Desiderio v. Nat'l Ass'n Sec. Dealers

• Citation: 191 F.3d 198
• Decision Date: 01 August 1998
• Docket Number: Docket No. 98-6100
• Parties: (2nd Cir. 1999) SUSAN A. DESIDERIO, Plaintiff-Appellant, v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., Defendant-Appellee
• Court: U.S. Court of Appeals — Second Circuit

Page 198

191 F.3d 198 (2nd Cir. 1999)

SUSAN A. DESIDERIO, Plaintiff-Appellant, v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., Defendant-Appellee.

Docket No. 98-6100

August Term, 1998

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: December 7, 1998

Decided: September 22, 1999

Plaintiff-appellant Susan A. Desiderio appeals from a judgment entered April 23, 1998 in the United States District Court for the Southern District of New York (Leisure, J.) dismissing her complaint for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(1) & 12(b)(6).

Affirmed.

[Copyrighted Material Omitted]

EVERETT E. LEWIS, New York, New York (Shirley Fingerhood, Nicholas F. Lewis, Hope Pordy, Lewis, Greenwald, Clifton & Nikolaidis, P.C., New York, New York, of counsel), for Appellant.

TERRI L. REICHER, Assistant General Counsel, Washington, D.C. (John J. Flood, Associate General Counsel, National Association of Securities Dealers, Inc., Washington, D.C., of counsel), for Appellee.

Before: KEARSE, CARDAMONE, and STRAUB, Circuit Judges

CARDAMONE, Circuit Judge:

Plaintiff, Susan A. Desiderio, received an offer of employment from Florida's Suntrust Bank (Suntrust or bank) to become a securities broker. Her employment was conditioned on registration with defendant National Association of Securities Dealers, Inc. (NASD). To register with the NASD, Desiderio was asked to sign Form U-4 that contained a provision making all employment related disputes subject to arbitration. Desiderio said she would sign the form only if the mandatory arbitration provision was stricken from it. When the NASD refused to accept an altered form, the bank's offer of employment to plaintiff was revoked.

In her complaint, Desiderio asserts that the mandatory arbitration provision in Form U-4 violates her statutory rights under Title VII, 42 U.S.C. §§ 2000e to e-17, her constitutional rights under the Fifth Amendment Due Process Clause to an Article III judicial forum, and her right to a jury trial under the Seventh Amendment. She seeks a declaratory judgment invalidating the mandatory arbitration provision in Form U-4, and also asks for compensatory damages through her pendent state law tort claims.

BACKGROUND

Defendant NASD is a self-regulatory private corporation registered with the Securities and Exchange Commission (SEC) as a national securities association. As an integral part of a comprehensive system of federal regulation of the securities industry, the NASD regulates the over-the-counter securities market, which includes securities firms and registered representatives who buy and sell over-the-counter-securities. Its authority is exercised under the close supervision of the SEC, which must approve all the NASD's rules and regulations. Among the rules that have been expressly approved by the SEC is the Form U-4 registration form. That form - the subject of this litigation - incorporates a provision for compulsory arbitration of all disputes between a securities representative and her employer, when required by the rules of the self-regulatory organization with which the securities representative seeks to become registered. Under NASD rules, all employees are compelled to arbitrate any employment-related dispute. In order to work in the securities industry, the SEC requires a securities broker to be registered with at least one self-regulatory organization, see 17 C.F.R. §240.15b7-1 (1998), and registration in such organization entails signing Form U-4.

The NASD operates an arbitration forum for the purpose of resolving disputes between securities brokers and their employers. Its Code of Arbitration Procedure regulates the composition of the arbitration panel, provides for the disclosure of information by arbitrators concerning potential conflicts of interest, and also provides for the subsequent removal of an arbitrator by means of a challenge. Under the procedure an arbitration award must be in writing.

On March 18, 1996 Desiderio, as noted, was hired as a registered representative by Suntrust, conditioned upon her signing a Form U-4 as required by both state and federal law. She signed the Form U 4, but struck out the mandatory arbitration provision. Suntrust had no objection to Desiderio's modification of the form. But NASD did. An employee of NASD, in a telephone conversation, allegedly advised Suntrust that an altered Form U-4 was unacceptable for registration. Plaintiff refused to execute an unaltered one. Because Desiderio could not become registered, Suntrust revoked its offer of employment. The altered Form U-4 was never submitted to the NASD.

