SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-1245-95T3
A-1246-95T3
JONATHAN SINGER,
Plaintiff-Respondent,
v.
COMMODITIES CORPORATION
(U.S.A.),
Defendant-Appellant.
_________________________________________________________________
Argued February 21, 1996 -- Decided July 23, 1996
Before Judges Michels, Villanueva and Kimmelman.
On appeal from the Superior Court of New Jersey,
Law Division, Mercer County.
John K. Bennett argued the cause for appellant
(Carpenter, Bennett & Morrissey, attorneys;
Cahill, Gordon & Reindel, of the New York Bar,
Mr. Bennett, Laurence A. Silverman of the New
York Bar, and Leonard A. Spivak, of the New York
Bar, of counsel; Mr. Bennett, Thomas C. Bigosinski,
Mr. Silverman, Mr. Spivak, William F. Dahill, of the
New York Bar, and James R. Anderson, of the New York
Bar, on the brief).
Nancy Erika Smith argued the cause for respondent
(Smith Mullin, attorneys; Ms. Smith, of counsel;
Ms. Smith and Christopher P. Lenzo, on the brief).
The opinion of the court was delivered by
MICHELS, P.J.A.D.
Defendant Commodities Corporation (U.S.A.), pursuant to leave granted by this court, appeals from an order of the Law Division that denied its motion to compel plaintiff Jonathan
Singer to submit his employment-related disputes to arbitration
before the National Association of Security Dealers (NASD) and to
stay litigation pending completion of that NASD arbitration; and
from an order that denied its motion for reconsideration.
The record submitted on appeal shows that pursuant to an
employment agreement dated February 7, 1992, plaintiff was
employed, effective January 1, 1992, as Vice President of
Securities Trading Limited (STL), a subsidiary of defendant. In
this capacity, plaintiff was responsible for managing the trading
activities of STL at its New York trading office. STL is the
sole general partner of Hamilton Partners, L.P. (Hamilton), a
limited partnership formed under Bermuda law, with its principal
place of business in Hamilton, Bermuda. Hamilton is a United
States broker-dealer registered with the Securities and Exchange
Commission (SEC) and is a NASD member. Hamilton has no employees
of its own. Until December 1, 1994, all securities trading
activities by and on behalf of Hamilton in New York were
performed by employees of STL.
On November 6, 1991, prior to entering into the employment
agreement with STL, plaintiff executed a "Uniform Application For
Securities Industry Registration or Transfer", a form commonly
referred to as a "Form U-4." Beneath a caption which read: "THE
APPLICANT MUST READ THE FOLLOWING VERY CAREFULLY", the Form U-4
provided:
I apply for registration with the
jurisdictions and organizations indicated in
Item 10 as may be amended from time to time
and, in consideration of the jurisdictions
and organizations receiving and considering
my application, I submit to the authority of
the jurisdictions and organizations and agree
to comply with all provisions, conditions and
covenants of the statutes, constitutions,
certificates of incorporation, by-laws and
rules and regulations of the jurisdictions
and organizations as they are or may be
adopted, or amended from time to time. I
further agree to be subject to and comply
with all requirements, rulings, orders,
directives and decisions of, and penalties,
prohibitions and limitations imposed by the
jurisdictions and organizations, subject to
right of appeal or review as provided by law.
I agree to arbitrate any dispute, claim or
controversy that may arise between me and my
firm, or a customer, or any other person,
that is required to be arbitrated under the
rules, constitutions, or by-laws of the
organizations indicated in Item 10 as may be
amended from time to time and that any
arbitration award rendered against me may be
entered as a judgment in any court of
competent jurisdiction.
The NASD is one of the organizations referred to in Item 10.
Although plaintiff acknowledges that he received the Form U-4 by mail in November 1991, he maintains that defendant never
explained to him that in signing the Form U-4 he waived, by
virtue of the term mandating that any disputes be submitted to
arbitration, his right to bring a lawsuit against his employer.
Plaintiff "thought the form was for law enforcement purposes."
According to plaintiff, the specific facts giving rise to
the employment dispute here at issue commenced in the spring of
1994. Plaintiff maintains that shortly after March 31, 1994,
defendant, in order to increase its investment, obtained a $60
million loan from Citibank and First Chicago (the banks) for an
affiliate. According to plaintiff, the loans were predicated on
the affiliate's net equity. Thus, the loan agreements provided
for recall of the entire loan if Hamilton's unit value decreased
by 25" from its peak level. The loan agreements also provided for
accelerated payments or loan recall if the affiliate's financial
status declined to threshold levels, and required notice to the
banks of such change.
In the spring of 1994, plaintiff became concerned that Jeff
Parket, one of the firm's portfolio managers, was assigning
inaccurate prices to the securities in the portfolios he managed.
