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An employer who fought to compel arbitration of a discrimination claim is back in a New Jersey federal court trying to vacate the arbitrators’ award of $1 million in punitive damages, contending that the panel had no power to revise its earlier denial of punitive damages notwithstanding an intervening change in the law. Vincent Cino, the employer’s attorney, cites the doctrine of functus officio (“task performed”), which he says strips arbitrators of authority to reconsider an issue once they have decided it. The doctrine is generally accepted in arbitration law, says Cino, a partner in the Morristown, N.J., firm of Jackson Lewis Schnitzler & Krupman. But Neil Mullin, a partner with Montclair, N.J.’s Smith Mullin, who represents plaintiff Michele Peacock, says that Cino — after having insisted that arbitration was as good a forum as the courts for resolving this dispute — is now raising an artifice to deprive his client of the reconsideration relief that a court could provide. Cino, who represents defendants Great Western Mortgage Corp. and Alice Morris in Peacock v. Great Western Mortgage, 00-5451, filed a motion for summary judgment last week, asking U.S. District Judge Nicholas Politan to set aside the punitive damages portion of the award, which also assessed $608,812 in compensatory damages. It was Politan who ordered arbitration of the dispute. His April 9, 1996, ruling granted Great Western’s motion to compel arbitration and stayed the Morris County Superior Court action filed by Peacock in November 1995 for sexual harassment under the Law Against Discrimination. Peacock appealed Politan’s decision, but a 3rd U.S. Circuit Court of Appeal panel consisting of Circuit Judges Walter Stapleton, Jane Roth and Leonard Garth affirmed on April 3, 1997. The parties agreed to bifurcate liability and damages, and the arbitration panel issued an interim award on Nov. 2, 1999, finding Great Western liable for compensatory but not punitive damages. The panel found punitive damages were not warranted because Morris, an assistant vice president and district loan manager who ran the Livingston branch office where Peacock worked, did not qualify as upper management so as to subject Great Western to punitive damages under Lehmann v. Toys ‘R’ Us, 132 N.J. 587 (1993). The arbitrators’ second interim award issued on Oct. 10, 2000, is the target of the summary judgment motion. That award reversed the first ruling on punitive damages based on the decision by the New Jersey Supreme Court in Cavuoti v. New Jersey Transit Corp., 161 N.J. 107 (1999). Cavuoti, which clarified who can be regarded as “upper management” for the purpose of awarding punitive damages in employment discrimination cases, was issued on Aug. 10, 1999, after the parties had presented their arguments on liability but before issuance of the first interim award in Peacock. The second interim award acknowledges that the panel was unaware of Cavuoti when it rendered the first award and “relied for our initial Conclusions of Law under [the LAD] as we incorrectly believed the case law to be at the time of our deliberations.” The second award expressly amends the first award to find that “Morris in fact comes within [ Cavuoti's] definition of ‘upper management.’” Cino argues that, under the Federal Arbitration Act, Mullin had 90 days from the first award, or until February 2000, to challenge the original finding against punitive damages and that Mullin waived any challenge by not raising Cavuoti until August 2000 during oral argument on damages. According to Cino, the agreement to bifurcate also means that the panel could not address liability issues in the damages portion of the arbitration. A panel “can go back and correct a mathematical error” but is not free to go back and make changes, he says. Some case law goes so far as to hold that even mistakes of law or fact cannot be altered. The panel’s overreaching provides grounds for Politan to vacate the award of punitive damages under sec. 10(a)(4) of the Federal Arbitration Act, says Cino. Great Western also argues that whether or not Morris fits within “upper management” under Cavuoti, the panel did not find sufficient culpability for punitive damages, which require active participation or willful indifference, while the first award found the defendants’ conduct merely “negligent” or “passive.” The first award found that Morris failed to take any action to protect Peacock from the repeated sexual advances made by fellow mortgage loan consultant William Belott, even though Peacock complained to Morris on several occasions. The hostile environment created by Belott and Morris caused Peacock to take a psychiatric leave in early 1995, during which she was terminated. In addition to finding no punitive damages because Morris was not upper management, the first award also found Morris not individually liable because “‘[m]ere inaction, passivity or acquiescence do not in our view rise to the level of aiding and abetting,’” citing Tyson v. Cigna Corp., 918 F. Supp. 836 (D.N.J. 1996), aff’d without op., 149 F.3d 1165 (3d Cir. 1998). Great Western also argues that “fundamental fairness” requires vacating of the award. Cino recalls that during the damages phase, whenever he tried to raise liability issues, Mullin would object that liability had been decided and the panel would cut Cino off. The lack of notice by the panel that it intended to revisit punitive damages, coupled with its refusal to hear evidence on the issue, was “shocking” misconduct “which violated a basic tenet that parties must have a full opportunity to present their cases,” argues Great Western. The return date on the motion is Feb. 13, and Mullin has not yet filed opposing papers. He says, however, that arbitrators Barbara Zausner, John Sands and Robert Goodman expressly rejected Great Western’s functus officio argument. Both awards are designated interim awards, he notes. The 90-day period for modification applies only to final arbitral awards and no final award has yet been issued or will issue until he submits his request for fees and interest, Mullin says. Mullin did not await a final award but filed the action to confirm the second interim award on Oct. 27 because the case has dragged on for years, he says. Peacock first filed her LAD claim in November 1995. The issue of fairness also cuts more strongly in his favor, asserts Mullin. The defendants “forced me to arbitrate against my will,” says Mullin, and “all along they were telling the 3rd Circuit and the District Court that arbitration is every bit as good as litigation.” “If I was in a court of law, I would have been entitled to make a motion for reconsideration” in light of Cavuoti, says Mullin, saying such motions are “done every day in the courts.” “Defendants want the best of both worlds,” Mullin accuses. “They want to strip me of jury trial and obtain plenary review in a court of law.” The only ground to appeal should be if the arbitrators committed fraud, says Mullin. “It is almost impossible to overturn an arbitration award.” However Politan rules in Peacock, the larger question of whether the courts will continue to enforce arbitration clauses in discrimination cases is an open question these days. The U.S. Supreme Court granted certiorari on the issue in Circuit City Stores Inc. v. Saint Clair Adams, No. 99-1379, and on Nov. 6 heard oral argument. Attorneys general for 21 states, including New Jersey, submitted an amicus brief in the case on Sept. 19, opposing mandatory arbitration of employment discrimination claims under the Federal Arbitration Act. They contend “such an interpretation will necessarily preempt a significant body of state law intended to protect workers’ rights and to promote the public policy of eliminating invidious employment discrimination.” New Jersey’s highest court also will soon address the same question. On Dec. 5, it granted certification in Garfinkel v. Morristown Obstetrics & Gynecological Associates, P.A., C-410. In that case, a doctor, who was assisted by a lawyer when he agreed to an arbitration clause in his employment contract, claimed that female doctors fired him because of his gender. An appeals court affirmed the dismissal of the complaint and ordered arbitration of the claims. It ruled that the contract was the product of efforts by professionals of equal bargaining power and that it was broad enough to encompass the LAD claim.

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