United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 13, 1999 Decided February 23, 1999
No. 98-7054
Sandra Kaye Gardner,
Appellant
v.
Benefits Communications Corporation, et al.,
Appellees
Appeal from the United States District Court
for the District of Columbia
(No. 91cv00536)
Richard A. Salzman argued the cause for appellant. With
him on the briefs was Douglas B. Huron.
John M. Husband argued the cause for appellees. With
him on the brief were Brian M. Mumaugh, Anthony Herman
and Christine L. Kurek.
Before: Edwards, Chief Judge, Williams and Henderson,
Circuit Judges.
Opinion for the Court filed by Chief Judge Edwards.
Edwards, Chief Judge: Almost eight years ago, Sandra
Kaye Gardner filed suit against her employer, Benefits Com-
munications Corporation ("BCC"), as well as against several
other institutional and individual defendants, asserting statu-
tory claims of employment discrimination and retaliation.
The District Court initially ordered Gardner to arbitrate her
claims, on the assumption that her registration with the
National Association of Securities Dealers ("NASD"), which
was completed as a condition of Gardner's employment with
BCC, required Gardner to arbitrate claims of the sort at issue
in this case. Because the District Court refused to certify an
appeal to this court on that issue, this appeal represents the
first opportunity that Gardner has had to challenge the
District Court's order compelling arbitration. Moreover, be-
cause the arbitration has already occurred, Gardner also now
challenges the propriety of the arbitration award.
This litigation has languished far longer than necessary; it
is therefore regrettable that our disposition will prolong this
case even further. This result is unavoidable, however, be-
cause Gardner's claims against BCC are not subject to man-
datory arbitration. If all of the original defendants remained
as parties to this lawsuit, we might face two difficult ques-
tions: whether a fair reading of Gardner's NASD registration
indicates her agreement to submit the instant claims to
arbitration, and, if so, whether arbitration lawfully may be
compelled pursuant to the purported agreement. These are
moot questions, however, for Gardner has agreed to dismiss
all defendants save BCC. With BCC as the sole defendant,
there is no doubt that Gardner is not required to arbitrate
her claims in lieu of having the case heard in District Court.
Accordingly, we remand this case to the District Court for
further proceedings to address the merits of Gardner's claims
against BCC. In light of this disposition, it is unnecessary to
resolve Gardner's additional claim that the disputed arbitra-
tion award should be set aside under Cole v. Burns Interna-
tional Security Services, 105 F.3d 1465 (D.C. Cir. 1997).
I. Background
BCC provides plan enrollment services for consumers of
group and individual life insurance plans. The company is a
wholly owned subsidiary of the Great-West Life Assurance
Company ("Great-West"), a Canadian-based insurance com-
pany that sells group and individual life, health, and annuity
products. BCC is also a director of BenefitsCorp Equities,
Inc. ("BCE"), a limited broker-dealer in the annuity and life
products market. BCC is not a member of NASD; however,
both Great-West and BCE are members of NASD.
Gardner began working for BCC in the fall of 1989 as an
Employer Sponsored Specialist. In this position, Gardner
sold retirement-related insurance products and securities to
participants in employer-sponsored pension plans. Because
Gardner sold securities for BCC through BCE, she was
required to register as an agent with NASD as a condition of
her employment. Accordingly, on September 11, 1989, she
executed a Uniform Application for Securities Industry Reg-
istration or Transfer, widely known as a "U-4 form," to
satisfy this requirement. See Joint Appendix ("J.A.") 58-61.
For most of Gardner's tenure at BCC, her immediate
supervisor was Craig Wolpert. According to Gardner, Wol-
pert did not like her and sought to get rid of her because she
was "a big woman." Brief for Appellant at 5. Gardner
alleges that she complained of Wolpert's discriminatory treat-
ment to the upper management of her company, but Wolpert
was never reprimanded for his behavior. See Brief for
Appellant at 6; Complaint p 11, reprinted in J.A. 25. Gard-
ner additionally claims that Wolpert not only continued his
discriminatory treatment after her internal complaint, but
also launched a campaign of retaliation in response to it. See
Complaint p 12, reprinted in J.A. 25.
