Connecticut Bar Journal
74 CBJ 1.
Developments in the Second Circuit: 1998-1999
1Developments in the Second Circuit: 1998-1999By MARK R. KRAVITZ (fn*)This year's survey of decisions from the United States Court of Appeals for the Second Circuit covers the time period from October 1, 1998, to September 30, 1999. During that period, the Second Circuit terminated 1,863 appeals on the merits, a substantial increase over the last two years. (fn1) However, the court issued published opinions in only approximately 550 of those appeals, about the same number as in prior years. The court disposed of the remaining appeals by unpublished opinions or summary orders.
Approximately 380, or about eight percent, of the 4,630 appeals and original proceedings filed in the Second Circuit during this time period arose from cases originating in the United States District Court for the District of Connecticut. (fn2) The Connecticut cases presented some of the most interesting and important issues of the year. For example, cases from Connecticut provided the court with opportunities to consider: the constitutionality of Connecticut's recently enacted law requiring convicted sex offenders to submit blood samples to a DNA data bank; (fn3) the states' Eleventh Amendment immunity from private claims for environmental cleanup costs under the Comprehensive Environmental Response, Compensation and Liability Act; (fn4) the First
2Amendment rights of a high-ranking state employee to refuse publicly to support policy changes with which the employee disagrees; (fn5) and the precarious balance between an anti-abortion protester's First Amendment rights and the state's interests in protecting public safety and women's freedom to seek pregnancy-related services. (fn6)
Connecticut was also the source of several significant intellectual property and procedural decisions. For example, in a factually amusing appeal pitting Connecticut-based Pepperidge Farm's Goldfish crackers against Nabisco's "CatDog" cheese snacks, the court issued a lengthy and important opinion examining the reach of the 1995 Federal Trademark Dilution Act. (fn7) The court also used an appeal arising from Connecticut to explore the scope of the attorney-client privilege and its application to an in-house attorney's discussion of tax and investment issues with an investment banker. (fn8)
Given the number of decisions the Second Circuit issued in this time period, it would not be possible to discuss fully each of the court's noteworthy opinions. This article, therefore, focuses in the text upon a mix of particularly important decisions in seven broad areas of law: Arbitration Law and Procedure, Constitutional Law, Corporate and Securities Law, Criminal Law and Procedure, Intellectual Property, jurisdiction and Procedure, and Labor and Employment. As in the past, most of the other published decisions of the Second Circuit during this period are cited or briefly discussed in footnotes.
ARBITRATION Law & PROCEDURE
The Second Circuit's decisions involving arbitration law and procedure continued to reaffirm the court's traditional support for the federal policy favoring arbitration as an alternate mechanism for resolving disputes, both foreign and domestic. (fn9) For example, the Second Circuit made its commit
3ment to arbitration in the employment arena unmistakably clear by ruling, as a matter of first impression, that nothing in Title VII prohibits compulsory arbitration of employment disputes. There were, however, marked limits to the court's policy of favoring arbitration, which were reflected in several of the court's procedural rulings. (fn10)
Mandatory Arbitration in Employment
The plaintiff in Desiderio v. National Association of Securities Dealers, Inc., (fn11) a securities broker seeking employment at a bank, did not want to contract away her right to a judicial forum when she signed a Form U4 broker registration form, a standard condition for employment in the securities industry. To that end, she struck out the mandatory arbitration clause in the agreement before signing it. Later, the National Association of Securities Dealers ("NASD") advised Desiderio's prospective employer that her altered Form U4 was unacceptable. When Desiderio refused to sign an unaltered registration form, the bank revoked its offer. Desiderio then
4sued, alleging that the Form U4 arbitration agreement violated her right to a judicial forum under the Fifth Amendment, her right to a jury trial under the Seventh Amendment, as well as her right to sue under Title VII of the 1964 Civil Rights Act. (fn12)