Plaintiff claimed that shortly thereafter, he notified defendant
of Parket's questionable pricing practices.
In November 1994, Parket complained that requiring him to
hedge (insure) his securities was interfering with his ability to
trade. Plaintiff instructed Parket that "until liquidity returns
positions had to be hedged." According to plaintiff, relieving
Parket of the hedging requirement would have adversely affected
the firm's minimum capital requirement, which, plaintiff, as
Compliance Officer, was responsible for monitoring. Hamilton, as
a broker/dealer, was required to maintain a capital position
equal to 120 percent of its minimum regulatory capital
requirement. If the capital position fell below this level, the
firm was required to notify the SEC that it was in "financial
difficulty."
On December 1, 1994, all personnel and assets of STL's New
York City office were assigned to defendant, which was a
Netherlands Antilles corporation and an affiliate of STL.
Accordingly, plaintiff's employment agreement was assigned to
defendant and plaintiff became defendant's employee at its New
York trading office. On that date, defendant became the
investment advisor and agent to effect transactions on Hamilton's
behalf.
On or about December 1, 1994, plaintiff allegedly raised
questions with Jacob Rosengarten, defendant's risk manager, about
the overvaluation of securities in the non-investment grade
portfolio. These questions involved plaintiff's late November
1994 concern that the prices Parket had assigned to the
securities in the non-investment grade portfolio were inflated
and not supportable.
Plaintiff alleged that in a January 4, 1995, meeting which
included Parket and Michael Garfinkle, defendant's Head of
Trading Administration, "Parket admitted that his pricing of the
securities (including bonds) in his portfolios could be
inaccurate because they were illiquid (not trading)." Plaintiff
further alleged that he and Garfinkle began a pricing audit of
Parket's positions on January 13, 1995 which disclosed on January
23, 1995, that "Parket had valued the portfolio about $8 million
higher than the industry standard." On January 27, 1995,
plaintiff called Pat Fallon, the chief accountant, and discussed
the possibility of Parket deliberately mispricing his positions,
thereby hiding losses. Parket resigned on January 31, 1995.
On February 1, 1995, plaintiff claimed that he participated
in a conference call which included, inter alia, Tom Dailey, the
president of Hamilton, Bob Easton, defendant's President, and
Roch Hillenbrand, defendant's Chief Financial Officer, at which
time he and Garfinkle explained Parket's actions. During this
conference call, when plaintiff asked if the banks should be
informed of the financial change, Hillenbrand apparently refused
to do so.
The next day, February 2, 1995, plaintiff allegedly
expressed concerns to Dailey, Easton, Hillenbrand and others
about defendant's regulatory capital position and indicated that
defendant should so inform the NASD. Plaintiff claimed that
during his conversation with these individuals, he stated that
due to Parket's actions the firm was caused to have filed
inaccurate NASD financial statements. Plaintiff maintains that
on February 2, 1995, when he traded Parket's positions, he
confirmed that Parket had grossly overpriced his portfolios and
had thereby hidden significant losses. On February 5, 1995,
Garfinkle was called to defendant's Princeton office and told to
terminate plaintiff, and in fact, plaintiff was terminated that
day.
On June 7, 1995, plaintiff sent defendant a copy of a
complaint that he intended to file against it in the Law Division
on June 14, 1995. In the complaint, plaintiff charged that
defendant wrongfully terminated his employment in violation of
the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 et seq., and defamed him in a report to the NASD which had set
forth the reasons for his termination. Plaintiff alleged in the
complaint that "[a]s a result of defendant['s] wrongful acts,
[he] has suffered and continues to suffer loss of earnings and
other employment benefits, as well as damage to reputation and
severe mental anguish, stress, humiliation, and pain." Plaintiff
sought (1) reinstatement to his position as General Securities
Principal and Compliance Officer with backpay and interest and/or
prospective lost wages; (2) retroactive restoration of seniority
and all employee benefits; (3) compensatory damages; (4) damages
for harm to reputation; (5) punitive damages; and (6) attorney's
fees and costs.
On June 12, 1995, before plaintiff filed and served the
complaint in this action, Hamilton and defendant filed a
Statement of Claim with the NASD entitled "In the Matter of the
Arbitration Between Hamilton Partners L.P. and Commodities
Corporation (U.S.A.) N.V., Claimants, and Jonathan Singer,
Respondent", in which they sought a determination that plaintiff
had not been wrongly terminated or defamed. They claimed that
plaintiff was discharged because:
(1) he directed the execution of an
unauthorized trading strategy consisting of
the acquisition of well over 100" of a
publicly traded junk bond issue (the "junk
bond issue") and refused to disclose his bond
acquisition strategy to anyone outside of his
office unless secrecy was maintained as to
identified members of Hamilton Partners L.P.
