ASSOCIATION OF INV. BROKERS v. SECURITIES, 676 F.2d 857 (D.C. Cir. 1982)

ASSOCIATION OF INVESTMENT BROKERS, AND ANTHONY W. TEDESCHI, PETITIONERS, v. SECURITIES AND EXCHANGE COMMISSION, RESPONDENT.

No. 81-1162.United States Court of Appeals, District of Columbia Circuit.Argued March 16, 1982.
Decided May 7, 1982.

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Merrill J. Chapman, New York City, for petitioners.

Jacob H. Stillman, Associate Gen. Counsel, Washington, D.C., SEC, with whom Paul Gonson, Sol., Gilbert C. Miller, Attorney-Fellow, David A. Sirignano, Sp. Counsel, and Thomas P. Lemke, Atty., Washington, D.C., SEC, were on the brief, for respondent. Louis C. Whitsett, Atty., Washington, D.C., SEC, also entered an appearance for respondent.

Petition for Review of an Order of the Securities and Exchange Commission.

Before BAZELON, Senior Circuit Judge, MIKVA and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

[1] The petition before us challenges compulsory arbitration in the securities industry under the rules of the New York Stock Exchange and other self-regulatory organizations as “adhesive,” “ultra vires the [Securities Exchange] Act,” “a classic group boycott,” “a per se violation of antitrust law,” and “a denial of due process.” Brief for Petitioners at 16, 31, 40. Petitioners employ as the springboard for their attack a Securities and Exchange Commission action adopting revisions to a uniform application for securities industry registration. We hold that petitioners lack standing to challenge the agency action in question and that their plea for abrogation of compulsory arbitration rules in the securities industry is not properly before the court. We so decide despite an unelaborated order by a motions panel of this court denying the agency’s motion to dismiss the petition for lack of standing. Such an order, we conclude, does not inhibit action by a merits panel.

I.
[2] In December 1980, the Securities and Exchange Commission (SEC or Commission) adopted revisions to Form U-4, the Uniform Application for Securities Industry Registration. Form U-4, a personnel form for individuals engaged in the securities

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industry,[1] was initially adopted by the Commission in May 1975. The 1980 alterations were designed primarily to conform Form U-4 to provisions of the Securities Acts Amendments of 1975, Pub.L. No. 94-29, 89 Stat. 97, a measure enacted after the SEC’s original adoption of the form. The changes were also devised to facilitate use of the form in a computer system developed by the North American Securities Administrators Association, Inc. (NASAA) (the organization of state securities administrators) and the National Association of Securities Dealers, Inc. (NASD) (the self-regulatory organization encompassing most of the firms that operate in the over-the-counter market). See Securities Exchange Act Release No. 17388 (Dec. 24, 1980), 45 Fed.Reg. 84992.

[3] Form U-4 is in general use throughout the securities industry. However, the SEC’s direction concerning the use of U-4 is addressed solely to SECO (“SEC Only”) broker-dealers, i.e.,
broker-dealers who are not members of the NASD and are therefore regulated directly by the Commission. See
17 C.F.R. § 240.15b8-1 (1981). Relatively few firms are in the SECO category.[2] The NASD, various stock exchanges including the New York Stock Exchange, Inc. (NYSE), and 46 of the 50 states require use of the form, but these entities are not instructed to do so by the SEC. The form was developed through a concurrent effort principally of the Commission, the NASAA, the NYSE, the NASD, and other self-regulatory organizations.[3] The Commission believed that a uniform registration form would “enhanc[e] the flow within the securities industry of information needed for regulatory purposes while at the same time alleviating a substantial and particularly duplicative paperwork burden imposed on broker-dealers registered with more than one organization or state.” Securities Exchange Act Release No. 11424, [1974-1975 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 80,176.[4]

[4] The Association of Investment Brokers (AIB), a trade association of registered representatives, and Anthony W. Tedeschi, a vice-president of Drexel Burnham Lambert, Inc., a broker-dealer firm that is an NASD member, have petitioned for review of the Commission’s December 1980 action adopting revisions to Form U-4. Petitioners concede that a uniform form is appropriate and beneficial to the securities industry, but object to three portions of Revised Form U-4. First and eclipsing all other concerns, petitioners seek elimination of a certification providing that applicants agree to arbitrate disputes with their employer or others to the extent required by the rules of the self-regulatory organizations with which they register.[5]
Second, they object to a question asking whether the applicant has “ever been arrested or indicted” for certain

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crimes.[6] Finally, they challenge a provision stating that former employers and others who furnish information concerning the applicant to the entities with which the applicant is seeking to register are released from liability for furnishing such information.[7]

