Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

CREMIN v. MERRILL LYNCH PIERCE FENNER & SMITH

February 21, 1997

MARYBETH CREMIN, Plaintiff,
v.
MERRILL LYNCH PIERCE FENNER & SMITH, INC., JOSEPH GANNOTTI, THE NEW YORK STOCK EXCHANGE and THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, Defendants.



The opinion of the court was delivered by: CASTILLO

 Plaintiff Marybeth Cremin sues her employer, Merrill Lynch, and supervisor, Joseph Gannotti, alleging that they subjected her to gender and pregnancy discrimination in violation of Title VII. She anticipates, however, that both defendants will move to send these claims to arbitration based on securities exchange arbitration rules. Heading them off at the pass, Count III of Cremin's complaint adds the New York Stock Exchange and the National Association of Securities Dealers as defendants, and seeks a declaratory judgment that the exchange-mandated arbitration of discrimination claims deprives Cremin of her constitutional due process and statutory rights. All four defendants contest this allegation, and have accordingly moved to dismiss Count III.

 RELEVANT FACTS

 A. The Arbitration Agreement

 In 1982, Marybeth Cremin was hired by Merrill Lynch as a licensed Financial Consultant. Compl. P 2. To work in this area, Cremin had to register with the NASD and the NYSE *fn1" so that she could trade on the exchanges. Id. P 7. She registered by completing the Uniform Application for Securities Industry Registration (Form U-4), which contained a clause requiring applicants to submit disputes to arbitration as specified in the NASD and NYSE rules:

 
I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm or a customer or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organizations with which I register as indicated in Question 8.

 Mot. Defs. Merrill Lynch and Ganotti to Dismiss, Ex. 1 (Form U-4) at 4. *fn2" The U-4 incorporates not only the rules of the exchanges with which the applicant registers, but also their prospective amendments:

 
I hereby apply for registration with the organizations indicated in Question 8 and . . . I submit myself to the jurisdiction of such . . . organizations and hereby certify that I have read, understand and agree to abide by, comply with, and adhere to all the provisions, conditions, and covenants of the . . . constitutions, by-laws and rules and regulations of the . . . organizations as they are and may be adopted, changed or amended from time to time . . . ."

 Id. These provisions are on the same page and preceded at the top by directions, in capital letters, that "THE FOLLOWING SHOULD BE READ VERY CAREFULLY BY THE APPLICANT"; a signature line appears at the bottom. Id. Using this form, Cremin registered with the NASD on October 20, 1982 and with the NYSE on September 11, 1983. Id. Ex. 2 ("Registrations & Exams: Cremin, Marybeth N.").

 Both the NYSE and NASD have promulgated sets of arbitration rules that apply to registrants and member *fn3" firms. The NYSE has two provisions relevant here:

 
. Article XI, section 1 of the NYSE Constitution states that any controversy between a member and any other person arising out of the business of the member shall be arbitrated according to the NYSE Constitution and any rules the Board may adopt.
 
. NYSE Rule of Board 347 provides that any controversy between a registered representative and any member arising out of the representative's employment with the member shall be settled by arbitration under the procedure prescribed in the rules.

 Id. Ex. 3 (NYSE Constitution and NYSE Operation of Member Organizations). At the time Cremin signed the U-4, the NASD Code of Arbitration did not explicitly address employment disputes. In 1993, however, Part I, section 1 of the Code was amended to cover:

 
any dispute, claim or controversy arising out of or in connection with the business of any member of the Association, or arising out of the employment or termination of employment of associated person(s) *fn4" with any members . . . .

 Id. Ex. 3 (NASD Code of Arbitration Procedure). The Code further provides that disputes eligible for submission under Part I "shall be arbitrated." Id.

 B. The Discrimination Claims

 While working in the securities industry for Merrill Lynch, Cremin claims she was the victim of discrimination on numerous occasions. Compl. P 8. First, her supervisor, Joseph Gannotti, allegedly made disparaging remarks about her status as a working mother. Id. Among other things, Gannotti allegedly criticized the number of children Cremin had, stated he did not think women could combine family and career, hinted that Cremin would do "better" at Merrill Lynch if she divorced her husband, and told Cremin he thought she was too busy having children to develop her customer accounts. Id.

