1998 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-8-1998

Seus v. John Nuveen & Co Inc

Precedential or Non-Precedential:

Docket 97-1498

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Recommended Citation

"Seus v. John Nuveen & Co Inc" (1998). 1998 Decisions. Paper 132.

http://digitalcommons.law.villanova.edu/thirdcircuit_1998/132
Filed June 8, 1998 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

NO. 97-1498 

SHEILA WARNOCK SEUS, 

 Appellant 

v. 

JOHN NUVEEN & CO., INC. 

On Appeal From the United States District Court 

For the Eastern District of Pennsylvania 

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

Argued January 20, 1998 

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

FEIKENS,** District Judge 

(Opinion Filed June 8, 1998) 

Stephen C. Richman (Argued) 

Robert P. Curley 

Markowitz & Richman 

1100 North American Building 

121 South Broad Street 

Philadelphia, PA 19107 

 Attorneys for Appellant 

_________________________________________________________________ 

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

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

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

Eastern District of Michigan, sitting by designation. 
 Robert J. Gregory (Argued) 

 Equal Employment Opportunity 

 Commission 

 1801 L Street, N.W. 

 Washington, D.C. 20507 

 Attorney for Amicus Curiae- 

 Appellant 

 Edward C. Jepson, Jr. (Argued) 

 James E. Bayles, Jr. 

 Vedder, Price, Kaufman & Kammholz 

 222 North LaSalle Street, Suite 2600 

 Chicago, IL 60601 

 and 

 Mitchell Feigenbaum 

 Mesirov, Gelman, Jaffe, Cramer & 

 Jamieson 

 1735 Market Street, 36th Floor 

 Philadelphia, PA 19103 

 Attorneys for Appellee 

OPINION OF THE COURT 

STAPLETON, Circuit Judge: 

Sheila Warnock Seus sued John Nuveen & Company, 

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

Because Seus, at the commencement of her employment, 

had signed a Uniform Application for Securities Industry 

Registration that contained arbitration and compliance 

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

compel arbitration of her claims pursuant to the Federal 

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

leave to take depositions of the National Association of 

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

I. BACKGROUND 

In 1982, Sheila Seus joined the Nuveen brokeragefirm. 

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

register with the NASD all employees who deal directly with 

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

 2 
securities. To comply with this requirement, employees 

complete a Uniform Application for Securities Industry 

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

Approximately four months after she was hired, Seus was 

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

following arbitration clause: 

 I agree to arbitrate any dispute, claim or controversy 

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

 required to be arbitrated under the rules, constitution, 

 or by-laws of the [NASD]. 

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

"compliance clause," under which Seus agreed to: 

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

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

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

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

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

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

of Arbitration Procedure required arbitration of: 

 any dispute, claim or controversy arising out of or in 

 connection with the business of any member of the 

 [NASD], with the exception of disputes involving the 

 insurance business of any member which is also an 

 insurance company: (1) between or among members; 

 (2) between or among members and public customers, 

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

 registered clearing agencies . . . . 

NASD Manual - Code of Arbitration Procedure S 1 (reprint 

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

did not explicitly state that employment disputes were 

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

so. The current Code expressly provides for arbitration of 

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

employment or termination of employment of associated 

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

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

In 1996, Seus filed suit against Nuveen in the district 

court, alleging multiple claims of discrimination under Title 

 3 
VII of the Civil Rights Act of 1964 ("Title VII"), 42 U.S.C. 

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

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

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

motion to dismiss and compel arbitration pursuant to the 

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

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

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

information regarding the rules, procedures, and results 

obtained in other employment disputes arbitrated under 

NASD rules. 

The district court granted Nuveen's motion and dismissed 

Seus's complaint without prejudice, directing her to 

arbitrate her claims. The court concluded that the Form 

U-4 executed by Seus constituted a valid contractual 

agreement to arbitrate enforceable under the FAA, and that 

the arbitration agreement covered the claims asserted in 

this case. 

