Chen-Oster Part III: Second Circuit Sides With Defendant in Long-Running Battle Over Key Class Action Doctrines

Once again, a court of law has weighed in on a case that has serially addressed the major issues in current class action jurisprudence. This time, the case was before the Second Circuit, where the panel considered the defendant’s appeal of a district court’s denial of its motion to compel arbitration. See Parisi v. Goldman, Sachs & Co., No. 11-5229 (2d Cir. Mar. 21, 2013) (available here).

In mid-2011, the at-issue motion to compel arbitration was referred to a Southern District of New York Magistrate Judge, who held the Federal Arbitration Act’s (FAA) preference for arbitration to be subordinate to federally-created statutory rights, and determined that the arbitration clause in plaintiffs’ contract with the defendant must be invalidated because arbitration would preclude the plaintiffs from vindicating a statutory right. See Chen-Oster v. Goldman, Sachs & Co., No. 10-6950, 2011 U.S. Dist. LEXIS 73200 (S.D.N.Y. Jul. 7, 2011) (“Chen-Oster I”). Then, in 2012, District Judge Leonard B. Sand denied the defendant’s motion to strike class allegations. See Chen-Oster v. Goldman, Sachs & Co., No. 10-6950 (S.D.N.Y. Jul. 17, 2012) (“Chen-Oster II”).

Parisi, aka Chen-Oster III, is the Second Circuit’s disposition of the defendant’s appeal of the denial of its motion to compel arbitration in Chen-Oster I. At issue in the appeal was the contention of the named plaintiffs, three female Goldman Sachs employees, that they had a substantive right under Title VII to pursue a “pattern-or-practice” discrimination claim, which is only available to class plaintiffs. The plaintiffs argued that because they cannot proceed on a class-wide basis in arbitration without the defendant’s consent, they must be permitted to proceed in court as a class action. See Chen-Oster I at *10-15. However, in holding that “there is no substantive statutory right to pursue a pattern-or-practice claim,” the Second Circuit reversed Chen-Oster I. See Parisi at 4.

While acknowledging that there are instances when the FAA must yield to federally-created statutory claims, the Second Circuit determined that plaintiffs’ purported pattern-or-practice claim is not eligible to join certain antitrust claims and claims related to statutorily-authorized damages in trumping the FAA: “The availability of the class action Rule 23 mechanism presupposes the existence of a claim; Rule 23 cannot create a non-waivable, substantive right to bring such a claim. Since private plaintiffs do not have a right to bring a pattern-or-practice claim of discrimination, there can be no entitlement to the ancillary class action procedural mechanism.” Parisi at 7 (internal citations omitted).

The Second Circuit relied heavily on the Supreme Court’s Wal-Mart v. Dukes decision in deciding Parisi, thus making it unlikely that this issue will be considered, much less reversed, by the U.S. Supreme Court. However, if the past is any indication, this is not the last we will be hearing of the Chen-Oster case.

Related Articles:  Chen-Oster: Distinguishing Concepcion;  Chen-Oster v. Goldman Sachs: Court Distinguishes Dukes, Denies Motion to Strike Class Allegations