Seus v. John Nuveen & Co Inc

Opinions of the United

1998 Decisions States Court of Appeals

for the Third Circuit

6-8-1998

Seus v. John Nuveen & Co Inc

Precedential or Non-Precedential:

Docket 97-1498

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Filed June 8, 1998

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NO. 97-1498

SHEILA WARNOCK SEUS,

Appellant

v.

JOHN NUVEEN & CO., INC.

On Appeal From the United States District Court

For the Eastern District of Pennsylvania

(D.C. Civil Action No. 96-cv-05971)

Argued January 20, 1998

BEFORE: BECKER,* and STAPLETON, Circuit Judges, and

FEIKENS,** District Judge

(Opinion Filed June 8, 1998)

Stephen C. Richman (Argued)

Robert P. Curley

Markowitz & Richman

1100 North American Building

121 South Broad Street

Philadelphia, PA 19107

Attorneys for Appellant

_________________________________________________________________

* Honorable Edward R. Becker, United States Circuit Judge for the Third

Circuit, assumed Chief Judge status on February 1, 1998.

** Honorable John Feikens, Senior United States District Judge for the

Eastern District of Michigan, sitting by designation.

Robert J. Gregory (Argued)

Equal Employment Opportunity

Commission

1801 L Street, N.W.

Washington, D.C. 20507

Attorney for Amicus Curiae-

Appellant

Edward C. Jepson, Jr. (Argued)

James E. Bayles, Jr.

Vedder, Price, Kaufman & Kammholz

222 North LaSalle Street, Suite 2600

Chicago, IL 60601

and

Mitchell Feigenbaum

Mesirov, Gelman, Jaffe, Cramer &

Jamieson

1735 Market Street, 36th Floor

Philadelphia, PA 19103

Attorneys for Appellee

OPINION OF THE COURT

STAPLETON, Circuit Judge:

Sheila Warnock Seus sued John Nuveen & Company,

Inc., her former employer, under Title VII and the ADEA.

Because Seus, at the commencement of her employment,

had signed a Uniform Application for Securities Industry

Registration that contained arbitration and compliance

clauses, the district court granted the employer's motion to

compel arbitration of her claims pursuant to the Federal

Arbitration Act. The court also denied Seus's motion for

leave to take depositions of the National Association of

Securities Dealers ("NASD"). We will affirm.

I. BACKGROUND

In 1982, Sheila Seus joined the Nuveen brokeragefirm.

As a member firm of the NASD, Nuveen is required to

register with the NASD all employees who deal directly with

the public in the purchase and sale of over-the-counter

2

securities. To comply with this requirement, employees

complete a Uniform Application for Securities Industry

Registration, commonly referred to as a Form U-4.

Approximately four months after she was hired, Seus was

required to sign a Form U-4. The Form contained the

following arbitration clause:

I agree to arbitrate any dispute, claim or controversy

that may arise between me and my firm . . . that is

required to be arbitrated under the rules, constitution,

or by-laws of the [NASD].

App. at 5 (Form U-4, P 5). The Form also contained a

"compliance clause," under which Seus agreed to:

abide by, comply with, and adhere to all the provisions,

conditions and covenants of the . . . by-laws and rules

and regulations of the [NASD] as they are and may be

adopted, changed or amended from time to time . . .

App. at 5 (Form U-4, P 2).

At the time Seus executed the Form U-4, the NASD Code

of Arbitration Procedure required arbitration of:

any dispute, claim or controversy arising out of or in

connection with the business of any member of the

[NASD], with the exception of disputes involving the

insurance business of any member which is also an

insurance company: (1) between or among members;

(2) between or among members and public customers,

or others; and (3) between or among members [and]

registered clearing agencies . . . .

NASD Manual - Code of Arbitration Procedure S 1 (reprint

ed. May 1982). Although the NASD Code in effect in 1982

did not explicitly state that employment disputes were

subject to arbitration, the Code was amended in 1993 to do

so. The current Code expressly provides for arbitration of

"any dispute, claim, or controversy . . . arising out of the

employment or termination of employment of associated

person(s) with any member." NASD Manual- Code of

Arbitration Procedure Rule 10101 (formerly S 1) (1997).

In 1996, Seus filed suit against Nuveen in the district

court, alleging multiple claims of discrimination under Title

3

VII of the Civil Rights Act of 1964 ("Title VII"), 42 U.S.C.

SS 2000e et seq., and the Age Discrimination in

Employment Act of 1967 ("ADEA"), 29 U.S.C.SS 621 et seq.

Based on Seus's execution of her Form U-4, Nuveenfiled a

motion to dismiss and compel arbitration pursuant to the

Federal Arbitration Act ("FAA"), 9 U.S.C. SS 3-4. Seus, in

turn, filed a motion for leave to take the deposition of the

NASD pursuant to Fed. R. Civ. P. 30(b)(6) to obtain

information regarding the rules, procedures, and results

obtained in other employment disputes arbitrated under

NASD rules.

The district court granted Nuveen's motion and dismissed

Seus's complaint without prejudice, directing her to

arbitrate her claims. The court concluded that the Form

U-4 executed by Seus constituted a valid contractual

agreement to arbitrate enforceable under the FAA, and that

the arbitration agreement covered the claims asserted in

this case.

