Chen-Oster: Distinguishing Concepcion

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Another federal district court has distinguished the U.S. Supreme Court’s AT&T Mobility v. Concepcion.  In Chen-Oster v. Goldman, Sachs & Co., the Court considered “whether the FAA’s [Federal Arbitration Act’s] objectives are . . . paramount when, as here, rights created by a competing federal statute are infringed by an agreement to arbitrate.”  Chen-Oster v. Goldman, Sachs & Co., No. 10-CV-06950, 2011 U.S. Dist. LEXIS 73200, at *10 (S.D.N.Y. Jul. 7, 2011) (order denying motion for reconsideration) (available here).  Whereas Concepcion held that the FAA preempted the California common law doctrine of contract unconscionability, Chen-Oster asserts the preeminence of federal statutory rights over the FAA’s preference for arbitration.

Chen-Oster arose as a Title VII gender discrimination class action against the investment bank Goldman Sachs.  In response to the class action complaint, Goldman Sachs moved to stay the action with respect to one of the plaintiffs, Lisa Parisi, and to compel arbitration on Ms. Parisi’s individual claims.  The Court denied Goldman Sachs’ motion only one day after the Supreme Court issued the Concepcion opinion.  Goldman Sachs then moved for reconsideration of its motion to compel arbitration, arguing that perhaps the Court had overlooked Concepcion given its very recent issuance.  However, the Court denied the motion for reconsideration, finding that, despite Concepcion, “it remains the law of the Second Circuit that an arbitration provision which ‘precludes plaintiffs from enforcing their [federal] statutory rights’ is unenforceable.  Id. at *15, citing In re American Express Merchants’ Litigation, 634 F.3d 187 (2d Cir. 2011).  

The federal statute under which Ms. Parisi brought suit—Title VII—“creates a substantive right to be free from a ‘pattern or practice’ of discrimination by an employer.”  Id. at *4 (emphasis added).  Federal law prohibits plaintiffs from proceeding as individuals on “pattern or practice” discrimination claims, meaning that Ms. Parisi would have no viable claim if her case were tried or arbitrated on an individual, rather than classwide, basis.  See id. at *11-12.  In other words, to prohibit Title VII class actions would be to prohibit Title VII actions generally.  The Court’s decision to deny the motion for reconsideration and disallow arbitration thus protected Ms. Parisi’s “right, guaranteed by Title VII, to be free from discriminatory employment practices.”  Id. at *10 (referencing Chen-Oster v. Goldman, Sachs & Co., No. 10-CV-06950, 2011 U.S. Dist. LEXIS 46994, at *12 (S.D.N.Y., Apr. 28, 2011) (order denying motion to compel arbitration)). 

The Court noted that Rule 23, the federal statute governing class actions, does not create a federal statutory “right” to proceed as a class.  Thus, while preserving Ms. Parisi’s right to a day in court on her substantive discrimination claims, the Court also indicated that Ms. Parisi’s right to proceed on a class action basis per Rule 23 has not been resolved in this case.  See id. at *11-12.

Chen-Oster is a positive development for employees in the wake of Concepcion.  The Chen-Oster opinion unequivocally protects workers’ rights (as conferred by Title VII) over the FAA’s directive for arbitration.  What remains unclear is whether courts will extend this logic to prioritize other substantive federal rights (statutory or otherwise) over FAA-mandated arbitration.