Due to Wolpert's allegedly discriminatory treatment and
abuse, Gardner asserts she was forced into treatment for
anxiety and depression. On October 11, 1990, Gardner suf-
fered a panic attack and asked for sick leave due to her
illness. Instead of granting Gardner's request, Wolpert
placed Gardner on disciplinary probation and sought a re-
placement for her. See Memorandum from Craig Wolpert to
Kaye Gardner (Oct. 11, 1990), reprinted in J.A. 128; Adver-
tisement, Washington Post, Oct. 14, 1990, at K33, reprinted in
J.A. 129. Gardner went on extended medical leave, and
finally resigned from BCC in early 1991. See Brief for
Appellant at 7; Complaint pp 13-14, reprinted in J.A. 25-26.
Thereafter, she was employed by Liberty Securities, but at a
much lower salary. In 1991, 1992, and 1993, Gardner earned
$19,739, $15,823, and $25,000, respectively, compared to the
roughly $53,500 she had earned at BCC. See J.A. 155.
In April 1991, Gardner filed suit in District Court against
BCC, Great-West, and BCE, as well as against corporate
officers Wolpert and Charles Nelson, Wolpert's direct super-
visor, asserting claims of employment discrimination and
unlawful retaliation under the D.C. Human Rights Act (the
"Human Rights Act"), D.C. Code Ann. ss 1-2501 to 1-2557
(1981 & Supp. 1998). See Complaint pp 1, 6, reprinted in J.A.
21-22, 23. She alleged that she had been subjected to sex
discrimination and unlawful retaliation by Wolpert, and that
the other defendants either knew or should have known of
Wolpert's actions, but nevertheless allowed it to continue.
See id.pp 9-10, 12, 15, reprinted in J.A. 24-26.
In response to Gardner's complaint, the defendants, all
represented by the same counsel, moved to compel arbitra-
tion of the case, arguing that Gardner had agreed to arbitrate
this type of dispute when she registered with the NASD.
Gardner opposed this motion, but the District Court, relying
on Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20
(1991), found that the NASD Code of Arbitration Procedure
("NASD Code") mandated arbitration of this dispute. See
Gardner v. Benefits Communications Corp., No. 91-0536
(D.D.C. Dec. 31, 1991) (memorandum), reprinted in J.A. 8-9.
Gardner then sought reconsideration of the referral to arbi-
tration from the District Court, or, in the alternative, certifi-
cation for interlocutory appeal. The District Court denied
this motion, and Gardner was forced to go to arbitration. See
Gardner v. Benefits Communications Corp., No. 91-0536
(D.D.C. June 16, 1992) (memorandum order), reprinted in
J.A. 11-13.
On January 7, 1993, Gardner submitted her claims to
NASD. A hearing was held before a panel of three arbitra-
tors on January 27 through February 1, 1994. On April 11,
1994, the panel entered a decision in favor of Gardner, but
awarded her only $15,000. See Gardner Arbitration Award,
reprinted in J.A. 110-15. The arbitration panel also assessed
$3,000 in "forum fees" against Gardner. See id. at 113.
On April 28, 1994, only seventeen days after the panel
decision was issued, Gardner promptly sought a new trial
date from the District Court, arguing that the court should
reconsider its prior ruling compelling arbitration, that the
arbitration award was not final and did not preclude a de
novo trial of Gardner's claims, and that the arbitrators had
erred in their award. However, it was almost four years
before the District Court acted on Gardner's motion. In fact,
on January 20, 1995, about nine months after moving for a
trial date, Gardner returned to the District Court to plead for
a final determination in her case; this plea fell on deaf ears,
for over three more years passed before the District Court
ruled on Gardner's motion. Finally, on March 12, 1998, the
District Court denied Gardner's request for a new trial, but
modified the NASD award in two ways. See Gardner v.
