95 A.D.3d 32
N.Y. App. Div.2012Background
- Arbitration is required if authorized by a clear agreement; here, the agreement precludes arbitration for claims brought via a plenary class action.
- Plaintiffs allege state-law wage and overtime violations (12 NYCRR 142-2.2, Labor Law §§193, 198-b, 191) as a putative class action.
- Plaintiffs signed Form U-4 agreeing to arbitrate disputes “as may be required to be arbitrated under FINRA rules,” which incorporate FINRA Rule 13204(d) prohibiting class-action arbitration.
- FINRA Rule 13204(d) prohibits arbitration of class actions and bars enforcement of arbitration against a putative class member for a claim within the class action unless conditions are met.
- A related federal action had stayed state-law claims and compelled arbitration under FLSA, but the instant NY action involves state claims and class-action posture.
- The district court stayed and compelled arbitration under a federal ruling; the NY appellate court must determine applicability of the arbitration exclusion in the agreement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Arbitration vs. class action exclusion | Gomez argues class action should proceed; arbitration barred by agreement. | Brill argues arbitration should proceed once FINRA rules are integrated; prior ruling supports staying arbitration. | Arbitration barred for class-action claims by the agreement. |
| Res judicata effect of the district court order | District court order should preclude this action. | Order does not decide merits; not a res judicata bar. | Res judicata does not apply; district order does not preclude this NY action. |
| Appropriateness of class-action certification | Plaintiffs should be allowed class certification to pursue claims. | Class action improper given arbitration agreement and FINRA rules. | Class certification denied; arbitrable claims subject to FINRA rules. |
| Effect of FINRA Rule 13204(d) on arbitrability | FINRA rule should not bar arbitration of state claims as class action. | Rule 13204(d) precludes class-action arbitration, applicable here. | FINRA Rule 13204(d) precludes arbitration of the class-action claims. |
Key Cases Cited
- Matter of Exercycle Corp. v. Maratta, 9 N.Y.2d 329 (N.Y. 1961) (arbitration policy and express agreement govern)
- Matter of Waldron v. Goddess, 61 N.Y.2d 181 (N.Y. 1984) (parties must expressly agree to arbitrate; courts defer to agreement)
- Harris v. Shearson Hayden Stone, 82 A.D.2d 87 (N.Y. App. Div. 1981) (strong arbitration policy; class actions do not override valid arbitration)
- Nielsen v. Piper, Jaffray & Hopwood, Inc., 66 F.3d 145 (2d Cir. 1995) (arbitration under chosen forum rules; class-action exception cited)
- Preston v. Ferrer, 552 U.S. 346 (U.S. 2008) (FAA supremacy; arbitration held as written)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (federal policy favoring arbitration; cannot be vitiated by state law)
- Olde Discount Corp. v. Hubbard, 127 F.3d 879 (10th Cir. 1999) (class-action arbitration issues under arbitration agreements)
- Velez v. Perrin Holden & Davenport Capital Corp., 769 F. Supp. 2d 445 (S.D.N.Y. 2011) (district court recognition of FINRA rule preclusion on class actions)
- Gomez v. Brill Sec., Inc., 2010 WL 4455827; 2010 U.S. Dist. LEXIS 118162 (S.D.N.Y. 2010) (federal court stayed state claims; arbitration compelled for FLSA claim under Form U-4)