("Hamilton") senior management, who were
members of Claimants' Risk Control Committee,
and (2) he engaged in a pattern of conduct
that caused the disruption of his office and
forced the resignation of a most valued
trader of the Claimants, who was under his
supervision.
On June 16, 1995, plaintiff instituted this action by filing
the aforementioned complaint in the Law Division. On June 19,
1995, the NASD notified plaintiff that the claims set forth in
Hamilton's and defendant's Statement of Claim were subject to the
arbitration provisions of the NASD Code. On July 5, 1995,
plaintiff served defendant with a copy of the summons and
complaint in this action. Defendant immediately moved in the Law
Division pursuant to R. 4:6-2 and R. 4:52-6, the Federal
Arbitration Act (FAA),
9 U.S.C.A.
§§1-9, and the New Jersey
Arbitration Act (NJAA), N.J.S.A. 2A:24-1 to 4, for an order
compelling plaintiff to submit his claims to arbitration before
the NASD and for a stay of the action pending the outcome of the
NASD arbitration. The trial court denied the motion, stating in
part:
Plaintiff correctly notes that at the time he
signed the Form U-4 the NASD Code of
Arbitration Procedure did not explicitly
provide for the arbitration of employment
disputes. It was not until October 1, 1993
that the NASD amended sections one and eight
of its code, "to clarify that employment
related disputes are arbitratable under the
code."
The trial court, although recognizing the general "policy preferences in favor of allowing matters or compelling matters to proceed to arbitration and in favor of conserving scarce judicial resources[,]" nonetheless concluded that "[n]o party can be required to submit a dispute to arbitration which it has not
agreed to submit." The trial court rejected defendant's argument
that in signing the Form U-4 plaintiff agreed to abide by the
existing arbitration provisions of the Code as well as the Code
as it "may be amended from time to time." The trial court held
that it "would be highly inequitable and controvert the
intentions of the parties at the time of contracting to hold
plaintiff to the literal terms of that provision." Defendant's
motion for reconsideration was denied.
We granted defendant leave to appeal. Defendant seeks a
reversal of the order and a declaration instructing plaintiff to
submit all employment-related claims and disputes to the NASD for
arbitration, including but not limited to those asserted in the
trial court, and that the matter be stayed pending the final
disposition of the NASD arbitration. Defendant contends, among
other things, that the trial court's failure to enforce the
employment agreement as written and executed is contrary to
federal and New Jersey law favoring arbitration. We agree and
reverse.
It is a well-accepted principle that New Jersey supports the settlement of disputes by arbitration. This support is evidenced by N.J.S.A. 2A:24-1, which, in pertinent part, states:
A provision in a written contract to settle by arbitration a controversy that may arise therefrom or a refusal to perform the whole or a part thereof or a written agreement to submit, pursuant to section 2A:24-2 of this title, any existing controversy to arbitration, whether the controversy arise out of contract or
otherwise, shall be valid, enforceable and
irrevocable, except upon such grounds as
exist at law or in equity for the revocation
of a contract.
In Kalman Floor Co., Inc. v. Jos. L. Muscarelle, Inc.,
196 N.J. Super. 16, 26 (App. Div. 1984), aff'd o.b.,
98 N.J. 266
(1985), this court noted that New Jersey courts "have accepted
the statute as reflecting a public policy favoring commercial
arbitration." See Barcon Assocs., Inc. v. Tri-County Asphalt
Corp.,
86 N.J. 179, 186 (1981); Hudik-Ross, Inc. v. 1530 Palisade
Ave. Corp.,
131 N.J. Super. 159, 166 (App. Div. 1974); see also
Ohio Casualty Ins. Co. v. Benson,
87 N.J. 191, 196 (1981).
Indeed, "our courts have long favored the settlement of
disputes by arbitration." Stigliano v. Saint Rose High Sch.,
198 N.J. Super. 520, 529 (App. Div. 1984); see also Marchak v.
Claridge Commons, Inc.,
134 N.J. 275, 281 (1993); Perini Corp. v.
Greate Bay Hotel & Casino, Inc.,
129 N.J. 479, 489 (1992);
Faherty v. Faherty,
97 N.J. 99, 105-06 (1984); Barcon Assocs.,
Inc., supra, 86 N.J. at 186; Rivers v. Gen. Accident Group,
192 N.J. Super. 355, 360 (App. Div. 1983); Johowern Corp. v.
Affiliated Interior Designers Inc.,
187 N.J. Super. 195, 199
(App. Div. 1982); Hudik-Ross, Inc., supra, 131 N.J. Super. at
166. Thus, our courts have held that an arbitration agreement
"should be read liberally in favor of arbitration." Marchak,
supra, 134 N.J. at 282; see also J. Baranello & Sons, Inc. v.
