IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS ________________ ) KAREN J. DELUCA, ) ) Plaintiff, ) ) v. ) Civil Action No. 00-12100-PBS ) ) BEAR STEARNS & CO., INC., ) MARK E. MURPHY, BRIAN C. ) JEROME, ROBERT P. LYONS, ) BRUCE LISMAN, and KATHY ) CAVALLO, ) ) Defendants. ) ________________) BRIEF OF THE U.S. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION AS AMICUS CURIAE IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO COMPEL ARBITRATION AND STAY PROCEEDINGS PENDING ARBITRATION STATEMENT OF INTEREST The U.S. Equal Employment Opportunity Commission ("Commission") is the agency charged with the enforcement of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. ("Title VII"), the Age Discrimination in Employment Act of 1967, 42 U.S.C. § 621 et seq. ("ADEA"), and other federal anti- discrimination statutes. This case raises important issues concerning the enforceability of agreements purporting to mandate the arbitration of Title VII and ADEA claims. Although this case, in part, implicates state contract law principles, the Commission's interest in this case is a federal one. The source of that federal interest is the Civil Rights Act of 1991, Pub. L. 102-166 ("1991 CRA"), which provides that any agreement to arbitrate a Title VII or ADEA claim must be "appropriate" and "authorized by law." See Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 19-21 (1st Cir. 1999) (construing the 1991 CRA). In this case, there is a compelling argument that the arbitration agreement at issue did not provide the plaintiff with anything of value to which the plaintiff was not already entitled and, thus, did not provide the plaintiff with valid consideration in exchange for the plaintiff's agreement to arbitrate. The Commission believes that an agreement of this nature is neither "appropriate" nor "authorized by law" within the meaning of the 1991 CRA. Because enforcement of the arbitration agreement in this case would contravene the important federal policy embodied in the 1991 CRA, the Commission offers its views to the court as amicus curiae. BACKGROUND Karen DeLuca began working for Bear Stearns & Co., Inc. ("Bear Stearns") in 1985 as a retail sales assistant. Second Amended Complaint and Jury Demand ¶ 8. In 1997, Bear Stearns presented DeLuca with a provision from its Employee Handbook, purporting to require the arbitration of "Claims for [employment] discrimination including, but not limited to Claims brought under Title VII [and] the federal Age Discrimination in Employment Act (ADEA)." Memorandum of Law in Support of Defendants' Motion to Dismiss or, in the Alternative, To Compel Arbitration and Stay Proceedings Pending Arbitration, Exh. A. The provision designated several possible arbitral fora, including "the National Association of Securities Dealers, Inc. [NASD]," of which Bear Stearns is a member. Id. On June 20, 1997, DeLuca signed the arbitration provision, stating, in the boilerplate language of the provision, that she had "read the foregoing statements and agree[d] to the terms as a condition of employment or continued employment." Id. At the time DeLuca signed the provision, Bear Stearns was under a preexisting duty to arbitrate any employment-related dispute with DeLuca by virtue of its status as a member of the NASD. See NASD Manual–-Code of Arbitration Procedure Rules 10101, 10201 (1997). DeLuca commenced this action in March 2001, alleging, inter alia, violations of Title VII and the ADEA. Second Amended Complaint and Jury Demand at 1. Bear Stearns has not defended the case on the merits. Instead, the company has moved to dismiss or, in the alternative, to compel arbitration and stay proceedings pending arbitration. The issue before the court is whether the arbitration agreement, proffered by Bear Stearns in support of its motion, is enforceable. <<@>> ARGUMENT THE ARBITRATION AGREEMENT BETWEEN DELUCA AND BEAR STEARNS IS UNENFORCEABLE WITH RESPECT TO DELUCA'S TITLE VII AND ADEA CLAIMS. A. Under The 1991 CRA, An Agreement To Arbitrate A Title VII Or ADEA Claim Is Enforceable, If At All, Only "Where Appropriate And To The Extent Authorized By Law" Historically, pre-dispute agreements purporting to mandate the arbitration of Title VII or ADEA claims were deemed unenforceable as against public policy. See, e.g., Utley v. Goldman Sachs & Co., 883 F.2d 184 (1st Cir. 1989). In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the Supreme Court altered the legal landscape, holding that there was no per se barrier to the enforcement of a pre-dispute agreement mandating the arbitration of an ADEA claim. The Court has since made clear that most employment contracts, containing pre-dispute arbitration provisions, fall within the ambit of the Federal Arbitration Act, 9 U.S.C. § 1, et seq. ("FAA"). See Circuit City Stores, Inc. v. Adams, 121 S. Ct. 1302 (2001). Although current Supreme Court precedent supports the