The opinion of the court was delivered by: Lee, District Judge.
Presently before this Court is a Motion by defendant, Shearson Lehman
Hutton, Inc., (Shearson), to Compel Arbitration*fn1 of the claims of
plaintiff, William G. Kaliden, Jr., (Kaliden).
This case arises out of Kaliden's claim that Shearson terminated his
employment because of his age and non-job-related hearing impairment in
violation of the Age Discrimination in Employment Act, 29 U.S.C. § 621
et seq. (ADEA), and the Pennsylvania Human Relations Act, 43 P.S. §
951 et seq., (PHRA).
On November 15, 1984, Kaliden was hired by Shearson as Vice President
and Regional Sales Director for its mid-Atlantic Region. At the time of
his hire, Kaliden completed an application for employment in which he
On January 16, 1985, in order to retain his existing securities
registration while employed by Shearson, Kaliden executed a Uniform
Application for Securities Industry Registration or Transfer, commonly
known as Form U-4. On January 16, 1987, Kaliden became a registered
general securities representative of the New York Stock Exchange (NYSE),
after having successfully obtained his Series 7 licensure, and,
completing an additional Form U-4. Under the terms of each application,
The NYSE Constitution provides that any controversy between a member
corporation, such as Shearson, and any other
person, arising out of the business of a member, shall be arbitrated. NYSE
Constitution, Art. XI, § 1, 2, NYSE Guide (CCH) ¶ 1501. Rule 347
of the NYSE also provides:
any controversy between a registered representative
and any member or member organization arising out of
the employment or termination of employment of such
registered representative by and with such member or
member organization shall be settled by arbitration,
at the instance of any such party, in accordance with
the arbitration procedure described elsewhere in these
Shearson terminated Kaliden's employment on November 10, 1987, claiming
that such termination was part of a corporate-wide staff and cost
reduction efforts. On September 15, 1989, Kaliden commenced the present
action, claiming that his termination was based upon his age and
non-job-related hearing impairment.
Shearson moved for leave to amend its answer on June 19, 1990, to add
the affirmative defense that Kaliden's claims were barred because of his
agreement to submit claims arising out of his employment with Shearson to
arbitration. This Court granted Shearson's motion and the additional
defense was incorporated. Despite demands made by Shearson that Kaliden
submit all of his claims in the lawsuit to arbitration, Kaliden refused
to place his claims before an arbitration tribunal.
Shearson now moves this Court to Compel arbitration of the aforesaid
claims. Because of the strong federal policy favoring arbitration, and
the holding in Gilmer v. interstate/Johnson Lane Corporation, 500 US.
___, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), such motion shall be
The Federal Arbitration Act (Act), 9 U.S.C. § 1 et seq., was
intended to "revers[e] centuries of judicial hostility to arbitrate
agreements" by "plac[ing] arbitration agreements upon the same footing as
other contracts." Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-511, 94
S.Ct. 2449, 2453, 41 L.Ed.2d 270 (1974). The Act provides that
arbitration agreements "shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or equity for the revocation of
any contract." 9 U.S.C. § 2. The express mandate of the Act also
provides that a court must stay its proceedings if it is satisfied that an
issue before it is subject to valid written arbitration agreement,
9 U.S.C. § 3; and it authorizes a federal district court to direct
the parties to proceed to arbitration in those instances where it is
clear that an agreement to arbitrate has been made and there has been a
"failure, neglect or refusal" to comply with the agreement.
9 U.S.C. § 4.
The United States Supreme Court has made clear that the Act establishes
a federal policy favoring arbitration and requiring that such provisions
be rigorously enforced. See Shearson/American Express, Inc. v. McMahon,
482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987) (quoting
Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1,
29, 103 S.Ct. 927, 943, 74 L.Ed.2d 765 (1983) and Dean Witter Reynolds,
Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158
(1985)). In Shearson/American Express, the Supreme Court held further
that the duty to enforce arbitration agreements is not diminished when a
party bound by the agreement raises a claim founded on statutory rights.
This expanded the Act to require that certain claims brought under
Section 10(b) of the Securities Exchange Act and under RICO be subject
to arbitration. The Supreme Court has also held enforceable arbitration
agreements relating to claims arising under Section 12(2) of the
Securities Act of 1933, 15 U.S.C. § 771 (2). Rodriguez de Quijas v.
Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104
L.Ed.2d 526 (1989).
In Gilmer v. Interstate/Johnson Lane Corporation, 500 U.S. ___, 111
S.Ct. 1647, 114 L.Ed.2d 26 (1991), the Supreme Court held that since
neither the text nor the legislative history of the ADEA explicitly
precludes arbitration, one is bound by his agreement to arbitrate unless
one can show an inherent conflict between arbitration and the ADEA's
underlying purposes. The
facts in Gilmer, mirror those in the case at bar.
