                                 ___________

                                 No. 95-1925
                                 ___________

In Re: Piper Funds, Inc.,             *
Institutional Government              *
Income Portfolio Litigation.          *
                                      *
--------------------------------
Richard J. Rodney, Jr., et al.,       *
                                      *
     Plaintiffs - Appellees,          *
                                      *
     v.                               *
                                      *
Piper Capital Management, Inc.;       *
Piper Funds, Inc. Institutional       *   Appeal from the United States
Government Income Portfolio;          *   District Court for the
Piper Jaffray, Inc.; Piper            *   District of Minnesota.

Jaffray Companies Inc.;               *
William H. Ellis; Edward J.           *
Kohler,                               *
                                      *
     Defendants - Appellees,          *
                                      *
Park Nicollet Medical                 *
Foundation,                           *
                                      *
     Objector - Appellant.            *
                                 ___________

                   Submitted:     October 19, 1995

                        Filed:   December 4, 1995
                                 ___________

Before RICHARD S. ARNOLD, Chief Judge, WHITE,* Associate Justice (Ret.),
     and LOKEN, Circuit Judge.
                               ___________


LOKEN, Circuit Judge.


     Park Nicollet Medical Foundation, an unwilling member of a settlement
class in this securities fraud class action, wishes to arbitrate its claim
against investment adviser Piper Capital




     *
     The HONORABLE BYRON R. WHITE, Associate Justice (Ret.) of the
     Supreme Court of the United States, sitting by designation.
Management Incorporated.1     Park Nicollet appeals district court orders
enjoining arbitration until the court permits Park Nicollet to opt out of
the class, and denying its motion to stay the class action pending
arbitration.     Concluding   that    these     orders   deny     Park   Nicollet   its
contractual right to arbitrate in violation of the Federal Arbitration Act,
9 U.S.C. §§ 1-16 ("FAA"), we reverse.


                           I. Factual Background.


     Park Nicollet is a non-profit medical foundation based in Minnesota.
In 1991, Park Nicollet hired Piper to manage over $2,500,000 of Park
Nicollet's   endowment   fund.       Park    Nicollet    signed    Piper's   standard
Investment Management Agreement, in which the parties agreed that "all
controversies . . . shall be determined by arbitration to the fullest
extent provided by law," in accordance with the rules then in effect of the
National Association of Securities Dealers ("NASD").


     Piper invested a substantial portion of Park Nicollet's funds in
Piper's Institutional Government Income Portfolio mutual fund (the "Fund").
In early 1994, shares in the Fund lost over twenty percent of their value,
largely because the Fund was heavily invested in "derivative" fixed income
securities that were particularly hard-hit by rising interest rates.                Ten
class action lawsuits were promptly filed on behalf of some 7,000 investors
who had purchased shares of the Fund between July 1, 1991, and May 9, 1994.
The class plaintiffs alleged numerous claims under federal and state
securities laws, plus common law claims of misrepresentation and breach of
fiduciary    duty.   The    Judicial        Panel   on   Multidistrict     Litigation
consolidated these cases and transferred them to the District of Minnesota.




        1
         Piper Capital Management is one of several affiliated
companies named as defendants in the class action.     The parent
company is Piper Jaffray Companies Inc. Like the parties, we will
refer to the class action defendants as "Piper."

                                       -2-
     In January 1995, Park Nicollet filed a fifty-page Statement of Claim
with the NASD, requesting an arbitration award of over $4,500,000.         Because
this claim overlapped claims asserted by the class action plaintiffs, Park
Nicollet stated, in accordance with § 12(d)(2) of the NASD Code of
Arbitration   Procedure   ("NASD   Code"),   that   "it   is    electing   not   to
participate in the as yet uncertified class actions."          In early February,
Piper and attorneys for the plaintiff class tentatively settled the class
actions for approximately $70 million.       On March 2, 1995, Park Nicollet
advised the district court by letter that it has "1) chosen to have its
dispute with Piper resolved in arbitration, 2) decided not to participate
in the putative class actions, and 3) irrevocably opted out of the putative
class actions."