Benefits Communications Corp., No. 91-0536 (D.D.C. Mar.
12, 1998) (order), reprinted in J.A. 20. First, the trial court
found that the assessment of "forum fees" against Gardner
was unlawful under Cole v. Burns International Security
Services, 105 F.3d 1465 (D.C. Cir. 1997); accordingly, the
assessment of $3,000 against Gardner in forum fees was
struck from the NASD award. See Gardner v. Benefits
Communications Corp., No. 91-0536 (D.D.C. Mar. 12, 1998)
(memorandum), reprinted in J.A. 17. In addition, the trial
court found that Gardner was the prevailing party and, thus,
was entitled to attorney's fees and costs. See J.A. 17-18.
The District Court, however, stayed the petition for attor-
ney's fees pending her appeal to this court.
II. Analysis
On appeal, Gardner argues, inter alia, that it was improper
for the District Court to compel arbitration of her statutory
discrimination claims against BCC. In order to determine
the propriety of this decision, we must examine the language
of Gardner's U-4 form as well as the language of the NASD
Code and By-Laws.
The fifth paragraph of the U-4 form signed by Gardner
states, "I agree to arbitrate any dispute, claim or controversy
that may arise between me and my firm, or a customer, or
any other person, that is required to be arbitrated under the
rules, constitutions, or by-laws of the organizations with
which I register." J.A. 61. Gardner registered only with
NASD, and thus we must look to NASD's rules and by-laws
in effect when Gardner filed suit to determine whether her
discrimination claims were subject to the arbitration clause.
See Seus v. John Nuveen & Co., 146 F.3d 175, 187 (3d Cir.
1998) ("Most courts have found that the Form U-4 compli-
ance clause obligates a registrant to comply with the NASD
Arbitration Code as it existed at the time she filed suit.").
Accordingly, all references herein to NASD rules and by-laws
are to those that were in effect in 1991.
Section 1 of the NASD Code describes those disputes that
are eligible for arbitration:
This Code of Arbitration Procedure is prescribed and
adopted pursuant to Article VII, Section 1(a)(3) of the
By-Laws of the National Association of Securities Deal-
ers, Inc., (the Association) for the arbitration of any
dispute, claim, or controversy arising out of or in connec-
tion with the business of any member of the Association,
with the exception of disputes involving the insurance
business of any member which is also an insurance
company:
(1) between or among members;
(2) between or among members and public customers,
or others; and
(3) between or among members; registered clearing
agencies with which the Association has entered
into an agreement to utilize the Association's arbi-
tration facilities and procedures; and participants,
pledges, or other persons using the facilities of a
registered clearing agency, as these terms are
defined under the rules of such a registered clear-
ing agency.
In addition, s 8 of the Code provides that the following
disputes must be submitted to arbitration:
(a) Any dispute, claim or controversy eligible for sub-
mission under Part I of this Code between or among
members and/or associated persons, and/or certain oth-
ers, 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,
at the instance of:
(1) a member against another member;
(2) a member against a person associated with a mem-
ber or a person associated with a member against a
member; and,
(3) a person associated with a member against a per-
son associated with a member.
Appellees argue that ss 1 and 8 of the NASD Code man-
date arbitration of Gardner's claims, because both defendants
BCE and Great-West are NASD members. Under s 1(2),
disputes between members and "others" may be arbitrated,
and s 8(a)(2) requires arbitration of disputes between a mem-
ber and "a person associated with a member." The NASD
By-Laws, Art. I, p 1101(m), defines "person associated with a
member" or "associated person of a member" as:
every sole proprietor, partner, officer, director, or branch
manager of any member, or any natural person occupy-
ing a similar status or performing similar functions, or
any natural person engaged in the investment banking or
securities business who is directly or indirectly control-
ling or controlled by such member, whether or not any
such person is registered or exempt from registration
with the [NASD] pursuant to [the NASD By-Laws].
The defendants argue that Gardner qualifies as a "person
associated with a member" and an "other[ ]," and thus, this
matter was properly arbitrated.
