United States Court of Appeals
For the First Circuit
No. 00-1363
No. 00-1364
THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL.,
Petitioners, Appellees,
v.
ARTHUR F. ZANG AND HAROLD P. BECK,
Respondents, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Lynch, Circuit Judge,
Bownes, Senior Circuit Judge,
and Lipez, Circuit Judge.
Glen DeValerio, with whom Michael G. Lange, Alicia Duff,
Berman, DeValerio & Pease LLP, Francis A. Ford, James R.
Hubbard, and Ricci, Hubbard, Leopold, Frankel & Farmer, PC were
on brief, for appellants.
Patrick W. Shea, with whom Adam S. Bozek, Paul, Hastings,
Janofsky & Walker LLP, Joseph M. Hamilton, and Mirick,
O'Connell, DeMallie & Lougee were on brief, for appellees.
May 3, 2001
LYNCH, Circuit Judge. Litigation decisions made by
parties have consequences. This case involves strategic
decisions made by parties in an attempt to obtain a benefit from
a particular ruling; when the court issued a contrary order,
those parties attempted to reverse course and get the district
court to reach a different result under Rule 60(b), Fed. R. Civ.
P. The district court was unsympathetic, and this appeal
followed. Arthur F. Zang, Jr., and Harold P. Beck joined a
number of other employees in filing state employment actions
against six interrelated companies, including The Paul Revere
Variable Annuity Insurance Company ("Variable"). Variable,
alone among the six companies, is a member of the National
Association of Securities Dealers ("NASD"). Based on that
membership the companies sought to compel arbitration against
seventeen of the former employees by virtue of those employees'
registration with NASD. Fifteen of the seventeen former
employees then voluntarily dismissed their claims against
Variable and continued their claims against the remaining five
companies; Zang and Beck remained steadfast and contested the
motions to compel arbitration.
The district court dismissed the motions to compel
arbitration as to the fifteen employees who no longer had claims
against Variable and, after further argument, entered an order
-3-
compelling Zang and Beck to submit their claims against the six
companies to arbitration, finding that they both had entered
into enforceable arbitration agreements. Faced with this court
order, Zang and Beck reversed course and decided to dismiss
their claims against Variable. After doing so, they sought
relief from the district court's order under Rule 60(b), arguing
that the remaining five companies lacked standing on their own
to compel arbitration. The district court declined to grant
relief from its order, and Zang and Beck now appeal both that
denial and the initial order. We affirm both orders.
I.
In March 1997, Provident Companies, Inc. acquired The
Paul Revere Corporation. As a result, Provident combined
effective control of its own wholly owned subsidiary, Provident
Life & Accident Insurance Company, with control of The Paul
Revere Variable Annuity Insurance Company and The Paul Revere
Protective Life Insurance Company, two wholly owned subsidiaries
of The Paul Revere Life Insurance Company, which, in turn, was
a wholly owned subsidiary of The Paul Revere Corporation. In
October 1997, a number of general managers for the Paul Revere
family of companies, alleging that the termination of their
employment was imminent with the completion of the acquisition,
filed separate but substantially similar breach of contract
-4-
actions in a Massachusetts trial court against all six of these
corporate entities.
As a condition of their employment, seventeen of the
general managers, including Zang and Beck, had registered with
NASD and allegedly thereby promised to abide by NASD's rules and
regulations as they were from time to time amended. At the time
that the employment actions were filed, the NASD Code mandated
arbitration of certain disputes if requested by a NASD member or
a person associated with a member.
Based on Variable's membership in NASD, the six
companies sought to compel arbitration of the dispute as to
those seventeen managers. First, in January 1998 the
petitioners filed a motion to compel arbitration in the state
court, invoking the NASD Code, and asked the court to stay its
hand or dismiss the case pending arbitration. Fifteen of the
managers then voluntarily dismissed their actions against
Variable (ultimately) with prejudice, removing the only
petitioner from their cases who was a NASD member; Zang and Beck
retained their claims against Variable.