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

NASD. It noted that the Supreme Court in Gilmer 

recognized the adequacy of the New York Stock Exchange's 

arbitration procedures, which the district court found to be 

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

15. The district court also concluded that the NASD Code 

of Arbitration Procedure, which details discovery 

procedures and subpoena powers, etc., provides 

information sufficient to evaluate the fairness of the 

arbitration process. 

In accordance with our usual practice in arbitration 

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

agreement to arbitrate between the parties and, if so, 

whether this dispute is within the scope of that agreement. 

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

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

court abused its discretion in denying Seus's motion for 

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

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

 4 
II. IS THERE A BINDING AGREEMENT TO 

ARBITRATE? 

A. The FAA 

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

purpose was to make agreements to arbitrate enforceable to 

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

provides, in relevant part: 

 A written provision in . . . a contract evidencing a 

 transaction involving commerce to settle by arbitration 

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

 valid, irrevocable, and enforceable, save upon such 

 grounds as exist at law or in equity for revocation of 

 any contract. 

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

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

employment of seamen, railroad employees, or any other 

class of workers engaged in foreign or interstate commerce" 

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

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

"contract evidencing a transaction in commerce" and not to 

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

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

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

"contract of employment" exception is limited to the 

contracts of employees who, like seamen and railroad 

workers, are engaged directly in the channels of interstate 

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

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

Third Circuit rule and collecting cases from other 

jurisdictions). 

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

federal court on a claim that the plaintiff has agreed to 

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

proceeding pending arbitration, Section 3, and to an order 

compelling arbitration, Section 4. If all the claims involved 

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

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

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

 5 
& Lybrand, 778 F. Supp. 832, 835 (E.D. Pa. 1991), aff'd, 

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

Thus, the FAA on its face authorizes the enforcement 

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

affirm unless we conclude that legislation passed 

subsequent to the FAA reflects a congressional intent that 

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

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

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

the scope of the arbitration provision of that contract. 

B. The ADEA, OWBPA, Title VII And 

 The Civil Rights Act of 1991: 

The Implied Repealer Challenge To The Validity 

Of The Agreement 

Seus contends that Congress, in legislation subsequent 

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

predispute agreements to arbitrate claims under the ADEA 

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

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

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

position, contends that a similar exception has been 

created by Congress for predispute agreements to arbitrate 

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

repealer of the FAA's provisions requiring the enforcement 

of agreements to arbitrate. 

1. Gilmer and the ADEA 

An argument much like that of Seus and the EEOC was

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

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

ADEA claim and a Form U-4 agreement between an 

employee of a brokerage firm and the New York Stock

Exchange. Plaintiff Gilmer was required to register with 

several stock exchanges, including the New York Stock 

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

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

same language regarding arbitration as the Form U-4

 6 
signed by Seus except that his commitment was to arbitrate 

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

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

provided for the arbitration of any controversy between a 

registered representative and a NYSE member " `arising out 

of the employment or termination of employment of such 

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

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

discrimination charge with the EEOC and thereafter filed 

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

insistence that his claim be arbitrated, Gilmer argued that 

enforcement of the Form U-4 agreement to arbitrate would 

be inconsistent with the ADEA. 

The Supreme Court began its analysis by making it clear 

that exceptions to the FAA's rule requiring enforcement of 

agreements to arbitrate are not to be recognized lightly. 

Because of the strong federal policy favoring arbitration, 

any exception must be founded on clear indicia of 

congressional intent: 

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

 should be held to it unless Congress itself has evinced 

 an intention to preclude a waiver of judicial remedies 

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

 note that the burden is on Gilmer to show that 

 Congress intended to preclude a waiver of a judicial 

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

 will be discoverable in the text of the ADEA, its 

 legislative history, or an "inherent conflict" between 

 arbitration and the ADEA's underlying purposes. 

 Throughout such an inquiry, it should be kept in mind 

 that "questions of arbitrability must be addressed with 

 a healthy regard for the federal policy favoring 

 arbitration." 

Id., at 26 (citations omitted). 