City of Paterson,
168 N.J. Super. 502, 506-07 (App. Div.),
certif. denied,
81 N.J. 340 (1979); Moreira Constr. Co., Inc. v.
Wayne Tp.,
98 N.J. Super. 570, 576 (App. Div.), certif. denied,
51 N.J. 467 (1968). In Yale Materials Handling Corp. v. White
Storage & Retrieval Systems,
240 N.J. Super. 370, 375 (App. Div.
1990), this court stated that
[i]f New Jersey's strong policy to
encourage arbitration is to be meaningful,
our decision should favor arbitration where
parties have clearly expressed by contract an
intention that certain of their disputes
should be resolved by arbitration but have
ambiguously or less clearly identified those
issues which need not be so resolved.
However, while liberally recognizing arbitration agreements,
we have held that "it is equally true that the duty to arbitrate,
and the scope of arbitration, are dependent solely upon the
parties' agreement." Cohen v. Allstate Ins. Co.,
231 N.J. Super. 97, 100-01 (App. Div.), certif. denied,
117 N.J. 87 (1989); see
also Grover v. Universal Underwriters Ins. Co.,
80 N.J. 221, 228-29 (1979); Verbiest v. New Jersey Full Ins. Underwriting Ass'n,
256 N.J. Super. 85, 88 (App. Div. 1992); Moreira Constr. Co.,
Inc., supra, 98 N.J. Super. at 575-76. "Honoring an agreement to
submit a matter to arbitration is consistent with the premise
that, as long as the agreement does not violate public policy,
parties may bargain freely." Marchak, supra, 134 N.J. at 281-82;
see also Faherty, supra, 97 N.J. at 105; Life Ins. Co. v. Hocroft
Assocs.,
256 N.J. Super. 328, 332 (Ch. Div. 1992).
In the interpretation of arbitration clauses, the courts
have relied upon basic contract principles. A "submission to
arbitration is essentially a contract, and the parties are bound
to the extent of that contract." Local 462, Int'l Bhd. of
Teamsters, Chauffeurs, Warehousemen and Helpers of Am. v. C.
Schaefer & Sons, Inc.,
223 N.J. Super. 520, 525 (App. Div. 1988);
see also Mitchell v. Alfred Hofmann, Inc.,
48 N.J. Super. 396,
405 (App. Div.), certif. denied,
26 N.J. 303 (1958); Andrews v.
Allstate Ins. Co.,
280 N.J. Super. 198, 203 (Law Div. 1994). Our
courts generally recognize their obligation to "enforce contracts
as made by the parties." Vasquez v. Glassboro Serv. Ass'n Inc.,
83 N.J. 86, 101 (1980); see also Marchak, supra, 134 N.J. at 281.
Moreover, our Supreme Court has held that "[w]hen reading a
contract, our goal is to discover the intention of the parties."
Marchak, supra, 134 N.J. at 282. Generally, courts "consider the
contractual terms, the surrounding circumstances, and the purpose
of the contract." Ibid; see also Jacobs v. Great Pac. Century
Corp.,
104 N.J. 580, 586 (1986); Nitta v. Yamamoto,
31 N.J.
Super. 578, 580 (App. Div. 1954).
However, our courts have also warned against rewriting "a
contract to broaden the scope of arbitration . . . [because]
parties may agree to shape and limit the scope of arbitration in
their contract." Yale Materials, supra, 240 N.J. Super. at 374;
see also Cohen v. Allstate Ins. Co., supra, 231 N.J. Super. at
101; Moreira Constr. Co., Inc., supra, 98 N.J. Super. at 576. In
Marchak, supra, 134 N.J. at 282, our Supreme Court observed that
"[a] clause depriving a citizen of access to the courts should
clearly state its purpose. The point is to assure that the
parties know that in electing arbitration as the exclusive
remedy, they are waiving their time-honored right to sue." Thus,
"[i]n the absence of a consensual understanding, neither party is
entitled to force the other to arbitrate their dispute. Subsumed
in this principle is the proposition that only those issues may
be arbitrated which the parties have agreed shall be." Grover v.
Universal Underwriters Ins. Co., supra, 80 N.J. at 228-29.
Furthermore, our courts have determined that "New Jersey law
[is] consonant with federal law which liberally enforces
arbitration agreements." Yale Materials, supra, 240 N.J. Super.
at 375; see also Kalman Floor Co., Inc., supra, 196 N.J. Super.
at 27. This liberality in interpretation is due, in large
measure, to the FAA. In Yale Materials, supra, 240 N.J. Super.
at 376, recognizing the need to apply federal law, we noted that
"[t]he federal cases, which are indisputedly here applicable by
reason of the broad reach of the Federal Arbitration Act,
9 U.S.C.A.
§1, et seq., strongly hold that ambiguities in
agreements are to be resolved in favor of arbitration."
