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Case Law - save on Lexis / WestLaw. Original WP 5.1 Version This case can also be found at 337 N.J. Super. 134.
SUPERIOR COURT OF NEW JERSEY
JONATHAN K. LITTMAN,
Plaintiff-Appellant,
v.
MORGAN STANLEY DEAN WITTER,
Defendants-Respondents.
Argued November 8, 2000 - Decided February 14, 2001
Before Judge Stern, A. A. Rodríguez and Collester.
On appeal from the Superior Court of New
Robert Ricci, Jr., argued the cause for
J. Michael Riordan and John K. Bennett argued
The opinion of the court was delivered by
STERN, P.J.A.D.
Plaintiff, Jonathan K. Littman, appeals from an order
entered on August 6, 1999, compelling him "to arbitrate his
claims against Defendants in the National Association of Security
Dealers, Inc. ["NASD"] in accordance with the terms of the
executed Form U-4" and dismissing his complaint, and from an
order of September 14, 1999, denying his motion for
reconsideration. Plaintiff's complaint alleged violations of the
Conscientious Employee Protection Act ("CEPA"), N.J.S.A. 34:19-1
et seq. He asserts that "the reason for plaintiff's termination
. . . was the result of plaintiff's refusal to participate in the
'Monopoly Game'" which is "nothing more than an unsophisticated
company-wide policy of institutional tax fraud," resulting from a
fabrication of expense receipts in exchange for cash.See footnote 11 For purposes of the defendants' "motion to compel arbitration," we must accept the following facts as asserted by plaintiff. Plaintiff was hired by defendant Morgan Stanley Dean Witter ("MSDW") as a financial advisor in 1997. He received "positive performance reviews" in 1997 and 1998, and was ranked "seventh (7th) nationally in his graduating class of one hundred forty seven." In fact, "[h]e was even recruited [by MSDW] to give a speech . . . at the firm's next training class" for new broker dealers. Plaintiff claims that in or about December 1988, he expressed concern to defendant Richard Less, MSDW's Fairfield branch manager, regarding "the legality of an employee bonus program called the 'Monopoly Game.'" Specifically, plaintiff questioned the fact "that the fabrication of expense receipts in exchange for cash was in violation of the federal tax code as he understood it." Less had allegedly been previously notified of the concern by Colleen McLaughlin, a sales assistant in the Fairfield office, "as early as September 1998." Plaintiff further contends that on or about December 7, 1998, he informed Less of his intention to marry McLaughlin and that Less responded by saying that plaintiff "could no longer work with McLaughlin." Plaintiff was terminated shortly thereafter, he says "in or about December of 1998," for "insubordination."See footnote 22 At that time, plaintiff was informed that he would have to "turn over" his "book of clients" to MSDW. He claims that when he refused to do so, Less contacted the Fairfield Police who escorted plaintiff out of the building. "The NASD is a self-regulatory organization of securities brokers and dealers, as defined by 15 U.S.C.A. §78c(a)(26), subject to regulation by the Securities and Exchange Commission ("SEC"). [See 15 U.S.C.A. §78o-3 et seq.] See generally [] 15 U.S.C. §78[a] et seq." Young v. Prudential Ins. Co. of Am., Inc., 297 N.J. Super. 605, 609 (App. Div.), certif. denied, 149 N.J. 408 (1997). The NASD Code of Arbitration Procedure has been promulgated by the NASD of which defendant MSDW is a member. Plaintiff was required to register with the NASD as a condition of employment. In so doing, he was required to sign the "Uniform Application for Securities Industry Registration or Transfer" Form ("Form U4") which reads, "THE APPLICANT MUST READ THE FOLLOWING VERY CAREFULLY." Immediately following this instruction, the Form U-4 provides the following: I swear or affirm that I have read and understand the items and instructions on this form and that my answers (including attachments) are true and complete to the best of my knowledge. I understand that I am subject to administrative, civil or criminal penalties if I give false or misleading answers. The Form U-4 further provides:
I agree to arbitrate any dispute, claim or
controversy that may arise between me and my
firm, or a customer, or any other person,
that is required to be arbitrated under the
rules, constitutions, or by-laws of the
organizations indicated in Item 10 as may be
amended from time to time . . . .
Q: What is considered to be a "statutory
claim" of employment discrimination?
