Credit Suisse First Boston Corp. v. Grunwald

• Decision Date: 01 March 2005
• Docket Number: No. 03-15695.,03-15695.
• Citation: 400 F.3d 1119
• Parties: CREDIT SUISSE FIRST BOSTON CORPORATION, a Massachusetts corporation, Plaintiff-Appellee, v. Michael Scott GRUNWALD, a California resident, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

400 F.3d 1119

CREDIT SUISSE FIRST BOSTON CORPORATION, a Massachusetts corporation, Plaintiff-Appellee, v. Michael Scott GRUNWALD, a California resident, Defendant-Appellant.

No. 03-15695.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 2, 2003.

Filed March 1, 2005.

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Michael Blumenfeld, Los Angeles, CA, argued the case for the appellant, and Todd M. Lander, Los Angeles, CA, assisted on the briefs.

Michael D. Early, San Francisco, CA, argued the case for the appellee, and Dena L. Narbaitz, San Francisco, CA, and Suzy C. Douglass, San Francisco, CA, assisted on the briefs.

Mark A. Perry, Washington, DC, argued the case for amicus curiae NASD Dispute Resolution, Inc., and Douglas W. Henkin, New York, NY, for amicus curiae New York Stock Exchange, Inc., assisted on the joint brief of NASD and NYSE in support of affirmance.

Mitchell C. Tilner and David S. Ettinger, Encino, CA, submitted an amicus curiae brief on behalf of the Judicial Council of California.

Eric Summergrad, Washington, DC, Deputy Solicitor for the SEC, submitted the Statement of the Securities and Exchange Commission, amicus curiae, in Support of the Position of the plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California; Saundra B. Armstrong, District Judge, Presiding. D.C. No. CV-02-02051-SBA.

Before: LEAVY, PAEZ, and BERZON, Circuit Judges.

PAEZ, Circuit Judge:

In this appeal we decide whether California's recently-adopted ethics standards for neutral arbitrators apply to arbitrations conducted in California by the National Association of Securities Dealers ("NASD"). We conclude that the California legislature intended the new ethics standards to apply to NASD-appointed neutral arbitrators. We hold, however, that the Securities and Exchange Act of 1934 ("Exchange Act"), as amended, preempts application of California's ethics standards to NASD arbitrations. In so holding, we further conclude that NASD rules approved by the Securities and Exchange Commission have preemptive force over conflicting state law. Accordingly, we affirm.

I.

This appeal arises out of an employment dispute between Scott Grunwald and his former employer, Credit Suisse First Boston ("CSFB"). After CSFB terminated Grunwald from his position as Director of CSFB's Technology Private Client Services Program, Grunwald exhausted CSFB's internal grievance procedures and mediated his dispute with CSFB through JAMS/Endispute — the initial steps required by CSFB's Employment Dispute Resolution Program ("EDRP"). Grunwald then filed a demand for arbitration with the American Arbitration Association ("AAA"). CSFB, however, successfully obtained a preliminary injunction in district court that enjoined Grunwald from arbitrating before the AAA. The court granted the preliminary injunction on the ground that CSFB's EDRP required employees registered with the NASD, like Grunwald, to arbitrate before a NASD-appointed arbitration panel. Grunwald responded to the preliminary injunction by filing a demand for arbitration with the NASD.

Before the NASD appointed Grunwald's arbitration panel, the California Judicial Council¹ adopted heightened disclosure and disqualification standards for "neutral arbitrators." See Ethics Standards for Neutral Arbitrators in Contractual Arbitration, Cal. Rules of Court, appen., Div. VI (hereinafter "California Ethics Standards"). The NASD, however, determined that the California Ethics Standards should not apply to NASD arbitrations because the standards conflicted with the NASD's own rules that had been approved by the Securities and Exchange Commission. Consequently, the NASD immediately suspended the appointment of arbitrators in California when the California Ethics Standards went into effect on July 1, 2002. On August 6, the NASD announced that it would recommence arbitrations initiated in California, but only on the express condition that all parties agreed to arbitrate outside of California.² In September, the NASD gave California parties the additional option of waiving the California Ethics Standards and proceeding with arbitration in California.³ In connection with this waiver policy, the NASD successfully sought Commission approval of a new rule⁴ requiring industry parties to NASD arbitrations in California to waive the California Ethics Standards upon waiver of these standards by investors or associated persons. Because Grunwald qualified as an associated person, the Commission-approved waiver rule would have required CSFB to waive the California Ethics Standards if Grunwald had chosen to waive the standards.⁵

Grunwald, however, refused to waive the California Ethics Standards and declined the NASD's offer to proceed with arbitration outside of California. Grunwald then requested that the district court grant him leave to file a motion to reconsider the preliminary injunction. He argued that the NASD's suspension of arbitrations in California undermined his right to an expeditious arbitration under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16. He also asserted that the NASD's waiver option amounted to a coerced waiver of his right to have his arbitration conducted pursuant to the California Ethics Standards. Grunwald's motion sought modification or dissolution of the preliminary injunction so that he could re-file his claims in state court or with the AAA.