Faced with the employees' objections to their motions,
in July 1998 the companies went to federal district court
seeking orders staying the state court actions and compelling
arbitration by all seventeen former employees, invoking the
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Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., and
resting jurisdiction on diversity, see 28 U.S.C. § 1332(a). In
September 1999, the district court denied the petition to compel
arbitration as to those fifteen managers who had dismissed
Variable on the ground that the remaining petitioners, absent
Variable as a defendant, lacked standing under NASD's
arbitration protocol. See Paul Revere Variable Annuity Ins. Co.
v. Thomas, 66 F. Supp. 2d 217, 223-28 (D. Mass. 1999). This
court upheld that denial. See Paul Revere Variable Annuity Ins.
Co. v. Kirschhofer, 226 F.3d 15, 18-26 (1st Cir. 2000).
Unlike the other fifteen managers, instead of
dismissing Variable, Zang and Beck opted to retain their claims
against Variable and contest the motion to compel arbitration on
the merits. They did so, presumably, because their largest
dollar value claims were against Variable. Specifically, Zang
and Beck (1) contested the existence of a binding agreement to
arbitrate, (2) contended that they lacked sufficient notice of
the amendments to NASD regulations requiring mandatory
arbitration to compel them to arbitrate their employment claims,
and (3) argued that, in any case, their claims fell outside the
scope of the NASD arbitration provision, both because they did
not sell securities and because the NASD Code provided an
exception from arbitration for insurance business. In October
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1999, after issuing its orders dismissing the petitions against
the other managers, the district court held a status conference
to determine the issues in dispute with regard to Zang and Beck.
The court ordered further briefing and denied further discovery.
On January 7, 2000, the court granted the petitions against Zang
and Beck and ordered the parties to arbitrate. Zang and Beck
filed a timely appeal.
On March 13, 2000, Zang and Beck dismissed their claims
against Variable with prejudice in the state court actions.
They then moved the district court to amend its prior orders
under Fed. R. Civ. P. 60(b), arguing that since they had
dismissed the claims against Variable, none of the remaining
parties had standing under the NASD arbitration protocol to
compel arbitration. On September 26, 2000, the district court
summarily denied Zang and Beck's Rule 60(b) motions for relief
from final judgment. Again Zang and Beck filed an appeal, and
this court consolidated the two appeals.
II.
First, Zang and Beck seek relief from the final order
of the district court compelling arbitration under Rule 60(b),
Fed. R. Civ. P., in light of their subsequent dismissal with
prejudice of their claims against Variable. Rule 60(b) affords
district courts the equitable power to relieve a party from the
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force of a final order or judgment under certain conditions
where necessary to serve the ends of justice. 1 Zang and Beck
argue that now that Variable is no longer a party to the ordered
arbitration, the remaining parties lack standing to compel
arbitration under the NASD arbitration protocol.2 Therefore they
assert on appeal that Rule 60(b) relief is warranted both under
clause (5), because prospective application of the arbitration
order is, they say, "no longer equitable," and under clause (6),
1 Fed. R. Civ. P. 60(b) provides in relevant part:
On motion and upon such terms as are just, the court may
relieve a party or his legal representative from a final
judgment, order, or proceeding for the following reasons:
* * *
(5) the judgement has been satisfied, released, or
discharged, or a prior judgment upon which it is based has
been reversed or otherwise vacated, or it is no longer
equitable that the judgment should have prospective
application; or
(6) any other reason justifying relief from the operation
of the judgment. . . .
2 While respondents argue standing and suggest in passing
that Article III standing is lacking, we note that standing in
the jurisdictional sense is not at issue. Not only is
jurisdictional standing assessed in terms of the circumstances
at the time the action is filed, see Lujan v. Defenders of
Wildlife, 504 U.S. 555, 569-70 n.4 (1992) ("The existence of
federal jurisdiction ordinarily depends on the facts as they
exist when the complaint is filed.") (quoting Newman-Green, Inc.
v. Alfonzo-Larrain, 490 U.S. 826, 830 (1989)) (emphasis
omitted), but in any case the district court clearly still had
jurisdiction at the time it entered the order and, in fact,
there remains a live controversy here among diverse parties even
after the subsequent dismissal of Variable. Instead, the
question properly conceived is what entities have a right under
the NASD arbitration protocols to compel arbitration, and
whether that "standing" persists upon the dismissal of Variable.