The circuits that have considered the issue have split over
whether and on what terms these provisions require arbitra-
tion of employment disputes between a member-employer
and a registered employee. See generally Thomas James
Assocs., Inc. v. Jameson, 102 F.3d 60, 64 (2d Cir. 1996)
(describing the various interpretations of these provisions by
the different circuits). See, e.g., Farrand v. Lutheran Bhd.,
993 F.2d 1253, 1254-55 (7th Cir. 1993) (finding that an
employment dispute was not arbitrable, because although
s 1's three subsections ((1)-(3)) qualified the phrase "arising
out of or in connection with the business of any member of
the [NASD]," an employee suing an member-employer was
not an "other[ ]" within the meaning of s 1(2)); Kidd v.
Equitable Life Assurance Soc'y of the United States, 32 F.3d
516, 519 (11th Cir. 1994) (holding that an employment dispute
must be arbitrated, because s 1 "requires arbitration for any
dispute connected to an NASD member's business, except for
disputes involving the insurance business of an NASD mem-
ber that are (1) between NASD members or (2) between
NASD members and public customers or others"); Armijo v.
Prudential Ins. Co. of Am., 72 F.3d 793, 798-99 (10th Cir.
1995) (finding an employment dispute arbitrable, because the
term "others" in s 1(2) necessarily encompassed "associated
persons" as used in s 8, and therefore included an aggrieved
employee).
It is unnecessary for us lend our voice to this controversy
over the meaning of ss 1 and 8 of the NASD Code, for
Gardner has agreed to dismiss all defendants save BCC.
With this dismissal it becomes indisputably clear that the real
dispute in this case is not between a member-employer and a
registered employee. Rather, the dispute here is between a
non-member employer, BCC, and its registered employee,
Gardner; and, as we will explain below, this difference is
determinative of the issue at hand.
This renovation of the case is hardly surprising, given its
true nature. Because the Human Rights Act defines "employ-
er" very broadly, see D.C. Code Ann. s 1-2502(10), Gardner
joined BCE, Great-West, Wolpert, and Nelson as co-
defendants to this action out of an abundance of caution. Yet,
these defendants are in no sense necessary parties to the
lawsuit. The dispute here is and always has been between
Gardner and BCC. Indeed, appellees conceded as much in
their motion papers in the District Court, where they stated
that this "action arises out of Gardner's employment with
BCC, her acceptance of that employment, and her resulting
allegations that she was treated discriminatorily on account of
her sex." See Memorandum Brief in Support of Defendant's
Motion to Compel Arbitration at 8, reprinted in J.A. 39; see
also id. at 2, reprinted in J.A. 33 ("Gardner filed her com-
plaint and has raised claims relating to her employment with
[BCC]."). Gardner also has made it clear that her claims are
principally focused on the actions of BCC. See, e.g., Plain-
tiff's Opposition to Motion to Compel Arbitration at 5, re-
printed in J.A. 68 ("[P]laintiff was employed by BCC, paid by
BCC, received her accounts from BCC and was subjected to
discriminatory treatment from her two immediate supervi-
sors, both of whom were employees of BCC."). In other
words, Gardner's agreement to dismiss all defendants except
BCC merely shapes the litigation in a way that comports with
the reality of what is genuinely at stake in this case.
With this turn of events, it is unnecessary for us to
determine the reach of ss 1 and 8 of the NASD Code. It is
also unnecessary to decide whether the purported mandatory
arbitration clauses under the NASD Code, or the disputed
arbitration award in this case, transgress the commands of
Cole v. Burns International Security Services, 105 F.3d 1465
(D.C. Cir. 1997). Our avoidance of these knotty issues is
additionally fortuitous in light of the fact that NASD recently
has amended its arbitration procedures to provide that statu-
tory employment disputes are no longer required to be
arbitrated in any circumstances. See NASD Notice to Mem-
bers 98-56: SEC Approves Rule Change Regarding Arbitra-
tion of Statutory Employment Disputes; Effective January
1, 1999 (visited Feb. 1, 1999) ; Reply Brief for Appellant at 6 n.4.