Like Kaliden, Gilmer was required by his employment to register as a
securities representative with the NYSE and executed a Uniform
Application for Securities Industry Registration or Transfer which
contained an agreement to arbitrate pursuant to NYSE Rule 347. At the age
of sixty-two (62), Gilmer's employment was terminated. After first filing
an age discrimination charge with the Equal Employment Opportunity
Commission, Gilmer brought suit in the United States District Court for
the Western District of North Carolina alleging violation of the ADEA. In
response to Interstate's motion to compel arbitration, the District Court
denied the motion. The United States Court of Appeals for the Fourth
Circuit reversed, finding "nothing in the text, legislative history, or
underlying purposes of the ADEA indicating a congressional intent to
preclude arbitration agreements." See Gilmer v. Interstate/Johnson Lane
Corporation, 895 F.2d 195 (4th Cir. 1990). The Supreme Court then granted
certiorari to resolve a conflict among the Courts of Appeals.
The issue resolved by the Supreme Court in Gilmer, is the same one
raised by Kaliden, whether a claim under the ADEA can be subjected to
compulsory arbitration pursuant to an arbitration agreement in a
securities registration application. In deciding the above issue in the
affirmative, the Court found there was no inconsistency between the
important social policies furthered by the ADEA and the enforcement of
agreements to arbitrate age discrimination claims. Though arbitration and
judicial resolution focus on specific disputes between the parties
involved, the Court found that both of the dispute resolution mechanisms
can further broaden social purposes. See Gilmer, supra.
In resolving the issue as to the adequacy of arbitration procedures,
the Supreme Court stated "[w]e decline to indulge the presumption that
the parties and arbitral body conducting a proceeding will be unable or
unwilling to retain competent, conscientious and impartial arbitrators."
Gilmer, supra, quoting Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 634, 105 S.Ct. 3346, 3357, 87
L.Ed.2d 444 (1985). The NYSE arbitration rules, which would apply to this
case, also provide the following protection against biased panels:
(a) Parties are informed of the employment histories
and are permitted to make further inquiries into the
arbitrators' backgrounds, See 2 CCH New York Stock
Exchange Guide ¶ 2608, p. 4314 (Rule 608)
(b) Each party is allowed one peremptory challenge and
unlimited challenges for cause, Id., at ¶ 2609
(Rule 609); and
(c) The arbitrators are required to disclose "any
circumstances which might preclude [them] from
rendering an objective and impartial determination."
Id., at ¶ 2610, p. 4315 (Rule 610).
The Federal Arbitration Act provides that courts may overturn arbitration
decisions "[w]here there was evident partiality or corruption in the
arbitrators." 9 U.S.C. § 10 (b). This acts as further protection
against bias in the arbitration process.
Kaliden relies upon Nicholson v. CPC International, Inc., 877 F.2d 221
(3d Cir. 1989) as the controlling law in the Third Circuit in arguing
that ADEA suits are not subject to arbitration under the Federal
Arbitration Act. The Supreme Court's recent ruling in Gilmer, however,
effectively reverses Nicholson, and leaves this Court with no choice but
to follow the mandates of Gilmer.
Kaliden further contends, however, that Shearson has waived its right
to arbitration because the demand for arbitration came long after the
suit was commenced and when both parties had engaged in extensive
Under the federal policy favoring arbitration for resolution of
disputes, waiver is not to be lightly inferred. Gavlik Construction Co.
v. H.F. Campbell Co., 526 F.2d 777, 783 (3d Cir. 1975), Carcich v. Rederi
A/B Nordie, 389 F.2d 692, 696 (2d Cir. 1968). It is not the inconsistency
of a party's actions, but the presence or absence of prejudice which is
determinative of the
issue of waiver. In Demsey & Associates, Inc. v. S.S. Sea Star,
461 F.2d 1009, 1018 (2d Cir. 1972) citing Carcich, supra., the Second
Circuit stated as follows:
"[m]erely answering on the merits, asserting a
counterclaim (or cross-claim) or participating in
discovery, without more, will not necessarily
constitute a waiver."
See Gavlik Construction Co. v. H.F. Campbell Co., 526 F.2d at 783.
Therefore, waiver of a contractual right to arbitrate must be established
by clear and convincing proof that the party requesting a stay of
judicial proceedings has acted in a manner inconsistent with arbitration
and that these inconsistent acts have prejudiced the other party. J.D.
Fegely, Inc. v. Kline Iron & Steel Company, Inc., 1989 WL 71549, 1989 US
Dist. LEXIS 7218, (E.D.Pa. June 27, 1989).
