Brown, Ronald L. v. Wheat First Sec

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 13, 2001 Decided July 31, 2001

No. 00-7171

Ronald L. Brown,

Appellant/Cross-Appellee

v.

Wheat First Securities, Inc., et al.,

Appellees/Cross-Appellants

Consolidated with

00-7173

Appeals from the United States District Court

for the District of Columbia

(No. 99cv01776)

Stephen M. Kohn argued the cause for appellant/cross-

appellee. With him on the briefs were Michael D. Kohn and

David K. Colapinto.

Paul Gonson argued the cause for appellees/cross-

appellants. With him on the briefs were Stephen G. Topetzes

and Rebecca L. Kline. Teri L. Nelson entered an appear-

ance.

Before: Williams, Ginsburg and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Williams.

Williams, Circuit Judge: In Cole v. Burns International

Security Services, 105 F.3d 1465 (D.C. Cir. 1997), we held

that an employee who agrees to arbitration of disputes as a

condition of employment and who makes a claim based on

federal statutory rights may not be charged certain fees and

expenses for arbitration of the claim, at least where that

condition of employment was demanded by an employer not

subject to regulatory oversight. See LaPrade v. Kidder,

Peabody & Co., Inc., 246 F.3d 702, 704 (D.C. Cir. 2001). This

case raises the issue whether Cole embraces or should be

extended to non-statutory state law claims that are grounded

in a "public policy rationale." We hold that the logic of Cole

does not reach so far.

* * *

Appellant Ronald Brown was employed by the Washington,

D.C. office of Wheat First Securities, a member of the

National Association of Securities Dealers ("NASD"), from

November 1991 until his termination with three days' notice

in February 1997. When Brown signed on with Wheat First,

he executed the NASD "Uniform Application for Securities

Industry Registration or Transfer," commonly known as

Form U-4, which includes a mandatory arbitration clause.

In February 1998 Brown filed a claim under his arbitration

agreement seeking $25,000,000 in damages for alleged wrong-

ful termination, breach of implied contract, defamation, slan-

der and tortious interference. In support of his wrongful

termination claim, he argued that the District of Columbia

courts have created a "whistleblower" exception to its

employment-at-will rule, and that Wheat First had fired him

for alerting the Securities and Exchange Commission to what

he perceived to be illegal activities occurring at Wheat First.

He paid a $500 non-refundable filing fee and a $1,500 hearing

deposit. He also signed a Uniform Submission Agreement,

agreeing to the arbitration of his claims under the NASD's

rules. On February 11, 1999 during a pre-trial conference,

the parties jointly requested a postponement of the final

hearing, then scheduled for March 1999. The panel imposed

an "adjournment fee" of $1,500 and assessed each party $750.

The final hearing was later rescheduled for September 13,

1999. But in April 1999 Brown filed an objection to the fee

assessment, arguing that because he was pursuing "public

law" claims, Cole prohibited any assignment of arbitration

fees to him. The NASD rejected this theory. On June 29

and 30, 1999, respectively, Brown filed a second objection

with the NASD and filed his claims in district court, for the

first time alleging a violation of the Civil Rights Act of 1871 in

addition to the claims previously brought to arbitration.

On September 7 the NASD denied Brown's second motion.

"Not willing to participate" in the arbitral proceedings,

Brown sought on September 10 to cancel the agreement to

arbitrate contained in Form U-4 and on September 12 to

have the arbitrators dismiss the claim without prejudice. On

September 13 his attorney appeared before the arbitration

panel to preserve objections, but didn't otherwise participate.

On November 9, 1999 the arbitration panel dismissed his

claims with prejudice and assessed him a fee of $6,365, which

included costs that under Cole are considered arbitrators'

fees. See Cole, 105 F.3d at 1484 n.15 (defining such fees).

Brown then filed a motion in the district court proceeding

to vacate the arbitration award; Wheat First responded with

a motion to confirm the award. The district court granted

the motion to confirm and denied Brown's motion to vacate,

concluding that Cole applies only to statutory claims. Brown

v. Wheat First Securities, Inc., 101 F. Supp. 2d 1, 2-5 (D.D.C.

