Rollag v. Cowen, Inc., No. 20-CV-5138 (S.D.N.Y. March 3, 2021).
For the second time in recent weeks, the District Court for the Southern District of New York holds that New York’s CPLR section 7515 is preempted by the FAA. The Court also rules that incorporating the FINRA Code is not “clear and unmistakable” evidence of the parties’ intent to delegate arbitrability.
This law, banning mandatory predispute arbitration agreements (“PDAA”) covering discrimination and harassment claims, is on a losing streak at this Court. Readers may recall that New York’s arbitration statute, Article 75 of the Civil Practice Law and Rules, was amended in 2018 to add a new section 7515, rendering null and void mandatory PDAAs covering sexual harassment disputes (see SAA 2018-39 (Oct. 17) for our coverage). As we later reported in SAA 2019-25 (Jun. 26), the law was again amended effective October 2019 to expand section 7515’s PDAA ban to embrace any “discrimination in violation of laws prohibiting discrimination….” We reported in SAA 2021-08 (Mar. 4) on Gilbert v. Indeed, No. 20-3826, 2021 WL 169111 (S.D.N.Y. Jan. 19, 2021), where the Southern District for the third time held that the Federal Arbitration Act (“FAA”) preempts section 7515.
Once Again, Preemption
On the heels of that case comes Rollag v. Cowen, Inc., No. 20-CV-5138 (S.D.N.Y. March 3, 2021), where the Court again holds that the statute is preempted. Says Judge Ronnie Abrams: “The law’s outright prohibition on the arbitration of discrimination claims is plainly inconsistent with the FAA and the Supreme Court’s interpretation of that federal law. Accordingly, NY CPLR § 7515 is displaced by the FAA in this case. The Court finds support for this conclusion in two recent opinions from this District.”
No Clear Delegation Under the FINRA Code
Another issue before the Court was whether incorporating the FINRA Code of Arbitration Procedure is “clear and unmistakable” evidence of the parties’ intent to delegate arbitrability. “No,” says the Court, “especially as compared to the AAA Rules.” On this issue Judge Abrams says: “Unlike the AAA rules, which provide that ‘[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement,’ … the FINRA Code ‘does not clearly and unmistakably provide for all issues of arbitrability to be arbitrated,’ Alliance Bernstein, 445 F.3d at 126 (evaluating NASD Rule 10324, now FINRA Rule 13413). The relevant FINRA rule is more circumscribed than its AAA counterpart, stating only that ‘[t]he [arbitration] panel has the authority to interpret and determine the applicability of all provisions under the Code.’ FINRA Rule 13413 (emphasis added)…. No other FINRA rule delegates to its arbitration panel determinations about the general scope or validity of an arbitration agreement. As a result, the Agreements’ incorporation of the Code does not clearly evince the parties’ intent to delegate the arbitrability question at issue here” (brackets and emphasis in original).
(ed: *The cases we’ve reported on previously: Latif v. Morgan Stanley & Co., LLC, No. 18cv11528 (S.D.N.Y. 2019); Whyte v. WeWork Companies, Inc., No. 20cv01800 (S.D.N.Y. June 11, 2020); and Gilbert v. Indeed, No. 20-3826, 2021 WL 169111 (S.D.N.Y. Jan. 19, 2021). The Court cited the first two. **This was a FINRA arbitration, and although the preemption ruling disposed of the matter, we point out that CPLR section 7515 has a carveout for SRO-administered arbitrations. ***Again, not to say we told you so, but we told you so. We said when the law was enacted in 2018 and again when it was amended in 2019 that the statute “faced serious FAA preemption challenges.” ****An Alert h/t to Editorial Board member Peter R. Boutin, Esq., of Keesal, Young & Logan, for alerting us to this decision.)
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