Opposition Brief — Desiderio v. National Ass'n of Securities Dealers, Inc.

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No. 99-1285

IN THE

Supreme Court of the Anited States

SUSAN A. DESIDERIO,

Petitioner,

NATIONAL ASSOCIATION OF

SECURITIES DEALERS, INC.,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Second Circuit

RESPONDENT’S BRIEF IN OPPOSITION

Of Counsel: WALTER E. DELLINGER

JOHN J. FLOOD (Counsel of Record)

TERRI L. REICHER PAMELA A. HARRIS

NATIONAL ASSOCIATION OF O’MELVENY & MYERS LLP

SECURITIES DEALERS, INC. 555 13th Street, N.W.

1735 K Street, N.W. Washington, D.C. 20004

Washington, D.C. 20006 (202) 383-5300

(202) 728-8967

PARTIES TO THE CASE

The petitioner, appellant below, is Susan A. Desiderio.

The respondent, appellee below, is the National Association

of Securities Dealers, Inc., referred to herein as the “NASD.”

Pursuant to this Court’s Rule 29.6, the NASD states that it

has no parent companies and-no public shareholders.

TABLE OF CONTENTS

Page

PART ES FO) Tes CAI cccesicstccicinninsiisincentlmesesnerbinienacons i

TABLE OF ALTERS stititintncnstibiitiaianitnaiinannnisnenne’ iv

STA TEGEGS Gr Times Col cicnnctiasscemcecsesisssneinttpntineannentalianes 2

A. WD PEAT ccccnncisissciihietisapiabisanighashimmatamaamnnaccaaaittialoden 2

B. Securities Industry Registration Requirements

And The Obligation To Arbitrate..................eeeeeeee 2

NASD Arbitration Procedures ..................::cccceeseeeeees 5

D. Petitioner’s Dispute And The Proceedings

BOBO ..<.viscnnscsscsniiesinsuneiiiiniansiiapaniinamaamnadiatiadaan 7

REASONS FOR DENYING THE PETITION ...................... 9

I. PETITIONER’S TITLE VII CLAIM IS

BOTH MERITLESS AND WITHOUT :

- ANY PROSPECTIVE LEGAL

SEE Us <ncincsctinmnnnsataealanabanmdualaecasen 10

A. The Title VII Issue Raised by

Petitioner Has No Prospective

NG oouecssenssinisisitinisaticlaiasinnaiacniciibuibisnbatia 12

B. Petitioner’s Title VII Claim Is

Meritless and Implicates No Circuit

Coameit CRITE, ccsuissiiinsicentemmnasinieesashiaiiaien 15 F

ili

TABLE OF CONTENTS

Page

fl. THERE IS NO CIRCUIT CONFLICT

ON WHETHER THE NASD’S

ARBITRATION REQUIREMENT IS

ATTRIBUTABLE TO STATE ACTION......... 19

wo naan ae ee a 25

TABLE OF AUTHORITIES

Page(s)

CASES

Alford v. Dean Witter Reynolds, Inc.,

Fae Fk BOP CE Es RIED chcerstcvetincinemnarntennsaninaannsaniunci 11

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

78 F.3d 875 (4th Cir.), cert. denied, 519 U.S.

SI IN i si ieaceacinieistsniakcdsicnnistestibs Nekanka sea aiAbiolesenatanacamaieds 11

Bahr v. NASD,

FURS B.S TEE, FR, Fp aicnctintnascsneresesnccninenticcnney 21

Bay Area Laundry and Dry Cleaning Pension

Trust Fund v. Ferbar Corp. of California,

Inc.,

Se ee edicts cased cada pdamnndsibiaianniiasiananiads 1]

Bender v. A.G. Edwards & Sons, Inc.,

AED TLL, 8 Oe , | eC Ce 11

Blount v. SEC,

ew 5k ft oe S|. . | Rey eee me a2, 23

Blum v. Yaretsky,

EE Bo: : RO ann RCO a passim

Brentwood Academy v. Tennessee Secondary

Schools Athletic Assoc.,

180 F.3d 758 (6" Cir. 1999), cert. granted,

No. 99-901, 2000 WL 197387 (Feb. 22, 2000)................... 24

Cole v. Burns Int’l Security Services,

BOS Fe BAe CEI, GE, FFD icerstnnesesniasernsiciannens 11,17

Cosgrove v. Shearson Lehman Brothers,

105 F.3d 659 (6th Cir.), cert. denied, 522 U.S.

MT Bie cicniceosincsnnaiicnapssihaainciahadepnanianabhbadiaabiaiaasnandn’ 11

Datek Securities Corp. v. NASD,

S75 F. Sapp. 250 (G.D.N.Y.. 1995). ..0..sccceccrsssscanseneass 2,21

TABLE OF AUTHORITIES

Page(s)

Davis v. Prudential Securities Inc., .

59 F.3d 1186 (11th Cir. PM aibiisactieiii tie 21

Duffield v. Robertson Stephens & Co.,

144 F.3d 1182 (9th Cir.), cert. denied, 119

S. Ct. 445 ( PR sii luiannnaiguslh cu. ak assim

First Heritage Corp. v. NASD,

785 F. Supp. 1250 (E.D. Mich. i RO 21

First Jersey Secs., Inc. v. Bergen,

605 F.2d 690 (3rd Cir. 1979) , cert. denied,

444 U.S. 1074 SPO ithsenhs epithet sscdnan nase 21

Gilmer v. Interstate/Johnson-Lane Corp.,

si iad ch ma’ assim

Graman y. NASD,

No. Civ. A. 97-1556-JR, 1998 WL

294022 (D.D.C. i a 21, 22

Jackson v. Metropolitan Edison Co.,

419 U.S. 345 |g. EE 20, 22

Koveleskie v. SBC Capital Markets,

167 F.3d 361 (7th Cir.) cert. denied, 120

S. Ct. 44 ciedemmne en a

Lebron v. Nat’! R.R. Passenger Corp.,

513 U.S. 374 WF istionnilistadiinitrenactisesisecares hoe 23

TABLE OF AUTHORITIES

Metz v. Merrill Lynch, Pierce, Fenner & Smith,

Inc.,

39 F.3d 1482 (10th Cir. 1994)..............cccccssssssssene

Meyers v. NASD,

No. 95 CV 75055, 1996 U.S. Dist. LEXIS

6044 (E.D. Mich. March 29, 1996).............000++

Mouton v. Metropolitan Life Ins. Co.,

147 F.36 453 (Gi Cat, 1956) cvcoccsrcescececoscssesceccnes

NCAA v. Tarkanian,

ABE U.S. 179 CUGRE) qn cceccccoscccesesciscesessonsecnssacesatons

Paladino v. Avent Computer T. echnologies,

Inc.,

134 F.3d 1054 (11th Cir. 1998)... ceeeeees

Patterson v. Tenet Healthcare, Inc.,

193 Fed BSF CO Cae. TRI) ccs ecscsccscccssninienterress

R.J. O’Brien & Associates, Inc. v. Pipkin,

G6 BOG 257 CRS a ssc ensicisssinciaiianonnineninieiaisinnmniiiis

Rosenberg v. Merrill Lynch, Pierce, Fenner &

Smith, Inc.

