Pattern-or-Practice Constitutes a Method of Proof and Not a Substantive Claim

In 2008, Lisa Parisi was terminated as a Managing Director of Goldman Sachs & Co. (Goldman). Her employment agreement included the following arbitration clause:

any dispute, controversy or claim arising out of or based upon or relating to Employment Related Matters will be finally settled by arbitration in New York City before, and in accordance with the rules ... of, the New York Stock Exchange, Inc. or ... the National Association of Securities Dealers. If both the NYSE and NASD decline to arbitrate the matter, the matter will be arbitrated before the American Arbitration Association in accordance with the commercial arbitration rules of the AAA. You agree that any arbitration decision and/or award will be final and binding....

The term Employment Related Matters was broadly defined to include all aspects of Parisi's employment relationship.

Parisi and two other female employees whom Goldman had terminated sought to pursue class action Title VII claims for gender discrimination against Goldman in federal court. Goldman moved to stay the suit and to compel Parisi to arbitrate her individual claims before FINRA. It cited Stolt Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010) for the proposition that a party cannot be forced to arbitrate on a class-wide basis when its arbitration agreement is silent as to the arbitration of class claims.

The magistrate judge ruled that the arbitration clause was valid and covered Parisi's discrimination claims, but he also ruled that its preclusion of class arbitration made it impossible for Parisi to arbitrate her Title VII pattern-or-practice claims and, thus, operated to waive her substantive rights under Title VII. The magistrate ruled that such a waiver was impermissible and denied Goldman's motion to compel arbitration. The district court adopted the magistrate's recommendations, and Goldman filed an interlocutory appeal pursuant to the Federal Arbitration Act (FAA).

On appeal, the Second Circuit noted that as recently as 2012, the Supreme Court interpreted the FAA as establishing a federal policy in favor of arbitration. It held that the preference for arbitration applies even to federal statutory claims unless the FAA is overridden by an express congressional command. The Court stated that statutory claims designed to further important social policies may be arbitrated so long as the prospective litigant effectively may vindicate his or her statutory cause of action in the arbitral forum and that the policy in favor of arbitration serves both the remedial and deterrent functions of such statutes.

The Second Circuit recounted two circumstances in which motions to compel arbitration had been denied on the ground that it would prevent plaintiffs from vindicating their statutory rights. In the first situation, the class waiver provision would have precluded the plaintiff from pursuing antitrust claims because individual arbitration would be cost prohibitive. In the second situation, the arbitration provision would have interfered with the plaintiff's recovery of statutorily- authorized damages, such as treble damages under the Sherman Act. The court found neither of these situations was present here.

In essence, Parisi's argument was that requiring her to arbitrate her claims would prevent her from vindicating her right to pursue a pattern-or-practice discrimination claim under Title VII. Citing earlier precedent, the Second Circuit noted that Parisi had no right to pursue a pattern-or-practice claim. It held that the term "pattern-or-practice" does not refer to a particular substantive right or cause of action but, instead, merely refers to a method by which disparate treatment can be shown. Accordingly, it held that requiring Parisi to arbitrate her claims would not deny her any federal substantive rights.

Undeterred, Parisi argued that private plaintiff is permitted to use the "pattern-or-practice" method of proof only in class actions and that she therefore should be entitled to bring a class action in court so that she would not lose the right to use that method of proof. The Second Circuit rejected this argument as illogical. It held that a litigant's right to use the class action mechanisms provided under Rule 23––including the right to prove class claims through a "pattern-or-practice" mechanism––was a purely procedural right that depended, in the first instance, on the litigant's having the right to bring a class action in a court of law. Here, Parisi had no such right because she had agreed to arbitrate her claims. In short, Rule 23 procedures did not create federal substantive rights that could not be waived in an arbitration agreement.

The Court also noted that the rules promulgated by FINRA and the American Arbitration Association afford parties flexibility and informality in presenting relevant evidence during the arbitration. As a result, during her arbitration hearing, Parisi would be able to present evidence of any discriminatory patterns, practices, or policies at Goldman to prove her discrimination claims.

In short, the Second Circuit found "no reason to deviate from the liberal federal policy in favor of arbitration," and it reversed the district court's ruling.

Keywords: ADR, litigation,Title VII, pattern-or-practice, gender discrimination, class action, Stolt-Nielsen