United States District Court, S.D. New York
May 9, 2005.
DOREEN BENSON, Plaintiff,
LEHMAN BROTHERS INC., Defendant.
The opinion of the court was delivered by: DENISE COTE, District Judge
OPINION & ORDER
Defendant Lehman Brothers Inc. ("Lehman") moves to compel
plaintiff Doreen Benson ("Benson") to arbitrate her claims
against Lehman in this employment discrimination case pursuant to
an arbitration clause in her employment contract. Benson argues
that the arbitration provision was unconscionable. For the
following reasons, the motion is granted.
Benson commenced her employment with Lehman in November 1997.
She contends that immediately prior to her employment, she was
placed in a conference room with twelve to fifteen other new employees and given a large stack of papers to sign, with no
explanation of the contents or significance of those papers.
Benson claims that she was pressured to sign the papers
immediately without having had an opportunity to read them, that
no Lehman representative drew her attention to the existence of
an arbitration provision in the Employment Application
("Application"), and that no Lehman representative informed her
that she could take time to read the papers and consult legal
counsel before signing.
The Application, a two-page document requesting basic pedigree
information and a list of prior employers, has a bold-faced
arbitration provision ("Provision") immediately above the
signature space that reads as follows:
I hereby agree that any controversy arising out of or
in connection with my compensation, employment or
termination of employment with Lehman Brothers Inc.
or any of its affiliated companies, shall be
submitted to arbitration before the National
Association of Securities Dealers, Inc. ["NASD"], the
New York Stock Exchange, Inc. ["NYSE"] or the
American Stock Exchange Inc. ["ASE"] and be resolved
in accordance with the rules, then in effect, of such
entities. In the event I fail to abide by these
terms, this section shall in no way limit or impair
the Firm's other legal rights, including the right to
enforce said provisions in a court of competent
jurisdiction. This provision applies (but is not
limited) to any claims or actions under Title VII,
the ADA, the ADEA or any other federal, state or
local discrimination laws.
Benson signed the Application on October 24, 1997. Lehman
terminated Benson's employment on July 3, 2002. Benson
subsequently filed this action alleging sex discrimination and
retaliation pursuant to Title VII of the Civil Rights Act of
1964, and New York State and City Human Rights Laws, as well as Claims based on the New York common law of defamation and false
Benson contends that the NASD, NYSE, and ASE are not neutral
third parties, but rather are owned in part by Lehman, and that
the Provision is therefore structurally biased and inequitable.
In sum, Benson argues that the Provision is procedurally and
substantively unconscionable. Lehman claims that issues of
procedural unconscionability must be arbitrated, and that in any
event, Benson's procedural and substantive unconscionability
arguments are without merit.
Arbitration clauses in employment contracts other than those
for transportation workers are governed by the Federal
Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. See Circuit
City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001). The FAA
was designed to "ensure judicial enforcement of privately made
agreements to arbitrate." Dean Witter Reynolds Inc. v. Byrd,
470 U.S. 213, 219 (1985). The FAA represents "a strong federal
policy favoring arbitration as an alternative means of dispute
resolution." JLM Indus., Inc. v. Stolt-Nielsen SA,
387 F.3d 163, 171 (2d Cir. 2004) (citation omitted). The FAA requires that
a contract provision to arbitrate disputes "arising out of" the
contract "shall be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of
any contract." 9 U.S.C. § 2.
Under the FAA, unless parties have unambiguously provided for
an arbitrator to decide questions of arbitrability, it is for courts to decide whether the parties agreed to arbitrate. Bell
v. Cendant Corp., 293 F.3d 563, 566 (2d Cir. 2002). A court
deciding a motion to compel arbitration must resolve four issues:
(1) whether the parties agreed to arbitrate; (2) the scope of the
agreement to arbitrate; (3) if federal statutory claims are
asserted, whether Congress intended those claims to be
nonarbitrable; and (4) if some, but not all, of the claims are
arbitrable, whether to stay the balance of the proceedings
pending arbitration. Oldroyd v. Elmira Sav. Bank, FSB,
134 F.3d 72, 75-76 (2d Cir. 1998). See also JLM Indus.,
387 F.3d at 169. In this case, the parties agree that all of Benson's claims
are arbitrable and fall within the scope of the Provision they
merely dispute whether Benson agreed to the Provision.
