ARBITRATION OF DISCRIMINATION CLAIMS: STATE LAW V. FEDERAL

CPLR 7515 prohibits "any clause or provision in any contract which requires as a condition of the enforcement of the contract or obtaining remedies under the contract that the parties submit to mandatory arbitration to resolve any allegation or claim of discrimination, in violation of laws prohibiting discrimination, including but not limited to, article fifteen of the executive law." However, in one federal case (referred to below) it was held that application of CPLR 7515 to invalidate the parties' agreement to arbitrate would be inconsistent with the Federal Arbitration Act and another case has certified the question to the Second Circuit (TANTAROS v. FOX NEWS NETWORK, LLC, Dist. Court, SD New York June 8, 2020). 

A month after this certification, came Newton v. LMVH MOËT HENNESSY LOUIS VUITTON INC., 2020 NY Slip Op 32290 - NY: Supreme Court July 10, 2020:

"CPLR 7515 prefaces its prohibition of future mandatory discrimination-related arbitration clauses, and its nullification of then-existing discrimination arbitration clauses, with the qualifier, "[e]xcept where inconsistent with federal law" (CPLR 7515[b][i], [iii]). Based on that language, defendant asserts that the instant claims must be arbitrated per the language found in Arbitration Agreement, by force of the Federal Arbitration Act (the "FAA") (9 USC § 1, et seq.), which generally requires enforcement of arbitration clauses and, concomitantly, warrants a stay of litigation commenced concerning the arbitrable dispute and an order compelling the parties to proceed to arbitration (see, id, §§ 3, 4). However, defendant's haste in citing the FAA overlooks a key limitation set forth in that very statute; to wit, that it only applies to "a transaction involving commerce" (id., § 2). Specifically, section 2 of the FAA provides as follows, in pertinent part:

A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract ... or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

(9 USC § 2 [emphasis added].) Because claims for sexual harassment, or other discrimination-based claims, cannot reasonably be characterized as claims concerning or "arising out of" "a transaction involving commerce," and additionally because the instant case involves purely intrastate activity, the FAA cannot reasonably be said to apply to the Arbitration Agreement's reference to arbitration of sexual harassment or other discrimination-based claims. Nor can the Arbitration Agreement itself be reasonably characterized as "a contract evidencing a transaction involving commerce," particularly insofar as it seeks application to sexual harassment or other discrimination-based claims. Thus, we are left with the express and unambiguous provisions of CPLR 7515, which prohibit and nullify clauses mandating arbitration of such claims.

Indeed, the United States Supreme Court itself, in United States v Morrison (529 US 598, 613 [2000]), noted that "thus far in our Nation's history our cases have upheld Commerce Clause regulation of intrastate activity only where that activity is economic in nature." As noted hereinabove, at the outset, the acts of sexual harassment and related retaliation alleged in the complaint occurred intrastate — in defendant's New York City offices. Nothing relating to that conduct could possibly be cast as "interstate" or "economic in nature." Absent such variables, there can be no possible application of the FAA to the prohibited and nullified arbitration provisions which defendant champions in its motion now before the court.

Defendant's counsel draws the court's attention to one federal court decision which has considered CPLR 7515 since its enactment in 2018, and which appears to have applied the FAA to an arbitration clause mandating arbitration of sexual harassment claims: Latif v Morgan Stanley & Co. LLC (2019 WL 2610985 [SDNY June 26, 2019]).^[6] However, no treatment is accorded in that decision to the observation of this court hereinabove, that the FAA explicitly limits its scope to "a transaction involving commerce" (9 USC § 2) or to other considerations noted hereinabove. This court, therefore, respectfully disagrees with the holding of the federal district court in that case, and holds, instead, that the FAA, by its very own terms, does not apply to the types of claims asserted in this action, which are undeniably not "transaction[s] involving commerce" and which have no interstate qualities.^[7] Indeed, this court is inclined to conclude that such was the understanding and intent of our Legislature itself when it enacted CPLR 7515 in the face of the FAA, which preceded it.^[8] The court in Latif stressed the qualifier "[e]xcept where inconsistent with federal law," suggesting that such language rendered CPLR 7515 preempted by the FAA. Such a construction implausibly suggests that the New York State Legislature knowingly engaged in a futile exercise by enacting its statute nullifying mandatory arbitration for discrimination claims and then, in the same breath, eviscerated it with the words "[e]xcept where inconsistent with federal law." This court is fully authorized to engage such statutory analysis, as the Appellate Division, First Department, has declared on the basis of abundant Court of Appeals authority:

"[T]he question is one of pure statutory reading and analysis, dependent only on an accurate apprehension of legislative intent...." (Kurcsics, 49 N.Y.2d at 459, 426 N.Y.S.2d 454, 403 N.E.2d 159; see also Matter of Belmonte v. Snashall, 2 N.Y.3d 560, 565-566, 780 N.Y.S.2d 541, 813 N.E.2d 621 [2004]). On such occasions, the counts are free to ascertain the proper interpretation from the statutory language and intent and may undertake the function of statutory interpretation....