Neither party claims that the former rule applies to this termination which occurred before the effective date of the amended regulation. In fact, plaintiff pursues this litigation premised upon the amendment which was effective after his termination.See footnote 66 In the absence of any dispute by defendants with respect to this fact, we proceed on the assumption the new rules apply. Plaintiff contends that he "is only required to submit to arbitration those claims for which the NASD requires arbitration." While acknowledging the mandatory arbitration of claims specified by the NASD, he asserts that a claim under the CEPA is exempt from arbitration in accordance with the amended rule. Hence the critical issue before us is whether a CEPA claim is "a claim alleging employment discrimination" within the meaning of the amended rule 10201(b). In asserting that he alleges an "employment discrimination claim," plaintiff relies upon the United States District Court's decision in Bowles v. City of Camden, 993 F. Supp. 255, 261 (D.N.J. 1998), in which the court held that because the elements of a CEPA claim "are similar to those necessary to prove a violation of Title VII" of the Civil Rights Act of 1964, Title VII principles would be utilized as the "landscape for analyzing [] CEPA claims." However, the court in Bowles did not hold that CEPA was an employment discrimination statute, nor addressed whether CEPA would qualify as such under the NASD Code. As noted above, the NASD commentary interpreting the proposed amendment to Rule 10201(b), as presented to the SEC, provided: Some commenters express the view that the exception should be extended to . . . common law claims such as wrongful termination, intentional infliction of emotional distress, defamation, negligent supervision, invasion of privacy, and tortious interference with economic opportunity . . . . . . . .
. . . The interest groups that gave their
views to the NASD during the consideration of
this rule change focused their concerns on
employment discrimination claims made under
Title VII of the Civil Rights Act of 1964 and
other federal anti-discrimination
legislation, not on other federal laws or
common law claims such as those listed above.
It was generally understood that such other
claims would remain subject to the
arbitration agreement.
Although not binding, the commentary is entitled to "deference,"
particularly because the SEC adopted the rule change after its
promulgation. First Heritage Corp. v. NASD,
785 F. Supp. 1250,
1251 (E.D. Mich. 1992) (citing Shearson/American Express, Inc. v.
McMahon,
482 U.S. 220, 234,
107 S. Ct. 2332, 2341,
96 L. Ed.2d 185, 199 (1987), reh'g denied,
483 U.S. 1056,
108 S. Ct. 31,
97 L. Ed.2d 819 (1987). Here, the commentary indicates that the
NASD intended to exempt from mandatory arbitration only statutory
claims similar to those derived from Title VII.
Additionally, after plaintiff's employment
was terminated, the Legislature enacted the
Conscientious Employee Protection Act,
N.J.S.A. 34:19-1 et seq. See L.1986, c. 105,
§1, effective September 5, 1986. Under the
act, an employee who has been terminated
because of reporting suspected criminal
violations, has the right to file a
retaliatory tort claim in addition to other
remedies. N.J.S.A. 34:19-3. We read this
legislative enactment as a codification of
public policy established through judicial
decisions. As Potter indicates, CEPA was not a derivative of Title VII or other federal discriminatory statutes, but rather a codification of the public policy provided in Pierce and subsequent cases which had established common law claims. Ibid.; see Barratt v. Cushman & Wakefield, 144 N.J. 120, 126 (1996) (noting that CEPA is a codification of the Supreme Court's ruling in Pierce); see also Falco v. Community Med. Ctr., 296 N.J. Super. 298, 310 (App. Div. 1997), certif. denied, 153 N.J. 405 (1998). In fact, a plaintiff must elect between his common law and CEPA statutory claims. See N.J.S.A. 34:19-8 (providing that "the institution of an action in accordance with this act shall be deemed a waiver of the rights and remedies available under any other contract, collective bargaining agreement, State law, rule or regulation or under the common law");See footnote 77 see also Mehlman v. Mobil Oil Corp., 153 N.J. 163, 196-97 (1996). While we have "recognize[d] that CEPA, similar to the New Jersey Law Against Discrimination, N.J.S.A. 10:5-1 to -42, is a civil rights statute," Zappasodi v. State, 335 N.J. Super. 83, 89 (App. Div. 2000),See footnote 88 CEPA embodies a remedy based on unlawful retaliation against any employee, as opposed to one designed to protect against a discriminated class. As the trial judge stated in granting the motion to compel arbitration: Generally speaking, what CIPA [sic] did was to put in statutory form the common law cause of action for wrongful discharge first recognized in Pierce v. Ortho Pharmaceutical Company. CIPA [sic] established a statutory exception to the general rule that an employer can terminate an at will employee with or without cause. Given the history of CIPA [sic], its general purposes, and the history of the rule amendment, in the Court's view the exception in N.A.S.D.'s rules for employment discrimination claims is just that. It is an exception to claims made based on adverse treatment being given to an employee by virtue of their status, by virtue of their age, their gender, their religion or their race, not based on their activities. New Jersey courts have enforced employees' Form U-4 agreements to arbitrate claims under the CEPA. See generally, Young v. Prudential Ins. Co. of America, 297 N.J. Super. 605 (App. Div.), certif. denied, 149 N.J. 408 (1997); see also Singer v. Commodities Corp., 292 N.J. Super. 391 (App. Div. 1996); see also Bleumer v. Parkway Ins. Co., 277 N.J. Super. 