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A party's participation in a now-dismissed National Association of Securities Dealers (NASD) arbitration proceeding does not preclude that party from later litigating his statutory employment discrimination counterclaims, according to an Ohio state appellate court.
In Cercone v. Merrill Lynch, Pierce, Fenner & Smith, No. 89561, 2008 WL 3870657, (Ohio Ct. App. Aug. 21, 2008), Cercone was hired by Merrill Lynch as a financial advisor. As part of Cercone's compensation, Merrill Lynch provided him with a "forgivable loan" of nearly $1,000,000 that did not have to be repaid if Cercone remained employed for at least five years. The contract did require immediate repayment should Cercone be fired for cause.
About two years later, Merrill Lynch terminated Cercone, alleging that he sexually harassed co-workers. Merrill Lynch filed a demand for arbitration with the NASD. Cercone maintained that Merrill Lynch terminated him because of Attention Deficit Hyperactivity Disorder. He counterclaimed for employment discrimination and wrongful termination.
Eventually, the parties notified the NASD that they had settled, and the NASD dismissed the proceeding without prejudice. After the parties were unable to structure the settlement, Cercone sued for discrimination and wrongful termination. Merrill Lynch moved to compel arbitration before the NASD as specified in the parties' U-4 agreement. The trial court dismissed Cercone's claims and compelled arbitration.
On appeal, the Court observed that the U-4 agreement and the governing NASD rules did not require Cercone to bring his employment discrimination to arbitration. Instead, the rules gave Cercone "the option of bringing statutory discrimination claims in court in lieu of arbitration." See NASD Rule 10201(b) (superseded by similar language in NASD Rule 13201 for statutory employment discrimination claims filed on or after April 16, 2007).
Furthermore, the Court found that Cercone's counterclaim at the first arbitration proceeding did not of itself constitute a post-dispute agreement to arbitrate under Rule 10201(b). Cercone only submitted an agreement to arbitrate "the present matter in controversy – Merrill Lynch's attempted collection of the loan balance – by signing the submission agreement." The Court found this demonstrated Cercone's consent to arbitration only in that first proceeding. The Court also noted that the NASD treated a re-filed claim as a new claim, further buttressing Cercone's argument.
Finally, the Court found Cercone had not waived the right to litigate his employment discrimination claims by participating in the first arbitration proceedings. According to the Court, the cases cited by Merrill Lynch to support its waiver argument were clearly distinguishable and concerned situations where arbitration was still pending when litigation was invoked, not those where the arbitration proceedings were already dismissed.
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