Windows 2000 operating system after several complaints were filed by a group of end-users, small computer businesses and Microsoft rivals. The complaints charge that Microsoft has unfairly bundled the operating system with other software in such a way that only its own products are fully interoperable, while those of competitors are not. The EU will investigate whether such conduct, if true, violates the EU's competition laws.
7. Bank's practice of allocation of debt overrides language of guaranty. Even though guaranty signed by defendant guarantor gave plaintiff bank complete discretion to allocate payments in any way it saw fit, bank's admission that it always applied payments first to oldest interest due, then to oldest principal due was binding on bank. Since amounts paid after guarantor's discontinuance exceeded amount due on that date, defendant guarantor was discharged. American National Bank and Trust Co. of Chicago v. Mack, No. 1-98-4582 (2/3/00). 1st Dist. Cook Co. Aff'd.
8. Trademark interests delay new Web names: ICANN to meet this month. Although at present the only non-governmental U.S. domain name suffixes permitted are .com, .net and .org, additional domain names, such as daily.news, chevy.cars, Lincoln.lawfirm etc. have been on the drawing board since about 1995. The delay, commentators say, is that many large businesses are concerned about dilution of their trademarks. Promoters of the new suffixes ask why Ford Motor Company, for instance, would care if someone else owned ford.store as long as they were assured of getting ford.cars? The Internet Corporation for Assigned names and Numbers (ICANN), now in charge of the U.S. domain name system, will meet this month in Cairo to determine the specifics of a new system, and how soon it might be brought into play.
9. Congress argues tort reform--again. Congress has been debating tort reform again, this time in the bill named the Small Business Liability Reform Act of 1999, now renamed the Small Business Liability Reform Act of 2000. House Resolution 2366 would limit punitive damages which could be awarded against businesses with fewer than 25 full-time employees to the lesser of three times the claimant's compensatory damages, or $250,000. Punitive damages would be allowed only in cases where the plaintiff shows by clear and convincing evidence that the defendant engaged in particularly egregious misconduct. There are four versions of HR 2366, but the version that has progressed the farthest is the House Engrossed bill, which has now been sent to the Senate. To track its progress, go to http://thomas.loc.gov/ and search for HR 2366.
10. Progress report: Illinois legislative session. Last month, we reported on several business law bills pending in the Illinois Legislature. Of those, only the following are still alive: Corporate Names, Fictitious Addresses HB 2991; Business Organizations, Registration Denial Criteria, HB3944; Franchise Disclosure Statements, SB1330. Since then, the following new business law legislation was also introduced:
Revised Uniform Limited Partnership Act (RULPA). HB 477 and HB 478 track recent amendments to the Delaware version of RULPA. HB 477 would prohibit a limited partner from withdrawing from the partnership, and would make stronger the claim for discounts for Federal estate and gift tax purposes. HB 478 permits an assignee to share in the financial gains or losses of the partnership, and permits a partner to place an encumbrance against his partnership interest without losing his partnership status.
Corporate Fiduciary Computer Systems. HB 1744. As originally written, amended the Corporate Fiduciary Act to provide that a corporate fiduciary that managed its computer systems in a manner consistent with similar corporate fiduciaries in the same geographic area shall be deemed to have acted prudently with respect to its computer systems. Now a shell bill.
Savings & Loan Limited Liability Co. SB 1422. Amends the Illinois Savings & Loan Act to permit Savings & Loans to organize as limited liability companies.
To track the progress of any bill, go to the State of Illinois General Assembly page, and enter the bill designation, for instance, HB 3284. Links are not permanent, and may expire. See you next month.
April, 2000
Author's Comment: This has been an incredibly busy month, with multiple events or cases in several areas, so this column will be longer than usual. Enjoy!