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because the lack of standing of the remaining parties provides
a "reason justifying relief from the operation of the judgment."
This effort faces two formidable hurdles. First, Rule
60(b) relief is "extraordinary relief" reserved for "exceptional
circumstances," given the countervailing interest in the
finality of such orders. See United States v. One Urban Lot,
882 F.2d 582, 585 (1st Cir. 1989) (internal quotation marks
omitted). Moreover, the district court's decision to deny
relief under Rule 60(b) is, in turn, reviewed on appeal for
abuse of discretion. See Ahmed v. Rosenblatt, 118 F.3d 886, 891
(1st Cir. 1997) ("We will find an abuse of discretion [under
Rule 60(b)] only when we are left with a definite and firm
conviction that the lower court committed a clear error of
judgment . . . ."), cert. denied 522 U.S. 1148 (1998). Zang and
Beck fail to clear these considerable hurdles.
Rule 60(b)(6)
The first five subsections of Rule 60(b) allow a court
to relieve a party from a final judgment on several specified
grounds, such as mistake or excusable neglect, newly discovered
evidence, or fraud. See Fed. R. Civ. P. 60(b)(1)-(5). Rule
60(b)(6) provides federal district courts with a residual
reservoir of equitable power to grant discretionary relief from
a final judgment for "any other reason justifying relief . . .
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." See Fed. R. Civ. P. 60(b)(6). This residual catchall
provision allows a court to relieve a party from a final
judgment where such relief is appropriate to accomplish justice,
but the reasons for that relief are not encompassed by the other
provisions of the rule. Zang and Beck argue that the fact that
the only petitioner with standing under the NASD Code to compel
arbitration (Variable) is no longer party to the case justifies
relief from the arbitration order issued by the district court.
This is not necessarily so, and the district court did not abuse
its discretion in denying such relief.
District courts should grant Rule 60(b)(6) motions
"only where exceptional circumstances justifying extraordinary
relief exist." Ahmed, 118 F.3d at 891, citing Valley Citizens
for a Safe Environment v. Aldridge, 969 F.2d 1315, 1317 (1st
Cir. 1992). District courts have "broad discretion" to
determine whether such circumstances exist. Valley Citizens,
969 F.2d at 1317. The bar for such relief is set high because,
as the Supreme Court noted in Ackermann v. United States, 340
U.S. 193, 198 (1950), "[t]here must be an end to litigation
someday . . .," and therefore district courts must weigh the
reasons advanced for reopening the judgment against the desire
to achieve finality in litigation. E.g. Lussier v. Dugger, 904
F.2d 661, 667 (11th Cir. 1990); see also 11 Wright et al.,
-10-
Federal Practice and Procedure § 2857, at 256-57 (West 1995).
The reasons for relief advanced by Zang and Beck are
not so compelling as to require the district court to grant
their Rule 60(b) motion. The decision to persevere in their
claims against Variable upon the filing of the petitions to
compel arbitration in federal court was a "free, calculated, and
deliberate" choice. Ackermann, 340 U.S. at 198. The only
relevant change in circumstance since the entry of the
arbitration order is Zang and Beck's also "free, calculated, and
deliberate" choice to dismiss Variable from their state court
actions. Ordinarily, the discretionary power granted by Rule
60(b)(6) is not for the purpose of relieving a party from such
"free, calculated, and deliberate" choices made as part of a
strategy of litigation. E.g. id. ("free, calculated, deliberate
choices are not to be relieved from"); see also id. at 200
(stating that "by no stretch of the imagination can the
voluntary, deliberate, free, untrammeled choice by the
petitioner not to appeal" compare with the "exceptional
circumstances" found in other cases); 11 Wright et al., supra §
2864, at 359. The law presumes that parties will make choices
to protect their legal interests, even though those choices may
at times involve a calculated risk. Where a party makes a
considered choice, though it may involve some calculated risk,
-11-
he "cannot be relieved of such a choice because hindsight seems
to indicate to him" that, as it turns out, his decision was
"probably wrong." Ackermann, 340 U.S. at 198.
