Association of Inv. Brokers v. S.E.C., 81-1162

Citation219 U.S.App.D.C. 259,676 F.2d 857
Decision Date07 May 1982
Docket NumberNo. 81-1162,81-1162
Parties, Fed. Sec. L. Rep. P 98,666 ASSOCIATION OF INVESTMENT BROKERS, and Anthony W. Tedeschi, Petitioners, v. SECURITIES AND EXCHANGE COMMISSION, Respondent.
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Merrill J. Chapman, New York City, for petitioners.

Jacob H. Stillman, Associate Gen. Counsel, Washington, D. C., SEC, with whom Paul Gonson, Sol., Gilbert C. Miller, Attorney-Fellow, David A. Sirignano, Sp. Counsel, and Thomas P. Lemke, Atty., Washington, D. C., SEC, were on the brief, for respondent. Louis C. Whitsett, Atty., Washington, D. C., SEC, also entered an appearance for respondent.

Before BAZELON, Senior Circuit Judge, MIKVA and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

The petition before us challenges compulsory arbitration in the securities industry under the rules of the New York Stock Exchange and other self-regulatory organizations as "adhesive," "ultra vires the (Securities Exchange) Act," "a classic group boycott," "a per se violation of antitrust law," and "a denial of due process." Brief for Petitioners at 16, 31, 40. Petitioners employ as the springboard for their attack a Securities and Exchange Commission action adopting revisions to a uniform application for securities industry registration. We hold that petitioners lack standing to challenge the agency action in question and that their plea for abrogation of compulsory arbitration rules in the securities industry is not properly before the court. We so decide despite an unelaborated order by a motions panel of this court denying the agency's motion to dismiss the petition for lack of standing. Such an order, we conclude, does not inhibit action by a merits panel.

I.

In December 1980, the Securities and Exchange Commission (SEC or Commission) adopted revisions to Form U-4, the Uniform Application for Securities Industry Registration. Form U-4, a personnel form for individuals engaged in the securities Form U-4 is in general use throughout the securities industry. However, the SEC's direction concerning the use of U-4 is addressed solely to SECO ("SEC Only") broker-dealers, i.e., broker-dealers who are not members of the NASD and are therefore regulated directly by the Commission. See 17 C.F.R. § 240.15b8-1 (1981). Relatively few firms are in the SECO category. 2 The NASD, various stock exchanges including the New York Stock Exchange, Inc. (NYSE), and 46 of the 50 states require use of the form, but these entities are not instructed to do so by the SEC. The form was developed through a concurrent effort principally of the Commission, the NASAA, the NYSE, the NASD, and other self-regulatory organizations. 3 The Commission believed that a uniform registration form would "enhanc(e) the flow within the securities industry of information needed for regulatory purposes while at the same time alleviating a substantial and particularly duplicative paperwork burden imposed on broker-dealers registered with more than one organization or state." Securities Exchange Act Release No. 11424, (1974-1975 Transfer Binder) Fed.Sec.L.Rep. (CCH) P 80,176. 4

industry, 1 was initially adopted by the Commission in May 1975. The 1980 alterations were designed primarily to conform Form U-4 to provisions of the Securities Acts Amendments of 1975, Pub.L.No.94-29, 89 Stat. 97, a measure enacted after the SEC's original adoption of the form. The changes were also devised to facilitate use of the form in a computer system developed by the North American Securities Administrators Association, Inc. (NASAA) (the organization of state securities administrators) and the National Association of Securities Dealers, Inc. (NASD) (the self-regulatory organization encompassing most of the firms that operate in the over-the-counter market). See Securities Exchange Act Release No. 17388 (Dec. 24, 1980), 45 Fed.Reg. 84992.

