DeGaetano v. Smith Barney, Inc.

OPINION and ORDER

Plaintiff Alicia DeGaetano (“DeGaetano”) moves to modify or correct an arbitration award rendered in her favor in an employment discrimination case, seeking specifically to collect attorney’s fees that she was denied in that award. DeGaetano contends that because she received an award of $90,355 in the arbitration, thereby attaining “prevailing plaintiff” status, the arbitrator’s failure to grant her attorney’s fees constituted a manifest disregard of the law under Title VII of the Civil Rights Act of 1964 (“Title VII”), 42 U.S.C. § 2000e et seq. For the reasons stated below, DeGaetano’s motion is granted.

BACKGROUND

DeGaetano commenced this action on March 8, 1995, alleging violations of Title VII, the New York State Human Rights Law (“HRL”), New York State Executive Law § 296 et seq., and the Administrative Code of the City of New York § 8-107 et seq., against her former employer, Smith Barney Shear-son, Inc. (“Smith Barney”), and her former supervisor at Smith Barney, Frederick Hessler (“Hessler”); DeGaetano also brought a claim against Hessler alone under the common law of New York for intentional infliction of emotional, distress. In brief, DeGaetano alleged that she had been forced to resign her employment at Smith Barney due to unwelcome sexual advances made toward her by Hessler, and due to Smith Barney’s refusal to take any action in response to her complaints about Hessler.

On February 5, 1996, this Court issued an Opinion and Order (“Order”), familiarity with which is assumed, granting the defendants’ motion to compel arbitration of DeGaetano’s claims; in so doing, the Court enforced the arbitration clause of an agreement entitled “Principles of Employment” that DeGaetano had signed upon joining Smith Barney in July 1993. That agreement, and specifically the arbitration clause, incorporated by reference Smith Barney’s “Arbitration Policy,” which at the time of DeGaetano’s hiring provided in relevant part:

Arbitration under the Policy shall be conducted pursuant to the arbitration rules of the NYSE [New York Stock Exchange]- in effect at the time of the arbitration except as modified by this Arbitration Policy. The rules in effect as of September 1,1992 are attached hereto. In addition to the NYSE Rules, the following provisions shall apply.... Each side shall pay its own legal fees and expenses. 1

(Emphasis added.) The Principles of Employment contract- advised DeGaetano that the Arbitration Policy and other key documents:

are available for your review prior to your acceptance of employment, if you choose to *461 review them. You will be asked to acknowledge receiving copies of the current versions of these with your New Hire paperwork when you begin employment. Remember—it is your responsibility to read and understand these policies and expectations. If you have any questions, now or in the future, please ask. 2

(Emphasis in original.)

During the course of the ensuing arbitration, before an Arbitration Panel under the auspices of the New York Stock Exchange, Inc., DeGaetano formally applied for recovery of her attorney’s fees. In support of the application, DeGaetano filed a memorandum of law informing the Arbitration Panel of the requirement that prevailing parties be awarded attorney’s fees under Section 2000e-5(k) of Title VII, 42 U.S.C. § 2000e-5(k). 3 Citing that statute as well as Cowan v. Prudential Ins. Co. of America, 935 F.2d 522, 523-24 (2d Cir.1991), the memorandum stated: “If DeGaetano establishes her claim of sex discrimination, the Panel must award her attorneys’ fees and costs.” (Emphasis added.) In arguing that: Smith Barney’s Arbitration Policy was void to the extent that it purported to preclude recovery of attorney’s fees, DeGaetano’s memorandum further apprised the Arbitration Panel of the Supreme Court’s “holding that ... prevailing claimants [are] entitled to receive full attorneys’ fees even though their recovery was very modest and substantially less that [sic] the attorneys’ fees.” (Emphasis added.) As additional support for the fee claim, the memorandum asserted with reference to Section 2000e-5(g)(2)(B) of Title VII that:

[underlining the importance of vindicating the public policy of eradicating discrimination, the Civil Rights Act provides for attorneys’ fees if the claimant proves that a discriminatory motive played a part in the decision even if the defendant proves that it would have taken the same action absent the discriminatory, motive.

(Emphasis in original.)

The defendants’ submission to the Arbitration Panel also conveyed that “a prevailing plaintiff is entitled to costs under Title VII,” although, according to the defendants, “the court has discretion as to the amount of fees allowed.” The defendants’ primary argument, however, was that the Arbitration Panel had no authority to award attorney’s fees in the first instance, because DeGaetano’s employment agreements (incorporating the Smith Barney Arbitration Policy) expressly precluded such an award.

