Reply Brief — Hill v. Hilliard

Supreme Court, U.S.

fren &

No. 97-450 OCT 30 1997

@LERK

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

JANED.HILL, - - - - - - - Petitioner,

versus

J.J.B. HILLIARD, W.L. LYONS, INC.;

WOLFGANG WILLIAM BRAB;

JAMES C. STONE, III; and

GILBERTL.PAMPLIN, - - - - Respondents.

On Petition for Writ of Certiorari

To the Kentucky Court of Appeals

PETITIONER’S REPLY BRIEF

GARY L. THEURER

15005 Spring Meadow Drive

Germantown, Maryland 20767

(301) 977-5779

Counsel of Record

IVAN H. RICH, JR.

RICH & D’AMBROSIO, P.S.C.

2044 Breckinridge Lane, Suite 103

Louisville, Kentucky 40220

(502) 493-0503

Counsel for Petitioner

October 30, 1997

WESTERFIELD-BONTE CO., 619 W. KENTUCKY-P.O. BOX 3251, LOUISVILLE, KY.

4.94

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TABLE OF CONTENTS

PAGE

Ie GE GFE cevesecscscenssorenssaresescessneseecs i

TABLE OF AUTHORITIES ...................:cccccccceeeeees ii

IE biteiicininsiitatisiiacseseeessensinesonesssncecees 1

1. THE ISSUE OF KNOWING AND VOLUN-

TARY WAIVER OF A JUDICIAL FORUM

UNDER THE FAA IS UNRESOLVED .......... 3

2. A MAJORITY OF THIS COURT HAS

VOTED IN SEPARATE CASES NOT TO

REQUIRE ARBITRATION UNDER THE

FAA OF STATE COURT ACTIONS .............. 4

3. GILMER DOES NOT FORECLOSE

CONSIDERATION OF THE ISSUE RAISED :

Pe INT senapindnsnicthandriewseianctansensesncnees 7

4. THE ISSUE OF KNOWING AND VOLUN-

TARY WAIVER CAN PROPERLY BE

CONSIDERED BY THIS COURT.................. 8

| __IDN RCRa a ka Nee | 9

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TABLE OF AUTHORITIES

PAGE

Cases:

Allied-Bruce Terminix Companies, Inc. v.

Dobson, 513 U.S. , 115 S.Ct. 834 (1995) ... 5

Edmondson v. Pennsylvania National

Insurance Co., KY 781 S.W. 2d 753 (1989)...... 4

Gilmer v. Interstate/Johnson Lane Corp.,

a aia nih tictintiinatnintinnminaiedans passim

Illinois v. Gates, 462 U.S. 213 (1983) .................2.. 8

Perry v. Thomas, 482 U.S. 483 (1987) ................0. 3, 5

Prudential Insurance Co. v. Lai, 42 F.3d

1299 (11th Cir. 1994), cert. denied 116

aes NE iciiaeniciticneithasDiisidiiaddghinetaccieilinliaataiatinennatintigs 4

Southland Corp. v. Keating, 465 U.S. 1

a ceeciitideciciiecnticinthaealeataiinanl tania tetanic simaihi 4,5,6,8

Volt Information Sciences, Inc. v. Board of

Trustees of Leland Standford Junior

Univ., 489 U.S. 468 (1989) ..................ccccccccceees 4

Yee v. Escondido, 503 U.S. 519 (1992)................... 8

Statutes:

Federal Arbitration Act, 9 U.S.C. §2 (1994).......... 3, 4, 5

Kentucky Revised Statutes 336.700 ...................... 5,6

Kentucky Revised Statutes 417.050 ..................... 6

Miscellaneous:

A Due Process Protocol for Mediation and

Arbitration of Statutory Disputes Arising

Out of the Employment Relationship,

ee 2

No. 97-450

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

JANED. Hn1, - - - - - - - - ~~ Petitioner,

v.

J.J.B. Hm.iarp, W.L. Lyons, INc.;

WOLFGANG WILLIAM Bra;

JAMES C. Strong, III; and

GILBERT L. PAMPLIN - - - - -. - Respondents.

