[Federal Register Volume 70, Number 125 (Thursday, June 30, 2005)]
[Notices]
[Pages 37887-37889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3438]


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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 [email protected]. 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