Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-07054/USCOURTS-caDC-98-07054-0/pdf.json

Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 13, 1999 Decided February 23, 1999

No. 98-7054

Sandra Kaye Gardner,

Appellant

v.

Benefits Communications Corporation, et al.,

Appellees

Appeal from the United States District Court

for the District of Columbia

(No. 91cv00536)

Richard A. Salzman argued the cause for appellant. With

him on the briefs was Douglas B. Huron.

John M. Husband argued the cause for appellees. With

him on the brief were Brian M. Mumaugh, Anthony Herman

and Christine L. Kurek.

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Before: Edwards, Chief Judge, Williams and Henderson,

Circuit Judges.

Opinion for the Court filed by Chief Judge Edwards.

Edwards, Chief Judge: Almost eight years ago, Sandra

Kaye Gardner filed suit against her employer, Benefits Communications Corporation ("BCC"), as well as against several

other institutional and individual defendants, asserting statutory claims of employment discrimination and retaliation.

The District Court initially ordered Gardner to arbitrate her

claims, on the assumption that her registration with the

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

was completed as a condition of Gardner's employment with

BCC, required Gardner to arbitrate claims of the sort at issue

in this case. Because the District Court refused to certify an

appeal to this court on that issue, this appeal represents the

first opportunity that Gardner has had to challenge the

District Court's order compelling arbitration. Moreover, because the arbitration has already occurred, Gardner also now

challenges the propriety of the arbitration award.

This litigation has languished far longer than necessary; it

is therefore regrettable that our disposition will prolong this

case even further. This result is unavoidable, however, because Gardner's claims against BCC are not subject to mandatory arbitration. If all of the original defendants remained

as parties to this lawsuit, we might face two difficult questions: whether a fair reading of Gardner's NASD registration

indicates her agreement to submit the instant claims to

arbitration, and, if so, whether arbitration lawfully may be

compelled pursuant to the purported agreement. These are

moot questions, however, for Gardner has agreed to dismiss

all defendants save BCC. With BCC as the sole defendant,

there is no doubt that Gardner is not required to arbitrate

her claims in lieu of having the case heard in District Court.

Accordingly, we remand this case to the District Court for

further proceedings to address the merits of Gardner's claims

against BCC. In light of this disposition, it is unnecessary to

resolve Gardner's additional claim that the disputed arbitration award should be set aside under Cole v. Burns International Security Services, 105 F.3d 1465 (D.C. Cir. 1997).

I. Background

BCC provides plan enrollment services for consumers of

group and individual life insurance plans. The company is a

wholly owned subsidiary of the Great-West Life Assurance

Company ("Great-West"), a Canadian-based insurance company that sells group and individual life, health, and annuity

products. BCC is also a director of BenefitsCorp Equities,

Inc. ("BCE"), a limited broker-dealer in the annuity and life

products market. BCC is not a member of NASD; however,

both Great-West and BCE are members of NASD.

Gardner began working for BCC in the fall of 1989 as an

Employer Sponsored Specialist. In this position, Gardner

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sold retirement-related insurance products and securities to

participants in employer-sponsored pension plans. Because

Gardner sold securities for BCC through BCE, she was

required to register as an agent with NASD as a condition of

her employment. Accordingly, on September 11, 1989, she

executed a Uniform Application for Securities Industry Registration or Transfer, widely known as a "U-4 form," to

satisfy this requirement. See Joint Appendix ("J.A.") 58-61.

For most of Gardner's tenure at BCC, her immediate

supervisor was Craig Wolpert. According to Gardner, Wolpert did not like her and sought to get rid of her because she

was "a big woman." Brief for Appellant at 5. Gardner

alleges that she complained of Wolpert's discriminatory treatment to the upper management of her company, but Wolpert

was never reprimanded for his behavior. See Brief for

Appellant at 6; Complaint p 11, reprinted in J.A. 25. Gardner additionally claims that Wolpert not only continued his

discriminatory treatment after her internal complaint, but

also launched a campaign of retaliation in response to it. See

Complaint p 12, reprinted in J.A. 25.

Due to Wolpert's allegedly discriminatory treatment and

abuse, Gardner asserts she was forced into treatment for

anxiety and depression. On October 11, 1990, Gardner suffered a panic attack and asked for sick leave due to her

illness. Instead of granting Gardner's request, Wolpert

placed Gardner on disciplinary probation and sought a replacement for her. See Memorandum from Craig Wolpert to

Kaye Gardner (Oct. 11, 1990), reprinted in J.A. 128; Advertisement, Washington Post, Oct. 14, 1990, at K33, reprinted in

J.A. 129. Gardner went on extended medical leave, and

finally resigned from BCC in early 1991. See Brief for

Appellant at 7; Complaint pp 13-14, reprinted in J.A. 25-26.