1. What do you think? But hurry! ICANN invites comments regarding its consideration of establishing new top level domain names. The ICANN Domain Names Supporting Organization (DNSO) is inviting comments on its report, and will meet on April 18, 2000, prior to making its recommendation to ICANN, so hurry to make your comments. The DNSO has been considering how to add new top level domain names while still protecting trademarks. http://www. icann.org/dnso/new-gtlds-01apr00.htm
2. Intellectual property I: libel action's one-year Statute of Limitations applies to Web publication--NY state court. Is the posting of information to the internet a republication each day it appears on a website? That question was answered in the negative by New York Court of Claims Judge Francis T. Collins. Reasoning that the law has for years recognized only a single publication of newspapers, magazines and books, even though those copies might continue to exist and be read years later, Judge Collins ruled that the publication of information to a website on the internet is a single publication, though the content might exist thereafter and be viewed for weeks, months or years. Plaintiff had argued that since the Website could be changed or updated each day, the content was essentially republished each day. Firth v. State of New York, decided March 8, 2000. http:// www.nytimes.com/library/tech/00/03/cyber/cyberlaw/31law.html
3. Intellectual property II: first impression: deep hypertext link does not violate copyright laws. In the intensely debated and closely watched case of Ticketmaster vs. Tickets.com, concerning a Website owner's right to link to the interior of another Website, bypassing its home page and attendant advertising, the Defendant Tickets.com has won the right to link from its website direct to an interior page of its competitor, Ticketmaster, without violating copyright laws. Judge Harry Hupp ruled: "hyperlinking does not itself involve a violation of the Copyright Act ... since no copying is involved." However, since Ticketmaster also alleged a copying of its Website content, the Judge let stand the claim for copyright infringement. Extracting factual data from a competitor's Website, and using that information, as long as not in the same format, expression and method of presentation is not a violation of copyright laws. The court also rejected Ticketmaster's argument that the printing of one of its Web pages, by itself, constituted copyright infringement. http://www.gigalaw.com/library/ticketmaster-tickets-2000-03-27.html
4. Internet jurisdiction I: no personal jurisdiction over passive Website. A passive Website, which provided company and product information, but did not permit internet sales, and contained only a hyperlink sending email to the company was not sufficient to establish personal jurisdiction over the non-resident Defendant in a patent infringement suit. Ruling that Federal Circuit law applied because the Federal Circuit has appellate jurisdiction over patent cases, the U.S. District Court for the Northern District of Texas held that since the Website did not permit order taking, and there was no evidence that the company made any sales in the state through its Website, personal jurisdiction was not established. Nutrition Physiology Corp. v. Enviros Ltd., N.D. Texas, No. 5:99-CV-0107-C, 3/9/00). http://www.lawnewsnetwork.com/practice/techlaw/news/A19888-2000Mar28.html
5. Internet jurisdiction II: but jurisdiction asserted if Website earns monies in interstate commerce. In a domain name dispute between the National Football League, based in New York, and a website named nfltoday.com based in California, a New York court has asserted jurisdiction over the California Website owner because he earned monies from advertising on the Website, establishing to the court's satisfaction that theWeb-site was engaged in interstate commerce. http://www.lawnewsnetwork.com/practice/techlaw/news/A20302-2000Mar31.html
6. Taxation I: corporate officer not accountable for corporation's failure to pay use tax. Since a corporation may only act through its agents and officers, the failure of the corporation to file or pay its use tax cannot be imputed to an individual defendant officer because the Use Tax Act does not impose criminal liability upon corporate officers or agents. People v. Bohne, 1st Dist. No. 1-99-1515 (3/23/00). Cook Co. Aff'd.
7. Taxation II: taxpayer's stock purchase loss cannot be offset against later gain from sale of stock. Even though taxpayer suffered loss in connection with his purchase of stock in 1984, and later acquired gain from sale of same stock in 1986, loss cannot be used to offset gain. Illinois Revised Statutes, Chapter 120, Section 2-207 provides that when taxpayer's net income results in a loss, loss may be allowed as carryover or carryback deduction as § 172 of Internal Revenue Cod, but law expressly excluded coverage for tax years ending prior to 12/31/86. Taxpayer would have been able to offset gain if both transactions had occurred in the same year. Rockwood Holding Company v. Department of Revenue, 1st Dist No. 1-98-4081, (3/24/00). Cook Co. Aff'd.
