Prudential Ins. Co. of America v. Lai

• Decision Date: 20 December 1994
• Docket Number: No. 92-55902,92-55902
• Parties: 66 Fair Empl.Prac.Cas. (BNA) 933, 65 Empl. Prac. Dec. P 43,365, 63 USLW 2404 The PRUDENTIAL INSURANCE CO. OF AMERICA, a New Jersey Corporation, Petitioner-Appellee, v. Justine LAI; Elvira Viernes, Respondents-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1299

42 F.3d 1299

66 Fair Empl.Prac.Cas. (BNA) 933,

65 Empl. Prac. Dec. P 43,365, 63 USLW 2404

The PRUDENTIAL INSURANCE CO. OF AMERICA, a New Jersey Corporation, Petitioner-Appellee, v. Justine LAI; Elvira Viernes, Respondents-Appellants.

No. 92-55902.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 10, 1993.

Decided Dec. 20, 1994.

John S. West and Michael Maroko, Carla D. Barboza, Allred, Maroko, Goldberg, & Ribakoff, Los Angeles, CA, for respondents-appellants.

Kenwood C. Youmans, Seyfarth, Shaw, Fairweather & Geraldson, Los Angeles, CA, for petitioner-appellee.

Jon W. Davidson, California Women's Law Center, Los Angeles, CA, for amicus curiae for respondents-appellants.

Thomas G. Wood, Brown & Wood, San Francisco, CA, for Securities Industry Ass'n, Inc., for amicus curiae for petitioner-appellee.

Appeal from the United States District Court for the Central District of California.

Before: HUG, SCHROEDER, and WILLIAM A. NORRIS, ^* Circuit Judges.

Opinion by Judge SCHROEDER,

Concurrence by Judge NORRIS.

SCHROEDER, Circuit Judge:

This is an appeal from a district court order compelling arbitration, under the Federal Arbitration Act, of statutory sexual harassment and discrimination claims. The appellants filed their claims in state court, alleging that while employed by appellee Prudential Insurance Company in 1989 and 1990, they were the victims of serious sexual discrimination and abuse by their supervisor. Prudential then filed this independent action in federal court to compel arbitration.

The district court entered an order compelling arbitration and staying the state court proceedings, based upon the arbitration clause incorporated into the Standard Applications for Securities Industry Registration ("the U-4 forms") appellants signed. We hold that the district court's order is appealable, and we reverse because appellants did not knowingly enter into any agreement to arbitrate employment disputes.

I. BACKGROUND

Justine Lai and Elvira Viernes were employed as sales representatives by the Prudential Insurance Company of America. When applying for their positions, appellants were required to sign U-4 forms containing agreements "to arbitrate any dispute, claim or controversy that ... is required to be arbitrated under the rules, constitutions, or bylaws of the organizations with which I register." Plaintiffs subsequently registered with the National Association of Securities Dealers, which requires that disputes "arising in connection with the business" of its members be arbitrated.

Plaintiffs allege that when they signed the U-4 form, they were told only that they were applying to take a test which was required for their employment by Prudential, and that they were simply directed to sign in the relevant place without being given an opportunity to read the forms. Arbitration was never mentioned, and plaintiffs were never given a copy of the NASD Manual, which contains the actual terms of the arbitration agreement.

On November 30, 1990, appellants sued Prudential and their immediate supervisor in state court on a variety of state law claims, alleging that the supervisor had raped, harassed, and sexually abused them in a number of ways. Prudential then filed this action in federal district court, asking the court to compel arbitration of appellants' state law claims, and to stay the state court proceedings. The district court granted both of Prudential's motions.

II. APPEALABILITY

Before oral argument, this court issued an order to show cause why the appeal should not be dismissed for lack of jurisdiction. Both sides have briefed the jurisdictional issue, and we now hold that we have jurisdiction over the appeal, because the district court's order compelling arbitration was an appealable final decision.

As a general rule, pro-arbitration decisions are not appealable final judgments. The Federal Arbitration Act ("FAA") provides that (b) Except as otherwise provided in section 1292(b) of title 28, an appeal may not be taken from an interlocutory order--

(1) granting a stay of any action under section 3 of this title;

(2) directing arbitration to proceed under section 4 of this title;

(3) compelling arbitration under section 206 of this title; or

(4) refusing to enjoin an arbitration that is subject to this title.

9 U.S.C. Sec. 16. However, Sec. 16(a)(3) of the FAA contains an exception to the general rule: a party may appeal any "final judgment with respect to an arbitration." 9 U.S.C. Sec. 16(a)(3).