Page(s)

R70 Fe 2 CRC, Ce cciecsonissscrsenstincecenenien passim

Seus v. John Nuveen & Co.,

146 F.3d 175 (3rd Cir. 1998), cert. denied,

S25 UB. LISD CG) csncncerynsscsseneneiciomomisnicnnasicens

Shankle v. B-G Maintenance Management of

Colorado,

163 F.3d TZ90 (ROR Cae, TSG) avccicssnesescscscancons

Shearson/American Express v. McMahon,

ME2 UTS. ZOO CRIT P snsericraricncnonseiissnsnstniiatisticinainn

Shrader v. NASD,

855 F. Supp. 122 (E.D.N.C. 1994), aff'd

without opinion, 54 F.3d 774 (4th Cir. 1995) ........

Cian

Vili

TABLE OF AUTHORITIES

Page(s)

United States vy. Bloom,

450 F. Supp. 323 (E.D. Pa. ig NN STN RTE: 21

United States v. NASD,

422 U.S. 694 FR islets sees ose 2

United States y. Solomon,

509 F.2d 863 (2d Cir. a a ONES 21

Wright v. Universal Maritime Service Corp.,

525 U.S. 70 as TREAT ETE 10

STATUTES

Wbwiseiihisbisniaicg 2

15 U.S.C. §780-3(g)(3)(b) hidinsaasaesarninnnsnsetassntanmeannibepsnanaseteess, 3

15 U.S.C. §780-3, et TONEY sirncrethnininiisoantinsendsiesidaiiamlcsnesie 2

15 U.S.C. ili aig, OTE 23

telat Seis cid eo Oe 3

pelbisicticheomec ne: 8

17 C.F.R. §§240.17a-1, 17a-3 & Rei tiinctidaecr ies 3

OTHER AUTHORITIES

Exchange Act Rel. No. 34-39346, 62 Fed. Reg.

cian cintie cae ee 17

Exchange Act Rel. No. 34-40479, 63 Fed. Reg.

PET CID istharoccicmonsaticsiiiiar | 14

Exchange Act Rel. No. 34-40861, 64 Fed. Reg.

ah ac men Te Tee SE! i4

Exchange Act Rel. No. 34-40873, 64 Fed. Reg

lath arta ieee ee a 14

Vill

TABLE OF AUTHORITIES

Page(s)

Exchange Act Rel. No. 34-42061 (Oct. 27,

1999), 64 Fed. Reg. 59815 (1999) ............c.csercccssssssscsses 6

NASD By-Laws,

Art. IV, Section 2(a)..................02. ia aia aalmhbataleiaabaadih 3

Rel. No. 34-40109 (June 22, 1998), 63 Fed.

Reg. 35299 (1998).......... TENA 4, 13,14

IN THE

Supreme Court of the Gnited States

No. 99-1285

SUSAN A. DESIDERIO,

Petitioner,

NATIONAL ASSOCIATION OF

SECURITIES DEALERS, INC.,

> Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Second Circuit

RESPONDENT’S BRIEF IN OPPOSITION

As petitioner herself emphasizes, this is a “fact-based

challenge” to the National Association of Securities Dealers

(“NASD”) arbitration Process. Pet. 4. By itself, this would

ordinarily be grounds for denying certiorari. But this fact-

based challenge is especially inappropriate for review be-

Cause it rests on facts that are no longer operative. The court

below was correct when it held that mandatory arbitration of

Title VII claims under 1996 NASD rules and procedures was

consistent with Title VII and the Constitution. Since that

time, however, the NASD has both excepted Title VII claims

from its mandatory arbitration rule and significantly modi-

fied the procedures that govern arbitration of statutory dis-

crimination claims. Petitioner’s arguments about 1996 rules

and procedures are no longer relevant, and raise no question

of continuing importance.

STATEMENT OF THE CASE

A. THE NASD.

The NASD is a private not-for-profit corporation organ-

ized under the laws of Delaware, and a self-regulatory or-

ganization registered with the Securities and Exchange

Commission (“SEC”) as a national securities association.

See 15 U.S.C. §780-3, et seg. (amending the Securities Ex-

change Act of 1934 (“Exchange Act”), 15 U.S.C. §78a, et

seq.); see also United States v. NASD, 422 U.S. 694 (1975);

Pet. App. 2a-3a.' The government provides no funding to

the NASD, and government officials neither appoint the

NASD’s members nor serve on any NASD board or commit-

tee. Jd. at 15a. The function of the NASD is to regulate the

over-the-counter securities market, and the securities firms

and their registered representatives who buy ana sell over-

the-counter securities. 15 U.S.C. §780-3; Datek Securities

Corp. v. NASD, 875 F. Supp. 230, 232 (S.D.N.Y. 1995). All

of the NASD’s rules and regulations, including those relating

to registration of securities representatives and arbitration,

must be approved by the SEC. Shearson/American Express

v. McMahon, 482 U.S. 220, 235 (1987).

B. SECURITIES INDUSTRY REGISTRATION

REQUIREMENTS AND THE saan TO

ARBITRATE.

' The abbreviation “Pet. App.” is used throughout to refer to

the appendix to the petition for certiorari. References to “JA” are

to the joint appendix filed below.

BOE 'SB' Se

The NASD is required to maintain records regarding its

member securities firms and their registered representatives,

including records related to employment of registered repre-

sentatives. 15 U.S.C. §78q(a); 17 C.F.R. §§240.17a-1, 17a-3

& 17a-6. Pursuant to its authority under section

(5) I agree to arbitrate any dispute, claim or contro-

versy that may arise between me and my firm, or a

customer, or any other person that is required to be

arbitrated under the rules, constitutions, or by-laws of

the organizations with which I register... .

See Exhibit A to Complaint, JA 30. See also Gilmer vy. In-

terstate/Johnson-Lane Corp., 500 U.S. 20, 23 (1991) (com-

pelling arbitration of Age Disctimination in Employment Act

(“ADEA”) claim pursuant to Form U-4 agreement).

All of the NASD By-Laws and Rules cited herein are pub-

lished in the NASD Manual (CCH).

The NASD?’ operates an arbitration forum for resolution

of disputes between securities brokers and their firms, as

well as other disputes. Former NASD Rule 10201 - effec-

tive at the time Desiderio’s dispute arose — provided that

employment disputes between associated persons and securi-

ties firms were arbitrable in this forum at the instance of ei-

ther party. JA 43. This provision, incorporated by reference

into the Form U-4 under the language quoted above, is at the

core of petitioner’s lawsuit.

In October of 1997, however, the NASD decided that it

would no longer require mandatory arbitration of statutory

discrimination claims, and filed a proposal to change its rules

accordingly. Following publication for comment in the Fed-

eral Register, the SEC approved the NASD's rule proposal

on June 22, 1998, effective for claims filed on or after Janu-

ary 1, 1999. Rel. No. 34-40109 (June 22, 1998), 63 Fed.

Reg. 35299 (1998). The text of amended Rule 10201 reads

as follows:

(b) A claim alleging employment discrimination,

including a sexual harassment claim, 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.

Brief of Appellees NASD and SEC, Addendum (emphasis

added). Effective January 1, 1999, no NASD rule requires

arbitration of statutory employment discrimination claims.

> The arbitration forum and registration process are operated

by NASD Regulation, Inc., a wholly owned subsidiary of the

NASD. The Board of Directors of NASD Regulation, Inc., is

comprised of 50 percent “non-industry” directors — that is, persons

who are not affiliated with the securities industry. The arbitration

program is overseen by the National Arbitration and Mediation

Committee (NAMC), which is composed of a majority of non-

industry members. The 1997 roster of the NAMC is at JA 35.

C. NASD ARBITRATION PROCEDURES.

Arbitration proceedings in the NASD forum are gov-

ered by the Code of Arbitration Procedure (“NASD Code’”’),

which has been approved by the SEC. McMahon, 482 US.

at 234.