2000). On the basis of a Wheat First motion filed prior to the

arbitrators' dismissal of Brown's claims, the district court also

ordered arbitration of the newly-raised Civil Rights Act

claims, but required that they be arbitrated on terms consis-

tent with Cole. Brown, 101 F. Supp. 2d at 7. Brown appeals

the district court's confirmation of the arbitrators' dismissal

and the denial of his motion to vacate. Id. at 5-7. Wheat

First cross appeals the compelled arbitration, arguing that

once the arbitration award was confirmed, the Civil Rights

Act claims were precluded.

* * *

Brown's principal claim of error rests on the assertion that

Cole applies to his truncated arbitration with Wheat First,

either by its own terms or because its logic must extend to

state common law claims that are rooted in "public policy."

We assume in Brown's favor that the Supreme Court's recent

decision in Green Tree Financial Corp. v. Randolph, 121

S. Ct. 513 (2000), finding that a party claiming that arbitra-

tion would be "prohibitively expensive" must at least show

"the likelihood of incurring such costs," id. at 522, leaves Cole

fully intact. We also assume in his favor that his whistle-

blower claim would qualify as an exception to the

employment-at-will doctrine under the principles of District of

Columbia Law elucidated in Carl v. Children's Hospital, 702

A.2d 159 (D.C. 1997). Nonetheless, both Brown's arguments

fail.

Cole involved claims of discrimination under Title VII of

the Civil Rights Act of 1964. Acknowledging that the Su-

preme Court in Gilmer v. Interstate/Johnson Lane Corp., 500

U.S. 20 (1991), had "made clear that, as a general rule,

statutory claims are fully subject to binding arbitration," Cole,

105 F.3d at 1478 (quoting Gilmer, 500 U.S. at 26), we also

noted that "Gilmer cannot be read as holding that an arbitra-

tion agreement is enforceable no matter what rights it waives

or what burdens it imposes," id. at 1482. The arbitration

agreement will be valid "so long as the prospective litigant

effectively may vindicate [his or her] statutory cause of action

in the arbitral forum." Id. at 1481 (quoting Gilmer, 500 U.S.

at 28 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614, 637 (1985))) (alteration in

original). As to fees, we found that "it would undermine

Congress's intent to prevent employees who are seeking to

vindicate statutory rights from gaining access to a judicial

forum and then require them to pay for the services of an

arbitrator when they would never be required to pay for a

judge in court." Cole, 105 F.3d at 1484. Accordingly we

interpreted the arbitration agreement as requiring the em-

ployer to pay the arbitrator's fees. See id. at 1485.

In arguing that Cole's holding extends to his non-statutory

claims, Brown relies exclusively on the fact that Cole on

occasion appears to use the phrases "public law" and "public

rights" interchangeably with "statutory law" and "statutory

rights." He contends that "public" carries a broader meaning

than "statutory" and that this broader meaning should be

given to the holding of the case. We think that Brown reads

too much into this potentially expansive language.

None of these terms has a sharply defined meaning. At

oral argument, for example, Brown offered a definition of

"public right" that he attributed (without specific citation) to

Black's Law Dictionary: "Enforcement of rights in cases

where the state is regarded as the subject of the right or the

object of the duty." The 7th edition offers a narrower

concept: "A right belonging to all citizens and usu. vested in

and exercised by a public office or political entity." Black's

Law Dictionary 1324 (7th ed. 1999). For public law, Black's

says: "The body of law dealing with the relations between

private individuals and the government, and with the struc-

ture and operation of the government itself; constitutional

law, criminal law, and administrative law taken together."

Id. at 1244 (7th ed. 1999). While totally different, both of

these published definitions have in common the feature that

they seem not to include the District of Columbia's whistle-

blowing doctrine.

Even more to the point, our opinion in Cole is limited at

vital points to statutory rights. For instance, when discuss-

ing the protections that Gilmer suggests are necessary, the

opinion refers only to the non-waivability of the substantive

protections of statutory rights and of access to a neutral

forum in which to enforce them. See Cole, 105 F.3d at 1482.