The district court also denied Seus's motion to depose the

NASD. It noted that the Supreme Court in Gilmer

recognized the adequacy of the New York Stock Exchange's

arbitration procedures, which the district court found to be

"functionally equivalent" to those of the NASD. D. Ct. Op. at

15. The district court also concluded that the NASD Code

of Arbitration Procedure, which details discovery

procedures and subpoena powers, etc., provides

information sufficient to evaluate the fairness of the

arbitration process.

In accordance with our usual practice in arbitration

cases, we will address, in turn, whether there is a binding

agreement to arbitrate between the parties and, if so,

whether this dispute is within the scope of that agreement.

See PaineWebber Inc. v. Hartmann, 921 F.2d 507, 511 (3d

Cir. 1990). We will then determine whether the district

court abused its discretion in denying Seus's motion for

discovery from the NASD. See Marroquin-Manriquez v. INS,

699 F.2d 129, 134 (3d Cir. 1983).

4

II. IS THERE A BINDING AGREEMENT TO

ARBITRATE?

A. The FAA

The FAA, 9 U.S.C. S 1 et seq., was enacted in 1925. Its

purpose was to make agreements to arbitrate enforceable to

the same extent as other contracts. Section 2 of the Act

provides, in relevant part:

A written provision in . . . a contract evidencing a

transaction involving commerce to settle by arbitration

a controversy arising out of such contract . . . shall be

valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for revocation of

any contract.

"Commerce," as defined in the Act, includes "commerce

among the several States." 9 U.S.C. S 1. "[C]ontracts of

employment of seamen, railroad employees, or any other

class of workers engaged in foreign or interstate commerce"

are excluded from the scope of the Act, however. Id. The

Form U-4 has been held by the Supreme Court to be a

"contract evidencing a transaction in commerce" and not to

be "a contract of employment" within the meaning of the

FAA. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

25 n.2 (1991). This court and others have also held that the

"contract of employment" exception is limited to the

contracts of employees who, like seamen and railroad

workers, are engaged directly in the channels of interstate

commerce. See Great Western Mortgage Corp. v. Peacock,

110 F.3d 222, 226-27 & nn.20-21 (3d Cir. 1997) (stating

Third Circuit rule and collecting cases from other

jurisdictions).

If a party to a binding arbitration agreement is sued in a

federal court on a claim that the plaintiff has agreed to

arbitrate, it is entitled under the FAA to a stay of the court

proceeding pending arbitration, Section 3, and to an order

compelling arbitration, Section 4. If all the claims involved

in an action are arbitrable, a court may dismiss the action

instead of staying it. See Alford v. Dean Witter Reynolds,

Inc., 975 F.2d 1161, 1164 (5th Cir. 1992); Dancu v. Coopers

5

& Lybrand, 778 F. Supp. 832, 835 (E.D. Pa. 1991), aff'd,

972 F.2d 1330 (3d Cir. 1992).

Thus, the FAA on its face authorizes the enforcement

action taken by the district court. It follows that we must

affirm unless we conclude that legislation passed

subsequent to the FAA reflects a congressional intent that

agreements like the Form U-4 contract be excluded from it

scope, that this Form U-4 contract is unenforceable under

the provisions of the FAA, or that this dispute is not within

the scope of the arbitration provision of that contract.

B. The ADEA, OWBPA, Title VII And

The Civil Rights Act of 1991:

The Implied Repealer Challenge To The Validity

Of The Agreement

Seus contends that Congress, in legislation subsequent

to the FAA, has carved out an exception to its provisions for

predispute agreements to arbitrate claims under the ADEA

(i.e., agreements to arbitrate ADEA claims that have not

arisen at the time the agreement is reached). The EEOC,

which has filed an amicus brief in support of Seus's

position, contends that a similar exception has been

created by Congress for predispute agreements to arbitrate

claims under Title VII as well. We find no such implied

repealer of the FAA's provisions requiring the enforcement

of agreements to arbitrate.

1. Gilmer and the ADEA

An argument much like that of Seus and the EEOC was

made to the Supreme Court in Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20 (1991), a case that involved an

ADEA claim and a Form U-4 agreement between an

employee of a brokerage firm and the New York Stock

Exchange. Plaintiff Gilmer was required to register with

several stock exchanges, including the New York Stock

Exchange ("NYSE"), as a condition of his employment. To do

so, he executed a Form U-4 application containing the

same language regarding arbitration as the Form U-4

6

signed by Seus except that his commitment was to arbitrate

in accordance with the rules of the NYSE. The NYSE Rules

in place at the time Gilmer signed his Form U-4 explicitly

provided for the arbitration of any controversy between a

registered representative and a NYSE member " `arising out

of the employment or termination of employment of such

registered representative.' " Id. (quoting NYSE Rule 347).

Following Gilmer's termination at age 62, he filed an age

discrimination charge with the EEOC and thereafter filed

suit against his employer. In response to the employer's

insistence that his claim be arbitrated, Gilmer argued that

enforcement of the Form U-4 agreement to arbitrate would

be inconsistent with the ADEA.

The Supreme Court began its analysis by making it clear

that exceptions to the FAA's rule requiring enforcement of

agreements to arbitrate are not to be recognized lightly.

