., Thompson and Rymer, JJ.),
1994 WL 118097, at *6 n.2.

25

regard, she does not suggest that this Court should take review
on this issue.

The Respondent agrees that review is unwarranted for two
reasons. First, because the defendants in Duffield sought review
in this Court without seeking rehearing en banc, the Ninth
Circuit has yet to address the apparent intra-circuit conflict
between Duffield and Mago. Second, every circuit court to
consider the effect of Section 118 in light of Duffield has rejected
the Ninth Circuit’s reasoning. See Rosenberg, 170 F.3d at
10-12; Seus, 146 F.3d at 182-83 & n.1; Koveleskie, A. 5a-9a.
This Court denied review in Duffield and Seus earlier this Term.
As the issue continues to percolate, the clear trend is in favor of
enforcing predispute agreements to arbitrate Title VII claims.
It would better conserve this Court’s scarce resources to permit
the Ninth Circuit the opportunity to reconsider Duffield in light
of these developments.

26

CONCLUSION

The three issues presented here are not worthy of review
because, in addition to problems of standing and prematurity,
they present neither unsettled questions of great importance nor
involve a split in the circuits. Indeed, the Petitioner’s particular
objections to securities industry arbitration pursuant to Form
U-4 have no prospective vibrancy in light of recent changes to
the exchanges’ arbitration rules. The petition for writ of certiorari
therefore should be denied. If any review is allowed, it should
be limited to the issue whether the 1991 Civil Rights Act
overruled Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.
20 (1991), and exempted civil rights laws, including Title VII
and ADEA, from the Federal Arbitration Act.

Respectfully submitted,

CATHERINE M. MASTERS
Counsel of Record

NEIL LLOYD

SCHIFF HARDIN & WAITE
Attorneys for Respondent
Warburg Dillon Read LLC
6600 Sears Tower

Chicago, Illinois 60606

(312) 258-5500

Dated: June 4, 1999

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386005_0769%3A2. Public record. Not legal advice.