 Second, Cremin claims that Merrill Lynch took adverse action against her because she was a woman and had children. Id. She was allegedly denied the same career opportunities that were offered her male colleagues, and worked under less favorable conditions. Id. The company allegedly pressured her to transfer clients to other brokers when she became pregnant and, later, denied her proper maternity leave benefits. Id. PP 8-16. When Cremin returned to work after the birth of her child in May 1995, Gannotti allegedly induced her to surrender all her accounts to predominantly male brokers, then fired her immediately afterward. Id. PP 17-23. Cremin's complaint does not reveal when the discrimination began, but the allegations are clear that it lasted through her child's birth in May 1995 and her subsequent termination that same year.

 Cremin filed suit in this Court on June 21, 1996, claiming both employer and securities industry-wide discrimination against women in violation of Title VII. Count III, the subject of the defendants' motions to dismiss, *fn5" deals only with industry discrimination in the form of mandatory arbitration. Distilled, Count III alleges that the exchange-mandated arbitration of Title VII claims robs females employed in the securities industry of due process and perpetuates sex discrimination. The injury is twofold -- plaintiffs are allegedly deprived of both constitutional protections and statutory rights under the 1991 Civil Rights Act. The defendants have two responses: (1) Cremin's constitutional claims fail because they are not the product of state action, and (2) Cremin cannot claim the arbitration rules deny her statutory rights because the United States Supreme Court upheld mandatory arbitration of discrimination claims in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 114 L. Ed. 2d 26, 111 S. Ct. 1647 (1991). These arguments form the basis of the defendants' motions to dismiss Count III. After careful consideration, we grant the defendants' motions. *fn6"

 A motion to dismiss tests the sufficiency of the complaint, not the merits of the suit. Triad Assocs., Inc. v. Chicago Housing Auth., 892 F.2d 583, 586 (7th Cir. 1989). The court must view all facts alleged in the complaint, as well as any reasonable inferences drawn from those facts, in the light most favorable to the plaintiff. Doherty v. City of Chicago, 75 F.3d 318, 322 (7th Cir. 1996). Any ambiguities are likewise resolved in the plaintiff's favor. Dawson v. General Motors Corp., 977 F.2d 369, 372 (7th Cir. 1992). Nevertheless, a motion to dismiss should be granted if the complaint fails to state a claim that entitles the plaintiff to relief. Corcoran v. Chicago Park Dist., 875 F.2d 609, 611 (7th Cir. 1989). With these standards in mind, we turn to the sufficiency of Count III.

 ANALYSIS

 With Count III as her springboard, Cremin mounts the following attacks on the securities industry's mandatory arbitration scheme: First, compulsory arbitration deprives her the right to a jury trial under the Seventh Amendment and the 1991 Civil Rights Act. Second, arbitration forces Cremin to forgo her right, granted by the Constitution and the 1991 Civil Rights Act, to have an Article III court adjudicate her discrimination claims. Third, the arbitration process is unaccompanied by the procedural protections that the Fifth Amendment guarantees litigants. Fourth, arbitration operates to forfeit the statutorily mandated benefits that Title VII confers, compounding the due process violation. Finally, Cremin argues that requiring her to waive each of these rights is both an unconstitutional condition of employment and a violation of the 1991 Civil Rights Act. Because the majority of Cremin's contentions center on Fifth Amendment due process rights, we address them first.