Because of the strong federal policy favoring arbitration,

any exception must be founded on clear indicia of

congressional intent:

"[H]aving made the bargain to arbitrate, the party

should be held to it unless Congress itself has evinced

an intention to preclude a waiver of judicial remedies

for the statutory rights at issue." In this regard, we

note that the burden is on Gilmer to show that

Congress intended to preclude a waiver of a judicial

forum for ADEA claims. If such an intention exists, it

will be discoverable in the text of the ADEA, its

legislative history, or an "inherent conflict" between

arbitration and the ADEA's underlying purposes.

Throughout such an inquiry, it should be kept in mind

that "questions of arbitrability must be addressed with

a healthy regard for the federal policy favoring

arbitration."

Id., at 26 (citations omitted).

Gilmer conceded that nothing in the text or legislative

history of the ADEA explicitly precluded enforcement of the

FAA in his situation. Rather, he argued that "compulsory

arbitration of ADEA claims pursuant to arbitration

agreements would be inconsistent with the statutory

framework and purposes of the ADEA." Id. at 27. The

Supreme Court perceived no such inconsistency.

7

The Court held that the FAA required enforcement of

Gilmer's agreement to arbitrate all claims arising out of his

termination of employment, including his ADEA claim. It

stressed that "[b]y agreeing to arbitrate a statutory claim, a

party does not forego the substantive rights afforded by the

statute; it only submits to their resolution in an arbitral,

rather than a judicial form.." Id. at 26 (quoting from

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473

U.S. 614, 628 (1987)) (alteration in original). Rejecting

Gilmer's argument that the arbitral process was less suited

than litigation to the effective enforcement of the ADEA, the

Court concluded: "[S]o long as the prospective litigant

effectively may vindicate [his or her] statutory cause of

action in the arbitral forum, the statute will continue to

serve both its remedial and deterrent function." Id. at 28

(quoting from Mitsubishi, supra, at 637) (alterations in

original).

The Court in Gilmer also addressed and rejected an

argument that agreements to arbitrate ADEA claims should

not be enforced because of the disparity in bargaining

power between an employee and her employer. In the

course of rejecting the argument, the Court stressed that

courts should look solely to the provisions of the FAA in

determining on a case-by-case basis whether an arbitration

agreement is binding:

Mere inequality in bargaining power, however, is not a

sufficient reason to hold that arbitration agreements

are never enforceable in the employment context. . .

[T]he FAA's purpose was to place arbitration

agreements on the same footing as other contracts.

Thus, arbitration agreements are enforceable "save

upon such grounds as exist at law or in equity for the

revocation of any contract." 9 U.S.C. S 2."Of course,

courts should remain attuned to well-supported claims

that the agreement to arbitrate resulted from the sort

of fraud or overwhelming economic power that would

provide grounds for the revocation of any contract."

Mitsubishi, 473 U.S., at 627. There is no indication in

this case, however, that Gilmer, an experienced

businessman, was coerced or defrauded into agreeing

to the arbitration clause in his registration application.

8

As with the claimed procedural inadequacies discussed

above, this claim of unequal bargaining power is best

left for resolution in specific cases.

Id. at 33.

Finally, the Gilmer Court rejected an argument based on

its prior decision in Alexander v. Gardner-Denver Co., 415

U.S. 36 (1974). Alexander held that an adverse decision in

an arbitration proceeding conducted pursuant to an

arbitration clause in a collective bargaining agreement

could not bar the plaintiff employee from enforcing his

rights under Title VII in a federal court. In Gilmer, the

Court acknowledged that it had expressed the view in

Alexander that "arbitration was inferior to the judicial

process for resolving statutory claims." Gilmer, 500 U.S. at

34 n.5. It hastened to add, however:

That "mistrust of the arbitral process," however, has

been undermined by our recent arbitration decisions.

McMahon, 482 U.S. at 231-32. "[W]e are well past the

time when judicial suspicion of the desirability of

arbitration and of the competence of arbitral tribunals

inhibited the development of arbitration as an

alternative means of dispute resolution." Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.

614, 626-627 (1985).

Id.

Thus, the Court specifically disavowed, in the context of

Title VII claims as well as ADEA claims, the idea that the

arbitral process was inferior to the judicial process. It also

stressed that because the arbitration clause in Alexander

was contained in a collective bargaining agreement,

Alexander had not individually agreed to it, "the tension

between collective representation and individual statutory

rights" was an "important concern," and the FAA, with its

"liberal federal policy favoring arbitration," was not

applicable. Id. at 35.

2. OWBPA

Gilmer was decided on May 13, 1991. Seven months

earlier, Congress amended the ADEA by passing the Older

9

Workers Benefit Protection Act of 1990 ("OWBPA"). Gilmer

apparently did not contend that these amendments were

applicable to his case. Seus and the EEOC do contend that

they are applicable here. Under the OWBPA, an individual

"may not waive any right or claim" under the ADEA unless

the waiver is knowing and voluntary. 29 U.S.C. S 626(f)(1).

Moreover, a waiver cannot be considered knowing and

voluntary if an individual waives "rights or claims that may

arise after the date the waiver is executed." Id. at

S 626(f)(1)(C). Seus and the EEOC assert that the language

"any right or claim" must encompass the right to a jury

trial in district court; thus, the OWBPA prohibits the

enforcement of any agreement that requires an individual,

in advance of an actual dispute, to forgo her statutory right

to trial in a district court. They conclude that the OWBPA

precludes enforcement of Seus's agreement to arbitrate. We

are unpersuaded for two reasons.

