Reply Brief — Prudential Insurance Co. of America v. Lai

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No. 94-1923

Supreme Court, U.S.

(H) eit £-)

\ SEP 8

199

OFFICE OF THE Clerk

In The

Supreme Court of the United States

October Term, 1995

THE PRUDENTIAL INSURANCE

COMPANY OF AMERICA,

Petitioner,

JUSTINE LAI and ELVIRA VIERNES,

Respondents.

Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

PETITIONER’S REPLY TO BRIEF IN OPPOSITION

KeNwoop C. YouMANs* GERALD D. SKONING

Davip D. Kapug KENNETH D. SCHWARTZ

SEYFARTH, SHAW, FAIRWEATHER SEYFARTH, SHAW, FAIRWEATHER

& GERALDSON & GERALDSON

2029 Century Park East, 55 East Monroe Street

Suite 3300 Chicago, Illinois 60603-5803

Los Angeles, California (312) 346-8000

90067

(310) 277-7200

KeirH Y. MryAHIRA

Davip C. EyYCHNER

THe PRUDENTIAL INSURANCE COMPANY OF AMERICA

751 Broad Street

Newark, New Jersey 07012-3777

(201) 802-6000

*Counsel of Record Attorneys for Petitioner

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

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TABLE OF CONTENTS

Page

ey Be er Nas oe gt. SS eee a ame ii

I. The Ninth Circuit Panel Did Not Make Two

RU 5.6.5 65's 10's oe CRESS MeN OS oS Oo DOP ene « 2

II. The Ninth Circuit’s Decision Is Inconsistent

With This Court’s Recent Decision In First

Options Of Chicago, Inc. v. Kaplan.............. 6

III. The Impact Of The Ninth Circuit’s Decision Will

Not Be Limited As A Result Of Amendments To

The NASD’s Code Of Arbitration............. 8

CR RN 6 IE Re SF FRR eS oie 10

TABLE OF AUTHORITIES

Page

Cases

First Options of Chicago, Inc. v. Kaplan, ___ U.S. __,

115 S. Ct.. 1920 (1995) ....2ccccccscccscccces 1, 6, 7, 8

Gateson v. ASLK-Bank, N.V./CGER-Banque S.A., No.

94-C-5849, 1995 WL 387720 (S.D.N.Y. June 29,

1G9B) . ic ccncdccecddedpets dvawesdatktacdindabesedss's 9

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20

(F991) 2c eccccnvavsetenshapiwedaaes geutuaseonpas 3,9

Hurst v. Prudential Securities, Inc., No. C-90-2930,

1995 WL 419742 (N.D. Cal. July 10, 1995).......... 9

Mago v. Shearson Lehman Hutton, Inc., 956 F.2d 932

SOn Che, BOG aic es int rccsetacwhtuwnwndacve serach 9

Maye v. Smith Barney, No. 95-C-1878, 1995 WL

493091 (S.D.N.Y. Aug. 17, 1995).......----eeeeeeees 9

Mastrobuono v. Shearson Lehman Hutton, Inc., __

US... B45 B.-CR BEES (A oa vo scasedses 6, 7, 8

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

BFS WD GA TAT hs chee ociraerisistbinionaeys 3

Perry v. Thomas, 482 U.S. 483 (1987)...........-.++4-. 2

Reves v. Ernst & Young, ___ U.S. ___, 113 S. Ct. 1163

ON nk ica ctediedgctadssind otaceswedsriteoia’ 4

Rodriguez De Quijas v. Shearson/American Express,

Ree, BBD WR SAE IG ev nck athacci bend edietoncs<i 3

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

WD. Bae COON soos eesinncadecdepctcctassinarecedss: 3

The Prudential Insurance Company of America v. Lai,

42 BG Sar Cr Ge Fe hbk ndetnenacvscnes passim

iii

TABLE OF AUTHORITIES - Continued

United Commercial Insurance Service, Inc. v. Paymas-

ter Corp., 962 F.2d 853 (9th Cir. 1992), cert.

dinied, ... US. .., 118 S.Ct. :660.(1992) ......

Vianna v. Doctors’ Management Co., 27 Cal. App.

4th 1186, 33 Cal. Rptr. 2d 188 (1994)...........

Williams v. Raley’s Superstores, Inc., No. 94-C-3867,

1995 WL 20462 (N.D. Cal. Jan. 13, 1995).......

STATUTES

Oe TEE 650s Siar kas 6 Loin adie ba kis ao xk oe PERT ew

42 U.S.C. § 2000e, et seg., as amended ...........

le SN EE OE I bisa eicccsteiesccrestacne

See ee, MN UN pa Fant de bale SC baw se cnkee’

MISCELLANEOUS

Douglas E. Abrams, Arbitrability in Recent Federal

Civil Rights Legislation: The Need for Amendment,

26 Conn. L. Rev. 521, 581-82 (1994) ............

No. 94-1923

In The

Supreme Court of the United States

October Term, 1995

THE PRUDENTIAL INSURANCE

COMPANY OF AMERICA,

Petitioner,

JUSTINE LAI and ELVIRA VIERNES,

Respondents.

Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

PETITIONER’S REPLY TO BRIEF IN OPPOSITION

Petitioner respectfully submits this Reply Brief pur-

suant to Rule 15.6 to address arguments first raised in

Respondents’ brief in opposition. Specifically, Respon-

dents argue that the disputed Ninth Circuit decision! 1)

rests on two separate holdings (Brief in Opp., pp. 5-7), 2)

is consistent with this Court’s recent decision in First

Options of Chicago, Inc. v. Kaplan, __ U.S. __, 115 S. Ct.

1920 (1995) (Brief in Opp., pp. 12-14), and 3) is of limited

1 The Prudential Insurance Company of America v. Lai, 42 F.3d

1299 (9th Cir. 1994).

impact because of an amendment to the National Associa-

tion of Securities Dealers (“NASD”) Code of Arbitration.

(Brief in Opp., pp. 15-16).

I. The Ninth Circuit Panel Did Not Make Two Hold- !

ings

The Ninth Circuit’s decision rests solely on a misin-

terpretation of Title VII of the Civil Rights Act of 1964, as

amended by the Civil Rights Act of 1991. 42 U.S.C.

§ 2000e, et seq., as amended. After noting Section 118 of

that Act, citing to a portion of the legislative history of

this uncodified section, and opining that significant dif-

ferences exist in the remedies and procedural protections

of arbitral and judicial forums, the Ninth Circuit panel

concluded, 2-1, “that a Title VII plaintiff may only be

forced to forego her statutory remedies and arbitrate her

claims if she has knowingly agreed to submit such dis-

putes to arbitration.” 42 F.3d at 1305.

Everything the Ninth Circuit thereafter wrote was

derivative of its foregoing conclusion. From its faulty

interpretation of the 1991 Act and selective reading of its

legislative history, the panel majority concluded it had a

license to interpret arbitration agreements different from

other contracts. Specifically, an arbitration agreement, at

least as it related to statutory employment discrimination

claims, would be valid only if the party now resisting

2 See discussion infra at pp. 3-5. The FAA prohibits such

differential treatment. 9 U.S.C. § 2. See also Perry v. Thomas, 482

U.S. 483, 492 n.9 (1987).

oe |

arbitration “knowingly contractied] to forego . . . st-

atutory remedies in favor of arbitration.” 42 F.3d at 1305.

The panel then found that the plaintiffs below, Respon-

dents here, “could not have understood that in signing [the

U-4 Form], they were agreeing to arbitrate sexual dis-

crimination suits.” 42 F.3d at 1305 (emphasis added).3 The

court so found because the U-4 form - mistakenly

referred to as “the employment contract with Prudential

that plaintiffs executed” — “did not describe any disputes

the parties agreed to arbitrate.” 42 F.3d at 1305.4 Accord-

ingly, in the panel majority’s mind, the newly applicable

subjective knowing agreement standard was not met.5

Thus, the panel concluded, plaintiffs “were not bound by

3 For purposes of its analysis, the panel assumed that the

plaintiffs “were aware of the nature of the U-4 form.” 42 F.3d at

1305. Therefore, the panel, in addition to requiring a showing

that the party “understood” the terms of an executed arbitration

agreement, also required a showing that the party understood

the “nature” of the agreement.

4 The panel ignored the fact that this Court has endorsed

arbitration agreements equally broad as the U-4 form language

at issue here. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, 473 U.S. 614, 624 n.13; Shearson/American Express, Inc.

v. McMahon, 482 U.S. 220, 223, 238 (1987); and Rodriguez De

Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 478-83

(1989).

5 Of course, Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

20 (1991), and its ample progeny did not impose a “knowing

agreement” standard and, consistent with the federal policy

favoring arbitration, compelled arbitration of statutory employ-

ment discrimination claims. Under the facts and circumstances

in those cases, however, the Lai panel would rule otherwise.

There is, indisputably, a decisional conflict among the circuits in

outcome.

any valid agreement to arbitrate” their statutory discrimi-

nation claims. 43 F.3d at 1305.°

The panel majority also opined, in pure dicta, that

“even if appellants had signed a contract containing the

NASD arbitration clause [to which the court presumably

was referring to the NASD Code of Arbitration], it would

not have put them on notice that they were bound to

arbitrate Title VII claims.” 42 F.3d at 1305. That dictum

does not support Respondents’ assertion that the panel

actually made two separate holdings. The panel major-

ity’s decision rested solely on the fatal deficiencies it

found in the one document executed by Respondents, i.e.,

the U-4 form.

