On July 9, the U.S. Court of Appeals for the Second Circuit in New York vacated an NASDR arbitration panels finding that Piper Jaffray had not terminated ex-managing director Theodore Halligan because of his age.
Quite simply, the court said, Halligans widow presented overwhelming evidence that Pipers conduct after Tad Piper became CEO was motivated by age discrimination. That evidence was consistent only with a finding that Halligan was pushed out of his job, the court said.
Halligan was a New York-based institutional broker for the firm. He died in 1995, but his widow is pursuing a the case on behalf of his estate.
The fact that the appeals court decision was based not just on manifest disregard of the proper law--in this case, the federal Age Discrimination in Employment Act (ADEA)--but also on manifest disregard of the facts of the arbitration record, makes it an incredible, earth-shattering decision, says Jonathan Kord Lagemann, a New York plaintiffs attorney who specializes in employment cases in the securities industry.
While there have been at least two other cases in which arbitration awards were vacated based on manifest disregard of the law, the Halligan case is the first time anyone has been able to get an arbitration award vacated on the grounds of manifest disregard of the facts, Lagemann says.
In the original district court decision, Judge Kimba Wood ruled that this Courts role is not to second-guess the fact-finding done by the [arbitration] panel.
That was uniformly the rule in the history of arbitration, Lagemann says. A court would never examine the record for the factual findings of arbitration; that was considered exclusively in the province of the panel.
But, in the Halligan case, the court examined the evidence in great detail, Lagemann notes, even going so far as to actually assess the credibility of witnesses.
Not only did the court look at all of the evidence, but the three-judge panel was very obvious about doing it, adds James Beckley, a securities attorney in Wheaton, Ill. They went through all of those details [in their decision], and thats what they would do if they were reversing an irrational jury verdict, he says, noting that this is the first time a court has applied the same standard of irrationality to an arbitration decision.
Halligans lawyer, Kathleen OConnell, of the New York law firm of Murphy & OConnell, says that she finds it a great mystery as to how the panel arrived at its decision, but notes, Youre stuck with a forum created by the industry youre fighting.
This is the first such successful appeal to be upheld at the federal appeals court level (the other two were lower trial courts). The decision is binding on all of the district courts in the Second Circuit, which includes New York, Connecticut and Vermont.
As a result, the decision has the industrys legal circles buzzing. Plaintiffs may now be more successful in appealing arbitration awards in the Second Circuit--and not just discrimination cases, but other kinds of employment cases and even customer awards. If a plaintiffs pleadings include a claim for manifest disregard of the facts of the arbitration record, then the district court will have to review it, Lagemann says, predicting that the district courts in the Second Circuit will be flooded with customers who are unhappy with the results of their arbitrations.
The appeals court has remanded the Halligan case back to the district court level for further proceedings consistent with this opinion, states the appeals court decision.
Lagemann reads that language to mean the district court is to hear the case, rather than send it back to industry arbitration.
The appeals court sent a very strong signal that it would not enforce arbitration agreements for this kind of [discrimination] case, Lagemann adds.
The ruling, while not binding in the other circuits, will still be deemed to be very persuasive, Lagemann says. If I were a judge in the district court, I would have to think very long and hard before I compelled arbitration on a discrimination claim in the future.
The Second Circuit is one of the leading circuits in the country, particularly in terms of securities law, and has more than the usual weight, Beckley adds.
The Securities Industry Association, in an amicus brief filed on behalf of Piper Jaffray, argued that the limited standard of manifest disregard of the law should be maintained. Requiring an enhanced standard of review for arbitration awards involving statutory employment discrimination claims would be a radical departure from federal jurisprudence, the firms trade association said.
Congress has to act and make it clear that discrimination plaintiffs have that right to a jury trial, OConnell says. Congress, for some reason, is letting the courts fight these battles, and it would be easier if Congress would just write the law.
The NASDR would not comment on the case.
The appeals court decision is posted on RRs Web page, www.rrmag.com, in the Oddlots section.