[Federal Register: June 30, 2005 (Volume 70, Number 125)]
[Notices]
[Page 37887-37889]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jn05-129]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51921; File No. SR-NASD-2005-046]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment
Nos. 1 and 2 Thereto Amending the Arbitration Fees Applicable to
Certain Statutory Employment Discrimination Claims
June 24, 2005.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 8, 2005, the National Association of
Securities Dealers, Inc. (``NASD'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by NASD. On April 25, 2005, NASD filed Amendment No. 1
(``Amendment No. 1'') to the proposed rule change.\3\ On June 23, 2005,
NASD filed Amendment No. 2 (``Amendment No. 2'') to the proposed rule
change.\4\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaces the original rule filing its
entirety.
\4\ See Amendment No. 2. Amendment No. 2 clarified certain
aspects of the rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is proposing to amend the NASD Code of Arbitration Procedure
(``Code'') to amend the arbitration fees applicable to certain
statutory employment discrimination claims.
Below is the text of the proposed rule change.\5\ Proposed new
language is in italics.
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\5\ The rule change proposed in this filing will be renumbered
as appropriate following Commission approval of the pending
revisions to the NASD Code of Arbitration Proceudre for Customer
Disputes, see Securitites Exchane Act Release No. 51856 (June 15,
2005), 70 FR 36442 (June 23, 2005) (SR-NASD-2003-158); and the NASD
Code of Arbitration Procedure for Industry Disputes, see Securities
Exchange Act Release No. 51857 (June 15, 2005), 70 FR 36430 (June
23, 2005) (SR-NASD-2004-011).
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* * * * *
10217. Fees
(a) For any claim of statutory employment discrimination submitted
to arbitration that is subject to a predispute arbitration agreement, a
party who is a current or former associated person shall pay a non-
refundable filing fee according to the schedule of fees set forth in
Rule 10332, provided that:
(1) In no event shall such a person pay more than $200 for a filing
fee;
(2) A member that is a party to such an arbitration proceeding
under this rule shall pay the remainder of all applicable arbitration
fees set forth in Rule 10332; and
(3) No party shall be required to remit a hearing session deposit.
(b) The arbitration fees described in paragraph (a)(2) are not
subject to allocation in the award. The panel, however, may assess to a
party who is a current or former associated person those costs incurred
under Rules 10319, 10321, 10322, and 10326.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. NASD has prepared summaries, set forth in Sections A, B,
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to limit the arbitration
filing fees applicable to certain statutory employment discrimination
claims.
The Rule 10210 Series contains special rules applicable to the
[[Page 37888]]
arbitration of employment discrimination claims. The rules, which set
forth the procedures that relate specifically to statutory employment
discrimination claims, supplement and, in some instances, supersede the
provisions of the Code of Arbitration Procedure (Code) that apply to
the arbitration of other employment disputes. The Rule 10210 Series,
however, does not provide a separate fee schedule for statutory
employment discrimination claims. Rather, Rule 10205, the Schedule of
Fees for Industry and Clearing Controversies, provides in paragraph (a)
that, ``A party who is an associated person shall pay a non-refundable
filing fee and shall pay a hearing session deposit in the amounts
specified for customer claimants in Rule 10332.'' Consequently,
associated persons who bring statutory employment discrimination claims
pay according to the schedule of fees (which are based on the dollar
value of the claim) set forth in Rule 10332.
During the 1990s, federal appeals courts were split on whether
employers could require mandatory arbitration of statutory employment
discrimination claims and then require the employee to pay all or part
of the arbitrators' fees.\6\ Specifically, the courts disagreed as to
whether requiring claimants in statutory employment discrimination
claims to pay arbitral forum fees and expenses would prevent them from
effectively vindicating their claims. Certain courts, such as the
United States Court of Appeals for the District of Columbia Circuit,
found that an employee could not be required to agree to arbitrate
statutory claims if the agreement required the employee to pay all or
even part of the arbitrator's fees and expenses.\7\ The court noted
that ``it would undermine Congress's intent to prevent employees who
are seeking to vindicate statutory rights from gaining access to a
judicial forum and then require them to pay for the services of an
arbitrator when they would never be required to pay for a judge in
court.'' \8\ On the other hand, the United States Court of Appeals for
the Fifth Circuit found that although the allocation of arbitration
costs may not be used to prevent effective vindication of federal
statutory claims, this does not mean that the assessment of any
arbitral forum fees against an employee bringing such claims is
prohibited.\9\
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\6\ Previously, the United States Supreme Court had determined
that mandatory arbitration of employment discrimination claims was
permissible so long as the prospective litigant could effectively
vindicate his or her statutory cause of action in the arbitral
forum, thereby allowing the statute to continue to serve both its
remedial and deterrent function. Gilmer v. Interstate/Johnson Land
Corp., 500 U.S. 20, 28 (1991) (citing Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614 637 (1985)).
\7\ Cole v. Burns International Security Services, et al., 105
F.3d 1465 (D.C. Cir 1997).