On Petition for Writ of Certiorari

To the Kentucky Court of Appeals

PETITIONER’S REPLY BRIEF

INTRODUCTION

In Gilmer’, this Court held that a securities industry

registration application requiring arbitration of any con-

troversy “arising out of employment” was a contract under

the Federal Arbitration Act (“FAA”) and operated to re-

quire arbitration of a statutory civil rights claim. The

opinion did not discuss whether Mr. Gilmer knowingly and

voluntarily waived his right to a judicial forum, but “left

for resolution in specific cases” the issue of unequal bar-

gaining power between the parties, observing that Gilmer

1 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 29 (1991).

2

was an experienced businessman who did not claim he

was coerced or defrauded. 500 U.S. at 33

In the present case, Hill petitions this Court to exam-

ine the issue, decided but not discussed in Gilmer, of

whether mandatory predispute arbitration of employment

disputes is permissible under the FAA. Hill’s petition ar-

gues that it is impossible for an employee either knowingly

to waive a claim before it has arisen or voluntarily agree to

arbitration if it is imposed as a condition of getting or

keeping a job. (Pet. at 9-11) Further, it contends that the

response to employer imposed arbitration has been in-

creased litigation over arbitrability issues and virtually

unanimous criticism by professional arbitrators and the

civil rights community. (Pet. at 5-8) The analytical core of

the rejection of Gilmer by these groups, which are neces-

sary for the practical success of arbitration as alternative

dispute resolution, is that she viability of the process rests

on its truly voluntary acceptance by both employers and

employees. Systems designed exclusively by employers and

imposed on employees simply cannot be workable private

mechanisms to resolve employment disputes. Mandatory

arbitration will continue to be challenged in court so long

as those who are accused of wrongdoing are free both to

design and impose the system to decide the claim. Foxes

are poor guardians of hen houses.

Ironically, one of the developments following Gilmer

was the development of the Protocol reflecting a broad

based consensus on the procedures necessary for effective

arbitration of employment disputes. (Pet. at 8) As yet,

however, employers have been slow to accept the proce-

dures set forth in the Protocol and there is no effective way

to compel such acceptance.

With this background, Hill’s petition suggests that vol-

untary arbitration, agreed to after a dispute has arisen, is

the only viable solution. It is just as efficient as manda-

3

tory arbitration and has the advantage of eliminating

arbitrability disputes. (Pet. at 10-12) The proponents of

mandatory arbitration were challenged by Hill’s petition

to articulate any reason why it was preferable, other than

it retained a real or perceived procedural advantage for

the employer and resulted in reducing the employer’s dam-

ages. (Pet. at p. 11 n. 21)

Astonishingly, neither brief in opposition even attempts

to refute Hill’s argument that mandatory arbitration is

unworkable and voluntary arbitration is the preferable al-

ternative. Instead, Respondent Brab argues (Opp. at 3-5)

that the FAA permits only mandatory arbitration. The

Hilliard Respondents argue (Opp. at 6-9) that Gilmer fore-

closes consideration of whether mandatory arbitration is

required under the FAA. Both briefs in opposition assert

that Hill’s voluntary arbitration argument should not be

considered because it was not presented to the lower courts.

These points in opposition are considered in order.

1 THE ISSU& OF KNOWING AND VOLUNTARY

WAIVER OF A JUDICIAL FORUM UNDER THE

FAA IS UNRESOLVED

Respondent Brab concedes that the issue of a knowing

and voluntary waiver of an employee’s right to a judicial

forum has never been addressed by this Court. (Opp. at 5-

6) Nonetheless, he argues that this Court’s statement that

Section 2 of the FAA “embodies a clear federal policy re-

quiring arbitration”* (emphasis added) precludes a system

of voluntary arbitration.

The flaw in Brab’s argument is that the quoted lan-

guage is taken out of context and the remaining language

in FAA Section 2 is ignored. Arbitration is not required if

the contract is “revocable upon such grounds as exist at

2 Perry v. Thomas, 482 U.S. 483, 489-90 (1987).

4

law or in equity.” Clearly, as Brab concedes, both federal

and Kentucky law provide ‘or the revocability of the con-

tract if the waiver was not knowing and voluntary. Pru-

dential Insurance Co. v. Lai, 42 F.3d 1299 (11th Cir. 1994),

cert. denied 116 S.Ct. 61 (1995); Edmondson v. Pennsylva-

nia National Insurance Co., Ky. 781 S.W.2d 753, 755 (1989).

