The Decision Reverses a District Court Holding that Plaintiffs Have a Statutory Right to Bring Title VII Claims by a Pattern-or-Practice Class Action
On March 21, 2013, the Second Circuit reversed a District Court decision that had refused to enforce an individual arbitration agreement between an employer and an employee. In
Parisi v. Goldman, Sachs & Co., the Second Circuit reaffirmed the strong federal policy in favor of enforcement of arbitration agreements and rejected the District Court’s adoption of an exception for plaintiffs seeking to bring Title VII actions under the "pattern-or-practice" class action method of proof.1 The Second Circuit held that plaintiffs have no "substantive statutory right to pursue a pattern-or-practice claim" and, therefore, no non-waivable right to serve as a class representative.2 Because the District Court had carved out from mandatory arbitration provisions a potentially expansive exception for discrimination claims, the appeal attracted a number of amicus briefs from employer and labor advocacy groups. Sullivan & Cromwell LLP represented Goldman Sachs before the Second Circuit.
In September 2010, three female former employees of Goldman, Sachs & Co. ("Goldman Sachs") brought a putative class action on behalf of themselves and a class of former and current employees against Goldman Sachs and The Goldman Sachs Group, Inc. The complaint alleged that Goldman Sachs violated Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e et seq. ("Title VII") and the New York City Human Rights Law, Administrative Code of the City of New York § 8-107 et seq. by "a continuing pattern and practice" of discrimination.3 One of the plaintiffs, Lisa Parisi, had been a managing director of Goldman Sachs and in connection with her promotion to that rank, had entered into an arbitration agreement requiring arbitration of any employment-related disputes.4
In November 2010, Goldman Sachs moved to compel arbitration of Parisi’s claims, pursuant to the Federal Arbitration Act ("FAA"). The motion was referred to a Magistrate Judge, who ruled that although the arbitration agreement covered the claims alleged in the complaint and did not provide for class arbitration, the agreement could not be enforced because by precluding class arbitration the agreement "effectively operated as a waiver of a substantive right under Title VII."5
Specifically, the Magistrate Judge held that because Parisi could not pursue her class claims in arbitration she would be denied the ability to pursue her supposedly substantive right to bring a "pattern-or-practice" class action. In a pattern-or-practice class action, one or more class representatives seeks to prove that unlawful discrimination is "the company’s standard operating procedure"; if class representatives can do so, members of the class are entitled to prospective injunctive relief and a rebuttable presumption that every class member was the victim of unlawful discrimination.6 Goldman Sachs appealed the Magistrate Judge’s order to the District Court, which adopted the Magistrate Judge’s decision.
THE SECOND CIRCUIT DECISION
The Second Circuit unanimously reversed. In a decision by Judge Barrington Parker, the Second Circuit stressed the strong federal policy, often reiterated by the Supreme Court, requiring enforcement of arbitration agreements in the absence of evidence that the claimant could not "vindicate [a] statutory cause of action in the arbitral forum."7
The Second Circuit rejected the notion that the "pattern-or-practice" method of proof in Title VII class actions rose to the level of a statutory cause of action. The Court relied on a recent Second Circuit decision, Chin v. Port Authority of New York, which held that an individual cannot bring a pattern-or-practice claim and ruled that "[s]ince private plaintiffs do not have a right to bring a pattern-or-practice claim of discrimination there can be no entitlement to the ancillary class action procedural mechanism."8 Applying Chin, the Second Circuit held that "in Title VII jurisprudence pattern-or-practice simply refers to a method of proof and does not constitute a freestanding cause of action."9 The court further stressed that Title VII does "not confer a right per se" on individuals to bring pattern-or-practice allegations.10
In rejecting Parisi’s argument that she was entitled to pursue a class action in order to use the pattern-or-practice method of proof, the Second Circuit emphasized that the "Rule 23 mechanism presupposes the existence of a claim; Rule 23 cannot create a non-waivable, substantive right to bring such a claim."11 A court may invalidate an arbitration agreement only if a claimant could not "vindicate [a] statutory right" in arbitration.12 But Goldman Sachs did not dispute that Parisi could offer evidence of allegedly discriminatory practices, policies and procedures at the arbitration.13 The Second Circuit also noted that "flexibility and informality to parties adducing relevant evidence" in Financial Industry Regulatory Authority and American Arbitration Association arbitration rules would allow introduction of evidence to support Parisi’s claims.14
The District Court’s decision, which allowed a valid arbitration agreement to be avoided based merely on a class plaintiff’s allegation of a pattern-or-practice of discrimination, would have allowed plaintiffs in Title VII cases routinely to avoid their arbitration commitments, because of the ease with which plaintiffs could plead such claims as an initial matter. The Second Circuit’s decision is important because it closes off this possible end-run around arbitration agreements. Firms with arbitration agreements providing only for individual, and not class, arbitration can now be more confident that those provisions will be enforced in Title VII actions according to their terms.
In addition, the Second Circuit’s decision should provide some comfort to firms located in the Circuit, particularly those in the securities industry, that the Circuit will enforce arbitration agreements. In the past, the Second Circuit has shown some reluctance to enforce arbitration agreements containing class action waivers. For instance, in
In re American Exp. Merchants’ Litigation, 667 F.3d 204 (2d Cir. 2012), a panel of the Second Circuit held that a class action waiver prevented effective vindication of a statutory right to prosecute antitrust claims. The Supreme Court recently heard argument in that case for the second time and likely will issue an opinion on the effective vindication doctrine before the end of the present Term.