It nowhere mentions the waivability of or access to a forum to

enforce non-statutory "public law." The court framed the

issue as:

[C]an an employer condition employment on acceptance

of an arbitration agreement that requires the employee

to submit his or her statutory claims to arbitration and

then requires that employee to pay all or part of the

arbitrator's fees?

Id. at 1483 (emphasis added).

Further, in Gilmer the Supreme Court determined that

compulsory arbitration pursuant to an employment agree-

ment is not inconsistent with the Age Discrimination in

Employment Act, the federal statute in question there. Gil-

mer, 500 U.S. at 26-33. In Cole we defined our task as

resolving an "issue not raised by the agreement in Gilmer,"

105 F.3d at 1483, namely the fees issue. It would be quite a

contortion of Cole to find that it had addressed a far broader

subject than the case that it set out simply to refine. See

also LaPrade, 246 F.3d at 708 (assuming that arbitration

assessment of fees for arbitration of non-statutory claims

would not be subject to Cole).

We also see no basis for extending Cole. As we have

explained, our central rationale--respecting congressional in-

tent--does not extend beyond the statutory context. More-

over, by enacting the Federal Arbitration Act, Congress

"manifest[ed] a 'liberal federal policy favoring arbitration

agreements.' " Gilmer, 500 U.S. at 25 (quoting Moses H.

Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S.

1, 24 (1983)). The Act also pre-empted state restrictions on

the enforcement of arbitration agreements. See Allied-Bruce

Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 272 (1995);

Southland Corp. v. Keating, 465 U.S. 1, 10-16 (1984). Gil-

mer, as we've seen, framed the question as whether dispute

resolution under the FAA was consistent with the federal

right-creating statute in question. See also, e.g., Green Tree,

121 S. Ct. at 521 ("[W]e first ask whether the parties agreed

to submit their claims to arbitration, and then ask whether

Congress has evinced an intention to preclude a waiver of

judicial remedies for the statutory rights at issue.") (internal

citations omitted). For a common law claim under District of

Columbia law, any such inconsistency would be resolved in

favor of the only federal law involved, the FAA.

Brown repeatedly urges that the D.C. Court of Appeals

explicitly grounded its whistleblower exception in a "public

policy" rationale. If this criterion controls, it is hard to see

what falls outside it. All claims not based on contract--

including, for example, the defamation and tortious interfer-

ence claims that Brown asserted but does not link to his fees

theory--implement values that society has in one way or

another thought deserving. Even contract, although the

branch of law most dependent on and deferential to individual

choice, rests ultimately on social decisions to support fulfill-

ment of promises either as a good in itself or as an instru-

mental good, facilitating people's investment in projects that

depend on others' adherence to their promises. Further,

even if the exception identified by the D.C. court were

somehow special, it is inconsequential as a measure of Con-

gress's interest in the stated policy. While Congress has

enacted specific whistleblower protections, Brown never here

asserts that he falls within any of them.

Brown also nowhere asserts that D.C. law creates a Cole-

like requirement for its own common law "public policy"

causes of action. Perhaps this omission is because state

restrictions on arbitration are pre-empted by the Federal

Arbitration Act. See Allied-Bruce, 513 U.S. at 272. Conceiv-

ably the rule Brown proposes could arise as part of the

District of Columbia's law and yet escape pre-emption by

being classified as a limitation on the arbitration procedures,

rather than on the enforcement of agreements. See South-

land, 465 U.S. at 11 n.6. Because neither party raised this

issue, we need not address it.

Finally Brown asserts that because Congress in 1901

granted power to the D.C. courts to enforce the common law,

see Act of March 3, 1901, 31 Stat. 1189 (1899-1901), in the

District of Columbia "common law and statutory claims are

on the same footing." Obviously the District of Columbia's

possession of congressionally granted authority to create

common law does not turn all its doctrines into the equivalent

of federal statutes, anymore than the Constitution's preserva-

tion of state lawmaking authority turns all state laws into

federal constitutional law.