Gilmer conceded that nothing in the text or legislative 

history of the ADEA explicitly precluded enforcement of the 

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

arbitration of ADEA claims pursuant to arbitration 

agreements would be inconsistent with the statutory

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

Supreme Court perceived no such inconsistency. 

 7 
The Court held that the FAA required enforcement of

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

termination of employment, including his ADEA claim. It 

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

party does not forego the substantive rights afforded by the 

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

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

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

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

Gilmer's argument that the arbitral process was less suited 

than litigation to the effective enforcement of the ADEA, the 

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

effectively may vindicate [his or her] statutory cause of 

action in the arbitral forum, the statute will continue to 

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

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

original). 

The Court in Gilmer also addressed and rejected an 

argument that agreements to arbitrate ADEA claims should 

not be enforced because of the disparity in bargaining 

power between an employee and her employer. In the 

course of rejecting the argument, the Court stressed that 

courts should look solely to the provisions of the FAA in 

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

agreement is binding: 

 Mere inequality in bargaining power, however, is not a 

 sufficient reason to hold that arbitration agreements 

 are never enforceable in the employment context. . . 

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

 agreements on the same footing as other contracts. 

 Thus, arbitration agreements are enforceable "save 

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

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

 courts should remain attuned to well-supported claims 

 that the agreement to arbitrate resulted from the sort 

 of fraud or overwhelming economic power that would 

 provide grounds for the revocation of any contract." 

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

 this case, however, that Gilmer, an experienced 

 businessman, was coerced or defrauded into agreeing 

 to the arbitration clause in his registration application. 

 8 
 As with the claimed procedural inadequacies discussed 

 above, this claim of unequal bargaining power is best 

 left for resolution in specific cases. 

Id. at 33. 

Finally, the Gilmer Court rejected an argument based on 

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

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

an arbitration proceeding conducted pursuant to an 

arbitration clause in a collective bargaining agreement 

could not bar the plaintiff employee from enforcing his 

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

Court acknowledged that it had expressed the view in 

Alexander that "arbitration was inferior to the judicial 

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

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

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

 been undermined by our recent arbitration decisions. 

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

 time when judicial suspicion of the desirability of 

 arbitration and of the competence of arbitral tribunals 

 inhibited the development of arbitration as an 

 alternative means of dispute resolution." Mitsubishi 

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

 614, 626-627 (1985). 

Id. 

Thus, the Court specifically disavowed, in the context of 

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

arbitral process was inferior to the judicial process. It also 

stressed that because the arbitration clause in Alexander 

was contained in a collective bargaining agreement,

Alexander had not individually agreed to it, "the tension 

between collective representation and individual statutory 

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

"liberal federal policy favoring arbitration," was not 

applicable. Id. at 35. 

2. OWBPA 

Gilmer was decided on May 13, 1991. Seven months 

earlier, Congress amended the ADEA by passing the Older 

 9 
Workers Benefit Protection Act of 1990 ("OWBPA"). Gilmer 

apparently did not contend that these amendments were 

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

they are applicable here. Under the OWBPA, an individual 

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

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

Moreover, a waiver cannot be considered knowing and

voluntary if an individual waives "rights or claims that may 

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

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

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

trial in district court; thus, the OWBPA prohibits the 

enforcement of any agreement that requires an individual, 

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

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

precludes enforcement of Seus's agreement to arbitrate. We 

are unpersuaded for two reasons. 

First, the legislative history of the OWBPA indicates that 

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

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

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

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

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

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

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

we conclude that the OWBPA's waiver requirements do not 

apply to waivers executed before enactment of the statute. 

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

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

Because Seus executed her Form U-4 before the OWBPA

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

Second, assuming arguendo that the OWBPA did apply to 

Seus's case, its legislative history and the background 

against which it was enacted provide persuasive evidence 

that the protection it affords is limited to the waiver of 

substantive rights under the ADEA. As the Fifth Circuit 

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

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

 was with releases and voluntary separation agreements 

 in which employees were forced to waive their rights. 

