* District Judge of the Northern District of Texas, sitting

by designation.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 94-11030

 

ARTHUR H. WILLIAMS,

Plaintiff-Appellee,

versus

CIGNA FINANCIAL ADVISORS, INC.,

ET AL.,

Defendants-Appellants.

 

Appeal from the United States District Court

for the Northern District of Texas

 

(June 19, 1995)

Before HIGGINBOTHAM and PARKER, Circuit Judges, and McBRYDE,

District Judge.*

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Arthur H. Williams filed suit against the defendants,

collectively referred to as Cigna, alleging age discrimination.

Cigna moved for a stay pending arbitration pursuant to Williams'

registration agreement with the National Association of Securities

Dealers. The district court denied Cigna's motion. We find that

Williams' dispute is subject to arbitration and remand for entry of

an order staying proceedings pending arbitration.
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I.

In 1987, Williams began working at Cigna, which is a member

firm of the National Association of Securities Dealers. On July

15, 1987, Williams signed a Registered Representative Agreement

with Cigna, which provided that he maintain a current NASD

registration and adhere to NASD rules. On July 17, 1987, Williams

registered with NASD by signing a Uniform Application For

Securities Industry Registration Or Transfer, also known as a U-4

Registration. The U-4 Registration contract between Williams and

NASD provided that Williams would "abide by, comply with, and

adhere to all the provisions, conditions and covenants of the . .

. by-laws and rules and regulations of [NASD] as they are and may

be adopted, changed or amended from time to time." The U-4

Registration also provided for mandatory arbitration of "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." In 1987, the NASD Code of

Arbitration Procedure provided

for the arbitration of any dispute, claim, or controversy

arising out of or in connection with the business of any

member of [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.

On October 1, 1993, the Securities and Exchange Commission

amended its NASD rules to provide "for the arbitration of any
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dispute, claim or controversy arising out of or in connection with

the business of any member of [NASD] or arising out of the

employment or termination of employment of associated person(s)

with any member." While this regulation was not in effect when

Williams signed his first U-4 Registration, it was in effect on

October 20, 1993 when Williams executed a second U-4 Registration

to sell securities in Colorado.

On December 15, 1993, Cigna terminated Williams. On January

5, 1994, Williams filed an age discrimination claim against Cigna

with the Equal Employment Opportunity Commission. On April 13,

1994, after receiving a Notice of Right to Sue from the EEOC,

Williams filed suit in state court, claiming recovery under the Age

Discrimination in Employment Act. Cigna removed the action to

federal court and filed a motion to dismiss, which the district

court denied on August 29, 1994. On or about September 16, 1994,

Cigna discovered that Williams had signed a written agreement

requiring arbitration of his claim and moved for a stay of

proceedings pending arbitration. The court denied Cigna's motion,

finding it "completely lacking in legal merit." Cigna filed this

interlocutory appeal pursuant to 9 U.S.C. § 16(a)(1)(A).

II.

The first step in our analysis is to determine whether the

arbitration clause encompasses employment disputes. Plainly, it

does. In 1987, Williams agreed to adhere to NASD rules "as they

are and may be adopted, changed or amended from time to time." By
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October 1993, when Williams signed a second U-4 Registration, the

NASD rules concerning arbitration explicitly mandated that

employment disputes be arbitrated. 

A similar situation was presented in Gilmer v.

Interstate/Johnson Lane Corp., 111 S. Ct. 1647 (1991). Gilmer

worked for Interstate as its Manager of Financial Services. As a

condition of his employment, he was required to register as a

securities representative with the New York Stock Exchange. The U4 Registration that Gilmer signed mandated arbitration as required

by NYSE rules. NYSE rules provided "for arbitration of '[a]ny

controversy between a registered representative and any member or

member organization arising out of the employment or termination of

employment of such registered representative.'" Id. at 1651. When

Interstate terminated Gilmer, Gilmer filed an age discrimination

complaint. Interstate filed a motion to stay the proceeding

pending arbitration, which the district court denied. The Fourth

Circuit reversed, and the Supreme Court affirmed. The Court held

that nothing within the strictures of ADEA or its legislative

history "evinced an intention to preclude a waiver of judicial

remedies for the statutory rights at issue." Id. at 1652 (citation

and internal quotation marks omitted).

Williams attempts to distinguish Gilmer on the grounds that

when Gilmer signed his U-4 Registration, NYSE rules explicitly

provided for arbitration of employment disputes. By contrast,

Williams notes that when he signed his first U-4 Registration, NASD

rules did not explicitly provide for arbitration of employment
 

2 The circuits are split on whether NASD's pre-amendment

arbitration rules encompassed employment disputes. Compare Metz v.

Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482 (10th

Cir. 1994); Kidd v. Equitable Life Assurance Soc'y of the United

States, 32 F.3d 516, 519 (11th Cir. 1994) and Association of Inv.

Brokers v. SEC, 676 F.2d 857, 861 (D.C. Cir. 1982) with Kresock v.

Bankers Trust Co., 21 F.3d 176, 178 (7th Cir. 1994) and Farrand v.

Lutheran Bhd., 993 F.2d 1253, 1254-55 (7th Cir. 1993) (Easterbrook,

J.).