1. Desiderio-Era Rules

At the time Desiderio’s dispute arose in 1996, the NASD

Code contained several protections for litigants against the

possibility of bias in the arbitration process. Under the arbi-

tration rules then applicable, a majority of arbitrators hearing

Desiderio’s putative employment discrimination claims

would have been “public” arbitrators, neither employed by

nor otherwise affiliated with the securities industry. JA 4]-

42, 50. Prior to final arbitrator selection, the NASD pro-

vided parties with the Proposed arbitrators’ names and em-

ployment histories for the last 10 years. Rule 10310, JA 51.

Arbitrators were (and still are) required to provide timely

and ongoing disclosures of “any circumstance which might -

preclude such arbitrator from rendering an objective and im-

partial decision.” Rule 10312(a), JA 52. The Parties also

were and are permitted to request the disclosure of additional

information regarding the arbitrators. Jd

This disclosure assisted parties or counsel in making in-

formed decisions about whether to challenge the appoint-

ment of arbitrators. Parties were entitled to one peremptory

challenge as of right and unlimited challenges for cause to

remove an arbitrator from a panel. Rule 103] 1, JA 51-52.

The same rule permitted the Director of Arbitration, in his

discretion, to grant additional peremptory challenges in the

interests of justice. Jd. Rule 10312(d) also permitted the Di-

rector of Arbitration himself, prior to the first hearing in the

case, to remove an arbitrator based on the information dis-

closed, or to inform the parties of relevant disclosed informa-

tion if the Director did not remove the arbitrator. JA 52.

2. Post-1996 Rule Changes

Since the time of Desiderio’s 1996 dispute, the NASD

has made significant changes to the arbitration procedures

that govern statutory discrimination claims voluntarily sub-

mitted to NASD arbitration. Most of these changes are the

result of a comprehensive proposal by the NASD, approved

by the SEC on October 27, 1999, and effective on January

18, 2000. Exchange Act Rel. No. 34-42061 (Oct. 27, 1999), -

64 Fed. Reg. 59815 (1999).* All of the rule changes are de-

signed to enhance protections for employees in the arbitra-

tion process. The changes most relevant here are as follows:

¢ Arbitrator qualifications: Only “public” arbitrators (ar-

bitrators not affiliated with the securities industry) are eligi-

ble to hear statutory discrimination claims. Additionally, the

chairperson of a panel hearing such a claim must have a law

degree, membership in a state bar, substantial familianty

with employment law and 10 or more years legal experience,

and cannot have spent more than 50 percent of his or her

time representing the views of employers or employees

within the last five years. See Rule 10211.

¢ Arbitrator selection: Rather than being presented with

a proposed panel of arbitrators, parties are now permitted to

select their own arbitrators from a rotating list of names. See

Rule 10310. Parties receive lists of potential arbitrators,

complete with employment and professional backgrounds,

and may strike the names of arbitrators they do not want to

hear their cases and rank the remaining arbitrators in order of

preference. This new seiection procedure results from a

separate 1998 change to NASD rules, and applies to all

NASD arbitrations. See Rule 10308.

¢ Discovery: Parties in statutory discrimination cases are

* The text of the relevant 1999 amendments appears in an ap-

pendix to this brief.

specifically permitted to take pre-hearing depositions, as

well as to avail themselves of the other forms of discovery

already available under the NASD Code. See Rule 10213.

* Arbitration awards: Arbitrators hearing statutory dis-

crimination claims may award any relief available in a court.

Each arbitral award must include a written summary of the

issues presented, description of the type of dispute and the

damages or other relief requested or awarded, and a state-

ment regarding the disposition of any statutory claims. See

Rule 10214.

* Attorneys’ Fees: Arbitrators in Statutory discrimina-

tion cases may award reasonable attorneys’ fees in accor-

dance with applicable law. See Rule 10215.

D. PETITIONER’S DISPUTE AND THE PRO-

CEEDINGS BELOW.

On March 18, 1996, Desiderio was hired by SunTrust

Bank in Florida as a registered securities representative. As

a condition of employment, Desiderio was required to regis-

ter with the NASD and to execute a Form U-4. Pet. App. 2a.

Desiderio signed the Form U-4, but crossed out the provision

in the Form, supra at 3, in which she would have agreed to

arbitrate disputes with her employer under the rules of the

NASD. Id. at 25a-26a. Although SunTrust was, according

to Desiderio, prepared to accept the Form as altered, De-

Siderio alleges that an unidentified person at the NASD,

when asked, advised SunTrust’s compliance department that

the NASD would not accept an altered form. /d. at 26a.

Though she had executed the Form U-4 in its entirety on

several occasions in the past, JA 73-102, Desiderio this time

refused to submit an unaltered Form U-4, and SunTrust re-

voked its offer of employment because Desiderio did not be-

come registered with the NASD. Pet. App. 26a. Desiderio’s

altered Form U-4 was never actually submitted to the NASD

for approval, and Desiderio never directly contacted the

NASD.

On January 13, 1997, Desiderio brought suit in the

United States District Court for the Southern District of New

York against the NASD and the SEC for declaratory judg-

ment invalidating the mandatory arbitration clause in the

Form U-4, on the grounds that it violated her nghts under

Title VII, 42 U.S.C. §§ 20006e et seq., and the United States

Constitution. Pet. App. 2a. The complaint also sought dam-

ages under pendent state law claims of tortious interference

with employment and negligent infliction of emotional dis-

tress. Id. Desiderio did not allege that she actually had any

dispute with an employer that would be subject to mandatory

arbitration under the Form U-4.

The district court granted defendants’ motions to dismiss

Desiderio’s complaint for failure to state a claim. Pet. App.

26a-34a. Relying on Gilmer v. Interstate/Johnson-Lane

Corp., 500 U.S. 20 (1991), in which this Court approved

mandatory arbitration of ADEA claims under the Form U-4,

the district court rejected Desiderio’s Title VII and constitu-

tional claims. Jd. at 27a-3la. The district court also held

that the NASD is not a state actor and consequently could

not violate Desiderio’s constitutional rights. Jd. at 27a. De-

siderio’s state law claims against the NASD and all of her

claims against the SEC were dismissed on grounds not rele-

vant here. Jd. at 32a-34a.

Petitioner appealed from the judgment only as against the

NASD. The Second Circuit affirmed. The appellate court,

like the district court, held that Gilmer disposed of De-

siderio’s Title VII claim. Following Gilmer, the court rea-

soned that mandatory arbitration of Title VII complaints

would be permissible unless Congress had manifested an in-

tent to preclude waiver of judicial remedies with respect to

Title VII. Pet. App. 10a (quoting Gilmer, 500 U.S. at 26).

Finding no such intent, the court held — in accord with prior

decisions from ten other circuits — that mandatory arbitration

of Title VII claims was consistent with that statute. Jd. at 7a-

8a, 1la-14a. The Second Circuit then turned to Desiderio’s

claims that the NASD’s mandatory arbitration rule violated

the Constitution and, specifically, her Fifth Amendment due

process rights, Seventh Amendment right to jury trial, and

Article III rights to a judicial forum. Jd. at 15a. Those

claims were foreclosed, the court held, by an absence of state

action. Jd. Applying the state action standard set out in

Blum v. Yaretsky, 457 U.S. 991 (1982), the Second Circuit

concluded that because the SEC had neither required nor en-

couraged the NASD’s mandatory arbitration rule, that rule

was not “fairly attributable” to the government. /d. at 16a-

18a.