8. General counsel I: attorney-client privilege. Defendant's general counsel's remark to defendant's management that defendant could not have "cripple" in public view was properly excluded from evidence based on attorney-client privilege. Although Plaintiff had argued that remark was not privileged since made in counsel's business capacity, record sustained defendant's contention that remark was made while counsel was rendering advice about defendant's obligations under the Americans with Disabilities Act. Rehling vs. City of Chicago, 7th Cir. Ct App. No. Dist. IL, 99-1771 (March 21, 2000)
9. General counsel II: disqualification; employment law. Even though substantial period of time had elapsed, Defendant's former general counsel was properly disqualified from representing plaintiff in retaliatory discharge action against former employer, where general counsel had previously represented Defendant employer as in-house counsel for more than 14 years. Franzoni v. Hart Schaffner & Marx, No. 1-99-1232 (3/15/00). Cook Co. Aff'd.
10. AG opinion: Illinois farm development authority loans guaranteed by state. Attorney General Opinion # 00-006, issued March 7, 2000, asserts that loans issued by the Illinois Farm Development Authority are unconditionally backed by the full faith and credit of the State of Illinois. http://www.ag.state.il.us/opinions/00-006.htm
11. Internet taxation I: advisory committee narrowly recommends extension of moratorium. Unable to acquire the 2/3 majority required to mandate Congressional Action, the Advisory Committee on Internet Taxation narrowly voted to recommend that Congress extend for five more years the current moratorium on new Internet taxes. The panel also voted to recommend that taxes on Internet access charges be banned, federal telephone tax be eliminated, and the questions surrounding when sales taxes can be imposed on online sales be resolved. See also the related articles, especially the European Union's plan to tax certain Internet transactions. http://www.nytimes.com/library/ tech/00/04/cyber/capital/04capital.html
12. Internet taxation II: tax treatment of e-commerce revenues. An international commerce organization, the Organization for Economic Co-operation and Development, which is considering the tax characterization of e-commerce revenues has released its report for comment. The report is meant to address the tax issues raised by Internet commerce in light of various tax treaties between nations, and provide a guide for distinguishing between business profits and royalties, a distinction which has significant implications under the treaties. Go to: http://www.oecd.org/ daf/fa/treaties/ tcecommpay.htm
13. Is client-principal responsible for acts of attorney-agent?
After a business dispute resulted in judgment against plaintiff, defendant-attorneys sought collection. Through citation proceedings, defendant-attorneys learned of the identity of business associates of plaintiff, and wrote letters to more than 40 of them, suggesting that their tax returns were incorrect because Plaintiff had taken a disproportionate share of earnings. Summary Judgment in favor of defendant-attorneys was reversed, the appellate court holding that the determination of whether defendant-attorneys had acted within the scope of their authority, and whether plaintiff-clients had acquiesced in or ratified the conduct of their attorneys was a question of fact. Horwitz v. Holabird & Root, No. 1-99-1377, 1st District, February 24, 2000.
14. U.S. Supreme Court: Federal Arbitration Act venue is permissive, not exclusive. Hearing a case from the Court of Appeals for the Eleventh Circuit, the U.S. Supreme Court has decided that venue under the Federal Arbitration Act is not limited to the venue in which the arbitration was held. The parties' case had been arbitrated in the Northern District of Alabama, but Petitioner sought to vacate or modify the award in the Federal District Court for the Southern District of Mississippi, where the contract had been performed. Seven days later, Respondent sought to confirm the award in the district court in Alabama, which refused to dismiss, contending that venue was proper only in Alabama. Held: The FAA's venue provisions are permissive, allowing a motion to confirm, vacate, or modify to be brought either in the district where the award was made or in any district proper under the general venue statute. Cortez Byrd Chips, Inc. vs. Bill Harbert Construction Co., # 98-1960. Souter, J., delivered the opinion for a unanimous Court.
