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Precedential or Non-Precedential: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




Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1998

Recommended Citation
"Seus v. John Nuveen & Co Inc" (1998). 1998 Decisions. Paper 132.
http://digitalcommons.law.villanova.edu/thirdcircuit_1998/132


This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1998 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
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, 

, 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,

, 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. 

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., 

,
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,

, 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., 

, 1164 (5th Cir. 1992); Dancu v. Coopers

                                5
& Lybrand, 

, 835 (E.D. Pa. 1991), aff'd,

(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., 

(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.' " 

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."

(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." 

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.." 

(quoting from
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 

, 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." 

(quoting from 

) (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."
       

. 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.

Finally, the Gilmer Court rejected an argument based on
its prior decision in Alexander v. Gardner-Denver Co., 

(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." 

n.5. It hastened to add, however:

       That "mistrust of the arbitral process," however, has
       been undermined by our recent arbitration decisions.
       

. "[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., 

, 626-627 (1985).

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. 

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." 

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), 

, *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., 

, 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.

, 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 

(quoting Mitsubishi 

)
(emphasis added). When referring to Congress's "recent
amendments to the ADEA," the Supreme Court clearly

                               11
meant the OWBPA. See 

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., 

, 1487 (10th Cir. 1994); Bender
v. A.G. Edwards & Sons, Inc., 

, 700 (11th Cir.
1992); Mago v. Shearson Lehman Hutton, Inc., 

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

, 307 (6th Cir. 1991); Alford v. Dean
Witter Reynolds, Inc., 

, 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. 

n.5.

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

, 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.,

, 881-82 (4th Cir.), cert. denied, ___ U.S. ___,

(1996); Matthews v. Rollins Hudig Hall Co.,

, 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, 

(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., 

(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, 

(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. 

, 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., 

, 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., 

, 714 (W.D. Pa.), aff'd

(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.

, 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, 

       (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 

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 

and that employment-
       related disputes were therefore not arbitrable, see 

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

(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 

       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." 

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 

& n. 5.

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

(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 

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 

The court accordingly held
       that employment-related disputes are arbitrable, but
       not for the reason given by the Eleventh Circuit. See 

Thomas James Assocs., Inc. v. Jameson, 

, 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," 

the term"others" as used in
that section includes employees having employment-related
disputes with a member firm, 

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."

(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 

; 

. 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 

. 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 

. 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 

; 

.

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." 

. 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." 

. 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., 

,
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, 

, *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., 

, 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