Our authority to accept Gardner's agreement to dismiss all
defendants except BCC comes from well established prece-
dent. Federal Rule of Civil Procedure 21 provides that
"[p]arties may be dropped or added by order of the court on
motion of any party or of its own initiative at any stage of the
action and on such terms as are just." Although this rule
literally pertains only to the district courts, see Fed. R. Civ. P.
1, the Supreme Court has held that "the policies informing
Rule 21 may apply equally to the courts of appeals."
Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832
(1989). This appellate power "long predates the enactment of
the Federal Rules." Id. at 834. Indeed, Justice Story,
sitting as Circuit Justice, wrote that " '[t]here is ... in the
nature of an appellate jurisdiction, nothing which forbids the
granting of amendments,' " and that "this ... power [derived]
from 'the course of the common law,' " which afforded the
higher court the same amendment power as the lower one.
Id. (quoting Anonymous, 1 F. Cas. 996, 997 (No. 444) (CC
Mass. 1812)) (alteration in original); see also Mullaney v.
Anderson, 342 U.S. 415, 416-17 (1952) (granting union's mo-
tion to add two of its members as parties in order to avoid
deciding standing issue); Balgowan v. New Jersey, 115 F.3d
214, 216-17 (3d Cir. 1997) (allowing a group of engineers who
sued the New Jersey Department of Labor for violations of
the Fair Labor Standards Act to add Department's Commis-
sioner as a party to suit while case was on appeal, because
court did not have jurisdiction over engineers' claim against
state for monetary relief).
This case falls within the compass of those decisions in
which the appellate power to add or dismiss parties may be
exercised. First, it is clear that this dispute always has been
between Gardner and BCC, and Gardner has indicated to this
court that she is willing to dismiss the four unnecessary
defendants. See Reply Brief for Appellant at 7-8 n.6; Appel-
lant's Response to Court's Order (Jan. 14, 1998). These are
compelling considerations, especially given the absence of any
real prejudice to other parties.
Second, the absence of prejudice cannot seriously be chal-
lenged. BCE, Great-West, Wolpert, and Nelson face no
prospect of future litigation on the current claims, because
the actions against them are hereby dismissed with prejudice.
And BCC's potential liability to Gardner under the Human
Rights Act is not affected in any way by the absence of the
other defendants from this case. Although it appears that
"individual supervisors can be held liable for their acts of
discrimination," Martini v. Federal Nat'l Mortgage Ass'n, 977
F. Supp. 464, 479 (D.D.C. 1997), this liability is separate and
apart from that of the employer. See id. at 474-79; Howard
Univ. v. Best, 484 A.2d 958, 983-84 (D.C. 1984). BCC's
liability also will not be altered due to the absence of BCE
and Great-West, because BCC's liability is based on the
actions of supervisors in its employ, and on what it did and
did not do to with respect to Gardner's claims. See Best, 484
A.2d at 983-84. Thus, because BCC's liability is separate
from that of the other defendants, there is no prejudice from
their dismissal.
Finally, we note that Gardner has acted in a timely manner
throughout this litigation. She initially requested an interlocu-
tory appeal prior to arbitration, which was denied by the
District Court. She responsibly decided not to appeal that
decision, because it seemed futile: in most of the circuits that
had addressed the issue, Gardner's action would have been
viewed as an "embedded" claim, and, as such, she would have
been precluded from taking an appeal until after the District
Court dismissed her action or issued some other final judg-
ment with respect to her case. See Ermenegildo Zegna Corp.
