Rollag v. Cowen Inc.

Background

Kevin Rollag sued Cowen Inc., Cowen and Company, LLC, Gavin O’Reilly, and Scott Lemone. He alleged discrimination and retaliation under the Family and Medical Leave Act, retaliation under Section 806 of the Sarbanes-Oxley Act, and violations of the New York State Human Rights Law. Rollag alleged that he raised concerns about the inclusion of an investor in a financing deal, experienced negative treatment and reduced compensation, took parental leave after his wife’s hospitalization and early delivery, was removed from new deals, and was terminated in June 2020.

When Rollag joined Cowen, he signed an offer letter and employment terms containing arbitration provisions. He also signed two compensation agreements containing arbitration provisions. Those provisions covered disputes arising from his employment and included statutory discrimination, harassment, and retaliation claims. They excluded claims arising under Sarbanes-Oxley. The agreements provided for arbitration through the Financial Industry Regulatory Authority, or, if Rollag was not subject to its jurisdiction, through the American Arbitration Association.

Issues and Arguments

The defendants moved to compel arbitration of all claims except the Sarbanes-Oxley claim and to stay the case. The parties agreed that the agreements purported to require arbitration of the Family and Medical Leave Act and New York-law claims. They disputed whether New York Civil Practice Law and Rules § 7515, which prohibits contractual mandatory arbitration of discrimination claims, invalidated those provisions. They also disputed whether the court or an arbitrator should decide that threshold question.

Court’s Analysis

The court first held that it should decide arbitrability, meaning whether the claims must be sent to arbitration. Under the Federal Arbitration Act, courts generally decide that question unless the agreement clearly and unmistakably delegates it to an arbitrator. The court found that the agreements’ references to Financial Industry Regulatory Authority rules did not clearly delegate the particular issue presented here. The relevant Financial Industry Regulatory Authority rule addressed interpretation and application of that organization’s rules, while the dispute concerned whether New York law applied to the agreements. The American Arbitration Association rules did not provide a basis for delegation because they applied only if Rollag was not registered with or subject to the Financial Industry Regulatory Authority, and the evidence showed that he was registered.

The court then held that the Federal Arbitration Act displaced New York Civil Practice Law and Rules § 7515 in this case. The court treated § 7515 as a state-law prohibition on arbitration of a particular type of claim, rather than as a generally applicable contract defense. Because the agreements were covered by the Federal Arbitration Act, the court concluded that the federal law prevailed over the state-law prohibition. The court assumed, without deciding, that § 7515 otherwise applied to the arbitration provisions.

The court rejected Rollag’s arguments that the agreements’ New York choice-of-law provision and their exclusion of claims prohibited by law from arbitration required application of § 7515. The court noted that the agreements also expressly stated that the arbitration provisions covered statutory discrimination, harassment, and retaliation claims. It further concluded that the parties could not use a choice-of-law provision to avoid the Federal Arbitration Act’s displacement of state laws that prohibit arbitration of particular categories of claims.

Disposition

The court granted the defendants’ motion to compel arbitration. It determined that the arbitration provisions covered Rollag’s claims under the Family and Medical Leave Act and the New York State Human Rights Law. Under the Federal Arbitration Act, the court stayed those claims pending arbitration. The court did not decide whether Rollag’s nonarbitrable Sarbanes-Oxley claim should proceed during the arbitration or be stayed. It ordered the parties to submit a joint letter by March 17, 2021, stating whether Rollag intended to arbitrate the referred claims and addressing whether the Sarbanes-Oxley claim should be stayed.