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

 10 
 or claim, not against the waiver of a judicial forum. The 

 Supreme Court recognized this distinction in Mitsubishi 

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

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

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

 does not forgo the substantive rights afforded by the 

 statute; it only submits to their resolution in an 

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

 assume that if Congress intended the substantive 

 protection afforded by a given statute to include 

 protection against waiver of the right to a judicial 

 forum, that intention will be deducible from text or 

 legislative history. 

 We recognize that Congress, through the OWBPA, has 

 protected terminated employees who waive their 

 substantive rights under ADEA in exchange for a more 

 favorable severance package; however, we find no clear 

 indication that Congress was likewise concerned with 

 protecting employees who agree to arbitrate claims that 

 may arise during the course of their employment. 

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

The Supreme Court reads OWBPA in the same way. 

While OWBPA was not urged upon it as controlling 

authority in Gilmer, the Court did comment upon OWBPA 

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

highly relevant here. It observed: 

 Gilmer also argues that compulsory arbitration is 

 improper because it deprives claimants of the judicial 

 forum provided for by the ADEA. Congress, however, 

 did not explicitly preclude arbitration or other 

 nonjudicial resolution of claims, even in its recent 

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

 substantive protection afforded [by the ADEA] to 

 include protection against waiver of the right to a 

 judicial forum, that intention will be deducible from 

 text or legislative history." 

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

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

amendments to the ADEA," the Supreme Court clearly 

 11 
meant the OWBPA. See id. at 28 n.3. While dicta, the 

Court's comments provide persuasive evidence 

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

terms, the OWBPA prohibits the enforcement of any 

agreement that requires an individual, in advance of an 

actual dispute, to forgo her statutory right of action in 

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

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

or claim" as encompassing procedural rights such as the 

right to a judicial forum. 

We thus conclude that the ADEA, as amended by the 

OWBPA, still reflects no Congressional intent to except from 

the FAA predispute agreements to arbitrate ADEA claims. 

3. Title VII 

Although the holding in Gilmer involved only ADEA 

claims and not Title VII claims, numerous courts have 

determined that the holding is equally applicable to Title VII 

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

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

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

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

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

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

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

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

expressly disavowed its earlier expressed view that an 

arbitral forum was inferior to a judicial one for deciding 

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

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

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

find Title VII entirely compatible with applying the FAA to 

agreements to arbitrate Title VII claims. 

4. Section 118 of the Civil Rights Act of 1991 

On November 21, 1991, more than six months after 

Gilmer was decided, Congress passed the Civil Rights Act of 

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

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

 12 
alternative dispute resolution, including . . . arbitration, is 

encouraged to resolve disputes arising under [Title VII and 

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

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

clear Congressional intent to encourage arbitration of Title 

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

EEOC argues, nonetheless, that a Congressional intent to 

preclude predispute waivers of a judicial forum for Title VII 

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

The EEOC points to two comments by the House 

Committee on Education and Labor as well as two remarks 

of individual legislators on the floor to support its position. 

In our judgment, however, no amount of commentary from 

individual legislators or committees would justify a court in 

reaching the result the EEOC would have us reach. The 

text adopted by the full Congress declares that lawful 

"arbitration . . . is encouraged to resolve disputes arising 

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

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

repealed with respect to agreements to arbitrate Title VII 

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

of appeals that have addressed the issue have recognized as 

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

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

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

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

_________________________________________________________________ 

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

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

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

 This section "encourages" the voluntary use of conciliation, 

 mediation, arbitration, and other methods of resolving disputes 

 under Civil Rights laws governing employment discrimination. 

 We agree that voluntary mediation and arbitration are far 

 preferable to prolonged litigation for resolving employment 

 discrimination claims. . . . 

 We recognize that mediation and arbitration, knowingly and 

 voluntarily undertaken, are the preferred methods of settlement of 

 employment discrimination disputes. 