Zang and Beck are correct that the facts of Ackermann
are different -- that case involved a decision not to pursue an
appeal. But still, the policy embodied in Ackermann applies
with equal force in this case. Zang and Beck persisted in their
claim against Variable, cognizant of the risk that this would
lead to mandatory arbitration. Indeed, by the time of the
October 1999 status conference, the September dismissals of the
petitions against the other fifteen managers made clear that it
was reasonably likely that this consequence could be avoided by
dismissing Variable. Nonetheless Zang and Beck continued to
litigate against the petitions to compel arbitration rather than
dismissing Variable, gambling that they could defeat those
petitions on the merits. Only upon the district court's order
compelling arbitration did Zang and Beck opt to dismiss
Variable, hoping thereby to evade the arbitration order.
Zang and Beck chose to retain their claim against
Variable, fully aware that this choice increased the likelihood
that they would be compelled to arbitrate their claims. Now
that this likelihood has been borne out, they cannot reverse the
consequences of their decision after the fact by suddenly
-12-
changing course and then asking the district court to correct
for their earlier improvident choice. Rather, the rule
contemplates that a party will take the legal steps necessary to
protect his own interests, and instead acts to relieve a party
from extraordinary predicaments where, because of exceptional
circumstances, the party would have been unable to do so. The
district court did not abuse its discretion in denying relief on
the grounds here.
Rule 60(b)(5)
On appeal, Zang and Beck also argue that their Rule
60(b) motion falls within the fifth clause of the rule, which
allows a court to relieve parties from judgments with
prospective effect where, inter alia, "it is no longer equitable
that the judgment should have prospective application." Fed. R.
Civ. P. 60(b)(5). Petitioners contend that Zang and Beck failed
to argue adequately before the district court that their case
fell within the scope of this provision, and that therefore the
argument is waived. Zang and Beck respond that they did raise
the argument, and in any event they say that motions under Rule
60(b) need not specifically reference a particular subsection.
We need not reach the waiver question because it is
clear that Zang and Beck do not qualify for relief under Rule
60(b)(5). As an initial matter, Zang and Beck's claims fall far
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outside the cases with which the provision is particularly
concerned, such as institutional reform litigation, where,
because the decree involves the long-term supervision of
changing conduct or conditions, its prospective requirements may
be rendered inappropriate by unforeseen changes in circumstance
subsequent to the entry of the order. See, e.g., Rufo v.
Inmates of Suffolk County Jail, 502 U.S. 367, 379 (1992)
(suggesting a flexible standard is required for decrees that
involve "the supervision of changing conduct or conditions" and
thus of necessity are "provisional and tentative").
Even if we were to indulge in respondents' favor the
argument that the arbitration order falls within the scope of
Rule 60(b)(5), qualifying for relief under this provision
requires a clear showing of inequity. Historically, the
standard for relief from a binding decree was quite high. E.g.
United States v. Swift & Co., 286 U.S. 106, 119 (1932) ("No
doubt the defendants will be better off if the injunction is
relaxed, but they are not suffering hardship so extreme and
unexpected as to justify us in saying that they are the victims
of oppression. Nothing less than a clear showing of a grievous
wrong evoked by new and unforeseen conditions should lead us to
change what was decreed . . . ."); see also 11 Wright et al.,
supra, § 2863, at 340-41. It is true the Supreme Court has
-14-
acknowledged that greater flexibility is required in considering
requests to modify institutional reform consent decrees. See
Rufo v. Inmates of Suffolk County Jail, 502 U.S. at 383.