First, the legislative history of the OWBPA indicates that

it does "not apply with respect to waivers that occur before

the date of enactment of this Act [Oct. 16, 1990]." Older

Workers Benefit Protection Act, Pub. L. No. 101-433,

S 202(a), 104 Stat. 978, 984 (1990) (reprinted in note to 29

U.S.C. S 626 entitled "Effective Date of 1990 Amendment"

(1998)). In common parlance, a waiver "occurs" when it

becomes effective, i.e., when it is executed. For that reason,

we conclude that the OWBPA's waiver requirements do not

apply to waivers executed before enactment of the statute.

Accord Rice v. Brown Bros. Harriman & Co., No. 96 Civ.

6326(MBM), 1997 WL 129396, *5 (S.D.N.Y. Mar. 21, 1997).

Because Seus executed her Form U-4 before the OWBPA

was enacted, it cannot affect the arbitrability of her claim.

Second, assuming arguendo that the OWBPA did apply to

Seus's case, its legislative history and the background

against which it was enacted provide persuasive evidence

that the protection it affords is limited to the waiver of

substantive rights under the ADEA. As the Fifth Circuit

explained in Williams v. Cigna Financial Advisors, Inc.,

[i]n enacting the OWBPA, Congress' primary concern

was with releases and voluntary separation agreements

in which employees were forced to waive their rights.

. . . [T]he OWBPA protects against the waiver of a right

10

or claim, not against the waiver of a judicial forum. The

Supreme Court recognized this distinction in Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.

614, 628 (1985), in which it held that

[b]y agreeing to arbitrate a statutory claim, a party

does not forgo the substantive rights afforded by the

statute; it only submits to their resolution in an

arbitral, rather than a judicial, forum. . . . We must

assume that if Congress intended the substantive

protection afforded by a given statute to include

protection against waiver of the right to a judicial

forum, that intention will be deducible from text or

legislative history.

We recognize that Congress, through the OWBPA, has

protected terminated employees who waive their

substantive rights under ADEA in exchange for a more

favorable severance package; however, we find no clear

indication that Congress was likewise concerned with

protecting employees who agree to arbitrate claims that

may arise during the course of their employment.

56 F.3d 656, 660-61 (5th Cir. 1995) (citations omitted).

The Supreme Court reads OWBPA in the same way.

While OWBPA was not urged upon it as controlling

authority in Gilmer, the Court did comment upon OWBPA

during the course of its analysis there in a way that is

highly relevant here. It observed:

Gilmer also argues that compulsory arbitration is

improper because it deprives claimants of the judicial

forum provided for by the ADEA. Congress, however,

did not explicitly preclude arbitration or other

nonjudicial resolution of claims, even in its recent

amendments to the ADEA. "[I]f Congress intended the

substantive protection afforded [by the ADEA] to

include protection against waiver of the right to a

judicial forum, that intention will be deducible from

text or legislative history."

500 U.S. at 29 (quoting Mitsubishi Motors, 473 U.S. at 628)

(emphasis added). When referring to Congress's "recent

amendments to the ADEA," the Supreme Court clearly

11

meant the OWBPA. See id. at 28 n.3. While dicta, the

Court's comments provide persuasive evidence

contradicting the EEOC's assertion that "[b]y its plain

terms, the OWBPA prohibits the enforcement of any

agreement that requires an individual, in advance of an

actual dispute, to forgo her statutory right of action in

district court." EEOC's Br. at 14. Clearly, the Supreme

Court did not interpret the OWBPA's reference to "any right

or claim" as encompassing procedural rights such as the

right to a judicial forum.

We thus conclude that the ADEA, as amended by the

OWBPA, still reflects no Congressional intent to except from

the FAA predispute agreements to arbitrate ADEA claims.

3. Title VII

Although the holding in Gilmer involved only ADEA

claims and not Title VII claims, numerous courts have

determined that the holding is equally applicable to Title VII

proceedings. See, e.g., Metz v. Merrill Lynch, Pierce, Fenner

& Smith, Inc., 39 F.3d 1482, 1487 (10th Cir. 1994); Bender

v. A.G. Edwards & Sons, Inc., 971 F.2d 698, 700 (11th Cir.

1992); Mago v. Shearson Lehman Hutton, Inc., 956 F.2d

932, 935 (9th Cir. 1992); Willis v. Dean Witter Reynolds,

Inc., 948 F.2d 305, 307 (6th Cir. 1991); Alford v. Dean

Witter Reynolds, Inc., 939 F.2d 229, 230 (5th Cir. 1991).

Moreover, as we have noted, the Supreme Court in Gilmer

expressly disavowed its earlier expressed view that an

arbitral forum was inferior to a judicial one for deciding

Title VII claims. See 500 U.S. at 34 n.5.

Because Title VII and the ADEA "are similar in their aims

and substantive provisions," Mago, 956 F.2d at 935, we

find Title VII entirely compatible with applying the FAA to

agreements to arbitrate Title VII claims.