[5] Compulsory arbitration became a feature of the rules of the NASD and other self-regulatory organizations before the advent of Form U-4 in 1975. It has been an NYSE rule since 1958.[8]
Although Form U-4, as initially adopted, did not contain any reference to arbitration, applicants for registration with the NYSE were required to execute an addendum to U-4 agreeing to arbitrate disputes with their employers. The inquiry concerning arrests and indictments appeared in the original 1975 version of Form U-4 and was carried over to the 1980 version with no substantial change. Earlier, the form the Commission employed for SECO broker-dealers contained a broader inquiry concerning arrests and indictments.[9] The provision in the 1980 revised form requiring applicants to waive liability with respect to information provided by former employers and others to the entity with which the applicant is registering is identical to the authorization and release provision in the 1975 version of Form U-4.[10]

[6] Petitioners request the court “to remove the three objected-to items from U-4 and to effectuate the removal of compulsory arbitration rules from the securities industry.” Brief for Petitioners at 58. It is evident from petitioners’ impassioned briefs, and from the presentation at oral argument, that actions of the NYSE, the NASD, and other self-regulatory organizations, particularly, their compulsory arbitration

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rules, and not the SEC’s action adopting Revised Form U-4, provide the raison d’etre for the petition.[11]
Petitioners charge the SEC with “default or neglect,” but their principal fire is directed elsewhere. U-4, according to petitioners, “was devised and developed by the dominant self-regulatory entities in the securities industry”; “[t]he objected-to portions of `U-4′ were included solely at the behest of those entities — primarily the New York Stock Exchange, American Stock Exchange, and the National Association of Securities Dealers — and not by the federal regulatory agency.” Brief for Petitioners at 4, 5. Time and again petitioners recite that the “bedrock issue” in this controversy is whether or not compulsory arbitration imposed by “the third party NYSE” is a group boycott, a per se violation of antitrust law, a denial of due process. See, e.g., id. at 22, 23, 27, 28, 31, 40, 57. Petitioners readily acknowledge that the SEC has “no arbitral forum or any rule regarding arbitration,” id. at 5, so that the arbitration certification in Form U-4 is inoperative as to SECO broker-dealers, the only broker-dealers required by the Commission to use Form U-4.

II.
[7] As stated above, the SEC requires SECO broker-dealers to file Form U-4 and has no rules requiring others to file the form or calling for resort to arbitration by SECO broker-dealers and their employees. Indeed, the particular agency action petitioners challenge is simply an amendment to Commission rules which require registered brokers or dealers not members of a registered national securities association to file the revised form for associated persons of such brokers or dealers. Securities Exchange Act Release No. 17388, supra.

[8] Although the Commission does not require brokers regulated by the NASD and other self-regulatory organizations to use Form U-4, those organizations, to achieve the benefits of uniformity in processing applications for employment, have elected to require members to use the form. NYSE and NASD rules mandate arbitration of employer-employee disputes, and did so, to the same extent as they do now, before the development of a uniform form under SEC auspices. The SEC, as petitioners recognize, “has never approved or reviewed the compulsory arbitration requirements of the self-regulatory organizations of the securities industry.” Brief for Petitioners at 5.[12] To accommodate the self-regulatory organizations that require arbitration and to obviate the need for applicants registering with those organizations to complete papers beyond Form U-4, the SEC agreed to inclusion of the arbitration certification in the uniform form.

[9] Petitioner Tedeschi is not associated with a SECO broker-dealer. His affiliation is with a member of the NASD. Petitioner AIB does not assert that it has any SECO broker-dealer members. Thus, if revisions in Form U-4 “adversely affect” petitioners,[13] their grievance is appropriately

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directed to the self-regulatory organizations that require them to use the form, not to the SEC, which directs only SECO broker-dealers to file U-4.

[10] It is settled doctrine that a person seeking relief from an Article III court must establish an injury fairly traceable to the challenged conduct. The requisite causal connection may be satisfied by showing a “substantial likelihood” that the relief requested of the court will redress the claimed injury. See Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 1607, 60 L.Ed.2d 66 (1979); Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 72-75, 98 S.Ct. 2620, 2630-2631, 57 L.Ed.2d 595 (1978); Village of Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 261, 97 S.Ct. 555, 561, 50 L.Ed.2d 450 (1977); Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 41, 96 S.Ct. 1917, 1925, 48 L.Ed.2d 450 (1976).

[11] Assuming that petitioners are injured by the employment of Form U-4 by reason of the 1980 revisions, a question we pretermit, they have failed to show that any such injury is fairly linked to the SEC rather than to the self-regulatory organizations. And, most critically, they have not established that any directive this court might issue to the Commission with respect to SEC employment of Form U-4 would redress their grievance. The self-regulatory organizations, not the SEC, require petitioners’ use of Form U-4. Those entities are not before the court, cf. Simon, 426 U.S. at 41, 96 S.Ct. at 1925, although it is their actions that directly give rise to petitioners’ alleged injury. An order to the Commission concerning the form could require cancellation or modification of provisions for SECO broker-dealer filings but could not direct the self-regulatory organizations and the states to follow suit. Most persons associated with broker-dealers, including AIB members, register with those entities, and not with the SEC.