On March 18, 1997, following ten days of hearings, the Arbitration Panel rendered its decision, which states in its entirety:

Respondents shall pay to Claimant $90,355 in damages and interest. This award is joint and several. The Panel does not find that the conduct of Respondents rose to the level contemplated by Title VII and therefore deny the requests for punitive damages and attorney’s fees. Unpaid forum fees of $10,800 are assessed against Respondent Smith Barney.

(Emphasis added.) DeGaetano filed the present motion on June 16, 1997, seeking attorney’s fees and costs, or in the alternative, an order modifying or correcting the Panel’s decision to provide for such an award.

STANDARD

The party seeking to vacate or modify an arbitration award bears the burden of proof, and the showing required of that party in order to avoid summary affirmance of the award is high. Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir.1997). Although this Court may vacate an *462 award “when the arbitrator[ ] acted in manifest disregard of the law,” id., “the reach of the manifest disregard doctrine is ‘severely limited.”’ DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 821 (2d Cir.1997) (quoting Government of India v. Cargill Inc., 867 F.2d 130, 133 (2d Cir.1989)). “A district court should not vacate an arbitration award for manifest disregard simply because of ‘error or misunderstanding with respect to the law.’” International Telepassport Corp. v. USFI, Inc., 89 F.3d 82, 85 (2d Cir.1996) (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir.1986)). Rather, the term “manifest disregard ‘clearly means more’

The error must have been obvious and capable of being readily and instantly- perceived by the average person qualified to serve as an arbitrator. Moreover, the term “disregard” implies that the arbitrator appreciates the existence of-a clearly governing legal principle but decides to ignore or pay no attention to it.

DiRussa, 121 F.3d at 821 (quoting Bobker, 808 F.2d at 933). Thus, in order to modify or vacate an award on the ground of manifest disregard, this Court “must find both that (1) the arbitratorf] knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrator[ ] ... [was] well defined, explicit, and clearly applicable to the case.” Id. (internal quotations and citations omitted) (second alteration in original).

DISCUSSION

Section 2000e-5(k) of Title VII provides that “the court, in its discretion, may allow the prevailing party ... a reasonable attorney’s fee.” 42 U.S.C. § 2000e-5(k). Although not couched in mandatory terms, this statute Establishes a presumptive entitlement to an award of attorney’s fees for prevailing parties. The Supreme Court has stated in construing the nearly identical general civil rights attorney’s fee provision, 42 U.S.C. § 1988, 4 that in order to “ensure effective access to the judicial process for persons with civil rights grievances^] ... a prevailing plaintiff should ordinarily recover an attorney’s fee unless special circumstances would render such an award unjust.” Hensley v. Eckerhart, 461 U.S. 424, 429, 103 S.Ct. 1933, 1937, 76 L.Ed.2d 40 (1983) (emphasis added) (internal quotations and citations omitted). See also Lyte v. Sara Lee Corp., 950 F.2d 101, 103 (2d Cir.1991) (“While the language of the Title VII fee provision refers to the award as discretionary, a prevailing plaintiff is in fact entitled to fees ‘unless special circumstances would render such an award unjust’ in light of the congressional goals underlying enforcement of, fee awards in civil rights litigation.”) (quoting Hensley, 461 U.S. at 429, 103 S.Ct. at 1937).

A. Manifest Disregard

Notwithstanding the stringent standard for vacating or modifying an arbitration award, tie Court concludes that the Arbitration Panel acted in manifest disregard of the law in failing to award attorney’s fees to DeGaetano in this case. There was absolutely no showing of “special circumstances” that would render an award of fees unjust. 5 Most important, there is no question that DeGaetano was a prevailing party in this action, given that she won an award equivalent to more than a year’s back pay, imposed jointly and severally against Smith Barney and Hessler. 6 The defendants speculate that DeGae *463 tano did not in fact prevail on her employment discrimination claims, but succeeded only on her claim for intentional infliction of emotional distress; but that speculation is clearly wrong because the common law claim was brought only against Hessler. In addition, the parties presented the case to the Arbitration Panel almost exclusively as one under Title VII, and as the defendants acknowledge, the standards for proving employment discrimination are essentially the same under federal, state, and local anti-discrimination statutes. Thus DeGaetano’s award — against both the individual and institutional defendants — must have been based on a finding of liability under the employment discrimination statutes, 7 which in these circumstances entitled her to an award of attorney’s fees.

