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CHISOLM v. KIDDER

May 29, 1997

O. BEIRNE CHISOLM, Plaintiff, against KIDDER, PEABODY ASSET MANAGEMENT, INC. and KIDDER, PEABODY & CO., INC., Defendants.


The opinion of the court was delivered by: MOTLEY

 This case involves a largely unexplored legal issue which will undoubtedly be addressed with more frequency in the future: the scope of judicial review of arbitral decisions when an employee has been required as a condition of his employment to submit to arbitration all disputes with his employer, including those involving fundamental statutory rights such as Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. and the Age Discrimination in Employment Act of 1967, § 2 et seq., as amended, 29 U.S.C. § 621 et seq. ("ADEA"). Despite the fact that plaintiff raises some important concerns regarding the adequacy of arbitration in this area, relevant Second Circuit precedent compels the conclusion that the standard of judicial review of arbitral decisions in cases involving statutory rights is no different from the extremely limited review used in arbitration generally. As a result, the arbitral decision rendered in this case is affirmed.

 BACKGROUND

 Plaintiff Beirne Chisolm began his employment with defendant Kidder, Peabody & Co., Inc. ("Kidder, Peabody") in 1957 when he was twenty nine years old. In 1961, plaintiff discontinued his work with defendant to run an investment management business at a company called Clark-Dodge Management, Inc. ("CDM"). CDM was ultimately acquired by defendant Kidder, Peabody in 1974, at which time plaintiff became both president of CDM and a vice-president of defendant Kidder, Peabody. During the years 1989-1990, defendant Kidder, Peabody merged CDM with various other parts of its business and created defendant Kidder, Peabody Asset Management, Inc..

 The dispute between the parties arose at this time. In late 1989, George V. Grune, a 35 year old, became the director of defendant Kidder Peabody Asset Management, Inc.. Plaintiff alleges that from his arrival, Grune demonstrated favoritism towards the younger executives. Plaintiff further alleges that Grune failed to give plaintiff a compensation guarantee although he did give it to at least two younger executives.

 Plaintiff claims that Grune's discriminatory intentions were further reflected in defendant's Private Clients Analysis (the "Analysis") which was allegedly prepared by Grune's staff at his direction. The Analysis makes reference to the unprofitability of various portfolio managers and suggests that due to such unprofitability, combined with other factors, among which the manager's advancing age is explicitly mentioned, a retirement package is suggested. Though retirement was recommended for plaintiff due to his unprofitability, his advancing age is not mentioned. Plaintiff maintains that his funds were not unprofitable and that this reason was merely pretextual.

 In mid-May of 1990, Grune allegedly announced that he was planning substantial changes in the Asset Management Division. Plaintiff claims that these changes, which were effectuated over a several month period, resulted in a significant diminishment of plaintiff's job responsibilities. Specifically, plaintiff claims that Grune removed plaintiff from any responsibility over funds on which he had previously spent over one third of his time and which had assets totaling 4 billion dollars. According to plaintiff, Grune then placed a younger member of the Asset Management Division in charge of them. Grune also allegedly terminated plaintiff's membership on the Investment Policy Committee. Furthermore, though Grune had testified before the arbitration panel that he had intended that plaintiff play an important role with defendants by appointing him head of a division he was going to create, the KPAM Mutual Fund Accounting Division, plaintiff claims that this testimony was a total fabrication intended to deceive the arbitrators and that Grune did not create nor did he ever intend to create such a Division.

 Plaintiff alleges that by the beginning of 1991, specific plans were underway to force him to retire. Grune met with plaintiff in February of that year and told him that he would not be receiving a bonus (which had constituted approximately 40-50% of plaintiff's salary in the previous two years) and that plaintiff had not "carried his weight." He also alluded to the possibility that plaintiff work part-time at the meeting.

 Plaintiff, who now claims that he was constructively discharged, resigned from his position with defendant a week later. According to plaintiff's allegations, Grune had planned to discharge plaintiff that same day and offer him a severance package along with an opportunity to work on a part-time basis. However, this offer was never made because plaintiff resigned first.

 Defendants, on the other hand, deny that any discrimination took place against plaintiff. Defendants maintain that Grune had decided as part of the 1990 restructuring to assign daily investment managerial responsibility for the $ 4 billion dollar funds alluded to above to one individual, and he assigned a person who was, along with plaintiff, one of the three people who had been sharing that responsibility. Defendants claim that other than this task, which took less than 20% of plaintiff's time, Grune did not significantly alter plaintiff's job responsibilities.

 Defendants further allege that there is ample evidence indicating that plaintiff had begun to search for alternate employment as early as the summer of 1990 and that his resignation was thus not a constructive discharge. Finally defendants claim that even if the facts as plaintiff alleges them were true, they would not be enough to legally constitute a constructive discharge.

 PROCEDURAL HISTORY

 Plaintiff filed an action in New York Supreme Court in 1991 alleging four state law claims. In December of that year, defendants moved to stay the action and compel arbitration. The state court held in May of 1991 that the arbitration agreement contained in the Uniform Application for Securities Industry Registration Form (the "U-4 Form") was enforceable. Plaintiff was required by the various securities exchanges to sign the U-4 Form in order to be registered with the exchanges as a securities representative. The court therefore granted defendant's motion and compelled arbitration. Chisolm v. Kidder, Peabody Asset Management, No. 33022/91 (N.Y.Sup.Ct.). Plaintiff then filed this action in January of 1992, alleging a violation of the ADEA. Defendants again moved for a stay and an order compelling arbitration on March 3, 1992. By Order and Opinion dated May 28, 1992, this court granted the stay and ordered the case to arbitration, based largely upon the reasoning in the opinion issued weeks earlier in the parallel state action. Chisolm v. Kidder, Peabody Asset Management, Inc., 810 F. Supp. 479, 480-81 (S.D.N.Y. 1992).

 
After considering the pleadings, the testimony and the evidence presented at the hearing, the undersigned arbitrators have decided in full and final resolution of the issues submitted for determination as follows: . . . The claims of Claimant O. Beirne Chisolm against Respondents Kidder, Peabody & Co., Inc., Kidder, Peabody Asset Management, Inc., and George V. Grune are dismissed in their entirety.

 The panel did not issue findings of fact or conclusions of law, nor did it provide any specific bases for its decision. Plaintiff now moves to have the decision of the panel vacated and retry the issue in this court.

 DISCUSSION

 I. Federal Policy Favoring Arbitrability

 The purpose of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., was to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and to place arbitration agreements on the same footing as other contracts. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25, 111 S. Ct. 1647, 1651, 114 L. Ed. 2d 26 (1991) (citations omitted). The Act requires arbitration agreements to be enforced as a general matter, 9 U.S.C. § 2, provides for district courts to issue stays of arbitration when an issue is referable to arbitration, 9 U.S.C. § 3, and provides narrow grounds for a district court to refuse to enforce arbitral decisions. 9 U.S.C. §§ 10-11. The Supreme Court has held that these provisions ...


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