4. Section 118 of the Civil Rights Act of 1991

On November 21, 1991, more than six months after

Gilmer was decided, Congress passed the Civil Rights Act of

1991. Section 118 of that Act provides that, "Where

appropriate and to the extent authorized by law, the use of

12

alternative dispute resolution, including . . . arbitration, is

encouraged to resolve disputes arising under [Title VII and

the ADEA]." Pub. L. 102-166, S 118 (reprinted in notes to

42 U.S.C. S 1981). On its face, the text ofS 118 evinces a

clear Congressional intent to encourage arbitration of Title

VII and ADEA claims, not to preclude such arbitration. The

EEOC argues, nonetheless, that a Congressional intent to

preclude predispute waivers of a judicial forum for Title VII

claims can be discerned in the legislative history of S 118.

The EEOC points to two comments by the House

Committee on Education and Labor as well as two remarks

of individual legislators on the floor to support its position.

In our judgment, however, no amount of commentary from

individual legislators or committees would justify a court in

reaching the result the EEOC would have us reach. The

text adopted by the full Congress declares that lawful

"arbitration . . . is encouraged to resolve disputes arising

from [Title VII and the ADEA.]" That declaration simply

cannot be "interpreted" to mean that the FAA is impliedly

repealed with respect to agreements to arbitrate Title VII

and ADEA claims that will arise in the future.1 Other courts

of appeals that have addressed the issue have recognized as

much. See Austin v. Owens-Brockway Glass Container, Inc.,

78 F.3d 875, 881-82 (4th Cir.), cert. denied, ___ U.S. ___,

117 S. Ct. 432 (1996); Matthews v. Rollins Hudig Hall Co.,

72 F.3d 50, 53 n.4 (7th Cir. 1995).

_________________________________________________________________

1. Not surprisingly there is ample legislative history to support a

straightforward reading of the text of S 118. The Report of the House

Committee on the Judiciary, for example, explains S 118 as follows:

This section "encourages" the voluntary use of conciliation,

mediation, arbitration, and other methods of resolving disputes

under Civil Rights laws governing employment discrimination.

We agree that voluntary mediation and arbitration are far

preferable to prolonged litigation for resolving employment

discrimination claims. . . .

We recognize that mediation and arbitration, knowingly and

voluntarily undertaken, are the preferred methods of settlement of

employment discrimination disputes.

H.R. Rep. No. 40(II), 102d Cong., 1st Sess. 78 (1991), reprinted in 1991

U.S.C.C.A.N. 694, 764.

13

Nor do we believe this straightforward declaration of the

full Congress can be interpreted to mean that the FAA is

impliedly repealed with respect to agreements to arbitrate

Title VII claims which were executed by an employee as a

condition of securing employment. Thus, we respectfully

disagree with the decision of the Court of Appeals for the

Ninth Circuit in Duffield v. Robertson Stephens & Co., No.

97-15698, 1998 WL 227469 (9th Cir. May 8, 1998). As we

understand the opinion in that case, the court reads the

preferatory clause, "where appropriate and to the extent

authorized by law," in light of the legislative history, as a

codification of a particular view of the decisional law

regarding Title VII arbitration as it existed prior to the

Supreme Court's decision in Gilmer. To us, it seems most

reasonable to read this clause as a reference to the FAA.

Moreover, we find nothing in the legislative history

suggesting that this hortatory provision was intended to

codify, and thus freeze, any particular view of the case law.

Finally, even if we were to accept "authorized by law" as

intended to codify case law, we would find the text

incompatible with the notion that the law codified was case

law inconsistent with a Supreme Court case decided six

months before the passage of the Act.

C. Other Challenges to the Validity of the Agreement

Seus insists that anyone seeking to enforce an agreement

to arbitrate Title VII and ADEA claims must establish that

the other party entered the agreement "knowingly" and

"voluntarily." She insists that Nuveen has failed to carry

this burden. She argues as well that her agreement is

unenforceable because it was a contract of adhesion and

analogous to a "yellow dog contract."

1. The Knowing and Voluntary Standard

As we have previously noted, contracts covered by the

FAA are "valid, irrevocable, and enforceable," save upon

such grounds as exist at law or in equity for revocation of

any contracts. As we have also noted, Gilmer establishes

that a court can decline to enforce such a contract if and

only if the party resisting arbitration can point to a

14

generally applicable principle of contract law under which

the agreement could be revoked.

By "knowing" and "voluntary," Seus means more than

with an understanding that a binding agreement is being

entered and without fraud or duress. Determining whether

an agreement to arbitrate is "knowing" and"voluntary," in

her view, requires an inquiry into such matters as the

specificity of the language of the agreement, the plaintiff's

education and experience, plaintiff's opportunity for

deliberation and negotiation, and whether plaintiff was

encouraged to consult counsel. She does not contend that

this heightened "knowing and voluntary" standard is a

generally applicable principle of contract law. Rather, Seus

finds that standard in cases like Cirillo v. Arco Chemical

Co., 862 F.2d 448 (3d Cir. 1988) where we found a

heightened knowing and voluntary standard applicable to

agreements releasing substantive claims under the ADEA.2

Applying that standard here would be inconsistent with the

FAA and Gilmer. Nothing short of a showing of fraud,

duress, mistake or some other ground recognized by the

law applicable to contracts generally would have excused

the district court from enforcing Seus's agreement.

_________________________________________________________________

2. Seus relies, as well, on Prudential Ins. Co. of America v. Lai, 42 F.3d

1299 (9th Cir. 1994). The court there held that a Form U-4 agreement

to arbitrate under the NASD rules was unenforceable. The agreement

was not "knowingly" entered insofar as employment disputes were

concerned, according to the court, because the arbitration clause of the

NASD rules did not specifically refer to employment disputes. We

respectfully disagree with the decision of the court in Lai.