Nonetheless this court has since required a considerable showing
to modify decrees in private contractual disputes that lack
substantial bearing on the public interest. See Alexis Lichine
& Cie v. Sasha A. Lichine Estate Selections, Ltd., 45 F.3d 582,
586-87 (1st Cir. 1995) (describing the continuum of cases in
which Rule 60(b)(5) is invoked). In considering the equities of
such a modification, a court should look to such factors as the
circumstances leading to the decree, the level of hardship on
the "burdened" party, and the extent to which the change in
circumstances falls outside of those contemplated at the time
the decree was issued. The order here resolved a contractual
dispute between private parties with tenuous and tangential
bearing at best on the public interest; the hardship of mandated
arbitration is limited; and the change of circumstances lay
fully within the control of (and, indeed, was caused by) the
parties requesting relief. Such facts fail to demonstrate the
type of inequity to warrant Rule 60(b)(5) relief.
Zang and Beck argue that a change in facts justifying
relief from the prospective effect of a final order under Rule
60(b)(5) need not be "unforeseen and unforeseeable." This
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assertion is correct. See Rufo v. Inmates of Suffolk County
Jail, 502 U.S. at 385. From this assertion Zang and Beck reason
by implication that Rule 60(b)(5) relief is appropriate here,
where the circumstances at issue were within their control both
before and after the issuance of the district court's order.
But there is considerable distance between facts that were
completely unforeseen when an order was issued and those
circumstances that were in both the control and contemplation of
the parties, both before and at the time of the judgment; the
line was not extended so far in Rufo. Cf. id. ("Litigants are
not required to anticipate every exigency that could conceivably
arise during the life of a consent decree. Ordinarily, however,
modification should not be granted where a party relies upon
events that actually were anticipated at the time it entered
into a decree."). Rather, the policy underlying Ackermann --
that parties must live with the consequences of freely made,
calculated decisions reached for strategic reasons in the course
of litigation -- applies with equal force in the context of
Rule 60(b)(5). See, e.g., Valentine Sugars, Inc. v. Sudan, 34
F.3d 320, 322 (5th Cir. 1994) (holding that Rule 60(b)(5) relief
is not appropriate where the party not only foresaw the changed
conditions but created them).
On these circumstances, Zang and Beck are not entitled
-16-
to relief from the district court's order under either
subsection (5) or (6) of Rule 60(b). They are not free to test
the waters, fully litigating the merits of the arbitration
petition in the district court, and then, displeased with the
outcome, to escape the consequences of this choice by shifting
to a different course after the fact. The orders are binding,
and the circumstances are not so exceptional or unforeseen as to
compel the district court to relieve the parties from their
force. Any "injustice" wrought by these orders, if it exists at
all, is not so extreme -- Zang and Beck retain a right to pursue
their claims on the merits in the pending arbitration
proceedings and receive compensation if they prevail, even if
this is not their preferred forum or format. Finding no abuse
of discretion, we affirm the district court's denial of the Rule
60(b) motion.
III.
Zang and Beck also raise four challenges to the
district court's initial determination granting the petition and
ordering arbitration. First, Beck contends that petitioners
failed to present sufficient evidence of the existence of any
agreement to arbitrate. Next, Zang and Beck argue that there
was no knowing and voluntary agreement to mandatory arbitration.
Zang and Beck also contend that they were denied discovery about
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material issues of fact in dispute regarding the continued
standing of Variable to compel arbitration. Finally, Zang and
Beck contend that even if the NASD arbitration provisions bound
them to arbitrate some disputes, the insurance business
exception in the NASD Code exempted these particular disputes
from mandatory arbitration. We review the district court's
grant of the motion to compel arbitration de novo. See Bank v.
Int'l Bus. Machines, Inc., 99 F.3d 46, 48 (1st Cir. 1996).
The Existence of an Agreement to Arbitrate
First, Beck claims that the petitioners failed to prove
the existence of any signed agreement on his part in which he
agreed to arbitration. NASD records indicate that Beck's
registration was filed and approved on November 21, 1968.
