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. e du/thir dc ir c uit_1998/132Filed 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 Dis trict Judge for the Eastern District of Michigan, sitting by designatio n.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 Ind ustry Registration that contained arbitration and complia nce clauses, the district court granted the employer's motion to compel arbitration of her claims pursuant to the Fe deral
Arbitration Act. The court also denied Seus's motio n for leave to take depositions of the National Associati on of Securities Dealers ("NASD"). We will affirm.

I. BACKGROUND

In 1982, Sheila Seus joined the Nuveen brokeragefir m. As a member firm of the NASD, Nuveen is required to register with the NASD all employees who deal direc tly with the public in the purchase and sale of over-the-cou nter

2securities. To comply with this requirement, employ ees

complete a Uniform Application for Securities Indus try 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 c ontroversy that may arise between me and my firm . . . that is required to be arbitrated under the rules, c onstitution, 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-law s and rules and regulations of the [NASD] as they are an d may be adopted, changed or amended from time to tim e . . .

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

At the time Seus executed the Form U-4, the NASD Co de of Arbitration Procedure required arbitration of:

any dispute, claim or controversy arising ou t of or in connection with the business of any member o f the [NASD], with the exception of disputes invol ving the insurance business of any member which is al so an insurance company: (1) between or among memb ers; (2) between or among members and public cust omers, or others; and (3) between or among members [and] registered clearing agencies . . . .

NASD Manual - Code of Arbitration Procedure S 1 (re print ed. May 1982). Although the NASD Code in effect in 1982 did not explicitly state that employment disputes w ere subject to arbitration, the Code was amended in 199 3 to do so. The current Code expressly provides for arbitra tion of "any dispute, claim, or controversy . . . arising o ut of the employment or termination of employment of associat ed person(s) with any member." NASD Manual- Code of Arbitration Procedure Rule 10101 (formerly S 1) (19 97).

In 1996, Seus filed suit against Nuveen in the dist rict court, alleging multiple claims of discrimination u nder Title

3VII 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, Nuveenfi led a motion to dismiss and compel arbitration pursuant t o the Federal Arbitration Act ("FAA"), 9 U.S.C. SS 3-4. S eus, in turn, filed a motion for leave to take the depositi on of the NASD pursuant to Fed. R. Civ. P. 30(b)(6) to obtain information regarding the rules, procedures, and re sults obtained in other employment disputes arbitrated un der

NASD rules.

The district court granted Nuveen's motion and dism issed Seus's complaint without prejudice, directing her t o arbitrate her claims. The court concluded that the Form U-4 executed by Seus constituted a valid contractua l agreement to arbitrate enforceable under the FAA, a nd that the arbitration agreement covered the claims assert ed in
this case.

The district court also denied Seus's motion to dep ose the NASD. It noted that the Supreme Court in Gilmer recognized the adequacy of the New York Stock Excha nge's arbitration procedures, which the district court fo und 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 arbitratio n 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 ag reement. See PaineWebber Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir. 1990). We will then determine whether the dist rict court abused its discretion in denying Seus's motio n for discovery from the NASD. See Marroquin-Manriquez v. INS, 699 F.2d 129, 134 (3d Cir. 1983).

4II. 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 enforce able to
the same extent as other contracts. Section 2 of th e Act provides, in relevant part:

A written provision in . . . a contract evid encing a transaction involving commerce to settle by arbitration a controversy arising out of such contract . . . shall be valid, irrevocable, and enforceable, save up on such grounds as exist at law or in equity for rev ocation of
any contract.

"Commerce," as defined in the Act, includes "commer ce among the several States." 9 U.S.C. S 1. "[C]ontrac ts of employment of seamen, railroad employees, or any ot her class of workers engaged in foreign or interstate c ommerce" 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 th e contracts of employees who, like seamen and railroa d workers, are engaged directly in the channels of in terstate commerce. See Great Western Mortgage Corp. v. Peaco ck, 110 F.3d 222, 226-27 & nn.20-21 (3d Cir. 1997) (sta ting Third Circuit rule and collecting cases from other jurisdictions).