In addressing an issue that has received considerable public attention, the Second Circuit upheld the mandatory predispute arbitration provision, leaving the Ninth Circuit as the only circuit court to hold that federal law prevents employers from requiring employees to arbitrate discrimination claims under Title VII. (fn13) The court, in an opinion authored by Judge Cardamone, began its analysis by observing that the conflict among circuit courts on the validity of mandatory arbitration of statutory employment claims arose because of courts' different interpretations of the Supreme Court's decision in Gilmer v. Interstate Johnson Lane Corp. (fn14) Gilmer held that it was permissible to require employees who signed Form U4 and were bound by New York Stock Exchange Rule 347 to arbitrate age discrimination claims,brought under the Age Discrimination in Employment Act (ADEA). (fn15) In the Second Circuit's view, Gilmer stands for the general principle that "unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue [as indicated] in the text of the [statute], its legislative history, or an
5inherent conflict between arbitration and the [statute's] underlying purposes[J" agreements to arbitrate statutory claims are enforceable. (fn16)
Applying Gilmer to Title VIL
6the Second Circuit concluded that Congress did not intend to preclude waiver of judicial remedies. The court emphasized that in enacting the Civil Rights Act Amendments of 1991, Congress expressly added a provision to Title VII-§ 118-which provides that "[w1here appropriate and to the extent authorized by law, the use of ... arbitration is encouraged" to resolve Tide VII claims. (fn17) In the Second Circuit's view, "barring the application of mandatory arbitration agreements to Title VII claims would conflict with the express statutory term 'encouraged' in § 118." (fn18)
In view of the express language in the statute, the court declined to defer to legislative history suggesting a congressional purpose to prohibit mandatory arbitration. (fn19) The drafters of the Title VII amendments were "well aware of what language was required for Congress to evince an intent to preclude a waiver of judicial remedies," and yet they failed to include such language. (fn20) In judge Cardamone's colorful language, Desiderio's argument that the text of Title VII did not square with its legislative history amounted "to nothing more than the poet's lament: The saddest words of tongue and pen are 'it might have been. More sad are these we daily see; It is, but it hadn't ought to be.' " (fn21)
The Second Circuit was unwilling to accept the Ninth Circuit's reasoning that the phrase "arbitration is encouraged" in section 118 is ambiguous when considered in the context of the general purposes of the 1991 amendments-"namely, to provide 'additional remedies' against intentional discrimination, such as more expansive fee-shifting provisions and added rights to a jury trial and to compensatory and punitive damages." (fn22) Because an arbitrator has the power to grant the "additional remedies" provided by Congress and because Gilmer held that mandatory arbitration clauses could be enforced in a cause of action under the ADEA-a statute that explicitly provides for jury trials-the Second Circuit concluded that compulsory arbitration is not at odds with Title VII's goal of providing expansive remedies for discrimination. (fn23) The word "encouraged" in section 118 is not, therefore, ambiguous.
The Second Circuit also rejected Desiderio's argument that Form U-4 was unenforceable as an unconscionable contract of adhesion. (fn24) A contract of adhesion requires an absence of meaningful choice on the part of one party, together with contract terms that are unreasonably favorable to the other party. According to the court, Desiderio was not without meaningful choice or bargaining power. Indeed, she chose not to bargain away her right to a judicial forum by refusing to sign an unaltered Form U4. Moreover, theoretically at least, Desiderio was free to negotiate an agreement with a prospective employer that any employment disputes would be litigated in court. Finally, the court observed, the contract terms calling for mandatory arbitration were binding upon both parties "and may not be said to favor the stronger party unreasonably." (fn25) Form U4 was not, therefore, a contract of
7The NASD no longer requires registered brokers to sign predispute mandatory arbitration clauses. However, most investment firms still require such agreements and many other employers in other industries also require prospective employees to sign mandatory arbitration agreements, thereby waiving their rights to litigate statutory discrimination claims before a jury. Ultimately, in light of the circuit split and importance of this issue, the...