However, the NASD has not located an actual registration form
signed by Beck in 1968. Nevertheless, the district court
concluded that Beck had signed the relevant forms, relying on
secondary evidence. Petitioners filed with the court an
affidavit from a NASD official containing the following
assertions: (1) that NASD records show that Beck's registration
was both filed and approved on November 21, 1968; (2) that when
Beck registered in November 1968, NASD required registrants to
sign a registration application as part of its regular business
practice; and (3) that despite reasonable efforts, NASD had
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failed to locate Beck's application forms. The parties do not
dispute that the relevant registration form at the time was Form
A-300, and petitioners also introduced a copy of Form A-300.
Beck states only that he does not recall signing the
application, and does not contend that the form was lost in bad
faith or contest that he was in fact registered.
On this record, the district court concluded that Beck
had signed and submitted Form A-300, in which he agreed to be
bound by any NASD rules as they existed at the time he
registered and "as they may from time to time be adopted,
changed, or amended."3 As a result, the district court concluded
that Beck had agreed to be bound by the NASD rules in effect
when he filed suit in October 1997, which at the time required
arbitration of employment disputes.
On appeal, Beck argues that the district court erred
in finding this evidence sufficient to conclude that he had
actually signed Form A-300. Beck says that the absence of any
testimony regarding personal knowledge that Beck had signed the
form, the failure to provide any explanation for the absence of
the form from the NASD's files, the fact that the NASD affidavit
3 Petitioners did produce the form Zang signed when he
registered in 1974, Form B-301, in which he likewise agreed to
be bound by all NASD regulations as they existed and are
"adopted, changed, or amended."
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contains the admittedly false statement that Beck's application
contained an express arbitration provision, and the fact that
the one partial registration document NASD did produce
regarding Beck -- the face page of an amended registration form,
Form U-4, from 1996 -- did not contain Beck's signature but
instead that of another Variable employee, all militate against
the district court's conclusion.
The district court's reliance on secondary evidence is
appropriate. See, e.g., Bituminous Cas. Corp. v. Vacuum Tanks,
Inc., 975 F.2d 1130, 1132 (5th Cir. 1992); Fed. R. Evid. 1004,
advisory committee's note ("if failure to produce the original
is satisfactorily explained, secondary evidence is admissible").
In particular, testimony regarding a regular business practice
can be sufficient to establish the existence and content of
missing business documents. See, e.g., Simas v. First Citizen's
Fed. Credit Union, 170 F.3d 37, 52 (1st Cir. 1999) (relying on
testimony to establish the existence of missing loan
application); Fireman's Fund Ins. Co. v. Glass, No. 94 Civ. 7375
(WK), 1997 WL 289858, at *3 (S.D.N.Y. May 30, 1997) (relying on
evidence of custom and practice to use standard engagement
letter to establish the existence and terms of missing
engagement letters). The fact that the affidavit erroneously
stated that the application Beck signed contained an express
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arbitration clause is not directly contradictory, as there is no
dispute that if Beck signed an application, it was Form A-300,
and the contents of that form are not in question. Similarly,
the fact that the single page found of the incomplete 1996
amended registration form did not contain Beck's signature is
not persuasive in challenging NASD's business practices, as the
one page found was the first page of a three page application
form, and not the one on which NASD would have required an
actual signature.
It is undisputed that Beck was in fact registered with
NASD in 1968, and given the convincing evidence that he would
not have been registered without a signed Form A-300 in light of
NASD's business practices, the district court was not in error
to conclude that he had in fact signed and submitted the form.
Voluntary and Knowing Agreement to Mandatory Arbitration
Zang and Beck also contend that even if they at one
time agreed to be bound by NASD rules as they were "adopted,
changed, or amended," this agreement is not sufficient to compel
them to submit to mandatory arbitration where the documents they
signed are silent as to arbitration. Agreements to arbitrate,
they say, must be knowing and voluntary, and the forms they
(allegedly) signed did not contain any mandatory arbitration
provisions, much less one regarding employment disputes.