     The next day, at the request of the class action parties, the
district court entered an order conditionally certifying a settlement
class, and enjoining arbitration by any class member until after the court
distributes a class notice and then rules on requests to opt out of the
class (the "March 3 Order").2      Park Nicollet moved to vacate the March 3
Order, and to stay the class actions pending arbitration pursuant to § 3
of the FAA.   The district court denied that motion in an April 3, 1995,
Memorandum and Order (the "April 3 Order").     Concluding that the FAA does
not bar an injunction where the party seeking arbitration is a member of
a conditionally certified class, the court denied Park Nicollet's motion
to vacate on the ground that Piper and the class




     2
      The district court based its injunction on the All Writs Act,
28 U.S.C. § 1651, which has been invoked by federal class action
courts to enjoin persons not within the court's jurisdiction from
frustrating a court order or court-supervised settlement. See,
e.g., In re Baldwin-United Corp., 770 F.2d 328, 335-38 (2d Cir.
1985). We agree with the district court that it has the power,
under Fed. R. Civ. P. 23 augmented by the All Writs Act, to control
conduct by absent class members that affects management or
disposition of the class action. However, exercise of this power
must be "agreeable to the usages and principles of law," § 1651(a),
which in this case include the FAA as well as Rule 23.

                                      -3-
plaintiffs had "carefully negotiated a settlement in this case before any
forum had addressed the merits, and [an arbitration] ruling on an issue
such   as   whether   or   not    Piper   made   fraudulent   representations   could
jeopardize that proposed agreement."             Park Nicollet appeals these two
orders.


                            II. Two Threshold Issues.


       Piper contends that we lack jurisdiction because Park Nicollet has
appealed non-final orders, and that Park Nicollet lacks standing to
challenge those orders.          We disagree.


                                  A. Appealability.


       In Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 287-
88 (1988), the Supreme Court held that an order refusing to stay litigation
pending the outcome of another proceeding, such as an arbitration, is not
automatically appealable as a collateral order or an injunction.           Congress
responded by enacting Section 16 of the FAA,3 which makes appealable "an
interlocutory order granting . . . an injunction against an arbitration,"
§ 16(a)(2), and also an order "refusing a stay of any action under section
3 of [the FAA]," § 16(a)(1)(A).


       The district court's March 3 Order enjoined Park Nicollet from
proceeding with its arbitration against Piper.           The court's April 3 Order
denied Park Nicollet's motion to stay the class action pending arbitration.
Both orders are appealable under § 16(a)(2) and § 16(a)(1)(A).            We reject
Piper's contention that the orders should be non-appealable because they
did not decide arbitrability




       3
      See Judicial Improvements and Access to Justice Act, Pub. L.
No. 100-702, § 1019, 102 Stat. 4642, 4670 (1988). The new section
was later renumbered as § 16 in the Judicial Improvements Act of
1990, Pub. L. No. 101-650, § 325(a), 104 Stat. 5089, 5120 (1990).

                                           -4-
and were not "anti-arbitration."      The plain language of the statute is
controlling.


                                B. Standing.


     Piper argues that Park Nicollet lacks standing to challenge the
district court's orders because it did not seek leave to intervene in the
class action.    Piper relies on Croyden Associates v. Alleco, Inc., 969 F.2d
675 (8th Cir. 1992), cert. denied, 113 S. Ct. 1251 (1993), where we held
that an unnamed class member must intervene before appealing the approval
of a class settlement in which it will participate.       This case is very
different.     Park Nicollet is not attacking the adequacy of the proposed
settlement.     Rather, it appeals injunctive orders interfering with its
contractual right to reject the class action remedy and arbitrate.


     Section 3 of the FAA provides for a stay of litigation pending
arbitration "on application of one of the parties."        The term "party"
includes a party to the arbitration agreement.      See Dickstein v. duPont,
443 F.2d 783, 785 (1st Cir. 1971).      Section 16 allows an appeal from an
order refusing a § 3 stay.   To give proper effect to § 16, the party denied
the § 3 stay, here Park Nicollet, must have standing to appeal.


     A nonparty normally has standing to appeal when it is adversely
affected by an injunction.     See Thompson v. Freeman, 648 F.2d 1144, 1147
n.5 (8th Cir. 1981); Hazeltine Research, Inc. v. Zenith Radio Corp., 388
F.2d 25, 28-30 (7th Cir. 1967), aff'd, 395 U.S. 100, 110 (1969).   Equitable
considerations clearly warrant giving standing to appeal to a nonparty that
has been "haled . . . into district court despite [its] objections."
S.E.C. v. Wencke, 783 F.2d 829, 834 (9th Cir.), cert. denied, 479 U.S. 818
(1986).   For these reasons, we conclude Park Nicollet has standing to
appeal.