Thereafter, she was employed by Liberty Securities, but at a

much lower salary. In 1991, 1992, and 1993, Gardner earned

$19,739, $15,823, and $25,000, respectively, compared to the

roughly $53,500 she had earned at BCC. See J.A. 155.

In April 1991, Gardner filed suit in District Court against

BCC, Great-West, and BCE, as well as against corporate

officers Wolpert and Charles Nelson, Wolpert's direct supervisor, asserting claims of employment discrimination and

unlawful retaliation under the D.C. Human Rights Act (the

"Human Rights Act"), D.C. Code Ann. ss 1-2501 to 1-2557

(1981 & Supp. 1998). See Complaint pp 1, 6, reprinted in J.A.

21-22, 23. She alleged that she had been subjected to sex

discrimination and unlawful retaliation by Wolpert, and that

the other defendants either knew or should have known of

Wolpert's actions, but nevertheless allowed it to continue.

See id.pp 9-10, 12, 15, reprinted in J.A. 24-26.

In response to Gardner's complaint, the defendants, all

represented by the same counsel, moved to compel arbitration of the case, arguing that Gardner had agreed to arbitrate

this type of dispute when she registered with the NASD.

Gardner opposed this motion, but the District Court, relying

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

(1991), found that the NASD Code of Arbitration Procedure

("NASD Code") mandated arbitration of this dispute. See

Gardner v. Benefits Communications Corp., No. 91-0536

(D.D.C. Dec. 31, 1991) (memorandum), reprinted in J.A. 8-9.

Gardner then sought reconsideration of the referral to arbitration from the District Court, or, in the alternative, certification for interlocutory appeal. The District Court denied

this motion, and Gardner was forced to go to arbitration. See

Gardner v. Benefits Communications Corp., No. 91-0536

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(D.D.C. June 16, 1992) (memorandum order), reprinted in

J.A. 11-13.

On January 7, 1993, Gardner submitted her claims to

NASD. A hearing was held before a panel of three arbitrators on January 27 through February 1, 1994. On April 11,

1994, the panel entered a decision in favor of Gardner, but

awarded her only $15,000. See Gardner Arbitration Award,

reprinted in J.A. 110-15. The arbitration panel also assessed

$3,000 in "forum fees" against Gardner. See id. at 113.

On April 28, 1994, only seventeen days after the panel

decision was issued, Gardner promptly sought a new trial

date from the District Court, arguing that the court should

reconsider its prior ruling compelling arbitration, that the

arbitration award was not final and did not preclude a de

novo trial of Gardner's claims, and that the arbitrators had

erred in their award. However, it was almost four years

before the District Court acted on Gardner's motion. In fact,

on January 20, 1995, about nine months after moving for a

trial date, Gardner returned to the District Court to plead for

a final determination in her case; this plea fell on deaf ears,

for over three more years passed before the District Court

ruled on Gardner's motion. Finally, on March 12, 1998, the

District Court denied Gardner's request for a new trial, but

modified the NASD award in two ways. See Gardner v.

Benefits Communications Corp., No. 91-0536 (D.D.C. Mar.

12, 1998) (order), reprinted in J.A. 20. First, the trial court

found that the assessment of "forum fees" against Gardner

was unlawful under Cole v. Burns International Security

Services, 105 F.3d 1465 (D.C. Cir. 1997); accordingly, the

assessment of $3,000 against Gardner in forum fees was

struck from the NASD award. See Gardner v. Benefits

Communications Corp., No. 91-0536 (D.D.C. Mar. 12, 1998)

(memorandum), reprinted in J.A. 17. In addition, the trial

court found that Gardner was the prevailing party and, thus,

was entitled to attorney's fees and costs. See J.A. 17-18.

The District Court, however, stayed the petition for attorney's fees pending her appeal to this court.

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II. Analysis

On appeal, Gardner argues, inter alia, that it was improper

for the District Court to compel arbitration of her statutory

discrimination claims against BCC. In order to determine

the propriety of this decision, we must examine the language

of Gardner's U-4 form as well as the language of the NASD

Code and By-Laws.