The FAA, which applies to all contracts evidencing a
transaction involving interstate commerce, in pertinent part,
provides:
A written provision in any maritime
transaction or a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy thereafter arising
out of such contract or transaction . . .
shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in
equity for the revocation of any contract. [
9 U.S.C.A.
§2.]
See also Dean Witter Reynolds, Inc. v. Byrd,
470 U.S. 213, 218,
105 S. Ct. 1238, 1241,
84 L. Ed.2d 158, 163 (1985).
The FAA reversed the long-standing judicial presumption
against agreements to arbitrate disputes and placed them "upon
the same footing as other contracts." Gilmer v. Interstate/
Johnson Lane Corp.,
500 U.S. 20, 24,
111 S. Ct. 1647, 1651,
114 L. Ed.2d 26, 36 (1991); see Volt Info. Sciences, Inc. v. Board
of Trustees of Leland Stanford Junior Univ.,
489 U.S. 468, 474,
109 S. Ct. 1248, 1253,
103 L. Ed.2d 488, 497 (1989); Scherk v.
Alberto-Culver Co.,
417 U.S. 506, 511,
94 S. Ct. 2449, 2453,
41 L. Ed.2d 270, 276 (1974). The Supreme Court has held that where
the trial court determines that the parties have agreed to
arbitrate, the FAA leaves no room for judicial discretion because
it "mandates that district courts shall direct the parties to
proceed to arbitration on issues as to which an arbitration
agreement has been signed." Dean Witter Reynolds, Inc. v. Byrd,
supra, 470 U.S. at 218, 105 S. Ct. at 1241, 84 L. Ed.
2d at 163.
It is firmly settled that the FAA preempts state law and
that state courts cannot apply state statutes that invalidate
arbitration agreements. Allied-Bruce Terminix Cos. Inc. v.
Dobson, U.S. , ,
115 S. Ct. 834, 838,
130 L. Ed.2d 753, 763 (1995) (citing Southland Corp. v. Keating,
465 U.S. 1,
15-16,
104 S. Ct. 852, 860-61,
79 L. Ed.2d 1 (1984)). Nonethe-less, the FAA specifically permits states to "regulate contracts,
including arbitration clauses, under general contract law
principles and they may invalidate an arbitration clause `upon
such grounds as exist at law or in equity for the revocation of
any contract.'" Allied-Bruce Terminix Cos. Inc., supra, U.S.
at , 115 S. Ct. at 843, 130 L. Ed.
2d at 769 (quoting
9 U.S.C. §2).
In First Options of Chicago, Inc. v. Kaplan, U.S.
, ,
115 S. Ct. 1920, 1924,
131 L. Ed.2d 985, 993 (1995),
the Supreme Court held that when deciding whether the parties
agreed to arbitrate "courts generally . . . should apply ordinary
state-law principles that govern the formation of contracts."
The Supreme Court has further held that "in applying general
state-law principles of contract interpretation to the
interpretation of an arbitration agreement within the scope of
the Act . . . due regard must be given to the federal policy
favoring arbitration, and ambiguities as to the scope of the
arbitration clause itself resolved in favor of arbitration." Volt
Info. Sciences, Inc., supra, 489 U.S. at 475-76, 109 S. Ct. at
1254, 103 L. Ed.
2d at 498; see also Moses H. Cone Memorial Hosp.
v. Mercury Constr. Corp.,
460 U.S. 1, 24-25,
103 S. Ct. 927, 941,
74 L. Ed.2d 765, 785 (1983). In Nursing Home & Hospital Union
No. 434 AFL-CIO-LDIU by Mackson v. Sky Vue Terrace, Inc.,
759 F.2d 1094, 1097 (3d Cir. 1985), the Court of Appeals for the
Third Circuit, quoting United Steelworkers of America v. Warrior
& Gulf Navigation Co.,
363 U.S. 574, 582-83,
80 S. Ct. 1347,
1352-53,
4 L. Ed.2d 1409, 1417 (1960), held that "[a]n order to
arbitrate the particular grievance should not be denied unless it
may be said with positive assurance that the arbitration clause
is not susceptible of an interpretation that covers the asserted
dispute."
Armed with the above principles, we are convinced that plaintiff's claims against defendant are properly arbitrable before the NASD. It is undisputed that in executing the Form U-4, plaintiff "agree[d] to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organizations indicated in Item 10 as may be amended from time to time," and "to comply with all provisions, conditions and covenants of the statutes, constitutions, certificates of incorporation, by-laws and rules and regulations of the jurisdictions and organizations as they are or may be adopted, or amended from time to time." Moreover, it is undisputed that the NASD is one of the organizations referred to in Item 10.