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

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

 13 
Nor do we believe this straightforward declaration of the 

full Congress can be interpreted to mean that the FAA is 

impliedly repealed with respect to agreements to arbitrate 

Title VII claims which were executed by an employee as a 

condition of securing employment. Thus, we respectfully 

disagree with the decision of the Court of Appeals for the 

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

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

understand the opinion in that case, the court reads the 

preferatory clause, "where appropriate and to the extent 

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

codification of a particular view of the decisional law 

regarding Title VII arbitration as it existed prior to the 

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

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

Moreover, we find nothing in the legislative history 

suggesting that this hortatory provision was intended to 

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

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

intended to codify case law, we would find the text

incompatible with the notion that the law codified was case 

law inconsistent with a Supreme Court case decided six 

months before the passage of the Act. 

C. Other Challenges to the Validity of the Agreement 

Seus insists that anyone seeking to enforce an agreement 

to arbitrate Title VII and ADEA claims must establish that 

the other party entered the agreement "knowingly" and 

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

this burden. She argues as well that her agreement is 

unenforceable because it was a contract of adhesion and 

analogous to a "yellow dog contract." 

1. The Knowing and Voluntary Standard 

As we have previously noted, contracts covered by the 

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

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

any contracts. As we have also noted, Gilmer establishes 

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

only if the party resisting arbitration can point to a 

 14 
generally applicable principle of contract law under which 

the agreement could be revoked. 

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

with an understanding that a binding agreement is being 

entered and without fraud or duress. Determining whether 

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

her view, requires an inquiry into such matters as the 

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

education and experience, plaintiff's opportunity for 

deliberation and negotiation, and whether plaintiff was 

encouraged to consult counsel. She does not contend that 

this heightened "knowing and voluntary" standard is a 

generally applicable principle of contract law. Rather, Seus 

finds that standard in cases like Cirillo v. Arco Chemical 

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

heightened knowing and voluntary standard applicable to 

agreements releasing substantive claims under the ADEA.2 

Applying that standard here would be inconsistent with the 

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

duress, mistake or some other ground recognized by the 

law applicable to contracts generally would have excused 

the district court from enforcing Seus's agreement.

_________________________________________________________________ 

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

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

to arbitrate under the NASD rules was unenforceable. The agreement 

was not "knowingly" entered insofar as employment disputes were 

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

NASD rules did not specifically refer to employment disputes. We 

respectfully disagree with the decision of the court in Lai. 

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

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

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

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

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

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

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

voluntarily" to invoke ordinary, well established principles of contract 

law rather than the heightened standard for which Seus contends. 

 15 
2. Contract of Adhesion 

Seus suggests that the arbitration agreement in the Form 

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

disparity in bargaining power between her and her 

employer. This very argument was rejected in Gilmer, 

however. Unequal bargaining power is not alone enough to 

make an agreement to arbitrate a contract of adhesion. 

Moreover, even if we were to assume arguendo that the 

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

unenforceable. A contract of adhesion is invalid only where 

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

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

order for a contract to be invalidated as a contract of 

adhesion, the plaintiff "must allege both a lack of

meaningful choice about whether to accept the provision in 

question, and that the disputed provisions were so onesided as to be oppressive." Stebok v. American Gen. Life & 

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

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

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

oppressive nor unconscionable. Similarly, the district court 

in Beauchamp v. Great West Life Assurance Co. concluded 

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

explaining: 

 The Gilmer court has held that plaintiff is not giving up 

 substantive statutory rights through arbitration of her 

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

 substantively unconscionable. Nor is the language of 

 the U-4 form unconscionable in that it misrepresents 

 the existence or scope of the arbitration clause. The 

 U-4 form clearly states that the applicant should read 

 its provisions very carefully and that any claim 

 between plaintiff and her firm would be arbitrated if 

 required by the arbitration code of the organization 

 with which she registered. 

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

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

signed were not oppressive, unconscionable, or 

unreasonably favorable to either the NASD or Nuveen, the 

third party beneficiary of the agreement. 

 16 
3. "Yellow Dog" Contract 

Finally, Seus suggests that the arbitration agreement in 

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

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

which employees agreed to waive their right to join a union 

in order to obtain employment. Seus asserts that the two 

types of contracts are analogous because in both instances 

employers require employees to waive their statutory rights 

in order to obtain employment. She argues that because 

Congress invalidated yellow dog contracts in the NorrisLaGuardia Act of 1932, 29 U.S.C. S 103, this court should 

invalidate her contract. Seus's argument fails once again 

because, unlike the employees who signed yellow dog

contracts, Seus did not waive her substantive statutory 

rights by signing the Form U-4. 