[12] Of particular significance to the “bedrock issue” petitioners identify, the self-regulatory organizations’ rules compelling arbitration antedated U-4. Petitioners do not allege, nor could they plausibly, that those rules were shaped or changed by the SEC’s adoption of revisions to the uniform application. Nor does a petition to review the SEC’s action in revising the form provide any basis for scrutiny of the self-regulatory organizations’ compulsory arbitration rules. This court has no roving commission to initiate investigations into or abrogate rules that are not of the agency’s making and on which the agency has taken no position. In sum, petitioners’ briefs and arguments persuade us that any injury they may suffer cannot fairly be traced to the SEC’s 1980 adoption of revisions to Form U-4 and that their grievance, which petitioners themselves attribute to action by “the dominant self-regulatory entities,”[14] is not redressable in the confines of the instant petition for review of an SEC rule.

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III.
[13] In June 1981, the Commission filed a motion to dismiss the petition for review on the ground that, because petitioners are not connected with SECO firms, they have not been “adversely affected” by any action of the SEC within the meaning of the relevant review provision,[15] and thus lack standing to challenge the action of the Commission revising Form U-4 for use by SECO broker-dealers. This court, in September 1981, denied the SEC’s motion in an unadorned order. The court’s order states no more than that “the motion to dismiss is denied.” Petitioners maintain that the law of the case doctrine binds us to proceed without reexamination of their standing. Reply Brief at 3-5.

[14] Even if the issue did not implicate the limits of our authority to adjudicate,[16] we would reject petitioners’ contention.[17] Motion papers frequently do not reveal the full dimensions of the question tendered.[18] Particularly when dispositive applications are made,[19] the litigant who seeks to stay in court is often accorded the generous benefit of doubt on a threshold point. With the clarification afforded by full briefing, the doubt may be removed, as it was in this case.

[15] The parties might have had clearer notice if the order on the motion to dismiss had read, “denied without prejudice.” But petitioners have not been disadvantaged, for we have fully considered their submissions in opposition to the SEC’s motion to dismiss as well as their later arguments. To avoid misunderstanding by counsel and to clarify the court’s approach, we state, with the approval of the full court, that a motions panel order simply denying a motion to dismiss without saying more is without prejudice to reexamination upon full briefing and argument of the case.[20]

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IV.
[16] Petitioners’ challenge to the Commission’s adoption of revised Form U-4, we have held, cannot serve as springboard for an assault on the compulsory arbitration rules of the NYSE, the NASD, and other self-regulatory organizations. As the SEC points out, however,[21] both the Administrative Procedure Act and the Securities Exchange Act indicate an avenue petitioners might pursue to raise before the Commission their contentions concerning the alleged illegality of “NYSE-style arbitration.”See Brief for Petitioners at 56. Petitioners may invite an SEC rulemaking directed to the arbitration requirements of the self-regulatory organizations.

[17] Section 4(e) of the Administrative Procedure Act, 5 U.S.C. § 553(e), commands that “[e]ach agency shall give an interested person the right to petition for the issuance . . . of a rule.” Section 6(a), 5 U.S.C. § 555(e), requires “prompt notice” in the event an agency denies such a petition. Further, section 6(a) directs that when a denial is not self-explanatory, “the notice shall be accompanied by a brief statement of the grounds for denial.” Section 19(c) of the Securities Exchange Act, 15 U.S.C. § 78s(c), authorizes SEC rulemaking to abrogate or amend rules of self-regulatory organizations that do not conform to provisions of the Act, and Commission Rule 201.4, 17 C.F.R. § 201.4, specifies the procedure for petitioning the SEC for rulemaking action.

[18] Petitioners suggest it would be futile for them to place the compulsory arbitration matter squarely before the SEC in view of “decades” of Commission “default or neglect.” Brief for Petitioners at 43, 56; see Reply Brief at 13. But this appellate forum does not have the large power petitioners suppose; the court, contrary to petitioners’ extraordinary assertions, surely does not have authority to exercise “original jurisdiction” and fill any Commission created “vacuum” by addressing issues “de novo” to arrive at “a public interest decision.” Brief for Petitioners at 55-56. We may, however review agency action, including “an agency’s denial of a rulemaking petition.” WWHT, Inc. v. FCC, 656 F.2d 807, 809
(D.C. Cir. 1981) (except when clear legislative intent is to negate review, “an agency’s denial of a rulemaking petition is subject to judicial review,” albeit “the scope of review of such a determination must, of necessity, be very narrow”).

[19] CONCLUSION
[20] Petitioners are not persons “adversely affected” by the Commission’s adoption of revised Form U-4 and have chosen an inappropriate means to air their concerns about alleged unlawful conduct on the part of self-regulatory organizations in the securities industry. Their petition for review is accordingly

[21] Dismissed.

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