378 (Law Div. 1994). We fail to believe that the NASD or SEC intended to affect these precedents without a clearer statement of intent. In 1994, the Law Division in Bleumer held that required mandatory arbitration was applicable to claims under the CEPA pursuant to an arbitration agreement.See footnote 99 277 N.J. Super. at 402- 06. Judge Schwartz found that plaintiff was bound by the arbitration agreement and that his CEPA claim was subject to arbitration in accordance with the agreement. Id. at 397-98. Subsequently, in Singer, we enforced an arbitration agreement included in the standard NASD Form U-4 against an employee who asserted a defamation and CEPA claim. 292 N.J. Super. at 405-08. Judge Michels cited the "well-accepted principle that New Jersey supports the settlement of disputes by arbitration," id. at 400, and concluded that "compelling arbitration under these circumstances is neither unfair nor inequitable and does not deprive plaintiff of any fundamental or substantive rights." Id. at 407. Most recently in Young, we held that the Form U-4 requiring plaintiff to arbitrate any claims against his firm, in accordance with the NASD Code was enforceable. 297 N.J. Super. at 617-21. Plaintiff, as here, was required to sign the U-4 form as a condition of employment. Id. at 609. After his discharge, he filed a CEPA and LAD claim and "challenge[d] the enforceability of the arbitration provision [in the U-4 form] on several grounds. He contend[ed] that he ha[d] a statutory right to a jury trial of his CEPA and LAD claims and that he did not knowingly waive the right to jury trial." Id. at 614-15. We rejected the contention. Pointing to the United States Supreme Court's opinion in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 29, 111 S. Ct. 1647, 1653-54, 114 L. Ed.2d 26, 39 (1991), Judge Wecker stated: [O]nly if the statute or legislative history evidence an intention to preclude alternate forms of dispute resolution will arbitration agreements be unenforceable . . . The FAA preempts any state law purporting to invalidate an arbitration agreement involving interstate commerce . . . In any event, there is no evidence in the text or legislative history of CEPA or LAD that members of the classes protected by those statutes cannot waive the right to jury trial by agreeing to arbitrate disputes with their employers. [Id. at 616 (citations omitted).] Judge Wecker further noted that the U-4 arbitration provision was enforceable "even if it is literally a contract of adhesion." Id. at 620. She added: [T]he overall subject matter-_registration and regulation of persons selling securities to the public_-is already subject to review and oversight by the Securities and Exchange Commission ("SEC"). See 15 U.S.C.A. §78o- 3(g), (h). The widespread use of the U-4 makes its uniform interpretation and enforcement a matter of substantial public interest. Accordingly, Young is bound by his agreement to arbitrate in accordance with NASD rules. [Id. at 621.] Young was permitted to litigate his CEPA claim only because of the NASD rule which excepted "disputes involving the insurance business of any member which is also an insurance company," ibid., and reversed the dismissal of the CEPA claim on that basis only. Id. at 621-28. Plaintiff contends that in 1990, the CEPA was revised to provide for a jury trial for any aggrieved party under the Act. N.J.S.A. 34:19-5. Plaintiff further contends that this legislative action "evidences a strong legislative intent which would preclude an alternate form of dispute resolution, particularly one which did not provide for the benefit of a jury trial." However, Young and Singer were decided after the 1990 revision, 297 N.J. Super. at 605; 292 N.J. Super. at 391; see also Bleumer, 277 N.J. Super. at 399 (rejecting this argument). Moreover, the right to jury trial, even under an anti- discrimination statute, does not alone control the issue of enforceability of an agreement to arbitrate. See, e.g., Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 333 N.J. Super. 291, 299-300 (App. Div. 2000); Quigley v. KPMG Peat Marwick, LLP, 330 N.J. Super. 252, 269 (App. Div.), certif. denied, 165 N.J. 527 (2000);See footnote 1010 Alamo Rent A Car, Inc. v. Galarza, 306 N.J. Super. 384, 389 (App. Div. 1997). Plaintiff contends that even if the CEPA is not an employment discrimination statute within the meaning of the NASD Code, all claims under the CEPA should be exempt from mandatory arbitration with the NASD as a "general trend away from requiring mandatory arbitration of employment disputes" has been established. We recognize that the NASD Code was not written exclusively for New Jersey securities dealers and brokers or with the law of this State exclusively in mind. But as Singer and Young evidence, questions of arbitrability relating to the NASD Code have been decided under State law in cases like this, see Young, supra, 297 N.J. Super. at 616-17; Singer, supra, 292 N.J. Super. at 404-05, and we cannot subscribe to the view that the amendment which would outdate our precedent favoring Code enforcement had the impact plaintiff suggests without a greater expression of that endeavor by the NASD. Nor does the Code amendment impact longstanding state and federal policy favoring arbitration. The public policy in favor of arbitration is set forth in the Federal Arbitration Act, 9 U.S.C.A. §2, as well as State law. See, e.g., N.J.S.A. 2A:24-1. Our State's policy in favor of arbitration is well settled. See, e.g., Garfinkel, supra, 333 N.J. Super. at 297-300; Quigley, supra, 330 N.J. Super. at 262; Galarza, supra, 306 N.J. Super. at 389; Young, supra, 297 N.J. Super. at 616; Singer, 292 N.J. Super. at 407. Any change in that policy must come from the Supreme Court or the Legislature unless preempted by federal law. The judgment is affirmed.