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Zang and Beck rely heavily on this court's opinion in
Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170
F.3d 1 (1st Cir. 1999), to argue that the agreements that they
signed cannot serve to compel arbitration in the absence of
proof of more direct awareness of and consent to the arbitration
requirement. However, Rosenberg is different from this case in
two respects. First, Rosenberg was concerned only with
compelling arbitration in the context of federal employment
discrimination claims and relied in part on congressional
history expressing particular concerns on the issue of
arbitration arising out of the strong public policy against such
discrimination. Id. at 17-21. By contrast, this case involves
a straightforward contract dispute that does not raise the
public policy concerns addressed by statutory bars to employment
discrimination. Moreover, the defendant in Rosenberg, Merrill
Lynch, had agreed expressly to familiarize its employees with
the governing regulations, and had not notified the plaintiff of
the mandatory arbitration provision. Id. at 19. Here Variable
made no such promise,4 and therefore Rosenberg is inapposite on
4 While Zang and Beck argue that NASD Rule 3010 reflects
a commitment by Variable to notify them of changes in the NASD
Code, this is simply not the case. Rather, Rule 3010 requires
Variable to supervise its employees to ensure that they do not
violate securities laws, regulations, or NASD rules, and in this
context, to keep employees abreast of such regulations to ensure
compliance. Rule 3010 does not reach the adoption of mandatory
-22-
this point as well. Other courts have compelled arbitration on
similar agreements to abide by rules as modified in the future.
See, e.g., R.J. O'Brien & Assoc. v. Pipkin, 64 F.3d 257 (7th
Cir. 1995); Geldermann v. CFTC, 836 F.2d 310 (7th Cir. 1987).
Zang and Beck are professionals who agreed to abide by the rules
and regulations of a professional organization to which they
belonged; in the absence of any commitment by the petitioners to
inform them of rule changes, they cannot plead ignorance of
rules with which they have agreed to comply to escape their
effect.
The Denial of Discovery
Zang and Beck also challenge the district court's
denial of discovery regarding whether petitioners had cancelled
their NASD registrations through Variable before the accrual of
their employment claims. Petitioners argue that the discovery
request was untimely and therefore waived; Zang and Beck respond
that they had a right to test the legal sufficiency of the
petition before pursuing factual disputes.
We need not resolve the question. The only "disputed"
factual issue raised by Zang and Beck on appeal is the alleged
transfer of Zang and Beck's registration with NASD from Variable
arbitration for employment disputes, which falls beyond the area
of securities regulation with which Rule 3010 is concerned.
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to Washington Square Securities, Inc. The district court denied
discovery on this question. The essence of Zang and Beck's
theory is that if they were registered through Washington Square
and not through Variable, then Variable lacked standing to
compel arbitration. However, NASD records before the district
court establish that Zang and Beck were still registered with
NASD through Variable at the time of the termination of their
employment. Thus any question regarding their alleged
(additional) registration through Washington Square is
immaterial.
The Insurance Business Exception
Zang and Beck's final argument is that their employment
claims against the petitioners fall outside the scope of the
NASD arbitration provisions because the NASD Code excepts from
arbitration "disputes involving the insurance business of any
member which is also an insurance company." NASD Code § 1. The
overwhelming weight of authority on the issue holds that
employment with an insurance company alone is not enough to
trigger the exception unless the pending claim is entangled with
the company's insurance business to a substantial degree, and we
hold that is the correct rule. See, e.g., Armijo v. Prudential
Ins. Co. of America, 72 F.3d 793, 800 (10th Cir. 1995) (claims
of employment discrimination against insurance company did not
-24-
involve insurance business of defendant); Cular v. Metropolitan
Life Ins. Co., 961 F. Supp. 550, 558 (S.D.N.Y. 1997) (breach of
contract and tort claims in the case were "garden-variety"
employment disputes not covered by the insurance business
exception). Since this dispute simply involves the obligations
of the companies to the managers under their employment
contracts and does not substantially implicate the conduct of
insurance business, the exception is inapposite.
IV.
We affirm the district court's orders compelling
arbitration and denying the Rule 60(b) motion for relief from
that order.
So ordered.
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