If a party to a binding arbitration agreement is su ed in a federal court on a claim that the plaintiff has agr eed to arbitrate, it is entitled under the FAA to a stay o f the court proceeding pending arbitration, Section 3, and to a n order compelling arbitration, Section 4. If all the claim s involved in an action are arbitrable, a court may dismiss th e action instead of staying it. See Alford v. Dean Witter Re ynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992); Dancu v. Coopers

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

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

Thus, the FAA on its face authorizes the enforcemen t 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 inte nt that agreements like the Form U-4 contract be excluded f rom 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 cont ract.

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 subsequ ent to the FAA, has carved out an exception to its prov isions for predispute agreements to arbitrate claims under the ADEA (i.e., agreements to arbitrate ADEA claims that hav e not arisen at the time the agreement is reached). The E EOC, which has filed an amicus brief in support of Seus' s position, contends that a similar exception has bee n created by Congress for predispute agreements to ar bitrate claims under Title VII as well. We find no such imp lied repealer of the FAA's provisions requiring the enfo rcement 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/J ohnson Lane Corp., 500 U.S. 20 (1991), a case that involve d 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 Sto ck Exchange ("NYSE"), as a condition of his employment . To do so, he executed a Form U-4 application containing t he same language regarding arbitration as the Form U-4

6signed by Seus except that his commitment was to ar bitrate

in accordance with the rules of the NYSE. The NYSE Rules in place at the time Gilmer signed his Form U-4 exp licitly provided for the arbitration of any controversy bet ween a registered representative and a NYSE member " `aris ing out of the employment or termination of employment of s uch registered representative.' " Id. (quoting NYSE Rul e 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 emplo yer's insistence that his claim be arbitrated, Gilmer arg ued 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 c lear that exceptions to the FAA's rule requiring enforce ment of agreements to arbitrate are not to be recognized li ghtly. Because of the strong federal policy favoring arbit ration, 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 judicia l remedies for the statutory rights at issue." In this regard, we
note that the burden is on Gilmer to show th at 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 conflic t" between arbitration and the ADEA's underlying purpos es. Throughout such an inquiry, it should be kep t in mind that "questions of arbitrability must be add ressed with a healthy regard for the federal policy favo ring
arbitration."

Id., at 26 (citations omitted).

Gilmer conceded that nothing in the text or legisla tive history of the ADEA explicitly precluded enforcemen t of the FAA in his situation. Rather, he argued that "compu lsory 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.

7The 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 statuto ry claim, a party does not forego the substantive rights afford ed by the statute; it only submits to their resolution in an arbitral, rather than a judicial form.." Id. at 26 (quoting f rom Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1987)) (alteration in original). Rej ecting Gilmer's argument that the arbitral process was les s suited than litigation to the effective enforcement of the ADEA, the Court concluded: "[S]o long as the prospective liti gant effectively may vindicate [his or her] statutory ca use of action in the arbitral forum, the statute will cont inue to
serve both its remedial and deterrent function." Id . at 28 (quoting from Mitsubishi, supra, at 637) (alteratio ns in original).

The Court in Gilmer also addressed and rejected an argument that agreements to arbitrate ADEA claims s hould not be enforced because of the disparity in bargain ing power between an employee and her employer. In the course of rejecting the argument, the Court stresse d that courts should look solely to the provisions of the FAA in determining on a case-by-case basis whether an arbi tration agreement is binding:

Mere inequality in bargaining power, however , is not a
sufficient reason to hold that arbitration a greements are never enforceable in the employment cont ext. . . [T]he FAA's purpose was to place arbitration agreements on the same footing as other cont racts. Thus, arbitration agreements are enforceable "save upon such grounds as exist at law or in equi ty for the revocation of any contract." 9 U.S.C. S 2."O f course, courts should remain attuned to well-support ed claims that the agreement to arbitrate resulted fro m the sort of fraud or overwhelming economic power that would provide grounds for the revocation of any co ntract." Mitsubishi, 473 U.S., at 627. There is no in dication in this case, however, that Gilmer, an experien ced businessman, was coerced or defrauded into a greeing to the arbitration clause in his registratio n application.

8As with the claimed procedural inadequacies discussed

above, this claim of unequal bargaining powe r is best left for resolution in specific cases.