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disputes. Even if it were true that the 1987 NASD arbitration

rules did not encompass employment disputes, an issue we do not

today decide,2 Williams' argument would still be without merit.

Cigna terminated Williams after the NASD rules were amended to

provide for arbitration of employment disputes and after Williams

executed a second U-4 Registration. Therefore, Williams' agreement

with NASD encompasses arbitration of his employment dispute.

III.

Since Williams agreed to arbitrate his employment claims, we

next must address the applicability of the Federal Arbitration Act

to that agreement. The FAA provides that a written agreement to

arbitrate a dispute arising out of that agreement is enforceable so

long as the agreement is one "evidencing a transaction involving

commerce." 9 U.S.C. § 2. Williams' U-4 Registration is a contract

involving the sale of securities and thus involves commerce. See

Gilmer, 111 S. Ct. at 1650-51 (implicitly holding FAA applicable to

U-4 Registration); see also Allied-Bruce Terminix Cos., Inc. v.

Dobson, 115 S. Ct. 834, 841 (1995) (Congress exercised its

"commerce power to the full" in enacting § 2 of the FAA). Section

3 of the FAA mandates that when an issue is referable to
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arbitration pursuant to a written agreement, the district court

must "stay the trial of the action until such arbitration has been

had in accordance with the terms of the agreement, providing the

applicant for the stay is not in default in proceeding with such

arbitration."

Section 1 of the FAA exempts from its operation "contracts of

employment of seamen, railroad employees, or any other class of

workers engaged in foreign or interstate commerce." Williams

argues that his dispute is exempt under § 1 because the arbitration

clause is contained in a contract for employment and he was a

worker engaged in interstate commerce. This argument is without

merit, because the agreement to arbitrate is not contained in a

contract for employment but in Williams' U-4 Registration.

Williams counters that even though his agreement to arbitrate is

contained in the U-4 Registration, it was also incorporated by

reference into his employment agreement with Cigna. However, it is

the U-4 Registration that is the source of the arbitration

agreement, not Williams' contract with Cigna. Stated another way,

if we were to hold that Williams' Registered Representative

Agreement incorporated by reference the U-4 Registration

arbitration clause, § 1 would still exempt only the contract of

employment. The U-4 Registration is a separate contract, and its

arbitration clause is enforceable under the FAA. See Gilmer, 111

S. Ct. at 1651-52 n.2.
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This narrow interpretation of § 1 is in line with other courts

that have considered the issue. For instance, the Supreme Court in

Gilmer noted:

[I]t would be inappropriate to address the scope of the § 1

exclusion because the arbitration clause being enforced here

is not contained in a contract of employment. . . . The record

before us does not show, and the parties do not contend, that

Gilmer's employment agreement with Interstate contained a

written arbitration clause. Rather, the arbitration clause at

issue is in Gilmer's securities registration application,

which is a contract with the securities exchanges, not with

Interstate. The lower courts addressing the issue uniformly

have concluded that the exclusionary clause in § 1 of the FAA

is inapplicable to arbitration clauses contained in such

registration applications.

Id.; accord Alford v. Dean Witter Reynolds, Inc., 939 F.2d 229, 230

n.* (5th Cir. 1991).

IV.

Williams also argues that his agreement to arbitrate is not

enforceable because he did not knowingly and voluntarily waive his

right to a judicial forum as required by the Older Workers Benefit

Protection Act. Pub. L. No. 101-433, 104 Stat. 978 (1990)

(amending ADEA at 29 U.S.C. §§ 621, 623, 626, 630). Specifically,

Williams argues that ADEA gives him a right to a jury trial that

may not be waived absent compliance with the procedures set forth

in the OWBPA. 29 U.S.C. § 626(c)(2). The OWBPA requires, among

other things, that a waiver of a right or claim be in writing, that

it be between the individual and the employer, and that it

specifically refer to rights or claims arising under ADEA. Id.

§ 626(f)(1).
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Williams' argument is without merit. In enacting the OWBPA,

Congress' primary concern was with releases and voluntary

separation agreements in which employees were forced to waive their

rights. S. Rep. No. 263, 101st Cong., 2d Sess. 31-35 (1990),

reprinted in 1990 U.S.C.A.A.N. 1509, 1537-41. There is no

indication that Congress intended the OWBPA to affect agreements to

arbitrate employment disputes. See Douglas E. Abrams,

Arbitrability in Recent Federal Civil Rights Legislation: The Need

for Amendment, 26 Conn. L. Rev. 521, 555 n.187 (1994). Moreover,

the OWBPA protects against the waiver of a right or claim, not

against the waiver of a judicial forum. Cf. Saari v. Smith Barney,

Harris Upham & Co., Inc., 968 F.2d 877, 881-82 (9th Cir.), cert.

denied, 113 S. Ct. 494 (1992) (holding that provision in Employee

Polygraph Protection Act precluding waiver of the "rights and

procedures" provided under the Act did not make an agreement to

arbitrate unenforceable); see also Abrams, supra, 26 Conn. L. Rev.

at 555 n.187. The Supreme Court recognized this distinction in

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

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

[b]y agreeing to arbitrate a statutory claim, a party does not

forgo the substantive rights afforded by the statute; it only

submits to their resolution in an arbitral, rather than a

judicial, forum. . . . We must assume that if Congress

intended the substantive protection afforded by a given

statute to include protection against waiver of the right to

a judicial forum, that intention will be deducible from text

or legislative history.