view that there is no per se bar to the enforcement of agreements mandating the arbitration of Title VII and ADEA claims, federal law imposes at least some limitations on the enforcement of particular arbitration agreements. First, any agreement that requires the arbitration of a federal statutory claim must ensure that the "‘prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum'" such that "‘the statute will continue to serve both its remedial and deterrent function.'" Gilmer, 500 U.S. at 28 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 (1985)). Thus, the agreement must provide for "neutral arbitrators," "for more than minimal discovery," and "for all of the types of relief that would otherwise be available in court." Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465, 1482 (D.C. Cir. 1997). Second, any such arbitration agreement must meet certain minimum standards of enforceability. Those standards are derived from a variety of federal sources, including the "substantive law of arbitrability" under the FAA, Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), federal common law waiver standards, see, e.g., Leasing Serv. Corp. v. Crane, 804 F.2d 828, 832-33 (4th Cir. 1986) (waiver of the right to a jury trial must be "voluntary and informed"), and federal statutory provisions (other than the FAA) regulating the use of arbitration agreements in particular statutory contexts. <<@>> One such federal statutory provision is the 1991 CRA. In Section 118 of that Act, Congress addressed the use of arbitration procedures with respect to claims of discrimination under Title VII and the ADEA. Congress stated that arbitration was "encouraged" but only "[w]here appropriate and to the extent authorized by law." Pub. L. 102-166, §118. By its plain terms, the 1991 CRA requires that any arbitration agreement, involving Title VII or ADEA claims, be "appropriate" and "authorized by law." In Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., the First Circuit construed the arbitration language of Section 118 of the 1991 CRA. The court rejected the view that the 1991 CRA precludes the mandatory arbitration of Title VII and ADEA claims in all circumstances. 170 F.3d at 7-12. The court ruled, however, that the 1991 CRA imposes limitations on the enforcement of arbitration agreements, in these statutory contexts, beyond those "expressed in the FAA or at common law." Id. at 19. The court construed the language of Section 118, particularly the term "appropriate," as reflecting "Congress' concern that agreements to arbitrate employment discrimination claims" meet certain federal standards of enforceability. Id. at 19-21. Applying this understanding of Section 118, the court held that the arbitration agreement at issue in that case was not "appropriate" within the meaning of Section 118 and, thus, not enforceable, because it failed to provide the statutory plaintiff with adequate notice of the "range of claims subject to arbitration." Id. Rosenberg establishes that there are minimal federal standards, derived from the 1991 CRA, that have to be met as a precondition to enforcing an agreement to arbitrate. Those federal standards provide an extra layer of protection to the statutory claimant, reflecting a congressional concern not found in either the common law or the FAA's "general federal arbitration law." Id. at 19-20. The limiting language of Section 118 has "some teeth," id. at 21; it reflects (and reinforces) Congress' concern that employees not be unfairly coerced into arbitration arrangements that would strip them of their "right to go to court" to enforce "statutory and constitutional" protections. H.R. Rep. No. 40(I), 102d Cong., 1st Sess. 104 (1991), reprinted in 1991 U.S.C.C.A.N. 549, 642 (explaining the purpose of Section 118). In holding that the language of the 1991 CRA imposes statutory limitations on the use of mandatory arbitration agreements implicating federal claims of employment discrimination, the First Circuit was following in the path marked out by the Supreme Court. In Wright v. Universal Maritime Serv. Corp., 525 U.S. 70 (1998), the Supreme Court held that a federal statutory claimant was not required to arbitrate his claim under the arbitration provision of a collective bargaining agreement. The Court relied, in part, on a provision in the Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12212, which contains the identical "[w]here appropriate and to the extent authorized by law" language found in Section 118 of the 1991 CRA. The Court ruled that a "union waiver of employee rights to a federal judicial forum for employment-discrimination claims," if not "clear and unmistakable," is "not ‘appropriate,' within the meaning of this provision of the ADA." Id. at 82 n.2. Although the Court did not delineate the precise impact of the "[w]here appropriate" language "in areas outside collective bargaining," id., it