15. The E-tail on E-mail. Is it enforceable? Many companies, especially financial and law firms, now routinely add legal disclaimers at the end of all of their e-mail messages, warning that the content is confidential, that it does not constitute advice, and that the company denies all responsibility for the actions of its employees, for any virus transmitted, or for any other wrong. But many lawyers doubt whether such disclaimers would be legally effective if challenged in court, and predict that the routine use of legal disclaimers on all messages will result in "overwarning," making the use of disclaimers ineffective. See article: "The Legal Position of E-Mail Disclaimers" by Simon Halberstam of Sprecher Grier Halberstam, London
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Written originally for the Illinois Institute of Continuing Legal Education and reprinted with permission. www.iicle.com
MAILTO: cunning@bzlaw.com
Website: http://www.bzlaw.com
Arbitration of securities Industry employment disputes in flux
By James J. Moylan, Arnstein & Lehr, Chicago
I. Introduction
In Gilmer v. Interstate Johnson Lane, 500 U.S. 20, (1991), the United States Supreme Court held that the securities broker-dealer's 62 year old manager's claim for age discrimination under Title VII's Age Discrimination in Employment Act of 1967 [29 U.S.C. 621 et seq.] ("ADEA") must be arbitrated. This is because when Mr. Gilmer became registered with Interstate Johnson Lane, a member firm of the New York Stock Exchange, Inc. ("NYSE"), he executed Form RE-3. This form, like its counterpart, Uniform Securities Industry Registration Form, Form U-4, contained an arbitration clause which requires the arbitration or any dispute between an employee and the employing brokerage firm:
Form R-3 no longer has an arbitration clause. However, Form U-4 still does and it provides:
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 indicated in Item 10 as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.
The U.S. Supreme Court expressly held that statutory claims may be the subject to an arbitration agreement enforceable under the Federal Arbitration Act. [9 U.S.C. 1 et seq] See, Gilmer, 500 U.S., at 25.
Four recent federal appeals court decisions now cast doubt on the universal application of Gilmer to statutory employment claims in the securities business. In addition, NASD Regulation, Inc. ("NASD") and the NYSE [collectively, securities industry self-regulatory organizations ("SRO's")], the two primary forums where securities industry personnel have the vast majority of their employment claims arbitrated, have submitted rule changes to the Securities and Exchange Commission ("SEC"), to remove themselves from the mandatory employment dispute arbitration business.
This article will identify and discuss those recent federal appellate decisions regarding securities employment cases subsequent to Gilmeri and the SRO's rule changes.
II. The cases
A. Duffield v. Robertson Stephens & Co.
In Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998), cert. den. ___ U.S. ___, 119 S.Ct. 4465 (1998), the Ninth Circuit held that the 1991Civil Rights Act [42 U.S.C. 2000 et seq] ("CRA") precluded arbitration of statutory sex discrimination and harassment claims.
When Tonya Duffield became employed by Robertson, Stephens & Co., she executed Form U-4, as a condition of the her employment in the securities industry. The court characterized the pertinent arbitration provisions of Form U-4, "...to waive her right to a judicial forum to resolve all "employment related' disputes and to agree instead to arbitrate any such disputes under the exchanges' rules." 144 F.3d 1182, at 1185.
In January 1995, Ms. Duffield filed suit in federal district court alleging sex discrimination and sexual harassment in violation of the CRA, a California state employment statute, and various common law claims including breach of contract and intentional infliction of emotional distress.
Ms. Duffield initially sought a declaratory judgment that the compulsory arbitration provisions of Form U-4 are unenforceable. The district court denied Duffield's motion for summary judgment and granted the brokerage firm's motion to compel arbitration. Then, both orders were certified for immediate appeal.
The Ninth Circuit, in a radical departure from its sister Circuits, and U.S. Supreme Court precedent, held that under the CRA, employers cannot compel individuals to waive Title VII rights to a judicial forum by use of pre-printed arbitration clauses in registration forms required for certain types of employment. See, 144 F.3d 1182, at 1202. The Ninth Circuit went on to add that there was nothing to preclude employers from enforcing arbitration of claims not involving federal or state statutory discrimination claims. Id.
No other federal appellate court has agreed with the Ninth Circuit's analysis of the CRA.2
B. Seus v. John Nuveen & Co., Inc.
Seus v. John Nuveen & Co., Inc., 146 F..3d 175 (3rd Cir. 1998), involved claims of discrimination under Title VII of the ADEA, the CRA and the Older Workers Benefit Protection Act of 1990 [29 U.S.C. § 626] ("OWBPA"), which had not been enacted at the time Ms. Seus suffered the discriminatory conduct over which she sued. Further, the Third Circuit decided that OWBPA was enacted to protect against waiver of substantive rights under the ADEA. See, 146 F.3d 175, at 181 (citations omitted). The OWBPA was designed to protect claims, not the waiver of a judicial forum. Id. The Third Circuit decided that there was no Congressional intent to except pre-dispute arbitration agreements involving ADEA claims from the arbitration forum. Id.
