U-4 Arbitration Agreement Does Not Supercede Eariler, Broader Agreement

Bailey vs. Chase Securities, Inc., et al, 01-Civ-7222 (AGS), 2002 U.S. Dist. LEXIS 7788 (SDNY 5/1/02)

Employment Discrimination * ADEA * SRO Rules (NASD Rule 10201) * Consolidation Issues (Bifurcation) * Arbitration Agreement (Form U-4) * Employment Agreement * Competing Agreements * Waiver * Prejudice to Party.

The Form U-4 arbitration provision does not supersede an earlier-in-time bilateral agreement to arbitrate, just because the scope of the arbitrable issues are narrower under the Form U-4.

George Bailey had a wonderful job with Chase Securities (nka J.P. Morgan Securities) as a mortgage-backed securities salesman, until a new manager decided to eliminate his position. Mr. Bailey sued, charging age discrimination, but immediately offered Chase, he says, the choice of allowing him to consolidate his discrimination claim with defamation, compensation and contract claims in NYSE arbitration. If such an offer was made, it was evidently declined.

When discovery commenced, Chase produced a copy of a Registered Representative Employment Notice. That Notice was signed by Mr. Bailey in 1997, when he commenced employment, and contained a broad, mutual agreement to arbitrate “any claim or controversy between you and CSI arising out of or relating to this Agreement, or the breach thereof and/or the employment or the termination thereof….” It also stated that the arbitration would be “submitted in accordance with the [NASD] Code of Arbitration Procedure….”

Based on the Employment Notice, Mr. Bailey switched gears and asked that his employment discrimination claims now be compelled to arbitration. Discrimination claims were not specifically mentioned in the Notice, Chase asserts. The Notice’s mention of NASD Rules was designed to make only arbitrable that which the Code deemed arbitrable and the January 1999 amendments to NASD Rule 10201 except discrimination claims from the Code’s mandatory arbitration requirements. Chase further argues that the Form U-4, signed by Mr. Bailey two weeks after he signed the Employment Notice, superseded the earlier agreement. The Form U-4 calls for arbitration of those disputes required to be arbitrated under SRO rules, “as [they] may be amended from time to time.”

The reference to the NASD Code in the Employment Notice is read by the Court as merely designed to “set forth the procedural rules under which the arbitration is to be conducted.” It does not narrow the scope of the arbitrable disputes. That the scope of disputes under the Form U-4 may be narrower does not create a conflict with the Employment Notice, the Court states. There is “nothing in the U-4 form or the amended NASD Code to which the U-4 form refers [that] affirmatively supersedes the employment notice or prohibits statutory discrimination claims from being arbitrated.” (SAC Ed: The Court does not indicate in its Opinion just where the ordered arbitration must be filed. NYSE cannot accept the discrimination claim under its arbitration rules, unless Morgan now agrees. If Plaintiff is required to take the age discrimination claim to NASD Dispute Resolution, he may be past the point where he can withdraw the NYSE arbitration without Morgan’s consent and, so, could be forced to arbitrate in two forums.) (SLC Ref. No. 02-18-05)

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Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | mja@sallahlaw.com | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.