v. Zegna, 133 F.3d 177, 182-83 (2d Cir. 1998) ("[W]hen the
defendant introduces the arbitration question into a pending
action, the case is typically considered embedded," and, as
such, an interlocutory appeal without certification is not ap-
propriate, "even when the order directs arbitration of all of
the parties' claims and leaves nothing further for the district
court to determine until the issuance of the arbitral award.");
cf. Cole, 105 F.3d at 1470 (allowing appeal where District
Court's order compelling arbitration also dismissed the plain-
tiff's complaint); McCarthy v. Providential Corp., 122 F.3d
1242, 1247-49 (9th Cir. 1997) (Pregerson, J., dissenting) (dis-
cussing the difference between an action that is stayed pend-
ing arbitration, and one that is dismissed after arbitration is
compelled). Because there was no final judgment in this case
until March 12, 1998, Gardner was forced to wait until now to
raise her arbitrability and enforcement questions before this
court. Thus, although an unseemly amount of time has been
spent on this litigation, most of the delay has been attribut-
able to the District Court, not the parties.
With BCC as the sole defendant, we have no serious doubt
in reaching the conclusion that Gardner is not required to
arbitrate her claims in lieu of proceedings in District Court to
address her complaint. Although there is some question as
to whether s 1 of the NASD Code includes disputes between
persons associated with NASD members, see Farrand, 993
F.2d at 1254-55, we will assume that such disputes fall within
the ambit of arbitrable claims under the pre-amendment
NASD Code. It appears that Gardner falls within the defini-
tion of "person associated with a member," because she is a
natural person who was engaged in the securities business
and sold securities through NASD member BCE. See NASD
By-Laws, Art. I, p 1101(m). The question, then, is whether
BCC is a "person associated with a member."
We agree with our colleagues on the Fifth Circuit that,
when the definition is read in its entirety, it is clear that it
includes only natural persons. See Tays v. Covenant Life
Ins. Co., 964 F.2d 501, 502-03 (5th Cir. 1992). Although the
second and third clauses explicitly include only "any natural
person," all three of the clauses are limited by the last phrase
of the definition, which reads "whether or not any such
person is registered or exempt from registration with the
[NASD] pursuant to [the NASD By-Laws]." NASD By-
Laws, Art. I, p 1101(m) (emphasis added). This reference to
"any such person," rather than "any such entity" or the like,
leads us to believe that the NASD intended to limit the
parties who could be considered a "person associated with a
member" to only those parties that are natural persons.
Moreover, this interpretation is "reinforced when the defi-
nition is compared with the statutory definition [of associated
person] contained in the Securities Exchange Act of 1934, 15
U.S.C. s 78c(a)(21)." Tays, 964 F.2d at 503. That act pro-
vides that "[t]he term 'person associated with a member' or
'associated person of a member' when used with respect to a
member of a national securities exchange or registered secu-
rities association means any partner, officer, director, or
branch manager of such member (or any person occupying a
similar status or performing similar functions), any person
directly or indirectly controlling, controlled by, or under
common control with such member, or any employee of such
member," 15 U.S.C. s 78c(a)(21) (1994), and that the term
"person" includes "a natural person, company, government, or
political subdivision, agency, or instrumentality of a govern-
ment," 15 U.S.C. s 78c(a)(9). The NASD By-Laws do not
define the term "person." However, the NASD definition of
associated person includes the phrases "natural person" and
"any such person," which are not present in the Securities
Exchange Act's definition. Thus, we agree with the Fifth
Circuit that these "changes from the statute to the NASD by-
laws suggest a desire to limit the NASD definition to natural
persons." Tays, 964 F.2d at 503.
Accordingly, a corporation such as BCC does not qualify as
an associated person under this definition, and arbitration of
the dispute between Gardner and BCC is not required. We
therefore reverse the District Court's order compelling arbi-
tration and remand the case for further proceedings to ad-
dress the merits of Gardner's complaint.
III. Conclusion
For the foregoing reasons, we dismiss with prejudice Bene-
fitsCorp Equities, Inc., Great-West Life Assurance Company,
Craig Wolpert, and Charles Nelson from this action. We also
reverse the judgment of the District Court compelling arbi-
tration, and remand this case between Benefits Communica-
tions Corporation and Gardner to the District Court for
further proceedings to address the merits of Gardner's
claims.
So ordered.