The basis for this Court’s decisions implementing the

FAA is that agreements to arbitrate should be “as enforce-

able as other contracts, but not more so.” Volt Information

Sciences, Inc. v. Board of Trustees of Leland Standford

Junior Univ., 489 U.S. 468, 478 (1989) That the FAA re-

quires arbitration pursuant to traditional contract law does

not foreclose the concededly undiscussed issue Hill seeks

to have this Court address: was her waiver of a judicial

forum knowing and voluntary so that the agreement re-

quiring arbitration was not revocable?

2. A MAJORITY OF THIS COURT HAS VOTED IN

SEPARATE CASES NOT TO REQUIRE

ARBITRATION UNDER THE FAA OF STATE

COURT ACTIONS

The genesis of the preemptive effect of the FAA in state

court actions is Southland Corp. v. Keating, 465 U.S. 1

(1984). There the Court held that in enacting Section 2 of

the FAA, Congress created a body of substantive law, un-

der the Commerce Clause, applicable to both federal and

state courts. Chief Justice Rhenquist and Justice O’Connor

dissented on the ground that the FAA by its terms is ap-

plicable only to federal courts.? Justice Stevens dissented

separately on the ground that the exception based “on such

grounds as exist in law or equity” was broad enough to

permit state resolution restricting arbitration of various

claims.*

3 465 US. at 21.

4 465 U.S. at 17.

5

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

the Court held that Section 2 of the FAA preempted a

California statute precluding arbitration of wage collection

actions. Justices Stevens and O’Connor dissented for the

reasons stated in Southland.®

More recently, in Allied-Bruce Terminix Companies, Inc.

v. Dobson, 513 U.S. __, 115 S.Ct. 834 (1995) the Court

held that an Alabama statute making predispute arbitra-

tion agreements unenforceable was preempted by the FAA

so as to require arbitration of a claim brought in state

court for termite damage. Justices Thomas and Scalia

dissented, essentially for the reasons stated in the dissents

in Southland, that Congress never intended to apply the

FAA to state courts or to require specific enforcement of an

arbitration clause in the face of a contrary state statute.®

However, Justice O’Connor concurred in the Court’s opin-

ion on stare decisis grounds, even though she “continue[d]

to believe” Southland was wrongly decided.’

Thus, a majority® of this Court has voted, albeit in

different cases, against applying the FAA to preempt state

court actions.

The Kentucky Statutes are clear that, even though ar-

bitration generally is favored, mandatory arbitration of em-

ployment disputes is prohibited. KRS 336.700 prohibits

employers from requiring an employee to waive any statu-

5 482 U.S. at 493-4.

6 115 S.Ct. at 845.

7 115 S.Ct. at 843-4.

8 Chief Justice Rhenquist, Justices Stevens, O’Connor, Scalia

and Thomas.

6

tory claim.’ In addition, KRS 417.050 specifically removes

from the Uniform Arbitration Act “arbitration agreements

between employers and employees.”!°

It is respectfully submitted that this case provides the

Court with an appropriate vehicle to reexamine Southland.

There is surely little justification for a federal statute to

require arbitration of state civil rights and common law

tort claims arising out of an alleged rape. There is even

less justification to require arbitration of those claims when

a majority of this Court has rejected the decisional basis

for the application of the FAA.

The unstated reason for this Court’s enchantment with

the FAA is its usefulness in reducing the caseload burden

in the federal courts. It may well be that mandatory arbi-

tration is an effective procedure to reduce this burden.

There is no justification, however, for this Court to impose

the same procedure on the fifty state courts, which may or

may not be confronted with the same problem. Indeed, in

the instant case Kentucky has gone out of its way to re-

quire a judicial forum for the dispute. If any of the state

9 KRS 336.700 provides: Notwithstanding any provision of the

Kentucky Revised Statutes to the contrary,no employer shall

require as a condition or precondition of employment that any

employee or person seeking employment waive, arbitrate or oth-

erwise diminish any existing or future claim, right, or benefit to

which the employee or person seeking employment would other-

wise be entitled under any provision of the Kentucky Revisd

Statutes or any federal law.