\8\ Id., at 1484.
\9\ Williams v. Cigna Financial Advisors, Inc. 197 F.3d 752,
763-64 (5th Cir. 1999) (citing Gilmer v. Interstate/Johnson Lane
Corp., 500 U.S. 20 (1991).
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The United States Supreme Court considered the issue of fees in
connection with the arbitration of federal statutory claims in
2000.\10\ The Supreme Court found that the existence of large
arbitration costs could preclude a person from effectively vindicating
his or her federal statutory rights in arbitration. Therefore, the
Supreme Court established a case-by-case approach whereby a person can
invalidate an arbitration agreement by showing that the arbitration
would be prohibitively expensive. Since the respondent never presented
any evidence regarding her likely arbitration costs, the Supreme Court
did not specify how ``detailed the showing of prohibitive expense must
be before the party seeking arbitration must come forward with contrary
evidence.'' \11\
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\10\ Green Tree Finance Corp. of Alabama v. Randolph, 531 U.S.
79 (2000).
\11\ Id. at 92.
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In order to ensure that associated persons who have statutory
employment discrimination claims are able to effectively vindicate such
claims, NASD is proposing to revise the arbitration fees applicable to
certain statutory employment discrimination claims.\12\ Specifically, a
current or former associated person who brings a statutory employment
discrimination claim that is subject to a predispute arbitration
agreement will pay no more than a $200 filing fee (which is non-
refundable) at the time that the associated person asserts such a
claim.\13\ The member that is a party to a statutory employment
discrimination arbitration proceeding will pay the remainder of the
filing fee, if any, as well as all forum fees. While the filing and
forum fees will not be subject to allocation by the arbitrator(s), the
panel will have the ability, as it does currently under the Code, to
allocate various costs associated with arbitration, including the
adjournment of hearings (Rule 10319); the production of documents
(Rules 10321 and 10322); the appearance of witnesses (Rule 10322); and
the recording of proceedings (Rule 10326). In addition, arbitrators
will still have the ability to allocate attorneys' fees, in accordance
with applicable law, as currently provided for in Rule 10215.
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\12\ The new rule will apply only to disputes that are subject
to a predispute arbitration agreement. The regular fee schedule set
forth in Rule 10332 will apply to claims that are not subject to
such an agreement. Thus, if a member does not require its employees
to arbitrate employment disputes, but the employee chooses to file a
statutory employment discrimination claim in arbitration, the
employee will be subject to the regular fee schedule. See Rule
10201(b) (statutory employment discrimination claims that are not
subject to a predispute arbitration agreement may be arbitrated only
if all the parties agree to do so).
\13\ As previously mentioned, associated persons who have
statutory employment discrimination claims currently pay the filing
fees and hearing session deposite provided in Rule 10332 at the time
that they file a claim. These charges, which are based on the amount
of the claim, range from $25 to $600 for filing fees and from $25 to
$1,200 for hearing session deposits. Under the proposed rule, the
filing fee will continue to be based on the amount of the claim as
set forth in Rule 10332, but will be capped at $200. Thus, an
associated person who files a claim requesting damages of $4,000
would pay a $50 filing fee, while the filing fee for a $4 million
claim would be $200.
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NASD believes that the proposed rule will allow those associated
persons who agree to arbitrate statutory employment discrimination
claims as a condition of employment to pursue their rights in
arbitration, because their filing fee will be limited to a maximum of
$200, which is comparable to the cost of filing a civil claim in state
or federal court.\14\ At the same time, the proposed rule will not
result in any additional delays or uncertainty in the arbitral process
as it provides for a straightforward sliding-scale fee with a cap
rather than a case-by-case analysis of such things as the claimant's
ability to pay for arbitration and the cost differential between
arbitration fees and court filing fees.
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\14\ In October 2004, NASD surveyed the state and federal court
filing fees for civil cases in the five states where it believes the
largest number of NASD arbitrations are filed (California, Florida,
Illinois, New York, and Texas). NASD found that, in these
jurisdictions, the state court filing fees ranged from $160 to $305
and the federal court filing fee was $150.
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2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of provisions of Section 15A of the Act,\15\ in general and
with Section 15A(b)(6) of the Act,\16\ in particular, which requires,
among other things, that NASD's rules must be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and, in general, to protect investors
and the public interest. NASD believes that the proposed rule will
serve the public interest in that it will ensure that filing and
hearing session fees do not prevent associated persons from vindicating
their statutory employment discrimination claims in arbitration.
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\15\ 15 U.S.C. 78o-3.
\16\ 15 U.S.C. 78o-3(b)(6).
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[[Page 37889]]
B. Self-Regulatory Organization's Statement on Burden on Competition
NASD does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2005-046 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-NASD-2005-046. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying at the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of NASD. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to the File
Number SR-NASD-2005-046 and should be submitted on or before July 21,
2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-3438 Filed 6-29-05; 8:45 am]
BILLING CODE 8010-01-P