Id. at 33.

Finally, the Gilmer Court rejected an argument base d on its prior decision in Alexander v. Gardner-Denver C o., 415 U.S. 36 (1974). Alexander held that an adverse deci sion in an arbitration proceeding conducted pursuant to an arbitration clause in a collective bargaining agree ment could not bar the plaintiff employee from enforcing his rights under Title VII in a federal court. In Gilme r, the Court acknowledged that it had expressed the view i n Alexander that "arbitration was inferior to the jud icial process for resolving statutory claims." Gilmer, 50 0 U.S. at 34 n.5. It hastened to add, however:

That "mistrust of the arbitral process," how ever, has been undermined by our recent arbitration de cisions. McMahon, 482 U.S. at 231-32. "[W]e are well past the time when judicial suspicion of the desirabi lity of arbitration and of the competence of arbitra l tribunals inhibited the development of arbitration as an alternative means of dispute resolution." Mi tsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc ., 473 U.S. 614, 626-627 (1985).

Id.

Thus, the Court specifically disavowed, in the cont ext of Title VII claims as well as ADEA claims, the idea t hat the arbitral process was inferior to the judicial proce ss. It also
stressed that because the arbitration clause in Ale xander was contained in a collective bargaining agreement, Alexander had not individually agreed to it, "the t ension between collective representation and individual st atutory rights" was an "important concern," and the FAA, wi th 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 O lder

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

apparently did not contend that these amendments we re applicable to his case. Seus and the EEOC do conten d that they are applicable here. Under the OWBPA, an indiv idual "may not waive any right or claim" under the ADEA u nless the waiver is knowing and voluntary. 29 U.S.C. S 62 6(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. a t S 626(f)(1)(C). Seus and the EEOC assert that the l anguage "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 indiv idual, in advance of an actual dispute, to forgo her statu tory right to trial in a district court. They conclude that th e OWBPA precludes enforcement of Seus's agreement to arbitr ate. We are unpersuaded for two reasons.

First, the legislative history of the OWBPA indicat es that it does "not apply with respect to waivers that occ ur 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 n ote to 29
U.S.C. S 626 entitled "Effective Date of 1990 Amend ment" (1998)). In common parlance, a waiver "occurs" when it becomes effective, i.e., when it is executed. For t hat reason, we conclude that the OWBPA's waiver requirements do not apply to waivers executed before enactment of the s tatute. Accord Rice v. Brown Bros. Harriman & Co., No. 96 C iv. 6326(MBM), 1997 WL 129396, *5 (S.D.N.Y. Mar. 21, 19 97).

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 backgr ound against which it was enacted provide persuasive evi dence that the protection it affords is limited to the wa iver of substantive rights under the ADEA. As the Fifth Cir cuit explained in Williams v. Cigna Financial Advisors, Inc.,

[i]n enacting the OWBPA, Congress' primary c oncern was with releases and voluntary separation a greements in which employees were forced to waive thei r rights. . . . [T]he OWBPA protects against the waive r of a right

10or claim, not against the waiver of a judici al 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 afford ed 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 substan tive protection afforded by a given statute to in clude 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 OWBP A, has protected terminated employees who waive the ir substantive rights under ADEA in exchange fo r a more favorable severance package; however, we fin d no clear indication that Congress was likewise concer ned with protecting employees who agree to arbitrate claims that may arise during the course of their employm ent.

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

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 OWB PA during the course of its analysis there in a way th at is highly relevant here. It observed:

Gilmer also argues that compulsory arbitrati on is improper because it deprives claimants of th e judicial forum provided for by the ADEA. Congress, ho wever, did not explicitly preclude arbitration or o ther nonjudicial resolution of claims, even in it s recent amendments to the ADEA. "[I]f Congress inten ded the substantive protection afforded [by the ADEA ] to include protection against waiver of the rig ht to a judicial forum, that intention will be deduc ible 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 "rec ent amendments to the ADEA," the Supreme Court clearly

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

Court's comments provide persuasive evidence contradicting the EEOC's assertion that "[b]y its p lain terms, the OWBPA prohibits the enforcement of any agreement that requires an individual, in advance o f an actual dispute, to forgo her statutory right of act ion in district court." EEOC's Br. at 14. Clearly, the Sup reme Court did not interpret the OWBPA's reference to "a ny 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 ex cept from the FAA predispute agreements to arbitrate ADEA cla ims.