The fifth paragraph of the U-4 form signed by Gardner

states, "I agree to arbitrate any dispute, claim or controversy

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." J.A. 61. Gardner registered only with

NASD, and thus we must look to NASD's rules and by-laws

in effect when Gardner filed suit to determine whether her

discrimination claims were subject to the arbitration clause.

See Seus v. John Nuveen & Co., 146 F.3d 175, 187 (3d Cir.

1998) ("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.").

Accordingly, all references herein to NASD rules and by-laws

are to those that were in effect in 1991.

Section 1 of the NASD Code describes those disputes that

are eligible for arbitration:

This Code of Arbitration Procedure is prescribed and

adopted pursuant to Article VII, Section 1(a)(3) of the

By-Laws of the National Association of Securities Dealers, Inc., (the Association) for the arbitration of any

dispute, claim, or controversy arising out of or in connection with the business of any member of the Association,

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; registered clearing

agencies with which the Association has entered

into an agreement to utilize the Association's arbitration facilities and procedures; and participants,

pledges, or other persons using the facilities of a

registered clearing agency, as these terms are

defined under the rules of such a registered clearing agency.

In addition, s 8 of the Code provides that the following

disputes must be submitted to arbitration:

(a) 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

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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.

Appellees argue that ss 1 and 8 of the NASD Code mandate arbitration of Gardner's claims, because both defendants

BCE and Great-West are NASD members. Under s 1(2),

disputes between members and "others" may be arbitrated,

and s 8(a)(2) requires arbitration of disputes between a member and "a person associated with a member." The NASD

By-Laws, Art. I, p 1101(m), defines "person associated with a

member" or "associated person of a member" as:

every sole proprietor, partner, officer, director, or branch

manager of any member, or any natural person occupying a similar status or performing similar functions, or

any natural person engaged in the investment banking or

securities business who is directly or indirectly controlling or controlled by such member, whether or not any

such person is registered or exempt from registration

with the [NASD] pursuant to [the NASD By-Laws].

The defendants argue that Gardner qualifies as a "person

associated with a member" and an "other[ ]," and thus, this

matter was properly arbitrated.

The circuits that have considered the issue have split over

whether and on what terms these provisions require arbitration of employment disputes between a member-employer

and a registered employee. See generally Thomas James

Assocs., Inc. v. Jameson, 102 F.3d 60, 64 (2d Cir. 1996)

(describing the various interpretations of these provisions by

the different circuits). See, e.g., Farrand v. Lutheran Bhd.,

993 F.2d 1253, 1254-55 (7th Cir. 1993) (finding that an

employment dispute was not arbitrable, because although

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]," an employee suing an member-employer was

not an "other[ ]" within the meaning of s 1(2)); Kidd v.

Equitable Life Assurance Soc'y of the United States, 32 F.3d

516, 519 (11th Cir. 1994) (holding that an employment dispute

must be arbitrated, because s 1 "requires 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"); Armijo v.

Prudential Ins. Co. of Am., 72 F.3d 793, 798-99 (10th Cir.

1995) (finding an employment dispute arbitrable, because the

term "others" in s 1(2) necessarily encompassed "associated

persons" as used in s 8, and therefore included an aggrieved

employee).

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It is unnecessary for us lend our voice to this controversy

over the meaning of ss 1 and 8 of the NASD Code, for

Gardner has agreed to dismiss all defendants save BCC.

With this dismissal it becomes indisputably clear that the real

dispute in this case is not between a member-employer and a

registered employee. Rather, the dispute here is between a

non-member employer, BCC, and its registered employee,

Gardner; and, as we will explain below, this difference is

determinative of the issue at hand.

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This renovation of the case is hardly surprising, given its

true nature. Because the Human Rights Act defines "employer" very broadly, see D.C. Code Ann. s 1-2502(10), Gardner

joined BCE, Great-West, Wolpert, and Nelson as codefendants to this action out of an abundance of caution. Yet,

these defendants are in no sense necessary parties to the

lawsuit. The dispute here is and always has been between

Gardner and BCC. Indeed, appellees conceded as much in

their motion papers in the District Court, where they stated

that this "action arises out of Gardner's employment with

BCC, her acceptance of that employment, and her resulting

allegations that she was treated discriminatorily on account of

her sex." See Memorandum Brief in Support of Defendant's

Motion to Compel Arbitration at 8, reprinted in J.A. 39; see

also id. at 2, reprinted in J.A. 33 ("Gardner filed her complaint and has raised claims relating to her employment with

[BCC]."). Gardner also has made it clear that her claims are

principally focused on the actions of BCC. See, e.g., Plaintiff's Opposition to Motion to Compel Arbitration at 5, reprinted in J.A. 68 ("[P]laintiff was employed by BCC, paid by

BCC, received her accounts from BCC and was subjected to

discriminatory treatment from her two immediate supervisors, both of whom were employees of BCC."). In other

words, Gardner's agreement to dismiss all defendants except

BCC merely shapes the litigation in a way that comports with

the reality of what is genuinely at stake in this case.

