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A Manhattan federal judge has ruled that a former employee of Credit Suisse First Boston is bound by an employment agreement and cannot seek arbitration of an employment dispute before the New York Stock Exchange. Southern District Judge Sidney H. Stein’s decision, issued Tuesday, differs sharply from that reached by a state appeals court last fall. The Appellate Division, 1st Department, ruled then that the exchange’s rules took precedence over the bank’s employment dispute resolution program (EDRP), which specified that disputes would be submitted to any of three private arbitration groups. In CSFB v. Gonzalez, 04-4044, Judge Stein said NYSE rules did not force NYSE-registered employees to seek arbitration within the exchange and thus did not trigger an exception in the bank’s arbitration agreement. “The parties agreed to arbitrate pursuant to the EDRP unless ‘legally required’ to arbitrate elsewhere,” the judge wrote, “because neither party’s circumstance met the EDRP exception, Gonzalez may not pursue his claims in the exchange.” Jorge David Gonzalez Padilla joined New York-based Credit Suisse First Boston in 2000 as a bond and derivatives salesman in the financial services firm’s Mexico City office. Upon joining the office, Gonzalez signed the arbitration agreement. He was also a registered representative of the NYSE, which required him to sign a Form U-4, which provided for the arbitration under exchange rules of any employment-related disputes. Gonzalez and another Mexico City employee, Francisco Isaac Cueto Salmona, both resigned from the bank in March 2003 and sought arbitration in Mexico on claims that the firm had improperly reduced their compensation and defamed them. In February 2004, the pair also sought to initiate proceedings against their former employer before the NYSE’s Department of Arbitration, though only Gonzalez was a registered representative. Afterwards, the bank initiated proceedings before JAMS arbitration services in accordance with the agreement. The bank brought the action in the Southern District seeking an order compelling Gonzalez to arbitrate his claims before JAMS and compelling Cueto to confine his claims to arbitrators in Mexico. Gonzalez had argued that he was legally required by Form U-4 to seek arbitration before the exchange. Stein found, however, that NYSE Rule 347 requires NYSE arbitration only when one of the parties initiates such a proceeding. By signing on for the bank’s program, the judge said, Gonzalez had agreed not to initiate such a proceeding. “Because Gonzalez explicitly agreed not to demand arbitration before the Exchange unless he were legally required to do so, his very act of seeking arbitration before the Exchange despite being free of any legal requirement to do so was in the first place a violation of the EDRP and nothing more than an attempt to bootstrap his way into meeting the ‘legally required’ exception to the EDRP,” the judge wrote. Stein ordered Gonzalez to participate in the JAMS arbitration and directed Cueto to arbitrate his claims in Mexico. STATE COURT RULING In CSFB v. Pitofsky, 1580, a state appellate court in Manhattan reached a differing conclusion in November. In a decision written by Justice Milton Williams, a unanimous panel ruled that employment agreements cannot supersede Form U-4. “Essentially, the obligation here to arbitrate in the NYSE forum is imposed on each party due to its affiliation with and assent to the rules of the NYSE,” the court said. James A. Batson of Liddle & Robinson represented Gonzalez and Cueto. He said he intended to appeal Stein’s decision. “I’m disappointed in the result,” he said. “I really feel the ruling in Pitofsky is the right one.” Batson said he found it “curious” that Wall Street firms like Credit Suisse were fighting so hard to keep such employment cases out of NYSE arbitration after fighting for it when the alternative was the courtroom. He said he suspected they were seeking friendlier forums because firms like his had started winning substantial cases in NYSE arbitrations. He said arbitrators at the exchange and the National Association of Securities Dealers, who also have disciplinary and enforcement capabilities, have become tougher recently in seeking discovery and compelling witness testimony from Wall Street firms. He said it remained to be seen whether JAMS and other groups would command similar deference. CSFB was represented by Kevin Reed of the New York office of Quinn Emanuel Urquhart Oliver & Hedges. Reed declined to comment on the matter.

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