In all, the Third Circuit in Sues followed Gilmer, permitting pre-dispute agreements to arbitrate Title VII claims, consistent with the holdings of the Fifth, Sixth, Ninth, 10th and 11th Circuits.3
C. Rosenberg v. Merrill Lynch Pierce Fenner & Smith, Inc.
In Rosenberg v. Merrill Lynch Pierce Fenner & Smith, Inc., 163 F.3d 53, 1998 U.S. LEXIS 32522 (1st Cir. 1998) vacated 170 F.3d 1, 1999 U.S. LEXIS 7793 (1st Cir. Feb. 24, 1999), the First Circuit followed the majority rule with respect to the mandatory arbitration of discrimination claims pursuant to Form U-4, but with a twist.
Rosenberg was a former registered employee of Merrill Lynch. She brought age and gender discrimination claims under the CRA and Title VII. Merrill Lynch filed a motion to compel arbitration. Merrill Lynch's motion was denied; but not for the Ninth Circuit's reasoning. The First Circuit held that before an employee can be compelled to arbitrate claims, even under the broad provisions of Form U-4, the employer must expressly tell the employee that as a condition of employment, access to a judicial forum to resolve disputes is waived. 1998 U.S. App. LEXIS 32522, at 54.
Subsequently, Rosenberg was vacated on denial of a motion for re-hearing in light of Merrill Lynch's settlement of a class action case involving the arbitration of discrimination complaints.4 See, IV. infra.
D. Kovelskie v. SBC Capital Markets
The final case in this line, arises in our Seventh Circuit, Kovelskie v. SBC Capital Markets, 167 F.3d 361, 1999 U.S. App. LEXIS (7th Cir., February 4, 1999), cert den, ___ U.S. ___, ___ S.Ct. ___, 68 U.S.L.W. 3192 (October 5, 1999).
Ms. Kovelski was employed at SBC from 1986-1996. She resigned, claiming constructive discharge. She filed a Title VIII action which SBC met with a motion to dismiss and to compel arbitration based upon the arbitration clause in Form U-4. The Seventh Circuit discussed Gilmer, Rosenberg, Duffield and Seus in rejecting all of Kovelskie's attacks on the Form U-4 arbitration clause and held that Title VII claims can be subject to mandatory arbitration clauses and such contracts are enforceable.
III. SRO rule making
A. NASD
While this recent round of securities industry employment litigation was making its' way through the federal courts, the NASD adopted Code of Arbitration Rule 10201(b), which was approved by the SEC. It provides that NASD member firms may enter into private agreements with their employees to arbitrate discrimination claims, but can no longer require mandatory arbitration of discrimination claims based upon the Form U-4 arbitration clause. See, Securities Exchange Act of 1934, Release No. 34-40109 (SEC June 22, 1998) 63 F.R. 35299 (June 29, 1998). See also, NASD rules 10202, 10210, 12011-12016, and 3080, relating to the special rules and procedures governing arbitration of employment discrimination claims. SR-NASD 99-08 (SEC October 27, 1999).
B. NYSE
The amendment to the NYSE arbitration rules eliminates arbitration of discrimination claims in its forum, unless the parties specifically elect the NYSE arbitration forum to hear and determine the claim, after it has arisen. See, Securities Exchange Act of 1934, Release No. 34-40858 (SEC December 29, 1998). See also, Nelson, "Re-Evaluating the Arbitration of Employment Discrimination Disputes," 41 Securities Arbitration Commentator, No. 2 (November, 1999) containing NASD statistical information, suggesting that the arbitration of securities employee discrimination claims remains consistent at historical levels.
IV. Settlements
This article would not be complete if it did not mention the settlement of two class action suits brought by securities brokerage firm's employees alleging discrimination claims and their relationship to the securities arbitration forums.