3. Title VII

Although the holding in Gilmer involved only ADEA claims and not Title VII claims, numerous courts ha ve determined that the holding is equally applicable t o Title VII proceedings. See, e.g., Metz v. Merrill Lynch, Pier ce, Fenner & Smith, Inc., 39 F.3d 1482, 1487 (10th Cir. 1994); Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698, 700 (11 th Cir. 1992); Mago v. Shearson Lehman Hutton, Inc., 956 F. 2d 932, 935 (9th Cir. 1992); Willis v. Dean Witter Rey nolds, 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 Gi lmer expressly disavowed its earlier expressed view that an arbitral forum was inferior to a judicial one for d eciding
Title VII claims. See 500 U.S. at 34 n.5.

Because Title VII and the ADEA "are similar in thei r aims and substantive provisions," Mago, 956 F.2d at 935, we find Title VII entirely compatible with applying th e 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 Right s Act of 1991. Section 118 of that Act provides that, "Where appropriate and to the extent authorized by law, th e use of

12alternative dispute resolution, including . . . arb itration, is

encouraged to resolve disputes arising under [Title VII and the ADEA]." Pub. L. 102-166, S 118 (reprinted in no tes to 42 U.S.C. S 1981). On its face, the text ofS 118 ev inces a clear Congressional intent to encourage arbitration of Title VII and ADEA claims, not to preclude such arbitrati on. The EEOC argues, nonetheless, that a Congressional inte nt 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 rem arks of individual legislators on the floor to support i ts position. In our judgment, however, no amount of commentary f rom individual legislators or committees would justify a court in reaching the result the EEOC would have us reach. T he text adopted by the full Congress declares that law ful "arbitration . . . is encouraged to resolve dispute s arising from [Title VII and the ADEA.]" That declaration si mply cannot be "interpreted" to mean that the FAA is imp liedly repealed with respect to agreements to arbitrate Ti tle VII
and ADEA claims that will arise in the future.1 Oth er courts of appeals that have addressed the issue have recog nized 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 Ha ll Co., 72 F.3d 50, 53 n.4 (7th Cir. 1995).

___________________________________________________ ______________

1. Not surprisingly there is ample legislative hist ory to support a straightforward reading of the text of S 118. The R eport 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 arbit ration are far preferable to prolonged litigation for resol ving employment
discrimination claims. . . .

We recognize that mediation and arbitration , knowingly and voluntarily undertaken, are the preferred me thods of settlement of employment discrimination disputes.

H.R. Rep. No. 40(II), 102d Cong., 1st Sess. 78 (199 1), reprinted in 1991 U.S.C.C.A.N. 694, 764.

13Nor do we believe this straightforward declaration of the

full Congress can be interpreted to mean that the F AA is impliedly repealed with respect to agreements to ar bitrate Title VII claims which were executed by an employee as a condition of securing employment. Thus, we respectf ully disagree with the decision of the Court of Appeals for the Ninth Circuit in Duffield v. Robertson Stephens & C o., No. 97-15698, 1998 WL 227469 (9th Cir. May 8, 1998). As we understand the opinion in that case, the court read s the preferatory clause, "where appropriate and to the e xtent authorized by law," in light of the legislative his tory, 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 th e FAA. Moreover, we find nothing in the legislative histor y suggesting that this hortatory provision was intend ed to codify, and thus freeze, any particular view of the case law. Finally, even if we were to accept "authorized by l aw" 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 Agreemen t

Seus insists that anyone seeking to enforce an agre ement
to arbitrate Title VII and ADEA claims must establi sh that the other party entered the agreement "knowingly" a nd "voluntarily." She insists that Nuveen has failed t o 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 t he FAA are "valid, irrevocable, and enforceable," save upon such grounds as exist at law or in equity for revoc ation of any contracts. As we have also noted, Gilmer establ ishes
that a court can decline to enforce such a contract if and only if the party resisting arbitration can point t o a

14generally applicable principle of contract law unde r which

the agreement could be revoked.