The defendants’ argument against an award of attorney’s fees (assuming one is available) relies on the recent opinion in DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818 (2d Cir.1997). In Dirussa, id. at 822-23, the Second Circuit upheld an arbitration panel’s refusal to award attorney’s fees following arbitration of an action under the Age Discrimination in Employment Act of 1967 (“ADEA”), 29 U.S.C. § 621 et seq., a statute that — unlike Title VII — clearly mandates the awarding of attorney’s fees in any judgment for a plaintiff. Under the relevant provision of that statute, “[t]he court ... shall, in addition to any judgment awarded to the plaintiff, ... allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.” 29 U.S.C. § 626(b) (emphasis added). The DiRussa court rejected the argument that the denial of attorney’s fees constituted manifest disregard of the law under the ADEA based on the following rationale: there was “no persuasive evidence that the arbitrators actually knew of — and intentionally disregarded — the mandatory aspect of the ADEA’s fee provision.” 121 F.3d at 822. In other words, the plaintiff had “fail[ed] to inform the arbitrators of the relevant legal standard” — including failing to “quote the language of the relevant ADEA section” or communicate to the arbitrators in any fashion “that the ADEA mandated [a fee] award to a prevailing party” — and therefore the court could not “infer that [the arbitrators] consciously disregarded the ADEA’s fee provision.” Id. at 823.

DiRussa plainly does not control the outcome here, where the Arbitration Panel declined to make a fee award despite being notified unequivocally by all parties of the governing legal principles granting attorney’s fees to prevailing plaintiffs. While the plaintiff in DiRussa allowed the arbitrators in that case to believe they had discretion in deciding whether to award attorney’s fees, the parties here if anything overstated the nature of a prevailing plaintiffs right to fees, indicating that it was mandatory, with the Arbitration Panel retaining discretion only as to the issue of the amount of any award.

The arbitrators’ notice and knowledge of the relevant law therefore is not at issue in this case, and it is evident that the Arbitration Panel’s error in refusing to award attorney’s fees to DeGaetano arose from a different problem. As noted, the decision denying fees states that the Panel “does not find that the conduct of [the defendants] rose to the level contemplated by Title VII and therefore deny the requests for punitive damages and attorney’s fees.” This ruling is nonsensical inasmuch as the only “level contemplated by Title VII” for an award of attorney’s fees— with the exception of the “special circumstances” caveat — is that the plaintiff be a “prevailing party,” a point not seriously debatable here with respect to DeGaetano in light of the Panel’s decision to award her $90,355. See supra at 8-9 & n. 6.

Based on the brief and cryptic text of the arbitral ruling, the most reasonable inference — and also this Court’s finding — is that the Arbitration Panel erroneously applied to the decision whether to award DeGaetano *464 attorney’s fees the standard for an award of punitive damages, which the parties described to the Panel as requiring proof that the defendants acted maliciously or with reckless indifference to DeGaetano’s rights under federal law. Such a mistake, where the parties have clearly presented the relevant, and very différent, standards applicable to the two separate issues, constitutes manifest disregard of the law. 8 The- error was “obvious,” given the briefing by the parties, and was “capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator,” given the prominence and general awareness of the doctrine affording attorney’s fees to prevailing plaintiffs. DiRussa, 121 F.3d at 821 (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir.1986)). The conclusion is therefore unavoidable that the Arbitration Panel “appreciate[d] the existence of a clearly governing legal principle but decide[d] to ignore or pay no attention to it,” id., a conclusion sufficient, as an initial matter, to warrant modifying the Arbitration Panel’s award so as to provide an award of fees to DeGaetano. 9

B. Public Policy

Having determined that the denial of attorney’s fees constituted manifest disregard of the law under Title VII, the Court must reach the defendants’ argument that an award of attorney’s fees was barred here in any event by the Smith Barney Arbitration Policy. As noted, the Arbitration Policy in effect during DeGaetano’s employment provided that “[e]ach side shall pay its own legal fees and expenses.” DeGaetano argues here, as she did in opposing the defendants’ original motion to compel arbitration, that such a provision is void as a matter of public policy.

The Second Circuit recently addressed a similar issue in Thomas James Assocs. v. Jameson, 102 F.3d 60 (2d Cir.1996), where a securities broker challenged on public policy grounds a provision of his employment contract that purported to waive his right to arbitrate certain claims. Observing that the “term public policy is obviously a broad one; it embraces a multitude of virtues and sins,” the Jameson court explained that federal public policy is “typically Found in the Constitution, treaties, federal statutes and regulations, and court eases,” and that,

while violations of public policy must be determined through definite indications in the law of the sovereignty, courts must not be timid in voiding agreements which tend to injure the public good or contravene some established interest of society.