10KRS 417.050 provides: A written agreement to submit any

existing controversy to arbitration or a provision in written con-

tract to submit to arbitration any controversy thereafter arising

between the parties is valid, enforceable and irrevocable, save

upon such grounds as exist at law for the revocation of any

contract. This chapter does not apply to arbitration agreements

between employers and employees or between their respective

representatives and does not apply to insurance contracts.

7

courts have a caseload problem, each state should be free

to deal with it in its own way.

In Gilmer, this Court emphasized that a plaintiff's le-

gal right to press his claim was undiminished and the only

difference was the forum in which the claim was heard.

There may be justification for requiring arbitrators to hear

cases which would otherwise be brought in federal courts,

but there is no good reason why an arbitral forum imposed

by a defendant should displace a state court.

3. GILMER DOES NOT FORECLOSE CONSID-

ERATION OF THE ISSUE RAISED IN THE

PETITION

Hill’s petition argues (Pet. at 10) that the rejection of

mandatory arbitration by professional arbitration organi-

zations and the EEOC, whose support is necessary for the

success of any private system of dispute resolution, means

that court challenges to mandatory arbitration will con-

tinue. The Hilliard Respondents counter that the lower

courts have uniformly required arbitration pursuant to

Gilmer and the law is therefore not unsettled.

This response misses the point. The goal is to have

less court litigation. The practical effect of mandatory

arbitration after Gilmer has been increased challenges to

arbitration and other procedural issues which are clearly

going to continue. Given this state of affairs, Hill’s peti-

tion raises the pertinent question whether employer de-

signed and imposed arbitration systems are a necessary

part of private employment dispute resolution. If the man-

datory aspect of the system is unnecessary and counter-

productive, it should be eliminated just as it was created:

by judicial fiat.

The suggestion by the Respondents that Hill’s argu-

ments are properly addressed to Congress, not this Court,

is also nonresponsive. They concede the issue of knowing

a

8

and voluntary waiver was not discussed in Gilmer. Why,

then, should Congress address an issue that was decided,

though not really considered by this Court? The current

expansive reach of the FAA is entirely a creation of this

Court. If it is not working, this Court should fix the prob-

lem rather than leave the job to Congress.

4. THE ISSUE OF KNOWING AND VOLUNTARY

WAIVER CAN PROPERLY BE CONSIDERED BY

THIS COURT

Both Brab and the Hilliard Respondents contend that

Hill’s petition runs afoul of the rule that, in reviewing

state court judgments, this Court will not consider claims

not raised or addressed below. See Illinois v. Gates, 462

U.S. 213, 218-20 (1983)

The flaw in Respondents’ contention is that it ignores

the difference between Hill’s claim and the arguments she

has advanced to support that claim. “Once a federal claim

is properly presented, a party can make any argument in

support of that claim; parties are not limited to the precise

arguments they made below.” Yee v. Escondido, 503 U.S.

519, 534 (1992)

Hill’s consistent federal claim has unquestionably been

that the FAA under Gilmer does not compel arbitration of

state court civil rights and tort claims. The Kentucky

Court of Appeals opinion was squarely based on its under-

standing of the FAA and Gilmer. (Petition for Certiorari,

Appendix 5A-9A) There can be no doubt the federal claim

was raised and decided below.

It may well be that Hill’s arguments to the lower courts

were more narrowly tailored. The broader arguments rais-

ing issues decided but not discussed in Gilmer, and invit-

ing a reexamination of Southland could not realistically

have been decided below and are properly addressed to

this Court.

9

CONCLUSION

This Court’s decisions have expanded the FAA to pre-

empt state law prohibiting arbitration of claims for wage

payment and termite damage. They permit employers to

design and impose involuntary arbitration systems on em-

ployees for the conceded purpose of avoiding the potential

monetary exposure inherent in a judicial forum. These

decisions should not be further expanded to require man-

datory arbitration of state court civil rights and tort claims

arising out of rape.

October 30, 1997

Respectfully submitted,

Gary L. THEURER, Esq.

15005 Spring Meadow Drive

Germantown, Maryland 20767

(301) 977-5779

Counsel of Record

Ivan H. Ricu, JR., Esq.

RicH & D’Amprosio, P.S.C.

3044 Breckenridge Lane, Suite 103

Louisville, Kentucky 40220

(502) 493-0503

Counsel for Petitioner, Jane D. Hill