                                     -5-
                                   III. The Merits.


                                A. The Legal Setting.


        Arbitration has long been a preferred remedy in the securities
industry.4        The FAA, enacted in 1925, made the industry's pre-dispute
arbitration agreements enforceable in federal court.           However, in Wilko v.
Swan, 346 U.S. 427 (1953), the Supreme Court held that investor-customers
could not be compelled to arbitrate claims under the Securities Act of
1933.    Until 1987, most lower federal courts held that investors likewise
could not be compelled to arbitrate claims of securities fraud under the
Securities Exchange Act of 1934, despite Supreme Court warnings that this
was an open issue.       See Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213,
224 (1985) (White, J., concurring).


        In Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987),
the Court held that pre-dispute agreements to arbitrate Exchange Act claims
are     enforceable    under     the   FAA,   and   in   Rodriguez   de   Quijas    v.
Shearson/American Express, Inc., 490 U.S. 477 (1989), the Court overruled
Wilko and held that agreements to arbitrate 1933 Act claims are enforceable
as    well.       These recent decisions mean that the Park Nicollet/Piper
agreement     to    arbitrate   all    claims,   including   securities   law   claims
encompassed by this class action, is enforceable under the FAA.                 That is
an important cornerstone for the issues raised in this appeal.


        The class action remedy is frequently invoked by those with claims
under the federal securities laws, and it is a useful procedure for
remedying similar claims of numerous small investors.




              4
          For example, the New York Stock Exchange ("NYSE")
constitution has called for arbitration of disputes between members
and their customers since 1872.      See Constantine N. Katsoris,
Foreword: New York Stock Exchange, Inc. Symposium on Arbitration in
the Securities Industry, 63 Fordham L. Rev. 1501 (1995).

                                           -6-
McMahon created two significant uncertainties for class actions involving
members of the securities industry and their investor-customers.                   The first
question was whether an entire securities law class action could be
submitted to arbitration, an issue the Supreme Court did not reach in
Southland Corp. v. Keating, 465 U.S. 1 (1984).                     See Gammaro v. Thorp
Consumer Discount Co., 828 F. Supp. 673 (D. Minn. 1993), appeal dismissed,
15 F.3d 93 (8th Cir. 1994).           The second was whether securities industry
defendants or their customer claimants could compel arbitration of pending
class action claims, a tactic that class action plaintiffs have usually,
but as this case illustrates, not always, opposed.


        The 1975 amendments to the Exchange Act gave the Securities and
Exchange    Commission      "expansive   power     to    ensure    the   adequacy     of   the
arbitration procedures employed by" self-regulatory organizations like the
NASD, "including the power to mandate the adoption of any rules it deems
necessary    to    ensure    that    arbitration    procedures        adequately    protect
statutory rights."        McMahon, 482 U.S. at 233-34.            In 1988, SEC Chairman
David    Ruder    urged   these     organizations       to   modify   and   clarify    their
arbitration procedures relating to class actions.                 See S.E.C. Release No.
34-30882 (July 1, 1992), 57 Fed. Reg. 30519, 30520 (July 9, 1992).                     After
four years of work, the NASD promulgated § 12(d) of the NASD Code, which
addressed the above two issues:


        (d) Class Action Claims

        (1) A claim submitted as a class action shall not be eligible
        for arbitration under this Code at the Association.

        (2) Any claim filed by a member or members of a putative or
        certified class action is also ineligible for arbitration at
        the Association . . . . However, such claims shall be eligible
        for arbitration . . . pursuant to the parties' contractual
        agreement, if any, if a claimant demonstrates that it has
        elected not to participate in the putative or certified class
        action or,




                                           -7-
     if applicable, has complied with any conditions for withdrawing
     from the class prescribed by the court.


(Emphasis added.)5     The SEC approved § 12(d) pursuant to its approval
authority under § 19(b)(1) of the Exchange Act, 15 U.S.C. § 78s(b)(1).         See
S.E.C. Release No. 34-31371 (Oct 28, 1992), 57 Fed. Reg. 52659 (Nov. 4,
1992).


     Park Nicollet's contract with Piper incorporated § 12(d) of the NASD
Code by reference.6    Park Nicollet included with its arbitration claim a
declaration "that it has elected not to participate" in the class action,
as § 12(d)(2) requires.        Thus, the principal issue on this appeal is
whether the district court violated the FAA as construed in McMahon when
it enjoined Park Nicollet from proceeding with an arbitration to which it
is contractually entitled under § 12(d) of the NASD Code.


