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Brady v. Williams Capital Group

March 25, 2010


The opinion of the court was delivered by: Jones, J.

This opinion is uncorrected and subject to revision before publication in the New York Reports.

At issue is whether petitioner met her burden of demonstrating that an arbitration agreement's provision for the equal sharing of arbitration fees and costs precluded petitioner from pursuing her statutory rights in the arbitral forum. Because neither lower court made a finding regarding petitioner's financial ability, we remit this matter to Supreme Court for a hearing to determine, in light of the standard we enunciate today, whether petitioner was financially able to share equally in the arbitration fees and costs.

On January 19, 1999, respondent Williams Capital Group, L.P. (Williams), an investment bank and broker-dealer of debt and equity securities, hired petitioner to sell fixed income securities. As a representative of respondent Williams, petitioner was required to execute a Uniform Application for Securities Industry Registration or Transfer ("Form U-4") in order to become registered with the National Association of Securities Dealers ("NASD"). Accordingly, petitioner, a "registered" salesperson of fixed income securities, was subject to NASD rules. Under NASD Rule 10201 (b), for example, "[a] claim alleging employment discrimination, including a sexual harassment claim, in violation of a statute is not required to be arbitrated. Such a claim may be arbitrated only if the parties have agreed to arbitrate it, either before or after the dispute arose."

In 2000, respondent Williams promulgated an employee manual that all of its employees, including petitioner, were required to sign and abide by as a condition of continued employment. Incorporated within the employment manual was a "Mutual Agreement to Arbitrate Claims" ("Arbitration Agreement" or "Agreement") under which respondent Williams and each of its employees agreed (1) that all disputes were to be arbitrated (so that the parties would enjoy "the benefits of a speedy, impartial dispute-resolution procedure") and (2) to equally share the fees and costs of the arbitrator. At the time the Arbitration Agreement was entered into, its "equal share" provision was consistent with respondent American Arbitration Association ("AAA") rules (which provided that parties to an AAA arbitration would share the cost of the arbitrator's fee). The Agreement includes the following provision:

"The Company and I agree that, except as provided in this Agreement, any arbitration shall be in accordance with the then-current Model Employment Arbitration Procedures of the [AAA] before an arbitrator who is licensed to practice law in the state in which the arbitration is convened ('the Arbitrator'). The arbitration shall take place in or near the city in which I am or was last employed by the Company" (emphasis added).

On February 28, 2005, respondent Williams terminated petitioner's employment. During each of her five years in the employ of respondent Williams, petitioner earned $100,000 or more. Specifically, she earned $100,000 in 1999, $137,500 in 2000, $324,000 in 2001, $356,000 in 2002, $405,000 in 2003 and $204,691 in 2004.

Initially, after petitioner's termination, neither respondent Williams nor petitioner sought to compel arbitration. Petitioner, instead, filed a discrimination complaint with the New York State Division of Human Rights ("DHR"). For a time, she and respondent Williams conducted discovery in that forum. However, after approximately 8 months, and before any decision was rendered by DHR, petitioner voluntarily withdrew her complaint.

On December 22, 2005, petitioner filed a Demand for Arbitration with respondent AAA, seeking money damages against respondent Williams. Petitioner claimed that respondent Williams terminated her employment based on her race and/or sex in violation of Title VII of the Civil Rights Act of 1964, Article XV of the New York State Executive Law and Title 8 of the New York City Civil Rights Law. At the time petitioner filed the Demand, the AAA rules, which were amended in 2002, required employers to pay all arbitration expenses and the arbitrator's compensation (referred to as the AAA's "employer-pays" rule).

Approximately two weeks later, respondent AAA, by letter, notified the parties of its determination that the dispute arose from an "Employer Promulgated Plan," and that the arbitration would be conducted consistent with respondent AAA's National Rules for the Resolution of Employment Disputes ("National Rules"). For example, under National Rule 1,

"[t]he parties shall be deemed to have made these rules a part of their arbitration agreement whenever they have provided for arbitration by [AAA] or under its National Rules for the Resolution of Employment Disputes. If a party establishes that an adverse material inconsistency exists between the arbitration agreement and these rules, the arbitrator shall apply these rules."

On or about March 30, 2006, respondent AAA, in accordance with its "employer-pays" rule, sent respondent Williams an invoice/statement for $42,300, which represented the entire advance payment for the arbitrator's compensation. Citing the Arbitration Agreement, respondent Williams refused to pay the entire amount of the arbitrator's compensation, and demanded that petitioner pay half in accordance with the Arbitration Agreement. Petitioner refused to make any payment.

Subsequently, respondent AAA, citing its rules, advised the parties that petitioner's position was accurate. After numerous attempts to secure full payment of the arbitrator's fee from respondent Williams, the AAA cancelled the arbitration on or about October 5, 2006.

By verified petition dated October 2, 2006, petitioner commenced this article 78 proceeding seeking to compel respondent Williams to pay the arbitrator's fee or to compel respondent AAA to enter a default judgment against Williams for failing to do so. Supreme Court dismissed the petition in its entirety, holding that the parties' Arbitration Agreement, rather than the AAA rules, governed. In addition, the court, citing petitioner's earnings while she was employed by respondent Williams, rejected the argument that requiring petitioner to pay half of the arbitrator's compensation ($21,150) was prohibitively expensive.

In a 3-2 decision, the Appellate Division reversed and directed respondent Williams to pay the entire arbitration fee "subject later to reallocation of those costs by the arbitrator." Although the majority agreed with Supreme Court that the AAA rules did not supercede the Arbitration Agreement, they held that the "equal share" provision of the Agreement was unenforceable as against public policy. In so holding, the majority found that petitioner met her burden of establishing that the arbitration fees and costs were so high as to discourage her from vindicating her state and federal statutory rights in the arbitral forum. ...

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