In November, 1991, when plaintiff executed his Form U-4, Section 1 of the NASD Code of Arbitration Procedure (NASD Code) provided:
for the arbitration of any dispute, claim, or controversy arising out of or in connection with the business of any member of the [NASD], with the exception of disputes involving the insurance business of any member which is also an insurance company:
(1) between or among members;
(2) between or among members and public
customers, or others; and
(3) between or among members,
registered clearing
agencies . . . .
[See Pitter v. Prudential Life Ins. Co. of
Am.,
906 F. Supp. 130, 132 (E.D.N.Y. 1995).]
Section 8(a) of the NASD Code, entitled "Required
Submission," at that time provided:
Any dispute, claim or controversy eligible
for submission under Part I of this Code
between or among members and/or associated
persons, and/or certain others, arising in
connection with the business of such
member(s) or in connection with the
activities of such associated person(s),
shall be arbitrated under this Code, at the
instance of:
(1) a member against another member;
(2) a member against a person associated
with a member or a person associated
with a member against a member; and
(3) a person associated with a
member against a person
associated with a member.
[See Pitter, supra, 906 F. Supp. at 132-33.]
Sections 1 and 8 of the NASD Code were amended on October 1,
1993. In pertinent part, Section 1 of the NASD Code as amended
provides:
This Code of Arbitration Procedure is
prescribed and adopted pursuant to Article
VII, Section 1(a)(3) of the By-Laws of the
National Association of Securities Dealers,
Inc., (the Association) for the arbitration
of any dispute, claim, or controversy arising
out of or in connection with the business of
any member of the Association, or arising out
of the employment or termination of
employment of associated person(s) with any
member . . . .
[NASD Code of Arbitration Procedure ¶ 3701
(1995) (emphasis added).]
The revised Section 8(a) of the NASD Code, in pertinent
part, provides:
Any dispute, claim, or controversy
eligible for submission under Part I of this
Code between or among members and/or
associated persons, and/or certain others,
arising in connection with the business of
such member(s) or in connection with the
activities of such associated person(s), or
arising out of the employment or termination
of employment of such associated person(s)
with such member, shall be arbitrated under
this Code, at the insistence of:
(1) a member against another
member;
(2) a member against a person
associated with a member or a
person associated with a member
against a member; and,
(3) a person associated with a
member against a person associated
with a member.
[NASD Code of Arbitration Procedure ¶ 3708
(1995) (emphasis added).]
Thus, the NASD Code, as amended in 1993, explicitly provided
that disputes arising out of the employment or termination of
employment of an associated person with a member should be
submitted to arbitration. The language of the October 1, 1993,
amendment to the NASD Code was clear and unambiguous and should
have been enforced as written. We find that compelling
arbitration under these circumstances is neither unfair nor
inequitable and does not deprive plaintiff of any fundamental or
substantive rights.
It is uncontroverted that plaintiff's claims and the conduct
which gave rise to them occurred after October 1, 1993, when the
NASD amendments were in full force and effect. Consequently,
plaintiff's claims were subject to the NASD amendments. The
trial court should have ordered that such claims be arbitrated
before the NASD and should have stayed this action pending
completion of the NASD arbitration proceeding.
Our decision is supported by the recent holding of the Court
of Appeals for the Ninth Circuit in Kuehner v. Dickinson & Co.,
84 F.3d 316 (9th Cir. 1996). There, the defendant had hired the
plaintiff as a securities sales representative on September 14,
1992 and then fired plaintiff on November 18, 1992. Id. at 317-18. Significantly, the plaintiff "had registered with the [NASD]
at the beginning of her employment by signing a Form U-4" in 1992
which contained an arbitration provision like that contained in
the Form U-4 signed by plaintiff in the instant matter. Id. at
318. The plaintiff sued the defendant on November 17, 1993, for
violations of the Fair Labor Standards Act and for her alleged
wrongful discharge under California tort law. Id. at 317. The
district court had found that the plaintiff had "entered an
enforceable arbitration contract, that the new NASD rule governed
[the plaintiff's] suit, and that even if it did not, the old NASD
rule required arbitration." Id. at 318.
On appeal, the plaintiff conceded that the new NASD rules
required arbitration of employment disputes, but contended "that
under the Form U-4 the old NASD rule governs." Id. at 320. The
plaintiff argued that she should not be compelled to submit her
claims to arbitration due to the fact that her termination
occurred before October 1, 1993, when the new NASD amendments
became effective. Ibid. The Ninth Circuit disagreed and held
that the new NASD rule governs, in part, stating:
Kuehner agreed in signing the Form U-4
to be bound by the NASD rules "as may be
amended from time to time." A new procedural
rule will usually govern suits filed after
its effective date regardless of when the
relevant conduct occurred. Landgraf v. USI
Film Prods., U.S. , ,
114 S. Ct. 1483, 1502,
128 L. Ed.2d 229 (1994).
Although we have not yet addressed the issue,
two district courts have applied the new NASD
rule to suits filed after October 1, 1993,
even though the relevant conduct occurred
earlier. See Pitter v. Prudential Life Ins.