REASONS FOR DENYING THE PETITION

Petitioner barely acknowledges, let alone addresses, what

is now the most important aspect of this case: since January

1, 1999, no NASD rule has required arbitration of Title VII

claims, or any other statutory discrimination claims. More-

over, the NASD has adopted new arbitration procedures for

Statutory discrimination claims, effective January 18, 2000,

that directly address many of petitioner’s specific objections

to NASD arbitration. In light of these changes, Desiderio’s

claim — that the NASD could not, in 1996, require arbitration

of Title VII claims because its then-governing procedures

were insufficient to protect statutory rights — is not appropri-

ate for review by this Court.

Even if Desiderio’s claims had some continuing legal

significance, they would not merit review by this Court. The

Court already has held that statutory claims, including statu-

tory discrimination claims, generally are subject to manda-

tory arbitration agreements, see Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20 (1991), and the Second Circuit’s

decision in this case is a straightforward application of that

tule. The NASD’s arbitration procedures, even before the

recent amendments, provided employees with a full and fair

opportunity to present their claims. Contrary to petitioner’s

assertions, there is no conflict among the federal circuits on

either the adequacy of NASD arbitration procedures or the

fact that NASD arbitration rules are not attributable to the

government for constitutional purposes. Nothing about this

case requires the Court’s attention.

I. PETITIONER’S TITLE VII CLAIM IS BOTH

MERITLESS AND WITHOUT ANY PROSPEC-

TIVE LEGAL SIGNIFICANCE.

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

(1991), this Court approved the very same Form U-4 manda-

tory arbitration clause to which Desiderio objected here. Re-

lying on the “liberal federal policy favoring arbitration

agreements” reflected in the Federal Arbitration Act

(“FAA”), id. at 25 (internal quotation omitted), the Court

held that statutory claims, including statutory discrimination

claims, generally are subject to predispute arbitration agree-

ments. Jd. at 26; see also Wright v. Universal Maritime Ser-

vice Corp., 525 U.S. 70, 75-77 (1998) (raising but not decid-

ing question whether Gilmer applies to union-negotiated ar-

bitration clauses as well as to individually executed arbitra-

tion agreements, such as Form U-4). Because Gilmer could

not meet his burden of showing that Congress intended to

preclude arbitration when it passed the Age Discrimination

in Employment Act (“ADEA”), 500 U.S. at 26, he was

bound under the FAA by his Form U-4 agreement to arbi-

trate his ADEA complaint.

Gilmer appears to foreclose Desiderio’s claim that man-

datory arbitration of Title VII disputes under the Form U-4

would violate her rights under that statute. In an effort to

avoid this conclusion and distinguish Gilmer, Desiderio ar-

STR TENS AeTeraremmennnearone serene ae .

gues that the NASD’s specific arbitration practices — unlike

the New York Stock Exchange arbitration procedures at is-

sue in Gilmer — inadequately protect Title VII statutory

rights, and are thus inconsistent with that statute. Pet. 4-15.>

” Desiderio does not argue in her petition that her case is dis-

tinguishable from Gilmer on the ground that Gilmer upheld arbi-

tration of ADEA claims rather than Title VII claims. This may be

in recognition of the fact that the Second Circuit, in the decision

below, became the eleventh federal court of appeals to reject this

argument and hold that Title VII claims are subject to predispute

arbitration agreements under Gilmer. Though there is one federal

circuit court decision to the contrary, the law on this question is

sufficiently well-settled that this Court has several times denied

certiorari in cases raising the issue. See Rosenberg v. Merrill

Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1 (1st Cir. 1999)

(Title VII claims subject to predispute arbitration agreement); Seus

v. John Nuveen & Co., 146 F.3d 175 (3rd Cir. 1998) (same), cert.

denied, 525 U.S. 1139 (1999); Austin v. Owens-Brockway Glass

Container, Inc., 78 F.3d 875 (4th Cir.) (same), cert. denied, 519

U.S. 980 (1996); Alford v. Dean Witter Reynolds, Inc., 939 F.2d

229 (Sth Cir. 1991) (same); Mouton v. Metropolitan Life Ins. Co.,

147 F.3d 453 (5th Cir. 1998) (same); Cosgrove v. Shearson Leh-

man Brothers, 105 F.3d 659 (6th Cir.) (same), cert. denied, 522

U.S. 864 (1997); Koveleskie y. SBC Capital Mkts. Inc., 167 F.3d

361 (7th Cir.) (same), cert. denied, 120 S. Ct. 44 (1999); Patterson

v. Tenet Healthcare, Inc., 113 ¥.3d 832 (8th Cir. 1997) (same);

Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482

(10th Cir. 1994) (same); Bender v. A.G. Edwards & Sons, Inc.,

971 F.2d 698 (11th Cir. 1992) (same); Cole v. Burns Int'l Sec.

Servs., 105 F.3d 1465 (D.C. Cir. 1997) (same); but see Duffield v.

Roberston Stephens & Co., 144 F.3d 1182 (9th Cir.) (Title VII

claims not subject to predispute arbitration agreement), cert. de-

nied, 119 S. Ct. 445 (1998). For whatever reason, petitioner de-

cided not to press the argument in her petition for certiorari, and it

is now waived. See Bay Area Laundry and Dry Cleaning Pension

Trust Fund vy. Ferbar Corp. of California, Inc., 522 US. 192,

This claim is without merit. The Court in Gilmer approved

arbitration of statutory discrimination complaints under pro-

cedures either substantially similar to or Jess employee-

protective than the NASD’s own arbitration procedures.

Perhaps more important here, Desiderio’s “fact-based chal-

lenge to the adequacy of the NASD arbitration scheme as it

operate[d] in actual practice,” Pet. 4, is of no prospective le- -

gal importance at all, as the NASD no longer requires arbi-

tration of Title VII claims and has in any event implemented

new rules to govern its arbitration proceedings.

A. The Title VII Issue Raised by Petitioner Has No

Prospective Importance.

The main argument advanced by Desiderio, in the courts

below as well as before this Court, is a Title VII argument:

according to Desiderio, mandatory arbitration of Title VII

claims under NASD rules and procedures deprives claimants

of substantive rights under Title VII and is thus inconsistent

with that statute. See, e.g., Pet. 3 (describing complaint); id.

at 4-15 (arguments under Title VII); id. at 23 (constitutional

arguments tied to statutory claims). What this case is about

is mandatory arbitration of Title VII claims and, more spe-

cifically, mandatory arbitration of Title VII claims under the

NASD’s own arbitration rules and procedures. Pet. 4. But

NASD rules no longer provide for mandatory arbitration of

Title VII claims, or of any other statutory discrimination

claims. Accordingly, Desiderio’s NASD-specific challenge

to arbitration of Title VII claims has no continuing legal sig-

nificance.

The NASD’s current rule on arbitration, approved by the

SEC in 1998, expressly excepts claims alleging employment

discrimination in violation of statute — including, obviously,

206-08 (1997) (statutory argument made in court of appeals

waived by failure to include in certiorari petition).

‘daehMindldpah eli mte 400 (eyed teeta (ec See COE msaeentenie's .

Title VII - from the NASD’s mandatory arbitration require-

ment. See supra at 4. Under the current rule, potential em-

ployees like Desiderio need not, as a condition of registration

with the NASD, agree in advance to arbitrate Title VII

claims at the insistence of their employers. Instead, NASD

rules provide for arbitration of Title VII claims only if both

Parties to the dispute — employer and employee — agree on

that course of action, either before or after the dispute arises.