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

arbitrate was valid and binding under the FAA. 

III. DOES THE AGREEMENT COVER THIS DISPUTE? 

A. The 1982 NASD Code of Arbitration Procedure 

Seus argues that the district court improperly dismissed 

her action against Nuveen because employment disputes 

were not covered by the NASD Code of Arbitration 

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

we have noted, section 1 of that Code provided for 

arbitration of: 

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

 in connection with the business of any member of the 

 [NASD], with the exception of disputes involving the 

 insurance business of any member which is also an 

 insurance company: (1) between or among members; 

 (2) between or among members and public customers, 

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

 registered clearing agencies . . . . 

Although the 1982 Code did not explicitly provide for the 

arbitration of employment disputes, we are persuaded that 

it encompassed such disputes and that Seus thus agreed to 

submit her Title VII and ADEA claims to arbitration. 

 17 
As the district court pointed out, "[t]he majority of courts 

which have examined the pre-amendment NASD Code also 

have concluded that it covers employment disputes," while 

only the Seventh and Ninth Circuits have held otherwise. 

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

courts considering the issue have espoused were concisely 

explained by the Court of Appeals for the Second Circuit 

thus: 

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

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

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

 out of or in connection with the business of any 

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

 employee suing a member-employer fell into none of 

 these subsections (most particularly that such an 

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

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

 related disputes were therefore not arbitrable, see id. at 

 1255. 

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

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

 Eleventh Circuit disagreed and held that employment- 

 related disputes are arbitrable. The Eleventh Circuit 

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

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

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

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

 dispute connected to an NASD member's business, 

 except for disputes involving the insurance business of 

 an NASD member that are (1) between NASD members 

 or (2) between NASD members and public customers or 

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

 claim against a member-employer is arbitrable under 

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

 See id. at 519 & n. 5. 

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

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

 fire. It rejected the Eleventh Circuit's reasoning that 

 S 1's subsections applied only to the insurance 

 exception clause; it agreed with the Seventh Circuit 

 that the three subsections modified the initial clause. 

 18 
 See Armijo, 72 F.3d at 798-99 n. 6. Contrary to 

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

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

 used in S 8, and therefore included an aggrieved 

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

 that employment-related disputes are arbitrable, but 

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

 at 798. 

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

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

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

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

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

that section includes employees having employment-related 

disputes with a member firm, id. at 65. 

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

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

As the Jameson court explained: 

 We cannot fathom any possible reason why the NASD 

 would except insurance business disputes from 

 arbitration, but then only when those disputes involved 

 certain parties. Rather, the NASD probably meant to 

 exempt "any dispute involving the insurance business 

 of an insurance company member from compulsory 

 arbitration, not just those involving specific classes of 

 individuals." To put it in the language of a

 grammarian, we therefore interpret the insurance 

 exception clause as something "more akin to a 

 parenthetical within the section rather than an 

 independent clause modified by the language following 

 the colon." 

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

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

not the insurance exception clause. 

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

Jameson courts pointed to several considerations which led 

them to conclude that the term encompasses employees 

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

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

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

 19 
pre-Amendment NASD Code.3 As the Jameson court 

explained: 

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

 plain that Jameson does not fall into any category 

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

 clearly contemplates that Jameson, as an "associated 

 person," will arbitrate his disputes with an NASD- 

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

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

 rendering S 8 utterly superfluous in this respect. 

 Therefore, to avoid construing one provision as 

 negating the other, "we must give Section 1 an 

 interpretation at least as broad as that clearly called 

 for in Section 8." 

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

employees with employment-related disputes gives meaning 

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

that the applicant agrees that at least some disputes 

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

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

early as 1987 that the pre-Amendment Code applied to 

employment-related disputes between employees and 

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

F.3d at 799. 