 A. State Action

 Since 1883, the Supreme Court has hewed to the principle that only governmental actors can violate constitutional due process rights. See The Civil Rights Cases, 109 U.S. 3, 27 L. Ed. 835, 3 S. Ct. 18 (1883); Shelley v. Kraemer, 334 U.S. 1, 13, 92 L. Ed. 1161, 68 S. Ct. 836 (1948); Jackson v. Metropolitan Edison Co., 419 U.S. 345, 349, 42 L. Ed. 2d 477, 95 S. Ct. 449 (1974); Blum v. Yaretsky, 457 U.S. 991, 1002, 73 L. Ed. 2d 534, 102 S. Ct. 2777 (1982); NCAA v. Tarkanian, 488 U.S. 179, 191, 102 L. Ed. 2d 469, 109 S. Ct. 454 (1988). The due process clauses in the Fifth and Fourteenth Amendments afford no relief from purely private conduct, no matter how unfair or reprehensible. Tarkanian, 488 U.S. at 190. Private entities may be held to constitutional standards, however, if their actions are "fairly attributable" to the State. Lugar v. Edmondson Oil Co., 457 U.S. 922, 936, 73 L. Ed. 2d 482, 102 S. Ct. 2744 (1982). In Blum v. Yaretsky, the Supreme Court clearly set out what does and what does not satisfy this standard:

 
First, . . . "the mere fact that a business is subject to state regulation does not by itself convert its action into that of the State for purposes of the Fourteenth Amendment. The complaining party must also show that "there is a sufficiently close nexus between the State and the challenged action of the regulated entity so that the action of the latter may fairly be treated as that of the State itself." . . .
 
Second, . . . a State normally can be held responsible for a private decision only when it has exercised coercive power or has provided such significant encouragement, either overt or covert, that the choice must in law be deemed to be that of the State. Mere approval of or acquiescence in the initiative is not sufficient to justify holding the State responsible for those initiatives under the terms of the Fourteenth Amendment.
 
Third, the required nexus may be present if the private entity has exercised powers that are "traditionally the exclusive prerogative of the State."

 1. The Registration and Arbitration Requirements

 Cremin first argues that state action is present in the NASD and NYSE's registration and arbitration requirements. She points to the SEC's relationship with the exchanges for support. In 1982, when Cremin signed the U-4, the Securities and Exchange Act of 1934 required broker-dealer firms and persons not associated with a firm to register with the SEC, as well as with the exchanges on which they traded. 15 U.S.C. §§ 78o(a)(1), (b)(1), (b)(8) (1981). The SEC in 1982 also allowed each exchange to promulgate registration rules. Id. § 78o-3(a)(3)(B). Moreover, at that time, the SEC had the power to review and approve proposed NASD and NYSE registration and arbitration requirements, and compelled the exchanges to comply with their own rules. Id. §§ 78f(a)-(b), 78o-3(a)-(b), 78s(b)-(c), 78s(g)(1). Finally, in 1993, the SEC codified its own regulations prohibiting brokers from trading unless they registered with an exchange. 17 C.F.R. § 240.15b7-1 (May 1, 1993). All this, according to Cremin, warrants a finding that the NASD and NYSE registration and arbitration requirements can be "fairly attributed" to the SEC.

 We find that none of these provisions, alone or combined, adds up to state action. The plain fact is that when Cremin registered, no federal statute or SEC regulation required her to do so, to sign a U-4, or to arbitrate. 15 U.S.C. § 78o-3(g)(3)(B) (1981); see Association of Investment Brokers v. SEC, 219 U.S. App. D.C. 259, 676 F.2d 857, 861 (D.C. Cir. 1982); Duffield v. Robertson, Stephens & Co., No. C-95-109, slip op. at 6, 8 (N.D. Cal. Aug. 6, 1996) ("The state action analysis must focus on 1988, the year in which the plaintiff agreed to the arbitration clause at issue."). In 1982, the SEC Act registration provision applied only to broker-dealer firms and individuals who were not associated with a firm. 15 U.S.C. § 78o(a)(1), (b)(8) (1981); see Investment Brokers, 676 F.2d at 859; Duffield, slip. op. at 7. Cremin registered, by contrast, as an individual associated with a firm, Merrill Lynch. And although the SEC permitted the exchanges to come up with their own registration and arbitration rules for associated individuals in 1982, the Commission did not require the exchanges to do so. 15 U.S.C. § 78o-3(g)(3)(B); Investment Brokers, 676 F.2d at 861. Indeed, the NASD imposed mandatory arbitration long before the SEC received the power to review exchange arbitration rules in 1975; the NYSE compulsory arbitration scheme was firmly in place by 1958. Duffield, slip op. at 11; see ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.