Since Concepcion, the plaintiffs’ bar has been exhorting courts to recognize exceptions to its holding that courts may not refuse to enforce an arbitration agreement on the ground that it precludes class actions. In the employment context, the plaintiffs’ bar thought that it had a winner with Chen-Oster v. Goldman Sachs, in which a magistrate judge concluded (and a district court agreed) that Title VII bars enforcement of such agreements when the named plaintiff seeks to rely on “pattern-or-practice” evidence of discrimination. Last week, however, the Second Circuit reversed Chen-Oster and closed the loophole in Parisi v. Goldman, Sachs & Co. (pdf).
The Second Circuit explained that the lower court had erroneously assumed that Title VII authorizes private plaintiffs to bring “pattern-or-practice” claims. In fact, the Second Circuit held, a “right to bring a substantive ‘pattern-or-practice’ claim” “does not exist.” That is because the term “‘pattern-or-practice’ simply refers to a method of proof and does not constitute a ‘freestanding cause of action.’” In other words, “[a] pattern or practice case . . . is really merely another method by which disparate treatment” in violation of Title VII “can be shown.”
The Second Circuit recognized that a number of decisions appear to preclude private plaintiffs (though not the government) from seeking to hold companies liable for a “regular procedure or policy” of discrimination (in other words, a “pattern or practice” of discrimination) except in the context of a class action. But the Second Circuit rejected the notion that the class device could be used to create a new substantive right. Significantly, the court pointed to the Rules Enabling Act, which provides that the Federal Rules of Civil Procedure—including Rule 23—cannot be used to abridge, modify, or enlarge substantive rights. Stated another way, “[t]he 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.” (For a more detailed analysis of this issue, see Karp v. Cigna Healthcare (D. Mass.))
In short, because there is no right to bring a pattern-or-practice claim, the Second Circuit held that the arbitration agreement’s waiver of class procedures did not eliminate any of the plaintiff’s substantive rights. Moreover, the court recognized that nothing in the arbitration agreement precluded a plaintiff in an individual arbitration from “offer[ing] to the arbitrators evidence of discriminatory patterns, practices, or policies . . . that she contends affects her.”
The decision in Parisi should be very beneficial to employers who may be subject to suit within the Second Circuit; it should close the door on efforts by plaintiffs’ lawyers to avoid their clients’ arbitration agreements by arguing that pattern-or-practice evidence may be presented only in class actions in court. The decision also is helpful to class-action defendants more broadly. By recognizing that the Rules Enabling Act—which is rooted in considerations of due process—forbids interpreting Rule 23 to expand or alter individual substantive rights, the decision provides further ammunition to companies resisting arguments by plaintiffs that the standards of proof or elements of a cause of action should be relaxed or ignored in the context of a class action.