Based on these considerations, "we cannot say`with 

positive assurance' that `others' does not include an 

employee with an employment-related dispute against a 

_________________________________________________________________ 

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

 Any dispute, claim or controversy eligible for submission under 

Part 

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

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

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

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

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

 member against a person associated with a member or a person 

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

 associated with a member against a person associated with a 

 member. 

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

 20 
member firm." Jameson, 102 F.3d at 65. It is at least 

ambiguous whether that term encompasses employees with 

employment-related disputes. "However, to acknowledge the 

ambiguity is to resolve the issue, because all ambiguities 

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

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

concluded that the pre amendment NASD Code provided for 

arbitration of employment disputes. 

B. The Compliance Clause and the Amended NASD Code 

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

Arbitration Procedure to provide for the arbitration of "any 

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

employment or termination of employment of associated 

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

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

whether we conclude that the pre-amendment NASD Code 

requires arbitration of Seus's employment dispute, we 

should affirm the district court's order compelling

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

and the fact that the NASD Code explicitly provided for the 

arbitration of employment disputes when she commenced 

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

the Form U-4 compliance clause did not mention the 

arbitration clause and was contained in a different

paragraph, the compliance clause is reasonably read only 

to require Seus to conform her behavior, as a securities 

dealer, to subsequent changes in the NASD rules. 4 

Seus's argument contradicts the holding of the vast

majority of courts to consider this issue. Most courts have 

found that the Form U-4 compliance clause obligates a 

registrant to comply with the NASD Arbitration Code as it 

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

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

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

_________________________________________________________________ 

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

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

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

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

U-4, P 2). 

 21 
No. 96 Civ. 5557, 1997 WL 452392, *4 (S.D.N.Y. Aug. 8, 

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

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

bound herself to comply with amendments to the NASD's 

rules, including those governing arbitration. 

IV. SEUS'S MOTION TO DEPOSE THE NASD 

Seus claims that current NASD arbitration procedures 

are inadequate to protect her statutory and due process 

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

decision to abandon its policy of requiring agreements to 

arbitrate employment discrimination claims as a condition 

of employment with a member.5 Seus insists that the

_________________________________________________________________ 

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

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

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

Procedure: 

 (b) A claim alleging employment discrimination or sexual 

 harassment in violation of a statute is not required to be 

arbitrated. 

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

 arbitrate it, either before or after the dispute arose. 

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

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

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

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

its registrants a choice between signing an agreement to arbitrate and 

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

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

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

agreements to arbitrate as a condition of registration is irrelevant in 

this 

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

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

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

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

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

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

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

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

reflects 

only a policy decision that a commitment to arbitrate employment 

discrimination claims should not be required as a condition of 

employment. The amendment expressly recognizes that voluntary 

agreements to arbitrate will continue to be enforceable whether entered 

before or after the alleged violation occurs. 
 22 
district court should have allowed her to conduct further 

discovery on this issue before reaching its decision to 

compel arbitration. 

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

an abuse of discretion. We find none. 

Congress has decreed that arbitration is a favored means 

of dispute resolution. While this does not mean that 

arbitration pursuant to any kind of arbitral process is 

consistent with federal policy, the detailed provisions of the 

NASD Code of Arbitration Procedure are sufficient to permit 

the kind of evaluation conducted in Gilmer and, as the 

district court observed, the process required by that Code 

is the functional equivalent of the process found in Gilmer 

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

Moreover, if there be any inadequacies or unfairness in the 

application of those rules in this specific case, judicial 

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

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

Under these circumstances, declining to permit a 

deposition of the NASD prior to ordering submission of the 

dispute to arbitration was well within the discretion of the 

district court. 

V. CONCLUSION 

The order of the district court dismissing Seus's claims 

without prejudice and directing arbitration will be affirmed. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

_________________________________________________________________ 

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

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

backgrounds of the arbitrators, procedures for selecting arbitrators, the 

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

sex employment discrimination claims, the specific results of the 

arbitration decisions in employment discrimination cases, the location 

and scheduling of hearings, and the timeliness of decisions. 

 23