The Second Circuit has given class action waivers another shot in the arm. In Parisi v. Goldman, Sachs & Co. (pdf), plaintiff argued that because she had agreed to arbitrate statutory employment discrimination claims against her employer, but could not proceed in a class-wide arbitration, she must be permitted to pursue her Title VII pattern-or-practice sex discrimination claim as a class action plaintiff in court; otherwise, her arbitration agreement would constitute an impermissible waiver of a substantive statutory right. The Court firmly rejected this argument, holding that there is no substantive statutory right to pursue a pattern-or-practice claim in court. The Court reversed the lower court’s ruling that had refused to compel arbitration of plaintiff’s claim individually.
When plaintiff was promoted to managing director, she signed an agreement that included a mandatory arbitration clause. She was required to pursue “any dispute, controversy or claim arising out of or based upon or relating to Employment Related Matters,” which included Title VII discrimination claims, before NYSE or NASD (the predecessors of FINRA Dispute Resolution), or, if they declined to administer the case, before the American Arbitration Association. The agreement was silent, however, regarding the possibility of proceeding in a class-wide arbitration. Because the Supreme Court subsequently held in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., (pdf) that a party cannot be compelled to arbitrate on a class-wide basis unless it has expressly agreed to do so, and the arbitration provision in question was silent on that issue, plaintiff argued, and the lower court agreed, that “the agreement’s preclusion of class arbitration would make it impossible for Paris to arbitrate a Title VII pattern-or-practice claim, and that consequently, the clause effectively operated as a waiver of a substantive right under Title VII.”
The Second Circuit reversed. Relying on previous Second Circuit case law, the Court noted that “in Title VII jurisprudence ‘pattern-or-practice’ simply refers to a method of proof and does not constitute a ‘freestanding cause of action.’” Further, because Fed. R. Civ. P. 23, which governs federal class actions, is only a procedural vehicle “ancillary to the litigation of substantive claims,” the undisputed fact that private, non-governmental plaintiffs do not have a substantive a right to bring individual pattern-or-practice claims in court means that there is “no entitlement to the ancillary class action procedural mechanism.”
The decision is another great outcome in favor of class action waivers. (We recently reported here, for example, that a FINRA disciplinary hearing panel permitted Charles Schwab & Company, Inc. to maintain its predispute arbitration provision in its customer agreement that includes a class action waiver). It also sets the stage for the Supreme Court’s pending decision in American Express Company v. Italian Colors Restaurant, which, reviewing another Second Circuit decision, will decide whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim. Depending on the outcome of that decision, expected before the end of the current term in June, we could see a dramatic increase in the use of class action waivers in both the employment and consumer context.