Finally, Seus, in support of her heightened "knowing and voluntary"

standard, relies upon the provisions of the OWBPA and the Civil Rights

Act of 1991 that we have already discussed. As we have explained, the

referenced provisions of the OWBPA pertain only to the waiver or release

of substantive ADEA rights claims, not procedural rights like the right to

proceed in a judicial forum. With respect to the referenced legislative

history of S 118, see fn. 1, p. 16, supra, we understand "knowingly and

voluntarily" to invoke ordinary, well established principles of contract

law rather than the heightened standard for which Seus contends.

15

2. Contract of Adhesion

Seus suggests that the arbitration agreement in the Form

U-4 is invalid as a contract of adhesion because of the

disparity in bargaining power between her and her

employer. This very argument was rejected in Gilmer,

however. Unequal bargaining power is not alone enough to

make an agreement to arbitrate a contract of adhesion.

Moreover, even if we were to assume arguendo that the

Form U-4 is a contract of adhesion, it would not be

unenforceable. A contract of adhesion is invalid only where

its terms unreasonably favor the other party. See e.g.,

Witmer v. Exxon Corp., 434 A.2d 1222, 1228 (Pa. 1981). In

order for a contract to be invalidated as a contract of

adhesion, the plaintiff "must allege both a lack of

meaningful choice about whether to accept the provision in

question, and that the disputed provisions were so one-

sided as to be oppressive." Stebok v. American Gen. Life &

Accident Ins. Co., 715 F. Supp. 711, 714 (W.D. Pa.), aff'd

888 F.2d 1382 (3d Cir. 1989). The district court found,

however, that the terms of Seus's Form U-4 were neither

oppressive nor unconscionable. Similarly, the district court

in Beauchamp v. Great West Life Assurance Co. concluded

that the Form U-4 is not oppressive or unconscionable,

explaining:

The Gilmer court has held that plaintiff is not giving up

substantive statutory rights through arbitration of her

Title VII claim. Thus, her agreement to arbitrate is not

substantively unconscionable. Nor is the language of

the U-4 form unconscionable in that it misrepresents

the existence or scope of the arbitration clause. The

U-4 form clearly states that the applicant should read

its provisions very carefully and that any claim

between plaintiff and her firm would be arbitrated if

required by the arbitration code of the organization

with which she registered.

918 F. Supp. 1091, 1098 (E.D. Mich. 1996) (citation

omitted). We agree. The terms of the Form U-4 that Seus

signed were not oppressive, unconscionable, or

unreasonably favorable to either the NASD or Nuveen, the

third party beneficiary of the agreement.

16

3. "Yellow Dog" Contract

Finally, Seus suggests that the arbitration agreement in

the Form U-4 should be invalidated because it is analogous

to the "yellow dog contracts" of the nineteenth century, in

which employees agreed to waive their right to join a union

in order to obtain employment. Seus asserts that the two

types of contracts are analogous because in both instances

employers require employees to waive their statutory rights

in order to obtain employment. She argues that because

Congress invalidated yellow dog contracts in the Norris-

LaGuardia Act of 1932, 29 U.S.C. S 103, this court should

invalidate her contract. Seus's argument fails once again

because, unlike the employees who signed yellow dog

contracts, Seus did not waive her substantive statutory

rights by signing the Form U-4.

In short, we conclude that the Form U-4 agreement to

arbitrate was valid and binding under the FAA.

III. DOES THE AGREEMENT COVER THIS DISPUTE?

A. The 1982 NASD Code of Arbitration Procedure

Seus argues that the district court improperly dismissed

her action against Nuveen because employment disputes

were not covered by the NASD Code of Arbitration

Procedure in effect at the time she signed her Form U-4. As

we have noted, section 1 of that Code provided for

arbitration of:

any dispute . . . claim or controversy arising out of or

in connection with the business of any member of the

[NASD], with the exception of disputes involving the

insurance business of any member which is also an

insurance company: (1) between or among members;

(2) between or among members and public customers,

or others; and (3) between or among members [and]

registered clearing agencies . . . .

Although the 1982 Code did not explicitly provide for the

arbitration of employment disputes, we are persuaded that

it encompassed such disputes and that Seus thus agreed to

submit her Title VII and ADEA claims to arbitration.

17

As the district court pointed out, "[t]he majority of courts

which have examined the pre-amendment NASD Code also

have concluded that it covers employment disputes," while

only the Seventh and Ninth Circuits have held otherwise.

D. Ct. Op. at 10. The three different lines of reasoning that

courts considering the issue have espoused were concisely

explained by the Court of Appeals for the Second Circuit

thus:

In Farrand v. Lutheran Brotherhood, 993 F.2d 1253

(7th Cir. 1993), the Seventh Circuit held that S 1's

three subsections ((1)-(3)) qualified the phrase"arising

out of or in connection with the business of any

member of the [NASD]," see id. at 1254; that an

employee suing a member-employer fell into none of

these subsections (most particularly that such an

employee was not an "other[ ]" within the meaning of

S 1(2)), see id. at 1254-55; and that employment-

related disputes were therefore not arbitrable, see id. at

1255.