63 Fed. Reg. at 35302-03. There is, in short, no mandatory

arbitration of Title VII claims under governing NASD rules.°

Nor does the NASD’s prior approach to arbitration of Ti-

tle VII claims have significant ongoing effects on pending

claims. The current rule applies not, as petitioner suggests,

only to Title VII claims “arising” after January 1, 1999, see

Pet. 2 n.1, but to all Title VII Claims filed on or after January

1, 1999, regardless of whether the underlying conduct giving

rise to the claim occurred before that date. 63 Fed. Reg. at

35301 & n.27. The old mule on arbitration of Title VII

claims, that is, applies only to pending claims filed before

January 1, 1999.

The NASD continues to believe that arbitration of em-

ployment-related disputes brings substantial advantages in

terms of speed and cost, and that arbitration’s “essentially

equitable approach to dispute resolution is fully capable of

vindicating the important public rights expressed in anti-

discrimination statutes.” Jd. at 35301 n.22 (quoting NASD

Arbitration Policy Task Force). The NASD expects that

° The NASD rule on mandatory arbitration covers only the

NASD’s own registration requirements, and does not affect the

nght of securities firms to include broader arbitration provisions in

their own employment agreements. But Desiderio’s objection is

to mandatory arbitration of Title VII claims as required and im-

plemented by the NASD, and the NASD requirement no longer

exists.

some employment discrimination claims will continue to be

submitted to arbitration in the NASD forum. Those claims

will be governed by the new procedures for employment dis-

crimination claims recently adopted by the NASD and ap-

proved by the SEC, described supra at 6-7.

F The question posed by Desiderio’s certiorari petition is

whether NASD arbitration procedures in 1996 — when De-

siderio refused to sign the Form U-4 — were adequate to pro-

tect substantive Title VII rights, so that the NASD could re-

quire arbitration of Title VII claims under Gilmer. The an-

swer to this question is yes, as discussed below. But it is

also irrelevant. Since Desiderio brought her lawsuit in 1997,

the NASD has both excepted Title VII claims from its man-

datory arbitration requirement’ and revised its arbitration

procedures in ways that are directly applicable to Desiderio’s

claims. Desiderio’s self-described “fact-specific challenge to

the adequacy of NASD’s mandatory arbitration procedures”

’ The New York Stock Exchange (“NYSE”) followed the

NASD’s lead and excepted statutory discrimination claims from

its mandatory arbitration rule in September 1998. See Exchange

Act Rel. No. 34-40479, 63 Fed. Reg. 52782 (1998). Combined,

the NASD and the NYSE arbitrate the vast majority of employ-

ment claims in the securities industry. Several smaller exchanges

also have amended their rules so that mandatory arbitration of

statutory discrimination claims is no longer required. See Ex-

change Act Rel. No. 34-40861, 64 Fed. Reg. 1039 (1999) (Boston

Stock Exchange); Exchange Act Rel. No. 34-40873, 64 Fed. Reg.

1253 (1999) (Chicago Stock Exchange); Exchange Act Rel. No.

34-41080, 64 Fed. Reg. 10033 (1999) (Chicago Board Options

Exchange). Even if petitioner’s argument extended to mandatory

arbitration of Title VII claims by securities exchanges as a whole,

rather than focusing specifically and exclusively on the “actual

practice” of the NASD system, Pet. 4, the general move away

from mandatory arbitration of Title VII claims by securities ex-

changes would deprive the argument of any broad significance.

for Title VII claims, Pet. 4, is a challenge of no general pro-

spective importance.

B. Petitioner’s Title VII Claim Is Meritless and Impli-

cates No Circuit Court Conflict.

1. Even if it were still relevant, Desiderio’s argument

that the NASD’s Prior arbitration procedures and practices

inadequately protected Title VII statutory rights would be

unavailing. In Gilmer, the Court rejected a similar claim that

arbitration under the rules of the NYSE provided an inade-

quate forum for ADEA claims because it did not provide all

of the same procedural protections as resolution by judicial

forum: “Although [the NYSE] procedures might not be as

extensive as in the federal courts, by agreeing to arbitrate, a

party trades the procedures and Opportunity for review of the

courtroom for the simplicity, informality, and expedition of

arbitration.” 500 U.S. at 31 (internal quotation omitted).

* -Desiderio acknowledges one of the NASD’s two new rules

~ the rule exempting Statutory discrimination claims from the

mandatory arbitration requirement — in a footnote, but responds

that the change came “too late to benefit petitioner.” Pet. 2 n.1.

There is no Suggestion, however, that review of Desiderio’s claim

might have some more general prospective relevance for future

litigants or cases. And if the inquiry is limited to petitioner’s own

individual circumstances, then it is noteworthy that Desiderio her-

self did not actually need the benefit of the new Tule. Desiderio’s

Prospective employer was apparently willing to forgo arbitration

of employment disputes, Pet. 2, and the NASD arbitration rule

See Brief of Plaintiff-Appellant at 14 (“mandatory arbitration pro-

vision in the Form U-4 could be readily circumvented by a side

agreement” between Desiderio and her Prospective employer).

The NASD’s former arbitration procedures were no less em-

ployee-protective, and in some instances more employee-

protective, than those approved by the Court in Gilmer, and

thus raise no question as to adequacy.

With respect to concerns about the “demographic charac-

teristics of NASD arbitrators,” Pet. 6, for instance, NASD

rules provided all of the same protections against bias as the

NYSE rules deemed sufficient in Gilmer, 500 U.S. at 30:

parties were informed of arbitrators’ employment histories

for the past 10 years, arbitrators were under a duty to dis-

close any circumstances which might preclude an impartial

and objective decision, and each party was allowed one per-

emptory challenge 4nd unlimited challenges for cause. But

1996 NASD procedures went even further than the NYSE

rules approved in Gilmer, and provided also that employ-

ment discrimination claims would be heard only by panels

on which a majority of arbitrators were “non-industry,” nei-

ther employed by nor affiliated with the securities industry.

See supra at 5.2 NASD’s more employee-protective meas-

ures against arbitrator bias are more than adequate under

Gilmer.

Gilmer similarly disposes of most of Desiderio’s other

objections. Like Desiderio in this case, Gilmer complained

that under the NYSE arbitration scheme, at least in practice,

discovery was limited, arbitrators failed to issue written

opinions, and meaningful judicial review was precluded. See

500 U.S. at 31-32 & n.4; Pet. 6, 12-13. This Court held the

NYSE arbitration procedures adequate despite these alleged

shortcomings. Limited discovery, the Court concluded, was

offset by gains in simplicity and informality. 500 U.S. at 31.

The fact that NYSE rules — like NASD rules, see Rule

° As already discussed, this NASD rule has since been re-

placed by one requiring that a/l arbitrators hearing employment

discrimination claims be “non-industry.” Supra at 6.

10330(a), JA 58 — require arbitrators to summarize issues in

controversy and describe awards issued was sufficient to

preserve appellate review. Jd. at 31-32.'° And though “‘judi-

cial scrutiny of arbitration awards necessarily is limited, such

review is sufficient to ensure that arbitrators comply with the

requirements of the statute at issue.” Jd. at 32 n.4 (internal

quotation omitted).

The few of petitioner’s complaints that have not been

Squarely rejected already by Gilmer are equally without

merit. Desiderio makes much, for instance, of the allegation

that NASD arbitrators are instructed in their manual that they

are not “strictly bound” by case precedent or statutory law.

Koveleskie v. SBC Capital Markets, 167 F.3d 361, 365 (7th

Cir.) cert. denied, 120 S. Ct. 44 (1999); Pet. 8-10. But that is

not the same as saying that arbitrators should not follow the

law, and arbitrators are “also told that if they manifestly dis-

regard the law, the award may be vacated.” 167 F.3d at 365

(internal quotation omitted) (rejecting “as-applied” challenge

to securities industry arbitration procedures under Gilmer).