With this turn of events, it is unnecessary for us to

determine the reach of ss 1 and 8 of the NASD Code. It is

also unnecessary to decide whether the purported mandatory

arbitration clauses under the NASD Code, or the disputed

arbitration award in this case, transgress the commands of

Cole v. Burns International Security Services, 105 F.3d 1465

(D.C. Cir. 1997). Our avoidance of these knotty issues is

additionally fortuitous in light of the fact that NASD recently

has amended its arbitration procedures to provide that statutory employment disputes are no longer required to be

arbitrated in any circumstances. See NASD Notice to Members 98-56: SEC Approves Rule Change Regarding Arbitration of Statutory Employment Disputes; Effective January

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1, 1999 (visited Feb. 1, 1999) <http://www.nasd.com/

notices/9856ntm.txt>; Reply Brief for Appellant at 6 n.4.

Our authority to accept Gardner's agreement to dismiss all

defendants except BCC comes from well established precedent. Federal Rule of Civil Procedure 21 provides that

"[p]arties may be dropped or added by order of the court on

motion of any party or of its own initiative at any stage of the

action and on such terms as are just." Although this rule

literally pertains only to the district courts, see Fed. R. Civ. P.

1, the Supreme Court has held that "the policies informing

Rule 21 may apply equally to the courts of appeals."

Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832

(1989). This appellate power "long predates the enactment of

the Federal Rules." Id. at 834. Indeed, Justice Story,

sitting as Circuit Justice, wrote that " '[t]here is ... in the

nature of an appellate jurisdiction, nothing which forbids the

granting of amendments,' " and that "this ... power [derived]

from 'the course of the common law,' " which afforded the

higher court the same amendment power as the lower one.

Id. (quoting Anonymous, 1 F. Cas. 996, 997 (No. 444) (CC

Mass. 1812)) (alteration in original); see also Mullaney v.

Anderson, 342 U.S. 415, 416-17 (1952) (granting union's motion to add two of its members as parties in order to avoid

deciding standing issue); Balgowan v. New Jersey, 115 F.3d

214, 216-17 (3d Cir. 1997) (allowing a group of engineers who

sued the New Jersey Department of Labor for violations of

the Fair Labor Standards Act to add Department's Commissioner as a party to suit while case was on appeal, because

court did not have jurisdiction over engineers' claim against

state for monetary relief).

This case falls within the compass of those decisions in

which the appellate power to add or dismiss parties may be

exercised. First, it is clear that this dispute always has been

between Gardner and BCC, and Gardner has indicated to this

court that she is willing to dismiss the four unnecessary

defendants. See Reply Brief for Appellant at 7-8 n.6; Appellant's Response to Court's Order (Jan. 14, 1998). These are

compelling considerations, especially given the absence of any

real prejudice to other parties.

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Second, the absence of prejudice cannot seriously be challenged. BCE, Great-West, Wolpert, and Nelson face no

prospect of future litigation on the current claims, because

the actions against them are hereby dismissed with prejudice.

And BCC's potential liability to Gardner under the Human

Rights Act is not affected in any way by the absence of the

other defendants from this case. Although it appears that

"individual supervisors can be held liable for their acts of

discrimination," Martini v. Federal Nat'l Mortgage Ass'n, 977

F. Supp. 464, 479 (D.D.C. 1997), this liability is separate and

apart from that of the employer. See id. at 474-79; Howard

Univ. v. Best, 484 A.2d 958, 983-84 (D.C. 1984). BCC's

liability also will not be altered due to the absence of BCE

and Great-West, because BCC's liability is based on the

actions of supervisors in its employ, and on what it did and

did not do to with respect to Gardner's claims. See Best, 484

A.2d at 983-84. Thus, because BCC's liability is separate

from that of the other defendants, there is no prejudice from

their dismissal.