Footnote: 1 1Other counts of the complaint were also dismissed resulting in a final judgment, but plaintiff only addresses the CEPA claim on this appeal. The individual defendants are employees of the Fairfield Branch of Morgan Stanley Dean Witter, but are not named in the CEPA count. Footnote: 2 2The specific termination date is not given in the brief or the complaint. Footnote: 3 3Plaintiff does not assert that the controversy is not "eligible for submission under the Rule 10100 Series." Footnote: 4 4The NASD Code was adopted pursuant to 15 U.S.C.A. §78s(b)- (c), and is subject to SEC approval. Footnote: 5 5There is no dispute regarding what the rule provides as proposed and adopted. The proposal is contained in defendants' appendix and the rule is contained in the NASD Code of Arbitration included in plaintiff's appendix. See 63 Fed. Reg. 35299 (June 29, 1998), which details that the April 1998 proposal changed the first sentence of the amendment to employ the phrase "including a sexual harassment claim" in place of "or sexual harassment." The change, in essence, was designed to make clear that "sexual harassment" was a contemplated form of employment discrimination. Footnote: 6 6Plaintiff states that his "claim is governed by the Rule change which became effective on January 1, 1999. . . . Plaintiff's [c]omplaint was filed on April 23, 1999. It is the date the claim is filed, not the date of termination which is relevant for determining whether the amended rule applies." Footnote: 7 7Defendants do not argue that State court jurisdiction is preempted by the agreement adopted pursuant to the NASD Code or regulation approved by the SEC. See Maher v. New Jersey Transit Rail Operations, Inc., 125 N.J. 455, 469-75 (1991). Footnote: 8 8Zappasodi cites Kolb v. Burns, 320 N.J. Super. 467, 477 (App. Div. 1999), which stated: CEPA, like the New Jersey Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -42, is a civil rights statute. Abbamont v. Piscataway Twp. Board of Educ., 138 N.J. 405, 431, 650 A.2d 958 (1994). It is "remedial" legislation and therefore "should be construed liberally to effectuate its important social goal." Ibid. Because both CEPA and the LAD seek to eliminate "vindictive employment practices" id. at 418, 650 A.2d 958, the Court in Abbamont held that standards for imposing liability against private employers, see Lehmann v. Toys 'R' Us, Inc., 132 N.J. 587, 626, 626 A.2d 445 (1993), should also be applied under CEPA as providing the "'most effective intervention and prevention' of retaliatory actions against employees." Abbamont, supra, 138 N.J. at 418, 650 A.2d 958 (quoting Lehmann, supra, 132 N.J. at 626, 626 A.2d 445). Consistent with Abbamont's approach, the United States District Court, applying New Jersey law, has held that the analytical framework applied in a retaliatory discharge case under CEPA is similar to that applied in a violation of anti-discrimination statutes, such as Title VII of the Federal Civil Rights Act. Bowles v. City of Camden, 993 F. Supp. 255, 261 (D.N.J. 1998). Thus, because CEPA is anti-discrimination legislation, the elements of a cause of action under the Act are derived from the Civil Rights landscape. Ibid. [Kolb, supra, 320 N.J. Super. at 477 (footnote omitted).] Footnote: 9 9The NASD rules were not involved. Footnote: 10 10Unlike here, a cause of action was upheld in Quigley because the U-4 was executed before the statutory amendment. See 330 N.J. Super. at 267-68.
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