Whether the parties entered a binding agreement to arbitrate is
customarily resolved through the application of contract
principles from the relevant state's jurisprudence. Sprecht v.
Netscape Communications Corp., 306 F.3d 17, 27 (2d Cir. 2002).
The parties agree that New York law governs the question of
whether an agreement to arbitrate exists. In New York, a contract
generally is unenforceable by reason of unconscionability only if
it was both procedurally and substantively unconscionable when
made. Gillman v. Chase Manhattan Bank, N.A., 534 N.E.2d 824,
828 (N.Y. 1988). This means there must be "some showing of an
absence of meaningful choice on the part of one of the parties
together with contract terms which are unreasonably favorable to
the other party." Id. (citation omitted) (emphasis supplied).
In Desiderio v. Nat'l Assoc. of Sec. Dealers, 191 F.3d 198 (2d
Cir. 1999), the Second Circuit applied this two prong test and rejected an argument that
an arbitration agreement was an unconscionable contract of
adhesion. Id. at 207. Finding that a contract is unconscionable
"when there is an absence of meaningful choice on the part of one
of the parties together with contract terms which are
unreasonably favorable to the other party," id. (citation
omitted), it held that where both parties are subject to a
mandatory arbitration clause, the agreement does not "favor the
stronger party unreasonably." Id. See also M & T Mortgage
Corp. v. Miller, 323 F. Supp. 2d 405, 413 (E.D.N.Y. 2004)
Benson asserts that the Provision is substantively
unconscionable because it deprives employees of a neutral
arbitral forum due to structural bias in the selected arbitration
fora. This argument is at odds with settled federal case law
regarding the fairness and neutrality of arbitrations conducted
under the auspices of regulatory organizations such as the NYSE
NYSE arbitration rules . . . provide protections
against biased panels. The rules require . . . that
the parties be informed of the employment histories
of the arbitrators, and that they be allowed to make
further inquiries into the arbitrators' backgrounds.
In addition, each party is allowed one peremptory
challenge and unlimited challenges for cause.
Moreover, the arbitrators are required to disclose
any circumstances which might preclude them from
rendering an objective and impartial determination.
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20
, 30 (1991)
(citation omitted). Under these circumstances, the Supreme Court "decline[d] to indulge the presumption that the parties and
arbitral body conducting a proceeding will be unable or unwilling
to retain competent, conscientious and impartial arbitrators."
Id. See also Rosenberg v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 170 F.3d 1
, 14-16 (1st Cir. 1999). This analysis
applies with equal force to the NASD, and indeed, has been
applied previously in this District to compel arbitration in a
case where a structural bias argument was made with respect to a
nearly identical arbitration clause to the Provision. See
Litaker v. Lehman Bros. Holdings, Inc., No. 97 Civ. 1607 (DC),
1999 WL 619638, at *1, 5 (S.D.N.Y. Aug. 16, 1999). Moreover, an
extra layer of protection against bias exists in the FAA, which
"provid[es] that courts may overturn arbitration decisions where
there was evident partiality or corruption in the arbitrators."
Gilmer, 500 U.S. at 30 (citation omitted).
Consequently, Benson has not demonstrated that the Provision is
substantively unconscionable. Given that the structure of the
NYSE and NASD arbitral systems is clearly defined by their
respective public rules and procedures, Benson has not
demonstrated that discovery would add any relevant information
about those systems. Because Benson cannot prevail on her
argument that the Provision is substantively unconscionable, it
is unnecessary to reach her arguments about procedural
Lehman's motion to compel arbitration is granted. The case is
stayed until the resolution of the arbitration proceedings and is
transferred to the Court's suspense docket.