As the appellants in this case correctly point out, every court that has considered the issue to date has concluded that if the motion to compel arbitration in a given case is the only claim before the district court, a decision to compel arbitration is deemed to dispose of the entire case, and permit appellate review under 9 U.S.C. Sec. 16(a)(3). Gammaro v. Thorp Consumer Discount Co., 15 F.3d 93 (8th Cir.1994); S+L+H, S.p.A. v. Miller-St. Nazianz, Inc., 988 F.2d 1518 (7th Cir.1993); Filanto v. Chilewich Int'l, 984 F.2d 58 (2d Cir.1993); McDermott Int'l v. Underwriters at Lloyd's, 981 F.2d 744 (5th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 2442, 124 L.Ed.2d 660 (1993); Stedor Enterprises, Ltd. v. Armtex, Inc., 947 F.2d 727 (4th Cir.1991); Matter of Chung and President Enterprises Corp., 943 F.2d 225 (2d Cir.1991); Arnold v. Arnold Corp., 920 F.2d 1269 (6th Cir.1990); Thompson McKinnon Securities, Inc. v. Salter, 873 F.2d 1397 (11th Cir.1989). On the other hand, if the motion to compel arbitration is "embedded" in a substantive suit pending before that court, the district court's decision to compel arbitration of some or all of the claims before it is not considered to be final, and therefore not reviewable. See, e.g., Perera v. Siegel Trading Co., 951 F.2d 780 (7th Cir.1992) (district court ordered some claims to arbitration and stayed judicial resolution of the remainder pending arbitration). This interpretation of the FAA is supported by the Practice Commentary following Sec. 16 in the Annotated Code, which states quite plainly that Sec. 16 does permit immediate appellate review of pro-arbitration decisions in independent proceedings. David D. Segal, Practice Commentary following 9 U.S.C.A. Sec. 16 (Supp.1993). We must decide whether Prudential's suit to compel arbitration in this case is an "independent" or an "embedded" proceeding.

We agree with appellants that the proper focus in such a determination is only on the case appealed. The fact that a separate but related proceeding is pending in state court cannot transform the independent federal court action into an embedded proceeding. See Miller-St. Nazianz, 988 F.2d 1518 (order compelling arbitration final appealable order even though related, but separate, case was pending before same judge). The decision to compel arbitration settled everything that was before the district court in this case. Because the case at bar is an independent proceeding in the federal courts, we hold that the district court's order compelling arbitration is an appealable final decision.

III. ARBITRABILITY

The only agreement to arbitrate that appellants actually executed was contained in the U-4 form. Item number 5 on page 4 of the U-4 form states:

I agree to arbitrate any dispute, claim or controversy that may arise between me or my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or bylaws of the organizations with which I register....

This provision does not in and of itself bind appellants to arbitrate any particular dispute. To see what appellants possibly could have agreed to arbitrate, we must turn to the arbitration requirements of the NASD, which appellants eventually joined. The NASD manual states:

Any dispute, claim or controversy eligible for submission under part I of this Code between or among members and/or associated persons ... 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....

NASD Manual, Code of Arbitration Procedure p 3708.

Appellants contend that these provisions do not bind them to arbitrate their employment discrimination claims because they were unaware that they signed any document that contained an arbitration clause, they were never given copies of the NASD manual, and they were not otherwise on notice that they might be agreeing to arbitrate employment disputes. They further contend that even if they had known that they were agreeing to the NASD arbitration provision, its language does not cover employment disputes.

Appellants rely on Alexander v. Gardner-Denver, 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974), to support their argument that they are not bound to arbitrate their statutory claims. Alexander held that an arbitration clause contained in a collective bargaining agreement could not supplant Title VII's statutory remedies, ¹ and the decision was widely interpreted as prohibiting any form of compulsory arbitration of Title VII claims. See, e.g., Utley v. Goldman Sachs & Co., 883 F.2d 184 (1st Cir.1989), cert. denied, 493 U.S. 1045, 110 S.Ct. 842, 107 L.Ed.2d 836 (1990); EEOC v. Children's Hospital Medical Center, 719 F.2d 1426, 1431 (9th Cir.1983) (en banc) (court should reach question, and hold that prior consent decree cannot bar later Title VII claims under Alexander) (Fletcher, C.J. concurring). The Supreme Court, however, without overruling Alexander, subsequently held that individuals may contractually agree to arbitrate employment disputes and thereby waive the statutory rights to which they would otherwise be entitled. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991).

Gilmer, upon which Prudential heavily relies, made it clear that the ADEA does not bar agreements to arbitrate federal age discrimination in employment claims. ² Our circuit has extended...