2nd Circuit squelches Title VII exception to mandatory arbitration

March 21, 2013

The 2nd Circuit Court of Appeals has been known on occasion to buck the judicial trend of deference to arbitration and champion plaintiffs’ rights to class action litigation. But not if the only justification for classwide litigation is a phantom statutory right. In a notably short and emphatic decision issued Thursday in a closely watched sex discrimination case against Goldman Sachs, a three-judge appellate panel reversed a lower-court ruling that former Goldman managing director Lisa Parisi may pursue a class action despite the mandatory arbitration clause in her employment contract. The appeals court agreed with just about every argument by Goldman’s lawyers at Sullivan & Cromwell, ruling that the bank’s arbitration clause does not preclude Parisi’s statutory rights under Title VII of the Civil Rights Act because she has no private cause of action to claim that her employer engaged in a pattern or practice of discrimination.

A contrary ruling by the 2nd Circuit would have punched a huge hole in employment agreements mandating individual arbitration. Instead, the appeals court acknowledged that employers can curtail class actions against them, even when they’re accused of violating employees’ civil rights.

The 2nd Circuit panel (Judges Barrington ParkerReena Raggi and Gerard Lynch) said that U.S. Magistrate Judge James Francis and U.S. District Judge Leonard Sand erred when they found that Parisi could not vindicate her Title VII rights without classwide litigation. Parisi’s trial lawyers at Outten & Golden had persuaded the lower courts that she could only prove Goldman’s supposed pattern or practice of discrimination – and thus assure her statutory civil rights – through a class action, because her employment agreement prohibited classwide arbitration. But the 2nd Circuit sided with Goldman. As an initial matter, the opinion said, the Civil Rights Act of 1991 contains specific language endorsing arbitration as a vehicle for resolving discrimination claims, and courts have “consistently found” that civil rights claims can be subject to arbitration. Moreover, the court said, the pattern-or-practice method of proof is intended to enable the government to enforce Title VII on behalf of employees, not to give private plaintiffs a freestanding cause of action. And since Parisi has no statutory right to pursue a pattern-or-practice class action, the 2nd Circuit held, she cannot rely on that right to invalidate the mandatory arbitration clause in her employment contract.

There are rare circumstances that justify exceptions to mandatory arbitration clauses, the panel noted. The 2nd Circuit illuminated one of them last year in American Express Co v.Italian Colors Restaurant, in which the court held that American Express’s mandatory arbitration agreements with merchants cannot preclude an antitrust class action because otherwise, merchants couldn’t afford to pursue their Sherman Act claims. If you’re wondering whether the panel in the Parisi case seemed at all daunted by the U.S. Supreme Court’sdecision to review the 2nd Circuit decision in American Express, the answer is no. The Parisi opinion does not mention oral arguments before thejustices in the American Express case, which took place on Feb. 27.

In any event, the 2nd Circuit said, Parisi did not contend that cost prohibited her from pursuing individual discrimination claims against Goldman through arbitration, nor that Goldman’s arbitration clause interfered with her statutory damages claim (another of the unusual circumstances in which courts have invalidated such clauses).

Parisi can simply take advantage of the flexible and informal evidentiary policies of the bodies that will oversee her arbitration against her former employer, the 2nd Circuit said. “In proving her statutory claims, Parisi may offer to the arbitrators evidence of discriminatory patterns, practices or policies at Goldman Sachs that she contends affected her,” the opinion said. “For the foregoing reasons, we see no reason to deviate from the liberal federal policy in favor of arbitration and conclude that the district court erred in denying the motion to compel arbitration.”

Goldman was represented in the lower courts by Paul Hastings. The bank’s lead appellate counsel, Robert Giuffra of S&C, declined to comment. Parisi was represented at the 2nd Circuit by Paul Bland of Public Justice, who didn’t respond to an email request for comment.

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