We recognize that Congress, through the OWBPA, has protected

terminated employees who waive their substantive rights under ADEA

in exchange for a more favorable severance package; however, we
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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.

There is yet another reason for holding the OWBPA

inapplicable. Section 626(f)(1)(C) provides that to be considered

knowing and voluntary, an employee cannot "waive rights or claims

that may arise after the date the waiver is executed." If we were

to hold that an arbitration clause in a U-4 Registration had to

comply with the OWBPA's waiver provisions, we would in effect be

holding that employers and employees could never enforce a predispute agreement to arbitrate. We decline to remove from the

province of arbitration all such pre-dispute agreements absent a

clear indication that Congress intended such a result. See Gilmer,

111 S. Ct. at 1652 (burden is on party seeking to avoid arbitration

to show that "Congress intended to preclude a waiver of a judicial

forum for ADEA claims"); see also id. at 1653-54 ("Congress . . .

did not explicitly preclude arbitration . . . even in its recent

amendments [OWBPA] to the ADEA."); Moses H. Cone Memorial Hosp. v.

Mercury Constr. Corp., 460 U.S. 1, 24 (1983) ("[A]ny doubts

concerning the scope of arbitrable issues should be resolved in

favor of arbitration . . . ."); David L. Shapiro, Continuity and

Change in Statutory Interpretation, 67 N.Y.U. L. Rev. 921 (1992).

Williams also argues, for the first time on appeal, that apart

from the OWBPA and as a general rule, his waiver of a judicial

forum must be knowing and voluntary. See Prudential Ins. Co. of

Am. v. Lai, 42 F.3d 1299, 1305 (9th Cir. 1994), petition for cert.
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filed, 63 U.S.L.W. 3861 (U.S. May 22, 1995) (No. 94-1923). In

support of his claim that he did not knowingly waive his right to

a judicial forum, Williams has included in his record excerpts an

affidavit dated February 1, 1995. This affidavit is not part of

the record, and we will not consider a factual issue raised for the

first time on appeal. See Citizens Nat'l Bank v. Taylor (In re

Goff), 812 F.2d 931, 933 (5th Cir. 1987); Leonard v. Dixie Well

Serv. & Supply, Inc., 828 F.2d 291, 296 (5th Cir. 1987).

V.

Although the FAA makes contracts containing arbitration

clauses enforceable, "the right to arbitration, like any other

contract right, can be waived." Miller Brewing Co. v. Fort Worth

Distrib. Co., Inc., 781 F.2d 494, 497 (5th Cir. 1986) (citation and

internal quotation marks omitted). However, "[w]aiver of

arbitration is not a favored finding, and there is a presumption

against it." Id. at 496. Williams argues that Cigna waived its

right to seek arbitration because it "substantially invoke[d] the

judicial process to the detriment or prejudice of the other party."

Id. at 497. In Price v. Drexel Burnham Lambert, Inc., 791 F.2d

1156, 1159 (5th Cir. 1986), the court found that a waiver had

occurred where Drexel "initiated extensive discovery, answered

twice, filed motions to dismiss and for summary judgment, filed and

obtained two extensions of pre-trial deadlines," delayed seventeen

months, and caused the other side to incur attorney's fees. The
 

3 Williams argues that since his contract with Cigna

required that he register with NASD, Cigna should have known prior

to removing the action that the dispute was arbitrable. However,

Williams does not challenge Cigna's assertion that it filed its

motion for a stay shortly after it actually discovered that the

dispute was arbitrable.

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court found that these numerous actions were "[u]nlike a

perfunctory motion to dismiss before answering." Id. at 1162. 

Unlike Drexel, Cigna did not substantially invoke the judicial

process and waive its right to arbitration. Cigna removed the

action to federal court, filed a motion to dismiss, filed a motion

to stay proceedings, answered Williams' complaint, asserted a

counterclaim, and exchanged Rule 26 discovery. Cigna filed its

motion for a stay pending arbitration as soon as it discovered that

the dispute was subject to arbitration.3 It answered Williams'

complaint only after it filed its motion for stay pending

arbitration and after Williams claimed that Cigna was in default

for failing to answer. The answer included a counterclaim that was

compulsory under Fed. R. Civ. P. 13(a). After Cigna filed its

motion for stay pending arbitration, it also filed a motion to stay

discovery pending the court's ruling on the arbitration motion.

The court denied Cigna's motion to stay discovery and when Cigna

sought letter agreements confirming that its response to Williams'

discovery request would not constitute a waiver of its right to

seek arbitration, Williams refused. In sum, Cigna did not

"substantially invoke[] the judicial process" and waive its right

to seek arbitration.
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VI.

For the foregoing reasons, we VACATE the district court's

order denying a stay pending arbitration and REMAND the case for

entry of a stay.