Petitioner also alleges that NASD arbitrators impose substan-

tial “forum fees” on Title VII plaintiffs. Pet. 10-12. But

most of the expenses of the NASD arbitration program are

borne by employers, not employees. See Exchange Act Rel.

No. 34-39346 (1997) (proposed amendment to NASD arbi-

tration fees discussing fee allocation); see also Koveleskie,

167 F.3d at 366; Cole v. Burns Int’l Security Services, 105

F.3d 1465, 1483 (D.C. Cir. 1997); Rosenberg v. Merrill

Lynch, Pierce, Fenner & Smith, 170 F.3d 1, 15-16 (Ist Cir.

1999). Moreover, the Director of Arbitration has the author-

ity to waive any fees that otherwise would be imposed on

' Again, the NASD has since revised its procedures govern-

ing both discovery and the content of arbitral awards in a manner

that addresses Desiderio’s objections. See Supra at 6-7.

employees in cases of financial hardship. Rule 10332(a), JA

59.

2. There is no disagreement in the lower courts as to

whether the NASD’s arbitration procedures and practices are

adequate, under Gilmer, to protect the Title VII nghts of

claimants. The court below rejected Desiderio’s Title VII

claim without even reaching this argument, and no other cir-

cuit court has ever concluded that the arbitration procedures

of NASD, or any other securities exchange, provide inade-

quate protection for statutory nghts. On the contrary, the

law on this issue is entirely uniform: both circuit courts that

considered “as applied” challenges to securities industry ar-

bitration procedures under Gilmer rejected them. See Kove-

leskie, 167 F.3d at 365-366; Rosenberg, 170 F.3d at 14-16.

Nor, contrary to petitioner’s assertion, is there a conflict

in the courts of appeals on the more general issue of the

permissibility of “substantial filing and forum fees” charged

to claimants. Pet. 13-15. It is true that some courts, in cases

arising outside the securities industry, have disapproved of

arbitration procedures or agreements that impose high forum

costs on employee-claimants. See Cole, 105 F.3d at 1483-

85; Paladino v. Avent Computer Technologies, Inc., 134

F.3d 1054, 1062 (11th Cir. 1998); Shankle v. B-G Mainte-

nance Management of Colorado, 163 F.3d 1230, 1233 (10th

Cir. 1999). But petitioner cites no case that has approved the

imposition of substantial forum costs on employees, and thus

there is no conflict. Though petitioner suggests otherwise,

Pet. 14, the court below did not even address, let alone de-

cide, this question.'' The other cases relied on by petitioner

enforce arbitration agreements against forum-cost claims like

Desiderio’s on the express understanding that employees in

'' Nor does the Third Circuit in Seus v. John Nuveen & Co.,

146 F.3d 175 (1998), cert. denied, 119 S. Ct. 1028 (1999), also

relied on by petitioner, Pet. 14, discuss the question of forum fees.

those cases were not required to bear forum fees, and leave

open the possibility of a challenge if unreasonable fees are in

fact imposed on a particular employee. Rosenberg, 170 F.3d

at 15-16; Koveleskie, 167 F.3d at 366. Petitioner’s claim of

conflict boils down to this: some courts have suggested that

charging forum costs to employees might be problematic,

and others — directly on point — have found that any such

problem is not implicated in the securities industry. See

Rosenberg, 170 F.3d at 16; Koveleskie, 167 F.3d at 366.

There is no disagreement as to the underlying law here, and

no need for this Court’s review.

II. THERE IS NO CIRCUIT CONFLICT ON

WHETHER THE NASD’S ARBITRATION RE-

QUIREMENT IS ATTRIBUTABLE TO STATE

ACTION.

The Second Circuit correctly held that Desiderio’s

constitutional claims fail for want of the requisite state ac-

tion. Pet. App. 15a. Desiderio’s constitutional challenge is

to the mandatory arbitration requirement of the NASD. Pet.

16. But the decision of NASD to require arbitration of

certain employment claims — now excepting statutory dis-

crimination claims, in any event — does not constitute gov-

emment action, and no court has ever held to the contrary.

It is clear, as the Second Circuit held, that the NASD is

itself a private entity rather than a state actor, Pet. App. 15a,

and petitioner does not appear to dispute this point. Instead,

petitioner argues, Pet. 16, that the NASD’s decision to re-

quire arbitration of certain claims should nevertheless be

held to constitutional limits under the standard set out in

Blum v. Yaretsky: where “there is a sufficiently close nexus

between the State and the challenged action of the [private]

entity [] the action of the latter may be fairly treated as that

of the State itself.” 457 U.S. 991, 1004 ( 1982) (internal quo-

tation omitted). But that standard, as the Second Circuit

held, Pet. App. 16a-18a, cannot be met here.

Blum’s “close nexus” requires that the state be “respon-

sible for the specific conduct of which the plaintiff com-

plains,” 457 U.S. at 1004 (emphasis shifted), and “there is

nothing in the [Securities Exchange Act of 1934] and [] no

Commission rule or regulation that specifies arbitration as

the favored means of resolving employer-employee dis-

putes.” Merrill Lynch, Pierce, Fenner & Smith v. Ware, 414

U.S. 117, 135 (1973). Nor has the SEC, through rule or in-

formal action, encouraged or prompted the NASD to require

arbitration. Pet. App. 16a-17a; Duffield v. Robertson

Stephens & Co., 144 F.3d 1182, 1202 (9th Cir.), cert. denied,

119 S. Ct. 445 (1998). Finally, the fact that the SEC ap-

proves and oversees the NASD’s rules, including its manda-

tory arbitration rule, Pet. 18-19, falls far short of establishing

state action. As this Court held in Jackson v. Metropolitan

Edison Co., 419 U.S. 345, 349-50, 357 (1974), even where

the state engages in “extensive and detailed” regulation and

oversight of a private entity, the state’s failure to disapprove

of a proposed action by the regulated entity does not make

that action attributable to the government. See Duffield, 144

F.3d at 1202 (relying on Jackson to find absence of state ac-

tion with respect to NASD rules).

In Koveleskie v. SBC Capital Markets, Inc., 167 F.3d

361, 368, cert. denied, 120 S. Ct. 44 (1999), the Seventh Cir-

cuit recently came to the same conclusion as the court below,

rejecting on state action grounds precisely the same constitu-

tional challenge to the NASD arbitration requirement as

raised here.'? The decision below also is consistent with a

'2 The Seventh Circuit went on to conclude that even apart

from the absence of state action, Koveleskie’s constitutional

claims — the same claims as raised by Desiderio here — were en-

long line of cases from the lower courts holding that the con-

duct of the NASD - in its regulatory capacity or as operator

of an arbitration forum — does not constitute state action.!*

And contrary to petitioner’s contention, Pet. 17-18, the Sec-

ond Circuit’s decision is not in conflict with any decision of

another court of appeals.

Duffield is the only case petitioner relies on for the pur-

ported conflict that actually involves the Status of the NASD.

But in Duffield, the Ninth Circuit rejected the plaintiff's con-

stitutional claims against mandatory arbitration under the

Form U-4 on the ground that the mandatory arbitration re-

quirements of the NASD and NYSE are not “fairly attribut-

able” to the state. 144 F.3d at 1200. The court did suggest

that after issuance of a 1993 SEC regulation, the requirement

that new employees register with an exchange was a matter

of law and thus attributable to the state. Id. at 1201. Be-

tirely without merit. 167 F.3d at 368-69 (addressing and rejecting

Article III, Seventh Amendment, and Fifth Amendment Claims).