Co.,
906 F. Supp. 130, 134-35 (E.D.N.Y. 1995)
(directing arbitration of Title VII claim on
the grounds that "it is entirely appropriate
to hold Pitter to compliance with non-substantive rules that took effect almost six
months before he filed his lawsuit"); Wojcik
v. Aetna Life Ins.,
901 F. Supp. 1282, 1289
(N.D. Ill. 1995) (directing arbitration of
state fraud and contract claims because
"Wojcik filed his claim after the effective
date of the [new NASD rule]").
The new NASD rule governs under the Form
U-4. Because the rule does not affect
Kuehner's substantive rights, and because
Kuehner sued Dickinson & Co. after October 1,
1993, the date the new rules became
effective, the rule requiring arbitration
governs Kuehner's suit.
[Kuehner, supra, 84 F.
3d at 320-21.]
Here, an even stronger case is presented for the application of the amended NASD Code, than that presented in Kuehner, supra, since plaintiff's claims and the conduct giving rise to them
occurred after the adoption of the 1993 amendments to the NASD
Code. In Kuehner, supra, the only relevant conduct that occurred
after the adoption of the 1993 amendments was the filing of the
suit, and yet the Ninth Circuit was still unwilling to allow the
plaintiff to escape the arbitration provision.
Other cases have similarly compelled the arbitration of
employment disputes where the filing of the claim occurred after
the adoption of the 1993 amendments to the NASD Code. See Wojcik
v. Aetna Life Ins. & Annuity Co.,
901 F. Supp. 1282, 1288-89
(N.D. Ill. 1995) (holding that since employee filed his claim
after effective date of the amendments, employee could be
subjected to arbitration); Pitter v. Prudential Life Ins. Co. of
Am., supra, 906 F. Supp. at 134 (holding it entirely appropriate
to compel plaintiff's compliance with non-substantive rules that
took effect almost six months before lawsuit was filed); Scher v.
Equitable Life Assurance Soc'y of United States,
866 F. Supp. 776, 778 (S.D.N.Y. 1994) (holding that employee must comply with
the NASD Code as it existed at the commencement of the action);
Moore v. Interacciones Global, Inc., No.
94 CIV. 4789 (RWS), 1
995 WL 33650 at *6 (S.D.N.Y. Jan 27, 1995) (compelling arbitration
where case was filed nine months after amendments' effective
date); see also Hall v. Metlife Resources/Div. of Metropolitan
Life Ins. Co., No.
94 CIV. 0358 (JFK), 1
995 WL 258061 at *4
(S.D.N.Y. May 3, 1995).
In our view the trial court's reliance upon Farrand v.
Lutheran Brotherhood,
993 F.2d 1253 (7th Cir. 1993), Kresock v.
Bankers Trust Co.,
21 F.3d 176 (7th Cir. 1994), and Prudential
Insurance Co. of America v. Lai,
42 F.3d 1299 (9th Cir. 1994),
cert. denied, U.S. ,
116 S. Ct. 61,
133 L. Ed.2d 24
(1995), to support its conclusion was misplaced. These cases are
distinguishable from the instant matter because in all three
cases, the relevant conduct giving rise to the claims occurred
prior to the 1993 amendments to the NASD Code.
For example, in Kresock, supra, the defendant-employer fired
the plaintiff-employee more than two years before the 1993
amendments to the NASD Code became effective and plaintiff's suit
itself was filed before the amendments became effective.
Significantly, in Kresock, supra, the Seventh Circuit, in
refusing to compel arbitration, emphasized that the 1993
amendments to the NASD Code became effective
four years after Kresock signed the Form U-4,
more than two years after Bankers Trust fired
her, and nearly a year after Kresock filed
this lawsuit. Thus, the relevant conduct
took place long before these amendments to
the NASD's Code of Arbitration Procedure
became effective. They do not apply
retroactively to Kresock's case.
[21 F.
3d at 179.]
By contrast, all of the relevant conduct underlying
plaintiff's claims, with the sole exception of the signing of the
Form U-4, occurred more than one year after the amendments to the
1993 NASD Code became effective. Farrand, supra, and Lai, supra,
are similarly distinguishable from the case here on appeal.
Consequently, we hold that plaintiff is bound by the terms
of the 1993 NASD Code amendments with respect to the post-amendment conduct which gave rise to his employment-related
dispute with defendant, and, therefore, plaintiff must arbitrate
his employment-related disputes with defendant before the NASD.