Plaintiff subsequently filed a complaint instituting the present action on January 15, 1997, naming both the NASD and the SEC as defendants. In a judgment entered on April 23, 1998, the United States District Court for the Southern District of New York (Leisure, J.) granted defendants' motions to dismiss plaintiff's complaint for failure to state a claim pursuant to Rules 12(b)(6) and 12(b)(1) of the Federal Rules of Civil Procedure. Plaintiff appeals from that judgment. Her appeal against the SEC was stipulated to be withdrawn, leaving the NASD as the only appellee. We affirm.

DISCUSSION

Mootness & Ripeness

We dispose first of the threshold question of whether this case is moot. On June 22, 1998 while this case was pending, the SEC approved a proposed rule change offered by the NASD that abolishes mandatory NASD arbitration of statutory employment discrimination claims. See Self Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Approval to Proposed Rule Change Relating to the Arbitration of Employment Discrimination Claims, 63 Fed. Reg. 35299, 35303 (1998) (Order Granting Approval). The rule change became effective on January 1, 1999. See id. As a result, the NASD argues that many of Desiderio's claims have become moot.

As a general rule, in a case involving an allegation that defendant has engaged in illegal activity, a court's power to hear and decide the matter is not terminated when defendant voluntarily ceases its illegal conduct. That is, such cessation does not necessarily make a case moot. See County of Los Angeles v. Davis, 440 U.S. 625, 631 (1979) (citing United States v. W. T. Grant Co., 345 U.S. 629, 632 (1953)); New York State Nat'l Org. for Women v. Terry, 159 F.3d 86, 91-92 (2d Cir. 1998), cert. denied sub nom. Pearson v. Planned Parenthood Margaret Sanger Clinic, 67 U.S.L.W. 3570, 3754, 3756 (U.S. June 14, 1999) (No. 98-1435). A case may nevertheless be moot if the defendant can demonstrate that: "(1) it can be said with assurance that there is no reasonable expectation . . . that the alleged violation will recur, . . . and (2) interim relief or events have completely and irrevocably eradicated the effects of the alleged violation." Davis, 440 U.S. at 631. The burden of demonstrating mootness "is a heavy one." Id.; W. T. Grant Co., 345 U.S. at 633; Terry, 159 F.3d at 91.

The NASD amended its rules voluntarily. See Order Granting Approval, 63 Fed. Reg. 35299, 35300. In light of proof that the rule change was partially prompted by political concerns such as letters from members of Congress, see id. at 35300, the NASD has not met its burden of showing that there is no reasonable expectation that this rule will ever be reinstated, see Davis, 440 U.S. at 631. Securities firms who are members of the NASD may have an interest in lobbying to reimpose the mandatory arbitration rule with respect to statutory discrimination claims, and there is no evidence that such lobbying would be ineffective. In addition, interim relief and events have not completely and irrevocably eradicated the effects of the alleged violation on plaintiff, see id. As approved by the SEC, the rule change only applies to claims filed on or after January 1, 1999. See Order Granting Approval, 63 Fed. Reg. at 35301. As a result, plaintiffs with currently pending statutory discrimination claims that were filed before January 1, 1999 are still compelled to arbitrate. Thus, this case presents a situation where the "public interest in having the legality of the practices settled, militates against a mootness conclusion." W.T. Grant Co., 345 U.S. at 632.

The NASD further urges that Desiderio's claims are not ripe because she never actually submitted her Form U-4 to the NASD. However, "[w]e will not require . . . a futile gesture as a prerequisite for adjudication in federal court." Williams v. Lambert, 46 F.3d 1275, 1280 (2d Cir. 1995) (claim was ripe because attempt to modify agreement would be futile); cf. International Bhd. of Teamsters v. United States, 431 U.S. 324, 365-66 (1977) (person who never applied for job is entitled to retroactive seniority if applying would have been futile because of discriminatory hiring practices). It would have been futile for Desiderio to submit an altered Form U-4 after being told that the NASD advised Suntrust that emendation of Form U-4 would not be accepted for registration purposes.

Standard of Review

We review dismissal of a cause of action under the Federal Rules of Civil Procedure 12(b)(6) de novo. See Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997). Under de novo review, we accept all of plaintiff's factual allegations in the complaint as true and draw inferences from those allegations in the light most favorable to the plaintiff. We will not affirm the dismissal of a complaint unless "it appears beyond doubt, even when the complaint is liberally construed, that the plaintiff can prove no set of facts which would entitle him to relief." Id.

I Statutory Rights Under Title VII

A. Views of Other Circuits

Whether a pre-dispute agreement requiring compulsory arbitration, such as Form U-4, is enforceable with regard to Title VII claims is an issue that has divided the circuits and is one of first impression in this Court. Practically every circuit that has addressed the question...