## Facts

- Alicia DeGaetano, a former Smith Barney employee, alleged sexual harassment by supervisor Frederick Hessler and asserted Title VII, state, and city discrimination claims, plus intentional infliction of emotional distress against Hessler.
- When hired (July 1993), DeGaetano signed an employment agreement requiring arbitration under an internal arbitration policy tied to NYSE rules.
- The arbitration policy included a fee-allocation term requiring each party to bear its own attorney’s fees and expenses.
- The court previously compelled arbitration of DeGaetano’s claims pursuant to the agreement.
- In arbitration, DeGaetano requested attorney’s fees as a prevailing Title VII claimant.
- The NYSE arbitration panel awarded DeGaetano $90,355 jointly and severally against Smith Barney and Hessler but did not award attorney’s fees.
- DeGaetano moved in federal court to modify or correct the award to include attorney’s fees.

## Issues

1. Whether the arbitrators’ refusal to award attorney’s fees to a prevailing Title VII plaintiff who requested fees constituted manifest disregard of clearly applicable law, justifying judicial modification of the award.
2. Whether an employment arbitration agreement term requiring each side to pay its own attorney’s fees can be enforced to defeat Title VII’s fee-shifting scheme.

## Decision

- The court granted DeGaetano’s motion to modify/correct the arbitration award to include attorney’s fees.
- The court held DeGaetano was a prevailing Title VII plaintiff and was presumptively entitled to reasonable attorney’s fees absent special circumstances.
- The court held the arbitrators’ failure to award fees, despite an express request and clear governing law, amounted to manifest disregard of the law.
- The court held the agreement’s “each party pays its own fees” provision was unenforceable to the extent it conflicted with Title VII’s fee-shifting remedy.
- The court limited relief to correcting the fee omission without disturbing the arbitration panel’s liability and damages determinations.

## Legal Principles

- Under Title VII (42 U.S.C. § 2000e-5(k)), prevailing plaintiffs ordinarily should receive reasonable attorney’s fees absent special circumstances.
- Judicial review of arbitral awards permits modification or vacatur for manifest disregard of the law where the governing rule is well-defined and clearly applicable, the arbitrators knew it, and they intentionally ignored it.
- Although Title VII claims may be subject to pre-dispute arbitration agreements, contractual terms cannot require employees to waive substantive statutory remedies, including fee-shifting designed to enforce civil-rights protections.
- A fee-allocation clause that effectively nullifies a prevailing Title VII plaintiff’s statutory entitlement to seek attorney’s fees is unenforceable as applied to that claim.

## Conclusion

The court modified the arbitration award to add attorney’s fees, concluding that Title VII’s fee-shifting remedy could not be eliminated by contract and that the arbitrators’ denial of fees to a prevailing plaintiff who requested them reflected manifest disregard of controlling law.


DeGaetano v. Smith Barney, Inc., 983 F. Supp. 459 (S.D.N.Y. 1997)