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Credit Suisse First Boston v. Pitofsky: Stock exchange member and its employee can modify arbitration requirements under the NYSE and NASD, but member’s Employment Dispute Resolution Program did not supersede the requirements where the Program excluded claims “subject to a legal requirement” that they be arbitrated in a particular forum.
NYSE Arbitration Prevails Under Credit Suisse Employment DR Program
On February 10th, 2005, the Court of Appeals of New York held that two real estate sales persons formerly employed at Credit Suisse First Boston would have to arbitrate their claims under NYSE arbitration rather than through JAMS, as provided for in CSFB’s Employment Dispute Resolution Program.
Judge Rosenblatt, writing for all seven judges, found that while the Employment Dispute Resolution Program (EDRP) modified the “Form U-4” signed by the employees and filed with the NYSE and NASD, it did not supersede the agreement in this case. The EDRP, which called for a stepped dispute resolution procedure ending with arbitration before JAMS, AAA, or CPR, also provided an exception where: “a registered representative is subject to a legal requirement that he or she arbitrate Employment-Related Claims pursuant to particular rules or in a particular forum (for example, at or pursuant to the rules of a stock exchange).” The high court found that the NYSE rule, which called for NYSE arbitration of “any controversy between a registered representative and any member organization arising out of employment or termination of employment…”, created a legal requirement to arbitrate under NYSE rules and therefore fell into the cut-out in the EDRP.
In coming to its decision, the court first noted that based on established contract law principles, the EDRP represented a valid and enforceable modification of the earlier Form U-4 arbitration clause. This is true even though CSFB was not a party to the Form U-4 executed between the employees and the NYSE, because the requirements under the forms “flowed directly and exclusively to CSFB.”
However, the court ruled that the NYSE agreement created a legal requirement for NYSE arbitration and therefore the dispute continued to fall under the Form U-4 provision rather than the EDRP. This finding is at odds with two federal cases decided last year which held that the NYSE Rule (Rule 347) does not create a legal requirement.
The employees had previously filed a grievance with their supervisor claiming the CSFB owed them additional monies following their dismissal. The claims were then mediated pursuant to the multi-step process required by the EDRP. They wished to pursue arbitration before the NYSE rather than JAMS, as advocated by CSFB.
The opinion can be found at 2005 WL 309957. It is also available at: http://caselaw.lp.findlaw.com/data/ny/cases/app/4opn05.pdf.
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