Finally, we note that Gardner has acted in a timely manner

throughout this litigation. She initially requested an interlocutory appeal prior to arbitration, which was denied by the

District Court. She responsibly decided not to appeal that

decision, because it seemed futile: in most of the circuits that

had addressed the issue, Gardner's action would have been

viewed as an "embedded" claim, and, as such, she would have

been precluded from taking an appeal until after the District

Court dismissed her action or issued some other final judgment with respect to her case. See Ermenegildo Zegna Corp.

v. Zegna, 133 F.3d 177, 182-83 (2d Cir. 1998) ("[W]hen the

defendant introduces the arbitration question into a pending

action, the case is typically considered embedded," and, as

such, an interlocutory appeal without certification is not appropriate, "even when the order directs arbitration of all of

the parties' claims and leaves nothing further for the district

court to determine until the issuance of the arbitral award.");

cf. Cole, 105 F.3d at 1470 (allowing appeal where District

Court's order compelling arbitration also dismissed the plaintiff's complaint); McCarthy v. Providential Corp., 122 F.3d

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1242, 1247-49 (9th Cir. 1997) (Pregerson, J., dissenting) (discussing the difference between an action that is stayed pending arbitration, and one that is dismissed after arbitration is

compelled). Because there was no final judgment in this case

until March 12, 1998, Gardner was forced to wait until now to

raise her arbitrability and enforcement questions before this

court. Thus, although an unseemly amount of time has been

spent on this litigation, most of the delay has been attributable to the District Court, not the parties.

With BCC as the sole defendant, we have no serious doubt

in reaching the conclusion that Gardner is not required to

arbitrate her claims in lieu of proceedings in District Court to

address her complaint. Although there is some question as

to whether s 1 of the NASD Code includes disputes between

persons associated with NASD members, see Farrand, 993

F.2d at 1254-55, we will assume that such disputes fall within

the ambit of arbitrable claims under the pre-amendment

NASD Code. It appears that Gardner falls within the definition of "person associated with a member," because she is a

natural person who was engaged in the securities business

and sold securities through NASD member BCE. See NASD

By-Laws, Art. I, p 1101(m). The question, then, is whether

BCC is a "person associated with a member."

We agree with our colleagues on the Fifth Circuit that,

when the definition is read in its entirety, it is clear that it

includes only natural persons. See Tays v. Covenant Life

Ins. Co., 964 F.2d 501, 502-03 (5th Cir. 1992). Although the

second and third clauses explicitly include only "any natural

person," all three of the clauses are limited by the last phrase

of the definition, which reads "whether or not any such

person is registered or exempt from registration with the

[NASD] pursuant to [the NASD By-Laws]." NASD ByLaws, Art. I, p 1101(m) (emphasis added). This reference to

"any such person," rather than "any such entity" or the like,

leads us to believe that the NASD intended to limit the

parties who could be considered a "person associated with a

member" to only those parties that are natural persons.

Moreover, this interpretation is "reinforced when the definition is compared with the statutory definition [of associated

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person] contained in the Securities Exchange Act of 1934, 15

U.S.C. s 78c(a)(21)." Tays, 964 F.2d at 503. That act provides that "[t]he term 'person associated with a member' or

'associated person of a member' when used with respect to a

member of a national securities exchange or registered securities association means any partner, officer, director, or

branch manager of such member (or any person occupying a

similar status or performing similar functions), any person

directly or indirectly controlling, controlled by, or under

common control with such member, or any employee of such

member," 15 U.S.C. s 78c(a)(21) (1994), and that the term

"person" includes "a natural person, company, government, or

political subdivision, agency, or instrumentality of a government," 15 U.S.C. s 78c(a)(9). The NASD By-Laws do not

define the term "person." However, the NASD definition of

associated person includes the phrases "natural person" and

"any such person," which are not present in the Securities

Exchange Act's definition. Thus, we agree with the Fifth

Circuit that these "changes from the statute to the NASD bylaws suggest a desire to limit the NASD definition to natural

persons." Tays, 964 F.2d at 503.

Accordingly, a corporation such as BCC does not qualify as

an associated person under this definition, and arbitration of

the dispute between Gardner and BCC is not required. We

therefore reverse the District Court's order compelling arbitration and remand the case for further proceedings to address the merits of Gardner's complaint.

III. Conclusion

For the foregoing reasons, we dismiss with prejudice BenefitsCorp Equities, Inc., Great-West Life Assurance Company,

Craig Wolpert, and Charles Nelson from this action. We also

reverse the judgment of the District Court compelling arbitration, and remand this case between Benefits Communications Corporation and Gardner to the District Court for

further proceedings to address the merits of Gardner's

claims.

So ordered.

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