In Kidd v. Equitable Life Assurance Soc'y of the

United States, 32 F.3d 516 (11th Cir. 1994), the

Eleventh Circuit disagreed and held that employment-

related disputes are arbitrable. The Eleventh Circuit

reasoned that S 1's three subsections applied, not back

to that section's initial clause, but rather only to the

adjoining "insurance exception" clause. See id. at 519.

It therefore read S 1 to "require[ ] arbitration for any

dispute connected to an NASD member's business,

except for disputes involving the insurance business of

an NASD member that are (1) between NASD members

or (2) between NASD members and public customers or

others." Id. The court thus found that an employee's

claim against a member-employer is arbitrable under

S 1's unqualified (as the court read it) opening clause.

See id. at 519 & n. 5.

The Tenth Circuit, in [Armijo v. Prudential Ins. Co. of

Am, 72 F.3d 793 (10th Cir. 1995)], added fuel to the

fire. It rejected the Eleventh Circuit's reasoning that

S 1's subsections applied only to the insurance

exception clause; it agreed with the Seventh Circuit

that the three subsections modified the initial clause.

18

See Armijo, 72 F.3d at 798-99 n. 6. Contrary to

Farrand, however, the court found that "others" in

S 1(2) necessarily encompassed "associated persons" as

used in S 8, and therefore included an aggrieved

employee. See id. at 798-99. The court accordingly held

that employment-related disputes are arbitrable, but

not for the reason given by the Eleventh Circuit. See id.

at 798.

Thomas James Assocs., Inc. v. Jameson, 102 F.3d 60, 64

(2d Cir. 1996). In Jameson, the Second Circuit, like the

Tenth Circuit, concluded "that S 1's subsections apply to

that section's opening clause, and not just to the insurance

exception clause," id., and that the term"others" as used in

that section includes employees having employment-related

disputes with a member firm, id. at 65.

With respect to the application of S 1's subsections, we

adopt the Second Circuit's line of reasoning on this issue.

As the Jameson court explained:

We cannot fathom any possible reason why the NASD

would except insurance business disputes from

arbitration, but then only when those disputes involved

certain parties. Rather, the NASD probably meant to

exempt "any dispute involving the insurance business

of an insurance company member from compulsory

arbitration, not just those involving specific classes of

individuals." To put it in the language of a

grammarian, we therefore interpret the insurance

exception clause as something "more akin to a

parenthetical within the section rather than an

independent clause modified by the language following

the colon."

Id. at 64-65 (citations omitted). We agree, and likewise hold

that S 1's subsections modify that section's opening clause,

not the insurance exception clause.

With respect to the meaning of "others," the Armijo and

Jameson courts pointed to several considerations which led

them to conclude that the term encompasses employees

with employment-related disputes. See Jameson, 102 F.3d

at 65-66; Armijo, 72 F.3d at 798-800. First, to conclude

otherwise would create a conflict between S 1 and S 8 of the

19

pre-Amendment NASD Code.3 As the Jameson court

explained:

Unless he qualifies as an "other[ ]" under S 1(2), it is

plain that Jameson does not fall into any category

within S 1's subsections. And, on the other hand, S 8

clearly contemplates that Jameson, as an "associated

person," will arbitrate his disputes with an NASD-

member employer. If we were to read "others" to

exclude Jameson, S 1 would take what S 8 gives,

rendering S 8 utterly superfluous in this respect.

Therefore, to avoid construing one provision as

negating the other, "we must give Section 1 an

interpretation at least as broad as that clearly called

for in Section 8."

102 F.3d at 65. Second, interpreting "others" to include

employees with employment-related disputes gives meaning

to the language of the Form U-4, which clearly indicates

that the applicant agrees that at least some disputes

between her and her firm would be arbitrable. See id. at 65;

Armijo, 72 F.3d at 799. Third, the NASD itself indicated as

early as 1987 that the pre-Amendment Code applied to

employment-related disputes between employees and

member firms. See Jameson, 102 F.3d at 65; Armijo, 72

F.3d at 799.

Based on these considerations, "we cannot say`with

positive assurance' that `others' does not include an

employee with an employment-related dispute against a

_________________________________________________________________

3. Section 8 of the pre-Amendment NASD Code provided:

Any dispute, claim or controversy eligible for submission under

Part

I of this Code between or among members and/or associated

persons, and/or certain others, arising in connection with the

business of such member(s), or in connection with the activities of

such associated person(s), shall be arbitrated under this Code, at

the instance of: (1) a member against another member; (2) a

member against a person associated with a member or a person

associated with a member against a member; and (3) a person

associated with a member against a person associated with a

member.

NASD Manual - Code of Arbitration Procedure S 1 (reprint ed. May 1982).

20

member firm." Jameson, 102 F.3d at 65. It is at least

ambiguous whether that term encompasses employees with

employment-related disputes. "However, to acknowledge the

ambiguity is to resolve the issue, because all ambiguities

must be resolved in favor of arbitrability." Armijo, 72 F.3d

at 798. Accordingly, we find that the district court correctly

concluded that the pre amendment NASD Code provided for

arbitration of employment disputes.