By "knowing" and "voluntary," Seus means more than with an understanding that a binding agreement is b eing entered and without fraud or duress. Determining wh ether an agreement to arbitrate is "knowing" and"voluntar y," in her view, requires an inquiry into such matters as the specificity of the language of the agreement, the p laintiff's education and experience, plaintiff's opportunity f or 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. Rat her, Seus
finds that standard in cases like Cirillo v. Arco C hemical Co., 862 F.2d 448 (3d Cir. 1988) where we found a heightened knowing and voluntary standard applicabl e to agreements releasing substantive claims under the A DEA.2 Applying that standard here would be inconsistent w ith 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 ex cused 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 F orm U-4 agreement
to arbitrate under the NASD rules was unenforceable . The agreement was not "knowingly" entered insofar as employment d isputes were concerned, according to the court, because the arbi tration clause of the NASD rules did not specifically refer to employment disputes. We respectfully disagree with the decision of the cour t in Lai.

Finally, Seus, in support of her heightened "knowin g and voluntary" standard, relies upon the provisions of the OWBPA a nd the Civil Rights Act of 1991 that we have already discussed. As we h ave explained, the referenced provisions of the OWBPA pertain only to the waiver or release of substantive ADEA rights claims, not procedural r ights like the right to proceed in a judicial forum. With respect to the re ferenced legislative history of S 118, see fn. 1, p. 16, supra, we under stand "knowingly and voluntarily" to invoke ordinary, well established p rinciples of contract law rather than the heightened standard for which S eus contends.

152. 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 enou gh to make an agreement to arbitrate a contract of adhesi on.

Moreover, even if we were to assume arguendo that t he Form U-4 is a contract of adhesion, it would not be
unenforceable. A contract of adhesion is invalid on ly where its terms unreasonably favor the other party. See e .g., Witmer v. Exxon Corp., 434 A.2d 1222, 1228 (Pa. 198 1). In
order for a contract to be invalidated as a contrac t of adhesion, the plaintiff "must allege both a lack of meaningful choice about whether to accept the provi sion 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 fo und, however, that the terms of Seus's Form U-4 were nei ther oppressive nor unconscionable. Similarly, the distr ict court in Beauchamp v. Great West Life Assurance Co. concl uded that the Form U-4 is not oppressive or unconscionab le, explaining:

The Gilmer court has held that plaintiff is not giving up substantive statutory rights through arbitra tion of her Title VII claim. Thus, her agreement to arbi trate is not substantively unconscionable. Nor is the lan guage of
the U-4 form unconscionable in that it misre presents the existence or scope of the arbitration cl ause. The U-4 form clearly states that the applicant s hould read its provisions very carefully and that any c laim between plaintiff and her firm would be arbi trated if required by the arbitration code of the orga nization 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.

163. "Yellow Dog" Contract

Finally, Seus suggests that the arbitration agreeme nt in
the Form U-4 should be invalidated because it is an alogous to the "yellow dog contracts" of the nineteenth cen tury, in which employees agreed to waive their right to join a union in order to obtain employment. Seus asserts that th e two types of contracts are analogous because in both in stances employers require employees to waive their statutor y rights in order to obtain employment. She argues that beca use Congress invalidated yellow dog contracts in the No rrisLaGuardia 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 statu tory rights by signing the Form U-4.

In short, we conclude that the Form U-4 agreement t o 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 dism issed her action against Nuveen because employment disput es 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 arisi ng out of or in connection with the business of any membe r of the [NASD], with the exception of disputes invol ving the insurance business of any member which is al so an insurance company: (1) between or among memb ers; (2) between or among members and public cust omers, or others; and (3) between or among members [and] registered clearing agencies . . . .

Although the 1982 Code did not explicitly provide f or the arbitration of employment disputes, we are persuade d that it encompassed such disputes and that Seus thus agr eed to
submit her Title VII and ADEA claims to arbitration

.

