February 20, 2014

Enforcing arbitration agreements

Posted in Commercial Litigation, Corporate Litigation, Employment Law by Gene Killian |

Once upon a time, I used to mediate employment disputes.  I remember talking with a plaintiff’s lawyer about a questionable claim.  He responded: “Eh, all I have to do is get past summary judgment, and I’ll let an Essex County jury decide.”  That statement, in a nutshell, is why management generally likes to include arbitration agreements in employment manuals and employment contracts.

But as businesspeople (sometimes unhappily) know, getting a party to sign an arbitration agreement is one thing; enforcing that agreement can be another matter altogether. If you want to have a chance of enforcing an employment arbitration agreement, it’s important that the agreement be in plain English and signed by the employee on the same page.

Sometimes, though, Courts (especially Federal Courts) seem to go to great lengths to enforce arbitration agreements, perhaps because of the backlog of cases in certain districts.  Along these lines, the Southern District of New York’s recent decision in Murray v. UBS Securities is interesting.

Trevor Murray worked in the commercial mortgage-backed securities area for UBS. He signed an employment agreement that provided for the arbitration of employment disputes. But his agreement provided that “claims arising under the Sarbanes-Oxley Act of 2002…are not covered by these procedures and will be will continue to be addressed in accordance with applicable law.” In fact, Congress has prohibited the arbitration of disputes arising under the anti-retaliation provisions of Sarbanes-Oxley.  18 U.S.C. §1514A(e).

UBS terminated Murray, for reasons that are unclear from the opinion. Murray responded by filed suit, arguing that senior UBS personnel had pressured him “to skew his published research” so as to mislead the investing public, and that he had complained about the pressure before he was fired. Murray argued that UBS had violated the anti-retaliation provisions of Dodd-Frank, 15 U.S.C. §78u-6(h) (a law ostensibly designed to increase transparency in financial markets). He claimed that he was a whistleblower entitled to protection under Section 806 of the Sarbanes-Oxley law (the whistleblower provision). 

UBS moved to stay the lawsuit and to move the dispute to the arbitration process.

As I wrote above, though, Murray’s arbitration agreement said that it didn’t encompass Sarbanes-Oxley claims, and his lawsuit was based on Sarbanes-Oxley.  Seems pretty straightforward, doesn’t?   

No, said the District Court.  Although Murray claimed that he had made disclosures protected by Sarbanes-Oxley, his actual claim was premised upon Dodd-Frank. The Court wrote: “Evidence that plaintiff’s complaint does not state a claim under Sarbanes-Oxley is found in the statute itself. Unlike the anti-retaliation provision [of Dodd-Frank], Sarbanes-Oxley requires that a party seeking relief under that statute exhaust his administrative remedies before proceeding to court…Plaintiff’s claim before this Court has not been submitted to OSHA; as such, if indeed he were making a claim under Sarbanes-Oxley, the claim would not be ripe for review.…Although plaintiff may have a claim under Sarbanes-Oxley, that is not the claim presently pending before this Court, and the Court cannot allow plaintiff to convert his claim in an effort to thwart his agreement to arbitrate his dispute with Defendants.”

This Court also rejected Murray’s contention that UBS had waived its right to arbitrate.  UBS had waited until 10 ½ months after the filing of the lawsuit to invoke the arbitration provision, and, in the interim, filed an unsuccessful motion to dismiss on the ground that Murray’s complaint failed to state a claim. Murray argued that he’d been prejudiced by the delay,  because he’d had to spend time and resources to fight the motion to dismiss, and would need to address the same arguments in arbitration.

The Court found no prejudice to Murray sufficient to negate the arbitration agreement, writing: “The parties’ litigation efforts…were modest, and focused largely (if not exclusively) on defendant’s motion to dismiss. No initial pretrial conference was held, nor was any case management plan or discovery schedule entered.…The prejudice argued by plaintiff is more apparent than real.”

My take on this:  First, management dodged a bullet. The Court seems to me to have engaged in a bit of sophistry to distinguish a case filed for violations of Sarbanes-Oxley from a case filed under Sarbanes-Oxley.  If you’re on the management side, don’t count on a Court helping you out in this way. Arbitration agreements need to be crystal clear (not that this one wasn’t), in bold letters, and with the employee’s signature directly beneath them. Second, if you want to enforce an arbitration agreement in any contract, don’t delay. Although this particular Court held that a 10½ month delay was insignificant, many Courts would disagree. And third, Courts usually don’t understand the concept of money.  So if you want to argue “prejudice” in any context, you’re probably going to have to show more than that the client spent money unnecessarily…unless it’s a LOT of money and the client is destitute.

-         Gene Killian