Id. at 66 (quoting Stamford Bd. of Educ. v. Stamford Educ. Ass’n, 697 F.2d 70, 73 (2d Cir.1982)) (emphasis added) (internal quotations omitted). Guided by these principles, the court in Jameson declared the contract provision waiving the plaintiffs right to arbitrate “void as against public policy.” Id. The court’s decision was influenced in particular by a “specific indication of federal policy,” a 1987 resolution by the National Association of Securities Dealers (“NASD”) 10 that prohibited its members from requiring their employees to waive the right to arbitrate disputes. See id.

Following the analysis in Jameson, the Court finds in this case that the Smith Barney Arbitration Policy — to the extent that it *465 prevents prevailing plaintiffs from obtaining an award of attorney’s fees in employment discrimination cases — is void as a matter of public policy. The Court’s conclusion is based on general principles of well-established federal policy, as well as “specific indication[s]” of relevant industry policy. Id.

First, it is beyond question that the fee-shifting provision of Title VII is a critical component of Congress’s comprehensive statutory scheme for uncovering, redressing, and deterring unlawful employment discrimination in the American workplace. The Supreme Court has emphasized on numerous occasions that an individual plaintiff pursuing claims under the civil rights laws, including Title VII of the 1964 Act, is “cast ... in the role of ‘a “private attorney general,” vindicating a policy that Congress considered of the highest priority.’” Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 416, 98 S.Ct. 694, 697-98, 54 L.Ed.2d 648 (1978) (attorney’s fees under Title VII) (quoting Newman v. Piggie Park Enters., 390 U.S. 400, 402, 88 S.Ct. 964, 966, 19 L.Ed.2d 1263 (1968) (Title II)). See also Hensley v. Eckerhart, 461 U.S. 424, 429, 103 S.Ct. 1933, 1937, 76 L.Ed.2d 40 (1983) (42 U.S.C.1988); Lyte v. Sara Lee Corp., 950 F.2d 101, 103-104 (2d Cir.1991) (Title VII). For purposes of effecting these vital interests, the Title VII plaintiff “is the chosen instrument of Congress,” a role underscored by the notion that “when a district court awards counsel fees to a prevailing plaintiff, it is awarding them against a violator of federal Law.” Christiansburg, 434 U.S. at 418, 98 S.Ct. at 699.

The express rationale for.awarding fees in the employment litigation context is “to facilitate the bringing of discrimination complaints”; specifically, the “legislative history and purpose of § 706(k)” — Section 2000e-5(k) of Title VII — make “clear that one of Congress’ primary purposes in enacting the section was to ‘make it easier for a plaintiff of limited means to bring a meritorious suit.’ ” New York Gaslight Club, Inc. v. Carey, 447 U.S. 54, 63, 100 S.Ct. 2024, 2030, 64 L.Ed.2d 723 (1980) (quoting Christiansburg, 434 U.S. at 420, 98 S.Ct. at 699-700). But the benefits of awarding attorney’s fees to prevailing plaintiffs, and thereby encouraging ameliorative lawsuits, serve broader policy goals. “Congress expressly recognized that a plaintiff who obtains relief in a civil rights lawsuit does so not for himself alone”; rather, “the damages a plaintiff recovers contributes significantly to the deterrence of civil rights violations in the future.” City of Riverside v. Rivera, 477 U.S. 561, 575, 106 S.Ct. 2686, 2694, 91 L.Ed.2d 466 (1986) (internal quotations and citations omitted). Consequently,

[i]f .the citizen does not have the resources, his day in court is denied him; the congressional policy which he seeks to assert and vindicate goes unvindicated; and the entire Nation, not just the individual citizen, suffers.

Id. (citation omitted). 11 It is for these principled as well as pragmatic reasons that, as noted above, a prevailing plaintiff in an action under the civil rights laws — including a Title VII plaintiff — “should ordinarily recover an attorney’s fee unless special circumstances would render such an award unjust.” Christiansburg, 434 U.S. at 416-17, 98 S.Ct. at 698 (quoting Newman, 390 U.S. at 402, 88 S.Ct. at 966-67); see also Hensley, 461 U.S. at 429, 103 S.Ct. at 1937; Lyte, 950 F.2d at 103.