In short, the proposed extension of Cole would significantly

alter the terms of the Federal Arbitration Act, imposing a

serious procedural limit on a wide (but unpredictable) range

of arbitration claims, all without the slightest signal from

Congress.

* * *

Brown makes two secondary arguments that need not

detain us long. He argues, first, that even if he loses on the

Cole claim the arbitration ruling should be vacated because

the arbitrators lost jurisdiction when--in the middle of the

arbitration that he had initiated--he went to court with a

challenge to the arbitrability of his claims based on Cole.

This loses on a superfluity of grounds, the simplest of which

is that Brown's was a losing Cole claim.

Brown also asserts that the failure of one of the arbitrators

to timely disclose a tangential relationship to one of the

lawyers for Wheat First requires vacatur of the arbitration

award. The NASD rules require arbitrators to disclose past

or present relationships with any of the parties, counsel, or

witnesses. See NASD Code of Arbitration Procedure Rule

10312. A party then has ten days after the announcement of

the arbitrators to make a peremptory strike against one of

the arbitrators. See id. Rule 10311. Several months after

the initial disclosures but still months before the hearing, one

of the arbitrators disclosed that she was the account executive

of a discretionary brokerage account for a partner of the law

firm representing Wheat First in this matter, and that more

than 10 years earlier her firm had acted as investment banker

for corporate issuers using that firm (or a predecessor law

firm) as securities counsel.

Brown claims that this late disclosure deprived him of his

right to exercise his peremptory strike. But the cases cited

in support of this proposition all involved revelations made

after the award had been made, and are therefore inapplica-

ble here. See, e.g., Commonwealth Coatings Corp. v. Conti-

nental Casualty Co., 393 U.S. 145 (1968). Brown fails to

show that he requested an extension of the time available to

use his peremptory strike. Nor does he show that he used

his peremptory against another arbitrator, which would at

least explain a belief (which he nowhere asserts) that he had

no peremptory left. His only written communication on the

matter (Brown claims verbal objections that are in the record

only to the extent his letter and the NASD response make

reference to them) requested only removal for cause. The

NASD rejected this request, and Brown fails to even allege

here that the connections disclosed would justify removal for

cause.

* * *

Wheat First argues on cross appeal that Brown's Civil

Rights Act claim--which first appeared in a district court

complaint filed after commencement of the arbitration--is

barred by claim preclusion. Thus, it argues, the district court

should not have ordered arbitration on the claim, but rather

should have dismissed it. We agree.

Brown's civil rights claim, alleging a conspiracy to prevent

him from reporting criminal wrongdoing, arises out of essen-

tially the same set of events that were the subject of his

original arbitral claims. It is clear that final adjudication of

those claims would bar the civil rights claim, see, e.g., Schatt-

ner v. Girard, Inc., 668 F.2d 1366, 1368-69 (D.C. Cir. 1981),

so long as Wheat First hasn't forfeited its claim preclusion

objection.

The record plainly shows that it did not. Wheat First has

not yet filed its answer to Brown's district court complaint.

"[I]f a party that fails to assert res judicata in a [pre-answer]

motion is sleeping on its rights, it is an inconsequential

catnap." Stanton v. District of Columbia Court of Appeals,

127 F.3d 72, 77 (D.C. Cir. 1997). Thus there was no forfei-

ture.

We will assume in Brown's favor that the issue was raised

for the first time on appeal. In Stanton, we allowed a party

to raise res judicata for the first time on appeal where there

was no forfeiture and the claim could be successfully raised

below on remand. See id. at 77 ("We can conceive of no

reason for such judicial volleyball."). Concern for the effi-

cient use of adjudicative resources seems even more compel-

ling here, where in theory the defense would be shipped off to

arbitration, presumably to return to district court on similar

cross motions.

Brown asserts that he will be prejudiced if we find the

claim preclusion defense properly before us because it will

mean the dismissal of his last remaining claim. But the only

prejudice that Brown will suffer is the prejudice that comes

from having a losing argument.

The order confirming the arbitration award is affirmed and

the order compelling arbitration of the statutory claim is

vacated and remanded with instructions to dismiss the com-

plaint.

So ordered.