... [T]he well settled principle that in interpreting a statute, it is fundamental that a court "ascertain and give effect to the intention of the Legislature" (McKinney's Cons. Laws of N.Y., Book 1, Statutes § 92[a], at 177; see Riley v. County of Broome, 95 N.Y.2d 455, 463, 719 N.Y.S.2d 623, 742 N.E.2d 98 [2000]; Matter of Astoria Gas Turbine Power, LLC v. Tax Comm. of City of N.Y., 14 A.D.3d 553, 557, 788 N.Y.S.2d 417 [2005]), and, "[a]s the clearest indicator of legislative intent is the statutory text, the starting point in any case of interpretation must always be the language itself, giving effect to the plain meaning thereof" (Majewski v. Broadalbin-Perth Cent. School Dist., 91 N.Y.2d 577, 583, 673 N.Y.S.2d 966, 696 N.E.2d 978 [1998]; see also Flores v. Lower East Side Serv. Ctr., Inc., 4 N.Y.3d 363, 367, 795 N.Y.S.2d 491, 828 N.E.2d 593 [2005]). Moreover, "new language cannot be imported into a statute to give it a meaning not otherwise found therein" (McKinney's Cons. Laws of N.Y., Book 1, Statutes § 94, at 190; see Matter of Raritan Dev. Corp. v. Silva, 91 N.Y.2d 98, 104-105, 667 N.Y.S.2d 327, 689 N.E.2d 1373 [1997], quoting § 94), and a court, in discerning the meaning of statutory language, must "avoid objectionable, unreasonable or absurd consequences" (Long v. State of New York, 7 N.Y.3d 269, 273, 819 N.Y.S.2d 679, 852 N.E.2d 1150 [2006]; Ryder v. City of New York, 32 A.D.3d 836, 837, 821 N.Y.S.2d 227 [2006], lv. dismissed 8 N.Y.3d 896, 832 N.Y.S.2d 899, 865 N.E.2d 8 [2007]).

(Roberts v Tishman Speyer Properties, L.P., 62 AD3d 71, 80-81 [1st Dept] [emphasis added], affd 13 NY3d 270 [2009]. See also, People ex rel. Weber & Heilbroner, Inc. v Graves, 249 AD 49, 54 [3d Dept 1936] ["We are concerned here with the interpretation of a State law, the exclusive province of the State courts...."].)

Thus, to suggest that the Legislature toiled to promulgate the general rule of CPLR 7515 only to have it immediately swallowed up by a "federal law" exception, would be to suggest an "objectionable, unreasonable or absurd consequence[]" (Roberts, supra, at 81). So, to be clear: it is the opinion of this court (which this court firmly believes is shared by our state Legislature) that a plain and proper reading of the FAA does not support the notion that CPLR 7515 was preempted from the moment of its inception, by the FAA.^[9]

This court's holding is not inconsistent with the holding of the United States Supreme Court in Equal Employment Opportunity Commission v Waffle House, Inc. (534 US 279 [2002]). That case involved a corporate defendant's application to stay litigation and to compel arbitration based on "an agreement between an employer and an employee to arbitrate employment-related disputes" (id., at 282). The Equal Employment Opportunity Commission ("EEOC") had filed an action on behalf of the employee, who claimed to have been wrongly discharged by the employer on account of his disability. The Court granted the defendant's motion, stating that "[e]mployment contracts, except for those covering workers engaged in transportation, are covered by the FAA" (id., at 289). The critical distinction between that case and the one presently before this court is that the gravamen of the dispute in that case revolved exclusively around a quintessential incident of "employment," i.e., the loss, by an employee, of his job, and the salary and benefits that go with it, resulting in the employee's attempt, through EEOC, to pursue a judgment for backpay and reinstatement (see, id., at 282). The employee's discharge was, by its very nature, an issue central to his "[e]mployment contract[]" (id., at 289). It was within that specific employment-centric context that the Court in that case emphasized that "[e]mployment contracts ... are covered by the FAA" (id. [emphasis added]).

In stark contrast to the job-related circumstance in EEOC v Waffle House, Inc., supra, the instant case now before this court involves alleged activity more akin to tortious conduct unrelated to the employer/employee contractual relationship, and alleged complicity therein; i.e., allegations of sexual harassment and retaliatory acts reactionary to Ms. Newton's internal complaints about such harassment. As discussed hereinabove, the New York State Legislature in CPLR 7515 has focused on such wrongdoing, having little to do with the commercial aspects, or contractual aspects, of the ordinary employer-employee relationship — the incidents of the job. Rather, they have everything to do with wrongful acts entirely extrinsic of such contractual relationship. In such cases, the New York State Legislature was free to enact CPLR 7515, which, understood properly, and understanding the parameters of the FAA properly, does not conflict with the FAA's policy of encouraging arbitration regarding the economic incidents of contractual relationships."

NOTE: This case has been appealed to the First Department: ANDOWAH NEWTON, Plaintiff-Respondent, v. LVMH MOET HENNESSY LOUIS VUITTON INC., Defendant-Appellant. Index No. 154178/19, Case No. 2020-3198. Appellate Division of the Supreme Court of New York, First Department.