The Association of Investment Brokers (AIB), a trade association of registered representatives, and Anthony W. Tedeschi, a vice-president of Drexel Burnham Lambert, Inc., a broker-dealer firm that is an NASD member, have petitioned for review of the Commission's December 1980 action adopting revisions to Form U-4. Petitioners concede that a uniform form is appropriate and beneficial to the securities industry, but object to three portions of Revised Form U-4. First and eclipsing all other concerns, petitioners seek elimination of a certification providing that applicants agree to arbitrate disputes with their employer or others to the extent required by the rules of the self-regulatory organizations with which they register. 5 Second, they object to a question asking whether the applicant has "ever been arrested or indicted" for certain Compulsory arbitration became a feature of the rules of the NASD and other self-regulatory organizations before the advent of Form U-4 in 1975. It has been an NYSE rule since 1958. 8 Although Form U-4, as initially adopted, did not contain any reference to arbitration, applicants for registration with the NYSE were required to execute an addendum to U-4 agreeing to arbitrate disputes with their employers. The inquiry concerning arrests and indictments appeared in the original 1975 version of Form U-4 and was carried over to the 1980 version with no substantial change. Earlier, the form the Commission employed for SECO broker-dealers contained a broader inquiry concerning arrests and indictments. 9 The provision in the 1980 revised form requiring applicants to waive liability with respect to information provided by former employers and others to the entity with which the applicant is registering is identical to the authorization and release provision in the 1975 version of Form U-4. 10

                crimes.  6  Finally, they challenge a provision stating that former employers and others who furnish information concerning the applicant to the entities with which the applicant is seeking to register are released from liability for furnishing such information.  7
                

Petitioners request the court "to remove the three objected-to items from U-4 and to effectuate the removal of compulsory arbitration rules from the securities industry." Brief for Petitioners at 58. It is evident from petitioners' impassioned briefs, and from the presentation at oral argument, that actions of the NYSE, the NASD, and other self-regulatory organizations, particularly, their compulsory arbitration

                rules, and not the SEC's action adopting Revised Form U-4, provide the raison d' etre for the petition.  11  Petitioners charge the SEC with "default or neglect," but their principal fire is directed elsewhere.  U-4, according to petitioners, "was devised and developed by the dominant self-regulatory entities in the securities industry"; "(t)he objected-to portions of 'U-4' were included solely at the behest of those entities-primarily the New York Stock Exchange, American Stock Exchange, and the National Association of Securities Dealers-and not by the federal regulatory agency."  Brief for Petitioners at 4, 5.  Time and again petitioners recite that the "bedrock issue" in this controversy is whether or not compulsory arbitration imposed by "the third party NYSE" is a group boycott, a per se violation of antitrust law, a denial of due process.  See, e.g., id. at 22, 23, 27, 28, 31, 40, 57.  Petitioners readily acknowledge that the SEC has "no arbitral forum or any rule regarding arbitration," id. at 5, so that the arbitration certification in Form U-4 is inoperative as to SECO broker-dealers, the only broker-dealers required by the Commission to use Form U-4
                
II.

As stated above, the SEC requires SECO broker-dealers to file Form U-4 and has no rules requiring others to file the form or calling for resort to arbitration by SECO broker-dealers and their employees. Indeed, the particular agency action petitioners challenge is simply an amendment to Commission rules which require registered brokers or dealers not members of a registered national securities association to file the revised form for associated persons of such brokers or dealers. Securities Exchange Act Release No. 17388, supra.

Although the Commission does not require brokers regulated by the NASD and other self-regulatory organizations to use Form U-4, those organizations, to achieve the benefits of uniformity in processing applications for employment, have elected to require members to use the form. NYSE and NASD rules mandate arbitration of employer-employee disputes, and did so, to the same extent as they do now, before the development of a uniform form under SEC auspices. The SEC, as petitioners recognize, "has never approved or reviewed the compulsory arbitration requirements of the self-regulatory organizations of the securities industry." Brief for Petitioners at 5. 12 To accommodate the self-regulatory organizations that require arbitration and to obviate the need for applicants registering with those organizations to complete papers beyond Form U-4, the SEC agreed to inclusion of the arbitration certification in the uniform form.

Petitioner Tedeschi is not associated with a SECO broker-dealer. His affiliation is with a member of the NASD. Petitioner AIB does not assert that it has any SECO broker-dealer members. Thus, if revisions in Form U-4 "adversely affect" petitioners, 13 their grievance is appropriately It is settled doctrine that a person seeking relief from an Article III court must establish an injury fairly traceable to the challenged conduct. The requisite causal connection may be satisfied by showing a "substantial likelihood" that the relief requested of the court will redress the claimed injury. See Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 1607, 60 L.Ed.2d 66 (1979); Duke Power Co. v....

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