made clear that this language constrains, to a degree, the use of mandatory arbitration agreements in these statutory contexts. B. For An Agreement To Arbitrate To Be "Appropriate" And "Authorized By Law," Within The Meaning Of The 1991 CRA, The Agreement Must Provide The Employee With Valid Consideration In Exchange For The Employee's Agreement To Arbitrate Rosenberg establishes the critical point that mandatory arbitration agreements, implicating Title VII and ADEA claims, are subject to limitations imposed by the "[w]here appropriate and to the extent authorized by law" language of Section 118 of the 1991 CRA. Rosenberg holds that one such limitation is that the waiver of the judicial forum be achieved through an explicit delineation of the rights and claims affected by the arbitration agreement. 170 F.3d at 19-21. Rosenberg leaves open the question of what other limitations might be subsumed within the Section 118 language. Id. In our view, an additional limitation derived from that language is that the arbitration agreement be supported by valid consideration. It is well-established in federal law that any waiver (or release) of a federal statutory claim or right must meet certain requirements designed to ensure that the waiver is made in a knowing and voluntary fashion. One such requirement is that the waiver be supported by adequate consideration. See, e.g., Rivera-Flores v. Bristol-Myers Squibb Carribean, 112 F.3d 9, 12-13 & n.4 (1st Cir. 1997); Smart v. Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 180-82 & n.3 (1st Cir. 1995). Specifically, "‘the consideration given in exchange for the waiver [must] exceed[] employee benefits to which the employee was already entitled by contract or law.'" Livingston v. Adirondack Beverage Co., 141 F.3d 434, 438 (2d Cir. 1998); accord Gormin v. Brown-Forman Corp., 963 F.2d 323, 326- 27 (11th Cir. 1992); Torrez v. Public Serv. Co. of New Mexico, Inc., 908 F.2d 687, 689-90 (10th Cir. 1990); Coventry v. United States Steel Corp., 856 F.2d 514, 522-24 (3d Cir. 1988). Courts have often applied this consideration requirement in invalidating particular waiver agreements affecting federal statutory claims. In W.B. v. Matula, 67 F.3d 484 (3d Cir. 1995), for example, the court refused to grant summary judgment on the basis of a settlement agreement affecting a claim under the federal Individuals with Disabilities Education Act. The court found that there was "a dispute of fact as to whether the [defendant] gave any consideration for the alleged waiver" in that the defendant "appears simply to have consented, at long last, to the evaluation and classification to which [the plaintiff] was statutorily entitled." Id. at 498. Similarly, in Bledsoe v. Palm Beach County Soil and Water Conservation Dist., 133 F.3d 816, 820 (11th Cir. 1998), the court refused to enforce a waiver agreement where "there was no evidence in the record of any consideration given to [the plaintiff] in exchange for his allegedly waiving his rights under the ADA and the Rehabilitation Act." The court stressed that the statutory claimant must be provided with consideration in addition to the "‘benefits to which the [claimant] was already entitled.'" Id. at 819. In other cases, denying enforcement of a waiver agreement, courts have invoked the "well- established principle of federal law that a promise to perform a preexisting duty is not sufficient consideration" for an agreement to waive a federal statutory claim. E.g., General Intermodal Logistics Corp. v. Mainstream Shipyards & Supply, Inc., 748 F.2d 1071, 1074-77 (5th Cir. 1984); see also Gorman v. Earmark, Inc., 968 F. Supp. 58, 64 (D. Conn. 1997) (refusing to enforce agreement waiving federal claims where the waiver was "extracted" from the plaintiff without "additional consideration"). The consideration requirement was well-entrenched in federal law at the time Congress enacted the 1991 CRA. See, e.g., Bormann v. AT&T Communications, Inc., 875 F.2d 399, 401-03 (2d Cir. 1989) (citing the consideration requirement in referring to the "general consensus" in the circuit courts concerning the enforceability of waiver agreements under the ADEA). It is reasonable to assume that Congress, in enacting the 1991 CRA, was aware of this established requirement. See Miles v. Apex Marine Corp., 498 U.S. 19, 32 (1990) (courts "assume that Congress is aware of existing law when it passes legislation"). It is also reasonable to assume that Congress had that requirement in mind when it used the terms "appropriate" and "authorized by law" in Section 118, given the obvious connection between a waiver agreement qua waiver agreement and an arbitration agreement, which does in fact waive valuable federal rights, including the right to a jury trial. See Ramirez-de-Arellano v. American Airlines, Inc., 133 F.3d 89, 90-91 (1st Cir. 1997) (treating an arbitration agreement as a type of "waiver" agreement in holding that the waiver of the right to "pursue . . . claims in federal court" must be "voluntary and intentional"). Indeed, in enacting Section 118, Congress repeatedly invoked the principle of "voluntariness" on which the consideration requirement rests. See, e.g., 137 CONG. REC. 30661, 30665 (1991) (section-by- section analysis of Rep. Edwards) (Section 118 encourages the use of "voluntary arbitration"); 137 CONG. REC. 29034, 29040 (1991) (section-by-section analysis of Sen. Dole) (Section 118 encourages arbitration "where the parties knowingly and voluntarily elect to use" arbitration); see also Statement of the President of the United States, Signing Ceremony, Pub. L. 102-166 (Nov. 21, 1991), reprinted in 1991 U.S.C.C.A.N. 768, 769 (Section 118 encourages "voluntary agreements between employers and employees to rely on" arbitration). The terms "appropriate" and "authorized by law" are plainly broad enough to encompass the type of consideration requirement found in the federal waiver cases. These terms should be read as incorporating, into the limitations imposed by Section 118, the well-established requirement in federal law of adequate consideration. Notably, a consideration requirement is codified in the amendments made to the ADEA by the Older Workers Benefit Protection Act, Pub. L. 101-433 ("OWBPA"). Those amendments state that an agreement to waive "any right or claim" under the ADEA will not be considered "knowing and voluntary" unless "the individual waives rights or claims only in exchange for consideration in addition to anything of value to which the individual already is entitled." 29 U.S.C. § 626(f)(1)(D). Although the OWBPA does not, by its terms, apply to arbitration agreements, see Rosenberg, 170 F.3d at 12-14, the OWBPA was enacted by the same Congress that first deployed (in the ADA) the "[w]here appropriate and to the extent authorized by law" language, the very language that was used just one year later in the 1991 CRA. See supra p.8. It is reasonable to assume that, in using the terms "appropriate" and "authorized by law," Congress meant, at a minimum, to adopt the type of consideration requirement imposed by the OWBPA amendments. Plainly, the requirement of adequate consideration is central to any federal waiver agreement. Such a requirement is particularly vital where the individual is ceding away the right to a jury trial, a right that has constitutional implications. The individual is doing so, moreover, in a context that has the potential for coercion, given the superior bargaining power exercised by most employers. A consideration requirement serves as a bulwark against the employer using its superior bargaining position to coerce a waiver of the judicial right of action established under statutes such as Title VII and the ADEA. This Court should hold that a consideration requirement is incorporated in the 1991 CRA. <<@>> C. The Arbitration Agreement In This Case Did Not Provide DeLuca With Valid Consideration In Exchange For Her Agreement To Arbitrate Her Title VII And ADEA Claims Based on the foregoing, it is clear that the arbitration agreement in this case fails the consideration requirement incorporated in Section 118 of the 1991 CRA and, thus, is unenforceable. DeLuca signed the arbitration agreement in June 1997. At that time, Bear Stearns, by virtue of its membership agreement with the NASD, was under a preexisting obligation to arbitrate any dispute "arising out of the employment or termination of employment of associated person(s)." NASD Manual–-Code of Arbitration Procedure Rule 10101 (1997). DeLuca was such an "associated person." See NASD By-Laws, Article I(q) (1997) (defining an "associated person of a member" as "any natural person engaged in the investment banking or securities business who is directly or indirectly . . . controlled by such member"). As an "associated person," moreover, DeLuca was a third-party beneficiary of Bear Stearns' obligation to arbitrate, entitled to invoke the NASD arbitration procedure and bind Bear Stearns to the results of that procedure. See Spear, Leeds & Kellogg v. Central Life Assurance Co., 85 F.3d 21, 25-28 (2d Cir. 1996) (arbitration rules of the New York Stock Exchange create "enforceable contract rights for non-members," who are "third party beneficiaries" of the member firm's agreement to be bound by the exchange's arbitration rules; non-members are entitled, in appropriate circumstances, to "insist on arbitration" of their claims with the member firm); Kidder, Peabody & Co. v. Zinsmeyer Trusts Partnership, 41 F.3d 861, 863-64 (2d Cir. 1994) (customer of member firm is an "intended third-party beneficiary" of a member firm's agreement with the NASD to submit to binding arbitration; thus, customer may compel arbitration of its dispute with a member firm even in the absence of a specific agreement with the member firm); Broadcort