                     B. The Order Enjoining Arbitration.


     Many    cases   have    enforced   agreements   to   arbitrate   by   staying
contemporaneous litigation, a type of stay expressly authorized by § 3 of
the FAA, 9 U.S.C. § 3.      See, e.g., Morgan v. Smith Barney, Harris Upham &
Co., 729 F.2d 1163 (8th Cir. 1984).       On the other hand, the FAA does not
authorize a district court to enjoin arbitration; instead, § 16(a)(2) makes
immediately appealable "an interlocutory order granting . . . an injunction
against an arbitration that is subject to this title."       Consistent with the




         5
       The other industry self-regulatory organizations adopted
identical amendments to their rules governing member-customer and
other arbitrations. See, e.g., NYSE Rule 600(d).
     6
     Section 12(d) applies because Piper agreed to be bound by the
arbitration rules in effect at the time Park Nicollet commenced
arbitration. See Nielsen v. Piper, Jaffray & Hopwood, Inc., 66
F.3d 145, 148-49 (7th Cir. 1995).

                                        -8-
national policy favoring arbitration, there are very few reported cases in
which a federal court has enjoined arbitration.


        Piper and the class plaintiffs rely on In re Y & A Group Sec. Litig.,
38 F.3d 380, 383 (8th Cir. 1994), in which we affirmed an injunction
barring arbitration of a dispute settled in a prior class action.                        The
injunction in Y & A protected the res judicata effect of that prior
judgment.     Because the claimant sought an arbitration award precluded by
the    judgment,      the    injunction   was   like    an    order   refusing   to   compel
arbitration because a dispute is not arbitrable.                Here, on the other hand,
the district court agreed that Park Nicollet has a right to arbitrate but
enjoined it from pursuing that remedy.                  Neither the district court nor
appellees cite any case granting an injunction of this type.


        The district court gave one reason for issuing its injunction --
because an arbitrator's "ruling on an issue such as whether or not Piper
made     fraudulent         representations     could    jeopardize"      the    "carefully
negotiated" class action settlement.            For a number of reasons, we conclude
that this is an insufficient basis upon which to limit Park Nicollet's
rights under the FAA.


        First, McMahon confirmed that Park Nicollet has a contractual right
to immediate submission of its securities law claims to arbitration.                    Park
Nicollet submitted its claim under class action provisions of the NASD Code
that have been approved by the SEC under the federal securities laws.                    The
district    court's     injunction     significantly         frustrated   Park   Nicollet's
contractual rights, as protected by the FAA.                 "Belated enforcement of the
arbitration clause, though a less substantial interference than a refusal
to     enforce   it    at     all,   nonetheless       significantly      disappoints    the
expectations of the parties and frustrates the clear purpose of their
agreement."      Dean Witter, 470 U.S. at 225 (1985) (White, J., concurring).
See also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404
(1967) ("arbitration procedure, when




                                              -9-
selected by the parties to a contract, [must] be speedy and not subject to
delay and obstruction in the courts").


     Second, prior cases make clear that Park Nicollet's contractual and
statutory right to arbitrate may not be sacrificed on the altar of
efficient class action management.               As the Supreme Court said in Dean
Witter, 470 U.S. at 220, "[the FAA] was motivated, first and foremost, by
a congressional desire to enforce agreements into which parties had
entered, and we must not . . . allow the fortuitous impact of the Act on
efficient dispute resolution to overshadow the underlying motivation."                See
also C. Itoh & Co. v. Jordan Int'l Co., 552 F.2d 1228, 1231 (7th Cir.
1977).


     Third,      we    do   not   accept   the   class   action   parties'   conclusory
assertion that immediate arbitration by Park Nicollet (and perhaps others)
will frustrate their class action settlement.             For example, in In re First
Commodity Corp. Customer Accounts Litig., 119 F.R.D. 301, 305-06 (D. Mass.
1987),   cited    by    the   district     court   as    the   only   reported   decision
acknowledging the power to stay arbitration by objecting class members
pending approval of a settlement, the court declined to stay arbitration,
and the defendants promptly waived that condition of the settlement.
Moreover, even when the settling parties contemplate that class members
with a substantial dollar volume of claims may opt out in favor of
arbitration, their settlement agreement can conditionally take that into
account; indeed, it may even assist the settlement process to have
arbitration opt outs identified before the final hearing on settlement
approval.   Finally, the class action court should not be concerned if the
settlement fund is ultimately reduced because many claimants elect to
arbitrate; plaintiffs' class attorneys should not share in amounts paid to
settle the claims of class members who choose arbitration.