Moreover, the panel certainly would have applied its

subjective knowing agreement standard to the Code of

Arbitration language had it deemed that language rele-

vant.” Petitioner has challenged the court’s adoption of

6 The subjective “knowing agreement” standard is the by-

product of the Congressional concern the pane! majority erro-

neously discerned from the 1991 amendments to Title VII and a

portion of its legislative history. Since the legislative history of

Section 118 of the 1991 Civil Rights Act lacks any semblance of

unison — that is, no “clearly expressed” legislative intent is

evident — Section 118’s textual expression of encouragement

should be regarded as conclusive. Reves v. Ernst & Young, __

U.S. ___, 113 S. Ct. 1163, 1169 (1993) (citing decisions). The panel

majority erred, therefore, in giving determinative weight to the

discordant legislative history of Section 118.

7 The appellate court opined that the Code of Arbitration

language “would not put [Respondents] on notice that they were

bound to arbitrate Title VII claims.” 42 F.3d at 1305 (emphasis

added). This “on notice” requirement derives from the court’s

adoption of a special subjective knowing ag.eement standard

that standard and its rejection of the long-established

presumption in favor of arbitrability. Accordingly, even if

the panel majority made two holdings as Respondents

contend, both holdings are subsumed in the first question

presented to this Court by Petitioner.®

The panel majority’s decision has created an

unseemly hierarchy among the federal employment dis-

crimination laws, since some forms of discrimination -

that proscribed by the Americans with Disabilities Act

and Title VII of the Civil Rights Act of 1964, as amended

by the Civil Rights Act of 1991 — will be associated with a

de novo trial right, whereas other forms of employment

discrimination - that proscribed by the Age Discrimina-

tion in Employment Act and the Civil Rights Act of 1866

— will be subject to binding pre-dispute arbitration agree-

ments. Indeed, the panel majority’s rationale even would

distinguish between various forms of racial discrimina-

tion (Title VII versus the Civil Rights Act of 1866: § 1981

claims would have to be arbitrated, whereas Title VII

claims would not have to be). With respect to state-law

employment discrimination claims, this potential hazard-

ous dichotomy among such claims will result within the

text of a single state statute, e.g., California’s Fair Employ-

ment and Housing Act which proscribes age (presump-

tively arbitrable) as well as other forms of discrimination

for application in post-1991 Civil Rights Act employment dis-

crimination cases.

® Judge Norris in his concurring opinion takes issue with

the panel majority’s holding, in the singular, “that Congress

intended that employees can only knowingly waive their right to

adjudicate employment discrimination claims.” 43 F.3d at 1306

(emphasis in original).

prohibited by Title VII (presumptively non-arbitrable).

See Douglas E. Abrams, Arbitrability in Recent Federal Civil

Rights Legislation: The Need for Amendment, 26 Conn. L.

Rev. 521, 581-82 (1994).

II. The Ninth Circuit’s Decision Is Inconsistent With

This Court’s Recent Decision In First Options Of

Chicago, Inc. v. Kaplan

To the extent this Court’s decision in First Options of

Chicago, Inc. v. Kaplan, __ U.S. ___, 115 S. Ct. 1920 (1995),

is relevant to the instant Petition, it is not for the pur-

poses cited by Respondents. There is no dispute here that

a court, not an arbitrator, had the primary power to

decide if the parties agreed to arbitrate the merits of their

dispute. Thus, the answer to the “who” question regard-

ing arbitrability — the focus of the Court’s decision in First

Options — is not at issue.

The First Options decision is instructive, nevertheless.

As it had earlier in last year’s term, the Court in First

Options counselled lower courts that in deciding whether

the parties agreed to arbitrate a certain matter, with

exceptions not relevant here, they should apply ordinary

state-law principles that govern the formation of con-

tracts. __ U.S. ___, 115 S. Ct. at 1924. See also Mastrobuono

v. Shearson Lehman Hutton, Inc., __ U.S. __, 115 S. Ct.

1212, 1219 (1995).

California law principles that govern the formation

. of contracts are well-established. Unless Section 118 of

the Civil Rights Act of 1991 somehow trumped those

principles, the panel majority’s decision is inconsistent

with the teachings of this Court, as most recently pro-

nounced in Mastrobuono and First Options, in that it did

not apply those principles to the critical interpretation of

the U-4 form language at issue.

Under California law, the intent of the parties deter-

mines the meaning of the contract. Cal. Civ. Code § 1636.

“When a contract is reduced to writing, the intention of

the parties is to be ascertained from the writing alone, if

possible,” subject to statutory provisions not applicable

here. Cal. Civ. Code § 1639. “The relevant intent is ‘objec-

tive’ — that is, the intent manifested in the agreement and

by surrounding conduct - rather than the subjective

heliefs of the parties. [citations omitted] For this reason,

tne true intent of a party is irrelevant if it is unex-

pressed.” United Commercial Insurance Service, Inc. v. Pay-

master Corp., 962 F.2d 853, 856 (9th Cir. 1992), cert. denied,

cua US. 5 113 8. Ct. 660 (1992).

