*Court decides issue of arbitrability if there is not sufficient evidence that parties clearly and unmistakably agreed to arbitrate the question of arbitrability. **Employment dispute not arbitrable at FINRA, if it is based on events that occurred after firm ceased being a member of NASD/FINRA.
Metropolitan Life Ins. Co. vs. Bucsek, No. 17-881 (2nd Cir., 3/22/19).
Defendant-appellant Bucsek worked for plaintiff-appellee Metropolitan Life Insurance Company (“MetLife”) in retail distribution from 2002 until 2016. MetLife was an NASD member firm (and Bucsek was an “associated person” of MetLife) until 2007 and never became a FINRA member firm after FINRA was formed. In 2016, based on the arbitration agreement in his original Form U-4, Bucsek filed a FINRA arbitration against MetLife, alleging unfair compensation during his employment from 2011 to 2016. MetLife obtained a preliminary injunction barring Bucsek from arbitrating his employment dispute before FINRA. The district court ruled that MetLife had no obligation to arbitrate the claims, because they were based on events that occurred after MetLife ceased being a FINRA member firm.
Bucsek appealed, arguing that the district court should not have decided the question of arbitrability (i.e., whether his claims were arbitrable) and that, in any event, it wrongly decided that the claims were not arbitrable. The Second Circuit affirms, concluding that the parties did not “clearly and unmistakably” agree to arbitrate the question of arbitrability. Because the arbitration agreement at issue did not expressly address the question, the Appellate Court applies a sliding scale test: “the clearer it is from the [arbitration] agreement that the parties intended to arbitrate the particular dispute presented, the more logical and likely the inference that they intended to arbitrate the arbitrability of the dispute.” The Court continues: “In contrast, the clearer it is that the terms of the arbitration agreement reject arbitration of the dispute, the less likely it is that the parties intended to be bound to arbitrate the question of arbitrability, unless they included clear language so providing…”
The Court then considers FINRA Rule 13100 and concludes it “cannot reasonably be interpreted to provide for arbitration of Bucsek’s claims” (because they are based on events that occurred years after MetLife ceased to be an NASD member firm). The Court then uses this first crucial finding of non-arbitrability to support its second finding: that the parties did not agree to arbitrate the question of arbitrability. The Court rejects the argument that FINRA Rule 13413 (which provides that arbitrators have “the authority to interpret and determine the applicability of all provisions of the Code [of Arbitration Procedure]”) supports an inference of intent to arbitrate arbitrability. The Court distinguishes Second Circuit precedent that had held that the predecessor NASD rule did support such an inference because, in that case, the underlying dispute appeared to the court to be arbitrable.
Finally, the Court also dismisses Bucsek’s contention that its holding is not compatible with the Supreme Court’s 2019 rejection of the “wholly groundless” exception to the “who decides arbitrability” issue. (In Henry Schein Inc. v. Archer & White Sales, the Supreme Court held that a lower court cannot decide the question of arbitrability on the sole basis that the underlying claim that a dispute is arbitrable is “wholly groundless.”) The Second Circuit explains that it used its finding that the underlying dispute is not arbitrable as only one indication of whether the parties agreed to arbitrate arbitrability.
(J. Gross: Until now, I have not read any opinion that applies the Second Circuit’s “sliding scale” test on the question of arbitrability and, interestingly, the Court does not cite any precedent for it. The Court uses this new test to apply what I consider to be circular reasoning: the Court decides if a dispute is arbitrable to help it decide whether the parties agreed to arbitrate the question of arbitrability. This seems to be an end-run around Henry Schein.)
(SOLA Ref. No. 2019-20-01)
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