Shearson contends that prior to the Supreme Court granting certiorari
in Gilmer, it had no basis to question the Third Circuit law enunciated
in Nicholson. Once a split was created among the courts of appeal on the
issue of arbitration of ADEA claims, Shearson moved to add the
affirmative defense that Kaliden's claims were barred because of his
agreement to arbitrate. It does not appear that Shearson acted in a
manner inconsistent with arbitration in light of the potential changes in
the decisional law that occurred during the pendency of the case.
The Ninth Circuit in Fisher v. A. G. Becker Parabis, Inc., 791 F.2d 691
(9th Cir. 1986) allowed the defendant to move to compel arbitration more
than three (3) years after the action began based upon the intervening
decision in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct.
1238, 84 L.Ed.2d 158 (1985), which allowed the arbitration of securities
law claims. The court found no waiver because before the Byrd decision
defendant could not have demanded all the claims be submitted to
arbitration. Fisher, 791 F.2d at 694, 697.
Discovery taken by the parties, similarly, does not constitute a waiver
of Shearson's right to compel arbitration in and of itself. In
determining whether discovery of documents concerning arbitrable claims
is sufficient to warrant a waiver, the court must again rely on the
principle of prejudice to the opposing party. Sufficient prejudice to
infer waiver might be found if the party seeking the stay took advantage
of judicial discovery procedures not available in arbitration. See
Carcich v. Rederi A/B Nordie, 389 F.2d at 696 n. 7, Russo v. Simmons,
723 F. Supp. 220, 223 (S.D.N Y 1989). There is no contention by Kaliden
that Shearson has gained an unfair advantage through discovery, nor that
Kaliden himself has been harmed through the discovery process. As such,
there has been no waiver of Shearson's right to arbitration.
The remaining issue for the Court is whether the Motion to Compel
Arbitration should be granted as to Kaliden's claim under the
Pennsylvania Human Relations Act (PHRA). Both parties agree that there is
no appellate court decision on whether arbitration could be compelled on
PHRA claims. Shearson, however, contends that because the Supreme Court
remanded a Title VII case for further consideration in light of Gilmer,
Kaliden's handicap discrimination claim should also be sent to
In Alford v. Dean Witter Reynolds, Inc., 905 F.2d 104 (5th Cir. 1990),
the court held that a stockbroker fired by a brokerage firm could pursue
a sex discrimination suit under Title VII of the Civil Rights Act and did
not have to submit her claim to arbitration as called for in her
employment contract. The Fifth Circuit concluded the case was governed by
the Supreme Court's decision in Alexander v. Gardner-Denver Company,
415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974), which held that Title
VII claims need not be relegated to the arbitration process in a
collective bargaining agreement. The Supreme Court, after granting
certiorari, vacated judgment and remanded the case for further
consideration in light of Gilmer.
Shearson presumes the case was remanded because the Court in Gilmer
distinguished the holding in Gardner-Denver, that there can be no
of a Title VII claim, in three respects. First, the Gardner-Denver line
of cases involved the issue of whether arbitration of contract-based
claims precluded subsequent judicial resolution of statutory claims.
Second, because the arbitration in those cases occurred in the context of
a collective bargaining agreement, the claimants were represented by
their unions in the arbitration proceedings. The concern, therefore, was
the tension between collective representation and individual statutory
rights. Finally, those cases were not decided under the Federal
Arbitration Act, which reflects a liberal policy in favor of
Because of the above distinctions, Shearson contends the holding in
Gilmer applies equally to Title VII, and therefore to Kaliden's
handicapped discrimination claim under the PHRA. We are not ready to
extend Gilmer to cover Title VII claims, nor is it necessary to do so.
Kaliden's handicapped discrimination is a pendent state claim, for which
we must predict how the Pennsylvania Supreme Court would rule if
presented with such issue.
As a practical matter, the decision to allow arbitration of statutory
claims should not be dependent upon the point of origin of the statute.
The fact that Kaliden's rights emanate from the PHRA instead of Title VII
of the Civil Rights Act of 1964 should not control our analysis. The
compelling fact is Kaliden agreed "to arbitrate any dispute, claim or
controversy that may arise between me and my firm" in his Form U-4 filed
with the NYSE, and such agreement was upheld by the United States Supreme
Court in Gilmer.
Kaliden made the bargain to arbitrate. He should be held to it unless
the Pennsylvania Legislature expressed an intention to preclude a waiver
of judicial remedies for rights under the PHRA. Neither the text of the
PHRA, nor the legislative history reveals an explicit preclusion to
arbitration. As the Supreme Court found in Gilmer, we find that there is
no conflict between arbitration and the advancement of the underlying
social policies of the PHRA.
Having concluded the arbitration procedure is conducive to the policies
underlying the ADEA and the PHRA, Shearson's Motion to Compel Arbitration
shall be granted.