Ward v. Ernst & Young U.S. LLP

Background

Karen Ward brought arbitration claims against Ernst & Young U.S. LLP for alleged discrimination and retaliation under Title VII of the Civil Rights Act of 1964 and the New York City Human Rights Law. She also asserted defamation in her arbitration demand. The parties’ Agreement of Partners and Principals required disputes to proceed first through mediation and then through binding arbitration.

The agreement included a delegation clause stating that the arbitrators would resolve questions about the scope, formation, interpretation, and enforceability of the arbitration provisions, including whether any part of the agreement was void or voidable. It also stated that arbitration fees would be allocated in a way that preserved the enforceability of the arbitration provisions.

During the arbitration, Ward asked the panel to require Ernst & Young to pay arbitration costs above $400. She argued that requiring her to pay those costs would prevent her from effectively pursuing her statutory claims. On March 4, 2019, the panel ordered that the fees be split equally between the parties pending a later order on allocation. The panel said Ward had not shown the likely amount of her fees or her inability to pay them.

Ward then filed this federal action seeking a declaration that the arbitration agreement was unenforceable because of the fee-allocation order. Ernst & Young moved to compel arbitration and to stay the federal case under Sections 3 and 4 of the Federal Arbitration Act.

Court’s analysis

The court held that Ward’s challenge had to be decided by the arbitration panel. The court applied the Supreme Court’s decision in Rent-A-Center, which distinguishes between a challenge directed specifically at a delegation clause and a challenge to the arbitration agreement as a whole. Ward challenged the agreement as a whole, rather than the delegation clause itself. Because the delegation clause plainly assigned enforceability questions to the arbitrators, the court compelled arbitration of Ward’s challenge.

The court separately held that it could not review the panel’s March 4, 2019 fee-allocation order at that stage. Under the Federal Arbitration Act, a district court generally cannot review an interim arbitration ruling that does not finally resolve the submitted issues. The panel had expressly stated that it could revisit the fee allocation, so the order was not final.

The court also held that Ward’s action was untimely to the extent it sought to vacate the panel’s order. The Federal Arbitration Act requires a challenge to an arbitration award to be served within three months after the award is delivered. The court calculated that Ward’s deadline was June 4, 2019, but she filed this action on July 17, 2019. The court rejected her argument that the deadline began when she received the later fee bill on July 10, 2019.

For completeness, the court stated that even a successful effective-vindication challenge would not invalidate the entire arbitration agreement. The court explained that the agreement’s fee-allocation and severability provisions would permit an improper provision or order to be severed, leaving the remaining agreement in effect.

Disposition

Judge John G. Koeltl granted Ernst & Young’s motion to compel arbitration and its motion to stay proceedings in the federal court. The Clerk was directed to stay the case and close Docket No. 19. The court did not decide the merits of Ward’s underlying discrimination, retaliation, or defamation claims.