In a closely watched case involving Merrill Lynch, the U.S. Court of Appeals for the First Circuit in Boston ruled in December that a former Merrill rep can proceed to court with an age discrimination and sexual harassment case. But the 58-page decision is such a mixed bag that both sides are claiming victory.
"Both sides got something that they wanted, and both sides lost something that they wanted," says Marc Redlich, the Boston attorney who represents plaintiff Susan Rosenberg.
A Merrill spokesperson notes that the appeals court overruled Federal District Judge Nancy Gertner on two of her key (and widely cited) findings: That predispute arbitration agreements violate the intent of the Civil Rights Act of 1991 to guarantee a jury trial; and that arbitration at the NYSE is inherently unfair because it "is dominated by ... the employment side of the dispute." Gertner made those findings in January 1998 when she denied Merrill's motion to compel arbitration at the NYSE.
The appeals court overruled Gertner on both points. It found that Gertner's determination of "structural bias" at the NYSE was in error since there had been "no showing of actual bias in the forum selected."
On predispute agreements, the court noted: "Every circuit that has considered the issue save one [California's Ninth Circuit in the Duffield decision] has upheld the use of such agreements."
A Merrill spokesperson says, "We are pleased that the court unanimously upheld the fairness and legality of the arbitration process."
Merrill abandoned predispute agreements last July, in the process giving its current employees the right to file discrimination and harassment claims in court. But the firm has been fighting to hold Rosenberg to the U-4 she signed in 1992.
The appeals court sustained Gertner on her finding that Rosenberg could not be compelled to arbitration. The court said: "Rosenberg's and Merrill Lynch's arbitration agreement [the U-4] was incomplete; it failed to define the range of claims subject to arbitration. It referred only to arbitration of such claims as were required to be arbitrated by the NYSE rules. But those rules were not given to Rosenberg or described to her." The court also noted that Rosenberg had no prior experience in the securities industry when she signed the U-4.
Merrill can still appeal the ruling. The firm's spokesperson says no decision has been made.
The firm does point out, however, that one of the three appeals court judges dissented. The judge said Rosenberg was "a mature, well-educated businesswoman" when she joined Merrill and should have made herself aware of the import of the U-4 before signing.
Rosenberg, an accountant, was 45 years old when she joined Merrill. Since her dismissal in 1994, she has become a business consultant, Redlich says. He adds that if the case is not settled, it could go to trial in one to two years.
Cliff Palefsky, an attorney with the National Employment Lawyers Association in San Francisco, says the appeals court decision is a "significant loss" for brokers. But the Duffield decision barring mandatory predispute agreements is still the law in nine Western states, he notes. (Duffield was upheld on appeal, and the Supreme Court declined to review it.) The end result is "a dual system of justice for securities industry employees," Palefsky says.