> See, e.g., First Jersey Secs., Inc. v. Bergen, 605 F.2d 690,

698, 699 n.5 (3rd Cir. 1979) (no state action in regulatory capac-

ity), cert. denied, 444 {1.S. 1074 (1980); Datek Secs. Corp. vy.

NASD, 875 F. Supp. 230, 234 (S.D.N.Y. 1995) (same); United

States v. Bloom, 450 F. Supp. 323, 329-30 (E.D. Pa. 1978) (same);

Shrader v. NASD, 855 F. Supp. 122, 124 (E.D.N.C. 1994) (no state

action as sponsor of arbitration forum), aff'd without opinion, 54

F.3d 774 (4th Cir. 1995); Graman vy. NASD, No. Civ. A. 97-1556-

JR, 1998 WL 294022 (D.D.C. Apr. 27, 1998) (same); Bahr vy.

NASD, 763 F. Supp. 584, 588-89 (S.D. Fla. 1991) (same); First

Heritage Corp. v. NASD, 785 F. Supp. 1250, 1251 (E.D. Mich.

1992) (same); see also United States v. Solomon, 509 F.2d 863,

867-71 (2d Cir. 1975) (NYSE not state actor for purposes of Fifth

Amendment claim); Davis v. Prudential Securities Inc., 59 F.3d

1186, 1191 (11th Cir. 1995) (agreeing with numerous courts that

“state action element of a due process claim is absent in private

arbitration cases” generally).

cause the events at issue in Duffield occurred before 1993, as

the court recognized, id. at 1200-01, this portion of the opin-

ion is dicta. More important, whether or not the Ninth Cir-

cuit’s understanding of the registration requirement is cor-

rect, it does not resolve the issue here. Desiderio is not chal-

lenging the requirement that she register with the NASD, but

the NASD’s mandatory arbitration requirement. And as the

Ninth Circuit went on to find — consistent with the decision

below — there is no “nexus” between the government and the

mandatory arbitration requirement, the “specific conduct”

being challenged here. Blum, 457 U.S. at 1004; Duffield,

144 F.3d at 1201-02. The absence of a “nexus” under Blum

is dispositive; even if the government required registration,

arguably giving the securities exchanges a kind of “monop-

oly power” to enforce their rules against employees, that

would not by itself transform those rules into products of

government action. See Jackson, 419 U.S. at 351-52 (fact

that state gives private entity monopoly power over consum-

ers does not make entity’s exercise of that power attributable

to state); see also Graman v. NASD, 1998 WL 294022, *3

(D.D.C. 1998) (NASD rules not attributable to state in part

because “existence of an effective private monopoly does not

create governmental action”’).

The other cases cited by petitioner for a “conflict” con-

cern not the NASD, but different regulatory entities gov-

erned by different statutes and operating in different con-

texts. That they come to different results is the natural result

of a ‘act-specific state action standard, see Lugar v.

Edmondson Oil Co., 457 U.S. 922, 939 (1982), and reflects

no disagreement as to underlying legal principles. Blount v.

SEC, 61 F.3d 938, 941 (D.C. Cir. 1995), for instance, holds

that rules of the Municipal Securities Rulemaking Board

(“MSRB”), approved (like NASD rules) by the SEC, consti-

tute government action. But the MSRB, unlike the NASD,

was created by an act of Congress and directed by Congress

to “propose and adopt rules to effect the purposes of the [Se-

curities Exchange Act]” within narrow constraints. Jd. All

MSRB board members, unlike NASD board members, ini-

tially were appointed by the government. 15 U.S.C. §780-

4(b)(1). This is enough, as the D.C. Circuit suggested with-

out deciding, 61 F.3d at 941, to make the MSRB a govern-

ment actor, and to render superfluous the question whether

its actions are otherwise “attributable” to the state under

Blum. See Lebron v. Nat’! R.R. Passenger Corp., 513 US.

374, 383-86, 378 (1995) (Amtrak is government actor be-

cause government created Amtrak by statute for governmen-

tal purposes and reserves authority to appoint majority of

directors; accordingly, no need to reach “attribution” theory

of state action).'*

Petitioner also relies on the Seventh Circuit case of R.J.

O'Brien & Associates, Inc. v. Pipkin, 64 F.3d 257 (1995).

But the Seventh Circuit, as noted above, recently decided

precisely the question at issue here — the status of the

NASD’s arbitration rule — in accord with the decision below

and without mentioning O’Brien, see Koveleskie, 167 F.3d at

368, clearly demonstrating that O’Brien has no bearing on

this case. O’Brien concerns the status of a registration form

used by the National Futures Association (“NFA”) pursuant

to the Commodities Exchange Act (“CEA”). The CEA,

which arose from a distinct economic system involving the

sale of agricultural products, does not mirror the Exchange

Act, under which the NASD operates. See Merrill Lynch,

Pierce, Fenner & Smith v, Curran, 456 U.S. 353, 356-362

(1982). Most important here, the CEA, unlike the Exchange

Act, specifically delegates to futures associations such as the

‘* Moreover, the NASD, unlike Amtrak, receives no federal

or state funding. Compare Lebron v. Nat'l RR. Passenger Corp.,

12 F.3d 388, 391 (2d Cir. 1993) (Amtrak operations financed by

federal government), rev’d on other grounds, 513 U.S. 374 (1995).

NFA the function of registering commodities professionals,

and it was this statutory delegation on which the Seventh

Circuit relied for its finding of state action in O'Brien. 64

F.3d at 262."°

'S Resolution of the state action question in Brentwood Acad-

emy v. Tennessee Secondary Schools Athletic Assoc., 180 F.3d 758

(6° Cir. 1999), on which the Court recently granted certiorari, No.

99-901, 2000 WL 197387 (Feb. 22, 2000), is unlikely to have any

bearing on this case. Brentwood Academy, which involves the

status of a secondary school athletic association, turns in large part

on the fact that the athletic association in question is composed of

and exclusively governed by public entities and public officials.

The principal question for the Court is the significance to be ac-

corded that fact under NCAA v. Tarkanian, 488 U.S. 179 (1988),

and especially footnote 13 of that opinion. See Petition for Writ of

Certiorari i (Question Presented); id. at 2-3, 17-18, 19-25. The

NASD is neither composed of nor governed by public officials,

and the proper application of the NCAA case to secondary school

athletic associations has no direct connection to this case.

CONCLUSION

For the foregoing reasons, the petition for certiorari

should be denied.

Respectfully submitted,

Of Counsel: WALTER E. DELLINGER

JOHN J. FLoop (Counsel of Record)

TERRI L. REICHER PAMELA A. HARRIS

NATIONAL ASSOCIATION OF O’MELVENY & MYERS LLP

SECURITIES DEALERS, INC. 555 13th Street, N.W.

1735 K Street, N.W. Washington, D.C. 20004

Washington, D.C. 20006 (202) 383-5300

(202) 728-8967

Attorneys for Respondent

APPENDIX

—_———

Kod

APPENDIX

The amendments to the NASD arbitration procedure for

employment discrimination claims, effective January 18,

2000, provide in relevant part as follows:

10200. INDUSTRY AND CLEARING CONTROVER-

SIES

10202. Composition of Panels

(a) In disputes subject to arbitration that arise out of the em-

ployment or termination of employment of an associated

person, and that relate exclusively to disputes involving em-

ployment contracts, promissory notes or receipt of commis-

sions, the panel of arbitrators shall be appointed as provided

by paragraph (b)(1) or (2) or Rule 10203, whichever is appli-

cable. In all other disputes arising out of the employment or

termination of employment of an associated person, the

panel of arbitrators shall be appointed as provided by Rule

10212, 10302 or 10308, whichever is applicable.