Capital Corp. v. Dutcher, 859 F. Supp. 1517, 1519 n.6 (S.D.N.Y. 1994) (customer may insist upon arbitration of a dispute with a member firm as a "third party beneficiary of [the member firm's] contract with the NASD to resolve disputes through arbitration"). Thus, by entering into an arbitration agreement with DeLuca, Bear Stearns merely agreed to do what it had a preexisting duty to do under its membership agreement with the NASD -- submit to binding arbitration with respect to any employment-related dispute with an "associated person." It did not provide DeLuca with any new benefit to which she was not already entitled, e.g., the right to invoke binding arbitration procedures against Bear Stearns. As such, there was no consideration for DeLuca's agreement to arbitrate Title VII and ADEA claims. Cf. Michalski v. Circuit City Stores, Inc., 177 F.3d 634, 637 (7th Cir. 1999) (consideration requirement met where the employer agreed to be bound by arbitration procedure and employer was not under a preexisting obligation to arbitrate). Nor is adequate consideration supplied by the fact that DeLuca agreed to arbitration as "a condition of employment or continued employment." Although an "employer's specific promise to continue to employ an at-will employee may provide valid consideration for an employee's promise to forgo certain rights," Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1132 (7th Cir. 1997), it appears that, in this case, DeLuca was not in fact an at-will employee at all but, under Massachusetts law, was entitled to retain her employment absent "good cause" for her dismissal. Plaintiff's Memorandum in Opposition to Defendants' Motion to Dismiss or, in the Alternative, Compel Arbitration and Stay Proceedings Pending Arbitration at 14-15. Under these circumstances, any promise of continued employment –- short of an absolute guarantee of permanent employment -- failed as consideration because it provided DeLuca with nothing more than a benefit to which she was already entitled. Further, even with respect to an at-will employee, the agreement at issue must explicitly provide that the employer "promise[s] to continue [an individual's] employment in exchange for her promise to submit claims to arbitration." Gibson, 121 F.3d at 1132. It is not enough, to constitute valid consideration, that the agreement states that the employee agrees to arbitration "as a condition of employment and continued employment;" the agreement must state that the employer "agrees to provide [the employee] with continued employment" in return for the employee's agreement to arbitrate. O'Neal v. Hilton Head Hosp., 115 F.3d 272, 275 (4th Cir. 1997). The arbitration agreement signed by DeLuca contains no such provision. This case underscores the importance of insisting upon strict adherence to the requirement of adequate consideration. Bear Stearns seeks to enforce a waiver of DeLuca's right to have her case heard in a judicial forum, which may include the right to try the case before a jury. Yet, in exchange for DeLuca's forfeiture of this valuable right, Bear Stearns has given up nothing. This strongly suggests that DeLuca's agreement to arbitrate was not voluntary and, thus, should not be enforced. Bear Stearns, of course, could have provided additional consideration for DeLuca's agreement to arbitrate. The company, for example, could have provided DeLuca with a lump-sum bonus or an upward adjustment in her salary. Or, it could have provided DeLuca with greater remedial protection in the arbitral forum, e.g., enhanced damages or expanded discovery opportunities, as part of the agreement to arbitrate. What it could not do was force DeLuca to forgo her right to pursue her Title VII and ADEA claims in court without providing DeLuca with meaningful consideration in exchange for her agreement to arbitrate. <<@>> CONCLUSION Section 118 of the 1991 CRA incorporates a requirement of adequate consideration. The agreement in this case fails for want of consideration. This Court should deny enforcement of the arbitration agreement with respect to DeLuca's Title VII and ADEA claims. Respectfully Submitted, GWENDOLYN YOUNG REAMS Acting Deputy General Counsel PHILIP B. SKLOVER Associate General Counsel VINCENT J. BLACKWOOD Assistant General Counsel ______________ ROBERT J. GREGORY Senior Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION 1801 L Street, N.W. Washington, D.C. 20507 June 28, 2001 (202) 663-4059 <<@>> CERTIFICATE OF SERVICE I, Robert J. Gregory, hereby certify that on this 28th day of June, 2001, copies of the attached brief were sent by overnight mail, postage prepaid, to the following counsel of record: Nancy S. Shilepsky Barbara A. Robb Perkins, Smith & Cohen, LLP One Beacon Street Boston, MA 02108-3106 Barry Y. Weiner Christopher P. Litterio Shapiro, Israel & Weiner, P.C. 100 No. Washington Street Boston, MA 02114 ____________ Robert J. Gregory