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

which have examined the pre-amendment NASD Code als o have concluded that it covers employment disputes," while only the Seventh and Ninth Circuits have held other wise. D. Ct. Op. at 10. The three different lines of reas oning that courts considering the issue have espoused were con cisely explained by the Court of Appeals for the Second Ci rcuit

thus:

In Farrand v. Lutheran Brotherhood, 993 F.2 d 1253 (7th Cir. 1993), the Seventh Circuit held th at S 1's three subsections ((1)-(3)) qualified the ph rase"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 n one of these subsections (most particularly that su ch an employee was not an "other[ ]" within the me aning of S 1(2)), see id. at 1254-55; and that employ ment- related disputes were therefore not arbitrab le, see id. at

1255.

In Kidd v. Equitable Life Assurance Soc'y o f the United States, 32 F.3d 516 (11th Cir. 1994), the Eleventh Circuit disagreed and held that emp loyment- related disputes are arbitrable. The Elevent h Circuit reasoned that S 1's three subsections applie d, 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[ ] arbitra tion for any dispute connected to an NASD member's busine ss, except for disputes involving the insurance business of an NASD member that are (1) between NASD mem bers or (2) between NASD members and public custo mers or others." Id. The court thus found that an em ployee's claim against a member-employer is arbitrabl e under S 1's unqualified (as the court read it) ope ning 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 fue l to the fire. It rejected the Eleventh Circuit's rea soning that S 1's subsections applied only to the insura nce exception clause; it agreed with the Seventh Circuit
that the three subsections modified the init ial clause.

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

Farrand, however, the court found that "othe rs" in S 1(2) necessarily encompassed "associated p ersons" as used in S 8, and therefore included an aggri eved employee. See id. at 798-99. The court accor dingly held that employment-related disputes are arbitra ble, but not for the reason given by the Eleventh Cir cuit. See id.

at 798.

Thomas James Assocs., Inc. v. Jameson, 102 F.3d 60, 64 (2d Cir. 1996). In Jameson, the Second Circuit, lik e the Tenth Circuit, concluded "that S 1's subsections ap ply to that section's opening clause, and not just to the insurance exception clause," id., and that the term"others" a s used in that section includes employees having employment-r elated disputes with a member firm, id. at 65.

With respect to the application of S 1's subsection s, we adopt the Second Circuit's line of reasoning on thi s issue. As the Jameson court explained:

We cannot fathom any possible reason why the NASD would except insurance business disputes fro m arbitration, but then only when those disput es involved certain parties. Rather, the NASD probably m eant to exempt "any dispute involving the insurance business of an insurance company member from compulso ry arbitration, not just those involving specif ic classes of individuals." To put it in the language of a grammarian, we therefore interpret the insur ance 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 lik ewise hold that S 1's subsections modify that section's openin g clause, not the insurance exception clause.

With respect to the meaning of "others," the Armijo and Jameson courts pointed to several considerations wh ich led them to conclude that the term encompasses employee s with employment-related disputes. See Jameson, 102 F.3d at 65-66; Armijo, 72 F.3d at 798-800. First, to con clude
otherwise would create a conflict between S 1 and S 8 of the

19pre-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 ca tegory within S 1's subsections. And, on the other hand, S 8 clearly contemplates that Jameson, as an "as sociated 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 giv es, rendering S 8 utterly superfluous in this re spect. Therefore, to avoid construing one provision as negating the other, "we must give Section 1 an interpretation at least as broad as that cle arly called
for in Section 8."

102 F.3d at 65. Second, interpreting "others" to in clude employees with employment-related disputes gives me aning to the language of the Form U-4, which clearly indi cates that the applicant agrees that at least some disput es between her and her firm would be arbitrable. See i d. at 65; Armijo, 72 F.3d at 799. Third, the NASD itself indi cated as early as 1987 that the pre-Amendment Code applied t o 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 provide d:

Any dispute, claim or controversy eligible f or submission under

Part I of this Code between or among members and/ or associated persons, and/or certain others, arising in c onnection with the business of such member(s), or in connection with the activities of such associated person(s), shall be arbitrat ed under this Code, at the instance of: (1) a member against anothe r member; (2) a member against a person associated with a me mber or a person associated with a member against a member; a nd (3) a person associated with a member against a person as sociated with a

member.