* * *

10210. Statutory Employment Discrimination Claims

The Rule 10210 Series shall apply only to disputes that in-

clude a claim alleging employment discrimination, including

a sexual harassment claim, in violation of a statute. The

Rule 10210 Series shall supersede any inconsistent Rules

contained in this Code.

10211. Special Arbitrator Qualifications for Employment

Discrimination Disputes

(a) Minimum Qualifications for All Arbitrators

Only arbitrators classified as public arbitrators as provided in

Rule 10308 shall be selected to consider disputes involving a

claim of employment discrimination, including a sexual har-

assment claim, in violation of a statute.

(b) Single Arbitrators or Chairs of Three-Person Panels

(1) Arbitrators who are selected to serve as single arbitra-

tors or as chairs of three-person panels should have the

following additional qualifications:

(A) law degree (Juris Doctor or equivalent);

(B) membership in the Bar of any jurisdiction;

(D) ten or more years of legal experience, of which at

least five years must be in either;

(i) law practice;

(ii) law school teaching;

(iii) government enforcement of equal employ-

ment opportunity statutes;

(iv) experience as a judge, arbitrator, or mediator;

(v) experience as an equal employment opportu-

nity officer or in-house counsel of a corporation

(2) In addition, a chair or single arbitrator with the above

experience may not have represented primarily the views

of employers or of employees within the last five years.

For purposes of this Rule, the term “primarily” shall be

interpreted to mean 50% or more of the arbitrator’s busi-

ness or professional activities within the last five years.

If all parties agree, after a dispute arises, they may waive any

of the qualifications set forth in paragraph (a) or (b) above.

10212. Composition of Panels

For disputes involving a claim alleging employment dis-

crimination, including a sexual harassment claim, in viola-

tion of a statute;

(a) Each panel shall consist of either a single public arbi-

trator or three public arbitrators qualified under Rule

10211, unless the parties agree to a different panel com-

position.

(b) A single arbitrator shall be appointed to hear claims

for $100,000 or less.

claims for more than $100,000, unless the parties agree

to have their case determined by a single arbitrator.

10213. Discovery

(a) Necessary pre-hearing depositions consistent with the

expedited nature of arbitration shall be available.

(b) The provisions of Rule 10321 shall apply to proceed-

ings under this Rule 10210 Series.

10214. Awards

The arbitrator(s) shall be empowered to award any relief that

would be available in court under the law. The arbitrator(s)

shall issue an award setting forth a summary of the issues,

including the type(s) of dispute(s), the damages or other re-

lief requested and awarded, a statement of any other issues

resolved, and a statement regarding the disposition of any

statutory claim(s).

10215. Attorneys’ Fees

The arbitrator(s) shall have the authority to provide for rea-

sonable attorneys’ fee reimbursement, in whole or in part, as

part of the remedy in accordance with applicable.

10216. Coordination of Claims Filed in Court and in Ar-

bitration

(a) Option to Combine Related Claims in Court

(1) (A) If a current or former associated person of a

member files a statutory discrimination claim in court

against a member or its associated persons, and as-

serts related claims in arbitration at the Association

against some or all of the same parties, a respondent

who is named in both proceedings shall have the op-

tion to move to compel the claimant to bring the re-

lated arbitration claims in the same court proceeding

in which the statutory discrimination claim is pend-

ing, to the full extent to which the court will accept

jurisdiction over the related claims.

(B) The respondent shall notify the claimant in writ-

ing, before the time to answer under Rule 10314 has

expired, that it is exercising this option and shall file

a copy of such notification with the Director. If the

respondent files an answer without having exercised

this option, it shall have waived its right to move to

compel the claimant to assert related claims in court,

except as provided in paragraph (b).

(2) (A) If a member or current or former associated per-

son of a member (“party”) has a pending claim in ar-

bitration against a current or former associated person

of a member and the current or former associated

person thereafter asserts a related statutory employ-

ment discrimination claim in court against the party,

the party shall have the option to assert its pending

arbitration claims and any counterclaims in court.

(B) The party shall notify the current or former asso-

ciated person in writing, before filing an answer to

the complaint in court, that it is exercising this option

and shall file a copy of such notification with the Di-

rector, if the party files and answer in court without

having exercised this option, it shall have waived its

right to assert the pending arbitration claim in court.

first hearing has begun on the arbitration claim.

(b) Option Extended When Claim is Amended

(1) If the claimant flies an amended Statement of Claim

adding new claims not asserted in the original Statement

of Claim, a respondent named in the amended Statement

of Claim shall have the right to move to compel the

claimant to assert all related claims in the same court

proceeding in which the statutory discrimination claim is

pending, to the full extent that the court will accept juris-

diction over the related claims, even if those related

claims were asserted in the original Statement of Claim.

(2) The respondent shall notify the claimant in writing,

before the time to answer the amended Statement of

Claim under Rule 10314 has expired, that it is exercising

this option and shall file a copy of such notification with

the Director, if the respondent files an answer to the

amended Statement of Claim without having exercised

this option, it shall have waived its right to move to com-

pel the claimant to assert related claims in court.

If a party elects to require a current or former associated per-

son to assert all related claims in court, the party shall assert

in the same court proceeding all related claims that it has

against the associated person to the full extent to which the

court will accept jurisdiction over the related claims.

(d) Right of Respondent to Remain in Arbitration

(1) If there are multiple respondents and a respondent has

exercised an option under paragraph (a) or (b), but an-

other respondent wishes to have the claims against it re-

main in arbitration, then any remaining party may apply

for a stay of the arbitration proceeding. '

(2) The arbitration shall be stayed unless the arbitration

panel determines that the stay will result in substantial

prejudice to one or more of the parties. If a panel has not

been appointed, the Director shall appoint a single arbi-

trator to consider the application for a stay. Such single

arbitrator shall be selected using the Neutral List Selec-

tion System (as defined in Rule 10308) and is not re-

quired to have the special employment arbitrator qualifi-

cations described in Rule 10211.

(e) Pre-Filing Certification

(1) Prior to or concurrently with filing a Statement of

Claim, a claimant may file with the Director a certifica-

tion that it had communicated unsuccessfully with the re-

spondent concerning the consolidation of all claims in

court prior to filing a Statement of Claim, in an effort to

save the expense of arbitration fees. A copy of such cer-

tification shall be sent to the respondent at the same time

and in the same manner as the filing with the Director.

(2) If, after a certification has been filed, all the respon-

dents later exercise the option to consolidate all claims in

court, the Director will return the claimant’s filing fee

and any hearing session deposits for hearings that have

not been held, but will retain the member surcharge and

any accrued member process fees. If there are any re-

maining respondents, the filing fee and any hearing de-

posits will be adjusted to correspond to the claims against

the remaining respondents. .

(f) Motion to Compel Arbitration

If a member or a current or former associated person of a

member files in court a claim against a member or a current

or former associated person of a member that includes matter

that are subjected to mandatory arbitration, either by the

rules of the Association or by private agreement, the defend-

ing party may move to compel arbitration of the claims that

are subject to mandatory arbitration.

(g) Definitions

For purposes of this Rule;

(1) The term “related claim” shall mean any claim that

arises out of the employment or termination of employ-

ment of an associated person.

(2) The term “statutory discrimination claim” means a

claim alleging employment discrimination, including a

sexual harassment claim, in violation of a statute.

* * *

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.