Of course, there is no disputing that the fee action in this case arises against the backdrop of an overarching “liberal federal policy favoring arbitration agreements,” Bird v. Shearson Lehman/American Express, Inc., 926 F.2d 116, 119 (2d Cir.1991) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983)); see also Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir.1987); Order at 5-8, nor that, under this controlling doctrine, even statutory claims involving substantial individual *466 rights — such as the Title VII claims at issue here — “may be the subject of an arbitration agreement, enforceable pursuant to” the terms of the- Federal Arbitration Act, 9 U.S.C. § 1 et seq. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 1652, 114 L.Ed.2d 26 (1991); see also Order at 9-10 (citing cases compelling arbitration of statutory claims). Indeed, this Court made clear in its February 5, 1996 Order that even the critical public policies underlying Title VII were not alone sufficient to require that DeGaetano’s claims be heard in a court of law. Id. at 9. To the contrary, once “[h]aving made the bargain to arbitrate” by signing express agreements to that effect with Smith Barney, DeGaetano was “held to it” because she was unable to show that “Congress ... inten[ded] to preclude a waiver of judicial remedies for the statutory rights at issue.” Id. at 13 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3354-55, 87 L.Ed.2d 444 (1985)). Accordingly, given the procedural posture of the case prior to the Court’s February 5, 1996 Order, the Court granted the defendants’ motion to compel arbitration of DeGaetano’s claims under Title VII. Order at 19.

Nevertheless, forcing an employee to arbitrate important statutory claims pursuant to a valid employment agreement, and forcing her to do so in a forum or under an agreement that affords her less than the full measure of rights granted by the statute, are two very different things. In this vein, it is evident that the key to the Supreme Court’s conclusion in Gilmer, that statutory civil rights claims similar to those at issue here could be subjected to arbitration, was the recognition that such a procedure, properly applied, did not prejudice the claimant’s vital interests; rather, “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.” Gilmer, 500 U.S. at 26, 111 S.Ct. at 1652 (quoting Mitsubishi, 473 U.S. at 628, 105 S.Ct. at 3354). Gilmer thus made clear the applicable standard for determining whether a statutory claim is “appropriate for arbitration”:

so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.

Id. at 28, 111 S.Ct. at 1653 (quoting Mitsubishi, 473 U.S. at 637, 105 S.Ct. at 3359) (emphasis added).

This Court’s prior Order relied on the Gilmer/Mitsubishi standard in addressing DeGaetano’s argument that the unavailability of injunctive relief under the Smith Barney Arbitration Policy precluded arbitration of her claims. See Order at 14. Rejecting that argument, the Court concluded that DeGaetano could still “effectively ... vindicate” her Title VII claims through arbitration, even though the arbitral forum might not “afford [her] the full panoply of remedies otherwise available in a court of law.” Id. (quoting Gilmer, 500 U.S. at 28, 111 S.Ct. at 1653 (quoting Mitsubishi, 473 U.S. at 637, 105 S.Ct. at 3359)). That conclusion was based on Gilmer’s express discourse on the identical issue (i.e., whether the inability to obtain equitable remedies prevents arbitration), including the Supreme Court’s statement that “arbitration agreements will not preclude the EEOC from bringing actions seeking ... equitable relief.” 12 See Gilmer, 500 U.S. at 32, 111 S.Ct. at 1655; Order at 13. Gilmer’s treatment of this issue reinforces that it is the judicial forum, and perhaps specific judicial remedies for which there is an equivalent alternative, that may be waived through a binding arbitration agreement, but not the substantive statutory protections that are the subject of the arbitration.

*467 The Supreme Court’s guidance with respect to injunctive relief does not, however, answer the question whether it is permissible for an arbitration agreement and an arbitral forum to preclude altogether the awarding of attorney’s fees to a prevailing Title VII plaintiff. Given the Court’s emphatic statement that a statute “continuéis] to serve both its remedial and deterrent function” only when it can be said that a plaintiff seeking redress thereunder “may vindicate [his or her] statutory cause of action in the arbitral forum,” Gilmer, 500 U.S. at 28, 111 S.Ct. at 1653 (quoting Mitsubishi, 473 U.S. at 637, 105 S.Ct. at 3359), the answer must be “No.” Indeed, the Court has indicated as much, albeit in dictum, in Mitsubishi

Starting from the premise that statutory claims are not per se exempt from arbitration agreements, the Court in Mitsubishi held that federal antitrust claims could be submitted to international arbitration under a valid choice-of-forum clause because even the unquestioned importance to antitrust enforcement of the Sherman Act’s treble-damages provision was not enough to “compel the conclusion that [that remedy] may not be sought outside an American court.” 473 U.S. at 635, 105 S.Ct. at 3358. Crucial to the holding in <