B. The Compliance Clause and the Amended NASD Code

On October 1, 1993, the NASD amended its Code of

Arbitration Procedure to provide for the arbitration of "any

dispute, claim or controversy . . . arising out of the

employment or termination of employment of associated

person(s) with any member . . ." NASD Arbitration Code,

Rule 10101 (formerly S 1). Nuveen argues that, regardless of

whether we conclude that the pre-amendment NASD Code

requires arbitration of Seus's employment dispute, we

should affirm the district court's order compelling

arbitration based on the compliance clause in her Form U-4

and the fact that the NASD Code explicitly provided for the

arbitration of employment disputes when she commenced

this action. Seus, on the other hand, argues that because

the Form U-4 compliance clause did not mention the

arbitration clause and was contained in a different

paragraph, the compliance clause is reasonably read only

to require Seus to conform her behavior, as a securities

dealer, to subsequent changes in the NASD rules. 4

Seus's argument contradicts the holding of the vast

majority of courts to consider this issue. Most courts have

found that the Form U-4 compliance clause obligates a

registrant to comply with the NASD Arbitration Code as it

existed at the time she filed suit. See, e.g., Cremin v. Merrill

Lynch Pierce Fenner & Smith, Inc., 957 F. Supp. 1460,

1475-77 (N.D. Ill. 1997); Schuetz v. CS First Boston Corp.,

_________________________________________________________________

4. As noted above, the Form U-4 compliance clause bound Seus to "abide

by, comply with, and adhere to all the provisions, conditions and

covenants of the . . . by-laws and rules and regulations as they may be

adopted, changed or amended from time to time . . . ." App. at 5 (Form

U-4, P 2).

21

No. 96 Civ. 5557, 1997 WL 452392, *4 (S.D.N.Y. Aug. 8,

1997); Stone v. Pennsylvania Merchant Group, Ltd., 949 F.

Supp. 316, 323-24 (E.D. Pa. 1996). We agree. Seus clearly

bound herself to comply with amendments to the NASD's

rules, including those governing arbitration.

IV. SEUS'S MOTION TO DEPOSE THE NASD

Seus claims that current NASD arbitration procedures

are inadequate to protect her statutory and due process

rights. As evidence of this, she points to the NASD's recent

decision to abandon its policy of requiring agreements to

arbitrate employment discrimination claims as a condition

of employment with a member.5 Seus insists that the

_________________________________________________________________

5. On December 17, 1997, after the district court decision in this case,

the NASD submitted to the SEC the following proposed change to Rule

10201 (Required Submission) (formerly S 8) of the Code of Arbitration

Procedure:

(b) A claim alleging employment discrimination or sexual

harassment in violation of a statute is not required to be

arbitrated.

Such a claim may be arbitrated only if the parties have agreed to

arbitrate it, either before or after the dispute arose.

62 Fed. Reg. 66164, 66164 (Dec. 17, 1997). Seus views this proposed

rule change as an explicit admission by NASD that absent employee free

choice, neither it, nor the court, should rely on the Form U-4 to compel

arbitration of all employment claims. Since the NASD has decided to give

its registrants a choice between signing an agreement to arbitrate and

reserving the right to file an employment-related claim in federal court,

Seus argues, this court should allow Seus the same choice.

The NASD's abandonment of its policy of requiring employees to sign

agreements to arbitrate as a condition of registration is irrelevant in

this

case. The rule change is only a proposal. The SEC has not yet approved

it, nor is it obligated to do so. The proposed rule change has no legal

force at this time. Moreover, even if the SEC approves the rule change,

the NASD has requested that it not take effect until one year after such

approval. 62 Fed. Reg. at 66167. Presumably, then, the rule change

would not become effective until well after the completion of Seus's

arbitration. In any event, the proposed amendment does not reflect a

determination that the arbitral process is not fair and effective. It

reflects

only a policy decision that a commitment to arbitrate employment

discrimination claims should not be required as a condition of

employment. The amendment expressly recognizes that voluntary

agreements to arbitrate will continue to be enforceable whether entered

before or after the alleged violation occurs.

22

district court should have allowed her to conduct further

discovery on this issue before reaching its decision to

compel arbitration.

We review the district court's denial of Seus's motion for

an abuse of discretion. We find none.

Congress has decreed that arbitration is a favored means

of dispute resolution. While this does not mean that

arbitration pursuant to any kind of arbitral process is

consistent with federal policy, the detailed provisions of the

NASD Code of Arbitration Procedure are sufficient to permit

the kind of evaluation conducted in Gilmer and, as the

district court observed, the process required by that Code

is the functional equivalent of the process found in Gilmer

to be consistent with the effective enforcement of the ADEA.6

Moreover, if there be any inadequacies or unfairness in the

application of those rules in this specific case, judicial

review will be available. 9 U.S.C. S 10; Cole v. Burns Int'l

Sec. Servs., 105 F.3d 1465, 1486-87 (D.C. Cir. 1997).

Under these circumstances, declining to permit a

deposition of the NASD prior to ordering submission of the

dispute to arbitration was well within the discretion of the

district court.

V. CONCLUSION

The order of the district court dismissing Seus's claims

without prejudice and directing arbitration will be affirmed.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

_________________________________________________________________

6. In addition to information about the process readily available from the

Code, Seus sought to inquire into the race, sex, age and professional

backgrounds of the arbitrators, procedures for selecting arbitrators, the

cost of arbitration, the percentage of arbitration cases involving age and

sex employment discrimination claims, the specific results of the

arbitration decisions in employment discrimination cases, the location

and scheduling of hearings, and the timeliness of decisions.

23