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

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

ambiguous whether that term encompasses employees w ith employment-related disputes. "However, to acknowled ge the ambiguity is to resolve the issue, because all ambi guities must be resolved in favor of arbitrability." Armijo , 72 F.3d at 798. Accordingly, we find that the district cour t 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 arbitratio n of "any dispute, claim or controversy . . . arising out of the employment or termination of employment of associat ed person(s) with any member . . ." NASD Arbitration C ode, Rule 10101 (formerly S 1). Nuveen argues that, rega rdless of whether we conclude that the pre-amendment NASD Cod e requires arbitration of Seus's employment dispute, we should affirm the district court's order compelling arbitration based on the compliance clause in her F orm U-4 and the fact that the NASD Code explicitly provided for the arbitration of employment disputes when she commenc ed this action. Seus, on the other hand, argues that b ecause 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 secur ities 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 cou rts 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., Crem in v. Merrill Lynch Pierce Fenner & Smith, Inc., 957 F. Supp. 146 0, 1475-77 (N.D. Ill. 1997); Schuetz v. CS First Bosto n Corp.,

___________________________________________________ ______________

4. As noted above, the Form U-4 compliance clause b ound Seus to "abide by, comply with, and adhere to all the provisions, conditions and covenants of the . . . by-laws and rules and regula tions as they may be adopted, changed or amended from time to time . . . ." App. at 5 (Form U-4, P 2).

21No. 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 c learly 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 procedure s are inadequate to protect her statutory and due pro cess rights. As evidence of this, she points to the NASD 's recent decision to abandon its policy of requiring agreeme nts to arbitrate employment discrimination claims as a con dition of employment with a member.5 Seus insists that the

___________________________________________________ ______________

5. On December 17, 1997, after the district court d ecision in this case, the NASD submitted to the SEC the following propose d change to Rule 10201 (Required Submission) (formerly S 8) of the C ode of Arbitration

Procedure:

(b) A claim alleging employment discriminati on or sexual
harassment in violation of a statute is not required to be
arbitrated. Such a claim may be arbitrated only if the p arties have agreed to arbitrate it, either before or after the dis pute arose.

62 Fed. Reg. 66164, 66164 (Dec. 17, 1997). Seus vie ws this proposed rule change as an explicit admission by NASD that a bsent employee free choice, neither it, nor the court, should rely on t he Form U-4 to compel arbitration of all employment claims. Since the NAS D has decided to give its registrants a choice between signing an agreeme nt to arbitrate and reserving the right to file an employment-related c laim in federal court, Seus argues, this court should allow Seus the same choice.

The NASD's abandonment of its policy of requiring e mployees to sign agreements to arbitrate as a condition of registrat ion is irrelevant in
this case. The rule change is only a proposal. The SEC h as 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 appro ves the rule change, the NASD has requested that it not take effect unti l one year after such approval. 62 Fed. Reg. at 66167. Presumably, then, the rule change
would not become effective until well after the com pletion of Seus's arbitration. In any event, the proposed amendment d oes not reflect a determination that the arbitral process is not fair and effective. It

reflects only a policy decision that a commitment to arbitra te employment discrimination claims should not be required as a c ondition of employment. The amendment expressly recognizes that voluntary agreements to arbitrate will continue to be enforce able whether entered before or after the alleged violation occurs.22district court should have allowed her to conduct f urther

discovery on this issue before reaching its decisio n to compel arbitration.

We review the district court's denial of Seus's mot ion 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 tha t arbitration pursuant to any kind of arbitral proces s is consistent with federal policy, the detailed provis ions of the
NASD Code of Arbitration Procedure are sufficient t o permit the kind of evaluation conducted in Gilmer and, as the district court observed, the process required by th at Code is the functional equivalent of the process found i n Gilmer
to be consistent with the effective enforcement of the ADEA.6 Moreover, if there be any inadequacies or unfairnes s in the application of those rules in this specific case, j udicial review will be available. 9 U.S.C. S 10; Cole v. Bu rns 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 discreti on of the
district court.

V. CONCLUSION

The order of the district court dismissing Seus's c laims 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 rea dily available from the Code, Seus sought to inquire into the race, sex, ag e and professional backgrounds of the arbitrators, procedures for sele cting 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 d ecisions.

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