Pezza v. Investors Capital Corp.
2011 U.S. Dist. LEXIS 20038, 767 F. Supp. 2d 225, 31 I.E.R. Cas. (BNA) 1694 (2011)
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Rule of Law:
A new statute that invalidates pre-dispute arbitration agreements for a specific type of claim is considered jurisdictional, not substantive, and can be applied retroactively to cases pending at the time of its enactment because it only changes the forum for the dispute, not the parties' underlying rights and obligations.
Facts:
- Plaintiff and Defendants entered into an employment agreement that contained a mandatory pre-dispute arbitration clause.
- Plaintiff raised concerns regarding alleged misconduct by the Defendants in connection with securities transactions.
- Plaintiff claims he was subsequently wrongfully retaliated against for raising these concerns.
- After the plaintiff's dispute with his employer arose, Congress enacted the Dodd-Frank Act, which included Section 922, a provision making pre-dispute arbitration agreements for Sarbanes-Oxley whistleblower claims unenforceable.
Procedural Posture:
- Plaintiff first complied with the administrative claims process before the Department of Labor’s Occupational Safety and Health Administration.
- On January 26, 2010, Plaintiff sued Defendants in the U.S. District Court for the District of Massachusetts (a federal trial court), alleging retaliation in violation of the Sarbanes-Oxley Act.
- Defendants answered the complaint, raising the arbitration clause as an affirmative defense, and filed a motion to compel arbitration and stay or dismiss the court case.
- While the defendants' motion to compel arbitration was under advisement by the court, the Dodd-Frank Act was enacted on July 21, 2010.
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Issue:
Does Section 922 of the Dodd-Frank Act, which invalidates pre-dispute arbitration agreements for Sarbanes-Oxley whistleblower claims, apply retroactively to an agreement signed and a lawsuit filed before the Act's enactment?
Opinions:
Majority - Woodlock, District Judge
Yes. Section 922 of the Dodd-Frank Act applies retroactively to invalidate the pre-dispute arbitration agreement. The court applies the Supreme Court's retroactivity framework from Landgraf and finds that while Congress did not expressly state its intent for Section 922 to apply retroactively, applying the statute does not have an impermissible retroactive effect. The court characterizes the statute as jurisdictional rather than substantive, reasoning that it does not alter the parties' underlying rights or liabilities. Instead, it merely changes the tribunal—from an arbitration panel to a court—that will hear the case. Because a party does not forgo substantive statutory rights by agreeing to arbitration, a law that voids such an agreement is procedural and can be applied to pending cases.
Analysis:
This decision interprets the retroactivity of a key provision of the Dodd-Frank Act, concluding that forum-selection rules, such as bans on arbitration, are procedural and not substantive. It establishes that the Act's protections for Sarbanes-Oxley whistleblowers can apply to disputes arising from agreements that pre-date the statute. This ruling strengthens whistleblower protections by ensuring immediate access to a judicial forum, potentially impacting the enforcement of thousands of pre-existing employment contracts that mandated arbitration for such claims.
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