The district court permitted Grunwald to file his motion for reconsideration, but ultimately denied the motion. In refusing to modify or dissolve the preliminary injunction, the district court determined that the California Ethics Standards did not apply to NASD arbitrators because the standards apply only to "neutral arbitrators" appointed directly by the parties. Thus, Grunwald did not have a right to have his NASD arbitration conducted pursuant to the requirements of the California Ethics Standards. Additionally, the district court determined that there was no right to a speedy and expeditious arbitration under the FAA. Even if such a right existed, the district court held that Grunwald could obtain a speedy arbitration by submitting to arbitration outside California or by waiving application of the California Ethics Standards to his NASD arbitration. Finally, the district court determined that the FAA precluded invalidation of the parties' agreement to arbitrate their employment dispute before the NASD. Grunwald filed a timely appeal from the district court's order denying his motion for reconsideration of the preliminary injunction.

II.

We begin by considering four jurisdictional objections raised by CSFB. Because the district court's order was an "[i]nterlocutory order[ ] ... refusing to dissolve or modify [the] injunction[ ]," 28 U.S.C. § 1292(a)(1), we have jurisdiction over this appeal.

A.

Initially, CSFB contends that Grunwald's motion for reconsideration was untimely because it was filed some ninety days after the district court granted the preliminary injunction. CSFB points out that a motion to alter or amend a judgment must be filed within ten days of the entry of the judgment. Fed.R.Civ.P. 59(e). CSFB also correctly states that this ten-day time limit applies to motions for reconsideration of a preliminary injunction order.⁶ See Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1419 (9th Cir.1984). Consequently, if Grunwald's motion was not based on events that occurred after the district court granted the preliminary injunction, the motion would be untimely because it was filed well after the ten-day time limit.

Although a motion for reconsideration is subject to Rule 59(e)'s ten-day time limit, there is no time limit on a motion to vacate or dissolve a preliminary injunction. Federal Rule of Civil Procedure 54(b) states that a district court can modify an interlocutory order "at any time" before entry of a final judgment, and we have long recognized "the well-established rule that a district judge always has power to modify or to overturn an interlocutory order or decision while it remains interlocutory." Tanner Motor Livery, Ltd. v. Avis, Inc., 316 F.2d 804, 809 (9th Cir.1963).

In determining whether a motion requesting the district court to reconsider its preliminary injunction should be treated as a motion for reconsideration under Rule 59 or a motion for dissolution or modification under Rule 54, we agree with the Third Circuit that "we must look beyond the motion's caption to its substance." Favia v. Ind. Univ. of Pa., 7 F.3d 332, 337 (3d Cir.1993); see also Ortho Pharm. Corp. v. Amgen, Inc., 887 F.2d 460, 463 (3d Cir.1989) ("We agree with Amgen that we must determine from its substance and not from its form whether we should treat Ortho's motion as a motion for reconsideration under Fed.R.Civ.P. 59(e) or a motion to modify a preliminary injunction under Fed.R.Civ.P. 62(c)."). While "[t]he purpose of a motion to reconsider under Fed.R.Civ.P. 59(e) is to relitigate the `original issue,'" Ortho, 887 F.2d at 463, "[a] motion to modify a preliminary injunction is meant only to relieve inequities that arise after the original order." Favia, 7 F.3d at 338. Thus, a motion that merely seeks to relitigate the issues underlying the original preliminary injunction order is subject to Rule 59(e)'s ten-day limit, while a motion that in substance is based on new circumstances that have arisen after the district court granted the injunction may be filed at any time before entry of a final judgment.

If we did not look at the substance of the motion, a preliminary injunction would forever be subject to challenge and appeal. See Sierra On-Line, Inc., 739 F.2d at 1418 n. 4. In Sierra On-Line, the appellant conceded that it had presented no new matter in its motion for reconsideration. We declined to treat the district court's order denying the motion for reconsideration as an order refusing to dissolve the preliminary injunction, explaining:

"The...