Here, Respondents agreed to arbitrate “any dispute,

claim, or controversy” that arose between them and Peti-

tioner “arising in connection with the business” of Peti-

tioner. App. 6-7, 18-19. Even ignoring the applicable

presumption in favor of arbitration and the well-estab-

lished rule that arbitration should be upheld unless it can

be said with positive assurance that the arbitration clause

is not susceptible to an interpretation covering the

asserted dispute, the application and effect of the “any

dispute, claim, or controversy” language is certainly

broad enough to encompass the parties’ underlying dis-

putes. See Vianna v. Doctors’ Management Co., 27 Cal. App.

4th 1186, 1189-90, 33 Cal. Rptr. 2d 188, 189-90 (1994).

The Ninth Circuit’s decision is inconsistent with the

controlling state-law principles of contract interpretation

and, thus, contrary to this Court’s command in First

Options and Mastrobuono.

III. The Impact Of The Ninth Circuit’s Decision Will

Not Be Limited As A Result Of Amendments To

The NASD’s Code Of Arbitration

Respondents suggest that the Ninth Circuit’s deci-

sion will apply only to cases which involve U-4 forms

executed before October 1, 1993. (Brief in Opp., pp.

15-16). Although it is obvious why Respondents make

this suggestion, they point to nothing in the language of

the decision to support the contention and, as shown

below, lower courts already are following the panel’s

decision into error by failing to enforce arbitration agree-

ments.

In fact, the decision, on its face, applies to all com-

mercial arbitration agreements. In the absence of a show-

ing that a plaintiff has knowingly agreed to submit

statutory employment discrimination claims to arbitra-

tion, she will not be required to submit such claims to

arbitration. The court found the arbitration agreement

here (the U-4 form) fatally defective because it “did not

purport to describe the types of disputes that were to be

subject to arbitration.” 42 F.3d at 1305. Presumably any

arbitration agreement that was similarly “defective”

would be deemed invalid, at least for purposes of statu-

tory employment discrimination claims.’

Moreover, district courts in the Ninth Circuit do not

share Respondents’ limited reading of the decision at

issue here. For examp!e, United States District Judge Wil-

liam H. Orrick felt obliged to disregard a Ninth Circuit

order favoring arbitration because the Lai panel’s deci-

sion represents an “intervening change in the law.” Hurst

v. Prudential Securities, Inc., No. C-90-2930, 1995 WL

419742, at *6 (N.D. Cal. July 10, 1995). As a result, Judge

Orrick concluded that he did not have to comply with the

earlier unpublished order requiring arbitration of Hurst’s

claims, including a claim under Title VII. The earlier

appellate panel had rejected Hurst’s claim that she did

not knowingly and voluntarily agree to arbitrate her Title

VII claims and, instead, had disposed of the appeal by

relying on this Court’s decision in Gilmer and the Ninth

Circuit’s decision in Mago v. Shearson Lehman Hutton, Inc.,

956 F.2d 932 (9th Cir. 1992). Hurst, 1995 WL 419742, at *3.

In effect, Judge Orrick views the decision at issue here to

represent a change in the law from that represented by

the Gilmer and Mago decisions.

9 The Lai decision has been cited by plaintiffs attempting to

avoid judicially-compelled arbitration of statutory employment

discrimination claims in situations that do not involve a U-4

form arbitration agreement. See, e.g., Maye v. Smith Barney, No.

95-C-1878, 1995 WL 493091, at *4 (S.D.N.Y. Aug. 17, 1995); Gate-

son v. ASLK-Bank, N.V./CGER-Banque S.A., No. 94-C-5849, 1995

WL 387720, at *3 (S.D.N.Y. June 29, 1995); and Williams v. Raley’s

Superstores, Inc., No. 94-C-3867, 1995 WL 20462, at *4 (N.D. Cal.

Jan. 13, 1995).

CONCLUSION

Because of the uncertainty that inevitably attends

judicial interpretation of legislative history, confusion

about the effect of the legislative history of the 1991 Civil

Rights Act (as well as the effect of the comparable legisla-

tive history of Section 118’s analog in the ADA, Section

513) likely will persist pending this Court’s pronounce-

ment. Absent this critical judicial resolution, uncertainty,

delay and expense which are inconsistent with arbitra-

tion’s mission to provide swift, efficient dispute resolu-

tion will surely prevail. Accordingly, Petitioner

respectfully requests that its Petition for Certiorari be

granted.

DATED: September 8, 1995 Respectfully submitted,

KENwoop C. YOuMANS* GERALD D. SKONING

Davip D. KapDuE KENNETH D. SCHWARTZ