                                           -10-
     For the foregoing reasons, we conclude that the district court
violated the FAA and abused its discretion when it enjoined Park Nicollet
from arbitrating its claim.


         C. The Order Refusing Park Nicollet's Request To Opt Out.


     Park Nicollet also asked the district court to exclude Park Nicollet
from the class or, alternatively, to stay the class action litigation.
Reflecting due process principles, Fed. R. Civ. P. 23(c)(2) requires that
a putative member of a Rule 23(b)(3) class action be given the opportunity
to opt out and not be bound by the judgment.              Eisen v. Carlisle &
Jacquelin, 417 U.S. 156, 173-76 (1974).7         Therefore, a district court's
class notice must advise each class member that "the court will exclude the
member from the class if the member so requests by a specified date."      Rule
23(c)(2)(A).        In this case, the class notice is part of the lengthy
settlement approval process, and the district court refused Park Nicollet's
request for early opt out.       Thus, the unique question presented is whether
an unwilling class member's right to arbitrate may be held hostage in this
manner to the class action settlement process.


     We have no quarrel with the usual practice of not allowing class
members to opt out until after the formal Rule 23(c)(2) notice to the
class.       That practice is administratively efficient, and it helps the court
ensure that class members make informed




         7
       The due process aspect of opting out was more explicitly
discussed in Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985),
which we appear to have read more narrowly in White v. National
Football League, 41 F.3d 402, 407 (8th Cir. 1994), cert. denied,
115 S. Ct. 2569 (1995), than three Justices read it in Ticor Title
Ins. Co. v. Brown, 114 S. Ct. 1359, 1363 (1994) (O'Connor, J.,
dissenting). The Supreme Court has been asked again to clarify
this issue in Martin v. Drummond Co., Nos. 1930066-70, 1995 WL
396879 (Ala. July 7, 1995), petition for cert. filed, 64 U.S.L.W.
3287 (Oct. 17, 1995) (No. 95-548). In any event, Rule 23(c)(2)
clearly provides Park Nicollet a right to opt out in this case.

                                        -11-
decisions whether to opt out.       However, the usual practice is not
appropriate in this case.   Although the court supervising a class action
has wide discretion to control a class action, including the opt-out
process, that discretion must be exercised consistent with the policies and
principles of the FAA when a class member with an immediate right to
arbitrate its claim seeks to opt out.


     In this case, by its March 2, 1995, letter to the district court,
Park Nicollet made an unrefuted showing that it (i) was represented by
separate counsel; (ii) had a contractual right to arbitrate any claim
encompassed by the class action; (iii) had submitted a claim to the NASD
along with a declaration under § 12(d)(2) of the NASD Code that it elected
not to participate in the class action; and (iv) now elected irrevocably
to opt out of the class action.   In our view, proper regard for the FAA
required that the court promptly take one of three actions:    it could stay
the class action while Park Nicollet's claim is arbitrated; it could deny
the request to opt out (for example, because Park Nicollet's arbitration
claim is not arbitrable or its request to opt out was too late); or it
could grant the request to opt out, in which case Park Nicollet's motion
to stay the class action becomes moot.    The district court did not stay the
class action, and it is conceded that Park Nicollet is entitled to opt out.
In these circumstances, the court abused its discretion in refusing to
enter an order excluding Park Nicollet from the class.



                             IV. Conclusion.


     For the foregoing reasons, we issue the following order:        (1) The
district court's March 3 Order and April 3 Order are reversed insofar as
(and only insofar as) they affect Park Nicollet Medical Foundation.      (2)
Piper Capital Management Incorporated and Piper Jaffray Inc. are ordered
to arbitrate Park Nicollet's Statement of Claim to the NASD, without
further delay, in accordance with the




                                   -12-
Investment Management Agreement and applicable NASD rules.       (3) Park
Nicollet's request for exclusion from the class is granted.      (4) Park
Nicollet's motion to stay the class action litigation is denied as moot.
(5) Our mandate shall issue forthwith.


     A true copy.


           Attest:


                CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                 -13-