We need not specifically address those cases which have disagreed
with Farrand, supra, and its progeny, and have held that the NASD
Code, even as it existed prior to the 1993 amendments, was
sufficiently broad to mandate the arbitration of employment
disputes. See Kidd v. Equitable Life Assurance, Soc'y of United
States,
32 F.3d 516, 518-20 (11th Cir. 1994); see also Moore
Interacciones Global, Inc., supra, No.
94 CIV. 4789 (RWS), 1
995 WL 33650 at *4; O'Donnell v. First Investors Corp.,
872 F. Supp. 1274, 1278 (S.D.N.Y. 1995); Chisolm v. Kidder, Peabody Asset
Management, Inc.,
810 F. Supp. 479, 480 n.2 (S.D.N.Y. 1992); Wolf
& Co., Inc. v. Bowles, 610 N.Y.S.2d 757, 759-60 (N.Y. Sup. Ct.
1994).
Plaintiff also contends for the first time on appeal that he is not obligated to submit his dispute with defendant to arbitration because he never actually signed a Form U-4 with defendant Commodities Corporation (U.S.A.).
It is a well-settled principle that appellate courts "will decline to consider questions or issues not properly presented to the trial court when an opportunity for such a presentation is available `unless the questions so raised on appeal go to the jurisdiction of the trial court or concern matters of great public interest.'" Nieder v. Royal Indemn. Ins. Co., 62 N.J.
229, 234 (1973) (quoting Reynolds Offset Co., Inc. v. Summer,
58 N.J. Super. 542, 548 (App. Div. 1959), certif. denied,
31 N.J. 554 (1960); Skripek v. Bergamo,
200 N.J. Super. 620, 629 (App.
Div. 1985), certif. denied,
102 N.J. 303 (1985); Ferraro v.
DeMetrakis,
167 N.J. Super. 429, 431-32 (App. Div.), certif.
denied,
81 N.J. 290 (1979). Plaintiff did not raise this issue
before the trial court and the trial court did not decide the
issue. Therefore, this issue is not properly before this court.
However, even if we were to ignore this necessary and
fundamental principle of appellate review and consider this
issue, it is clear on this record that plaintiff had an
obligation to arbitrate employment-related disputes with
defendant even though defendant Commodities Corporation (U.S.A.)
did not execute the Form U-4. Plaintiff's obligation to
arbitrate his employment-related disputes with defendant is based
on the NASD rules with which he agreed to comply by signing a
Form U-4 with STL, defendant's assignor, thereby requiring him as
a registered securities principal to arbitrate all disputes with
his employer. See McMahan Sec. Co. L.P. v. Forum Capital Markets
L.P.,
35 F.3d 82, 86-88 (2d Cir. 1994); see also Prudential Ins.
Co. of Am. v. Shammas,
865 F. Supp. 429, 431 (W.D. Mich. 1993).
As pointed out above, plaintiff was initially employed by
STL, a subsidiary of defendant, and was responsible for managing
STL's trading activities. STL is the sole general partner of
Hamilton. All trading activities by and on behalf of Hamilton
were performed by employees of STL, including plaintiff.
Hamilton had no employees of its own. Subsequently, all
personnel, including plaintiff, and all assets of STL's New York
office were assigned to defendant. Thereupon, defendant became
Hamilton's investment advisor and agent to effect all securities
transactions on Hamilton's behalf and plaintiff became an
employee of defendant and continued to perform the same services
as before the assignment.
In this capacity, plaintiff managed the trading for
Hamilton, a SEC registered broker-dealer, and NASD member. The
fact that the name of plaintiff's employer changed, or that his
employment contract was assigned, did not nullify or change his
obligation to comply with the NASD rules and regulations,
including the NASD Arbitration Code. Plaintiff executed his Form
U-4 and registered with the NASD because his duties, that is,
managing Hamilton's trading, whether as an employee of STL or as
an employee of defendant, required him to do so.
The Form U-4 signed by plaintiff states: "I agree to
arbitrate any dispute, claim or controversy that may arise
between me and my firm, or a customer, or any other person, that
is required to be arbitrated under the rules, constitutions, or
by-laws of the organizations indicated in Item 10 as may be
amended from time to time ...." The NASD is one of the
organizations indicated in Item 10. Section 8(a) of the NASD
Code as amended in 1993 provides that
[a]ny dispute, claim, or controversy . . .
between or among members and/or associated
persons, and/or certain others, arising in
connection with the business of such
member(s) or in connection with the
activities of such associated person(s) or
arising out of the employment or termination
of employment of such associated person(s)
with such member, shall be arbitrated under
this Code. . . .
[NASD Code of Arbitration Procedure, ¶ 3708
(1995).]
Defendant, as plaintiff's employer in the securities
industry, necessarily is one of the "others" with whom plaintiff,
an NASD "associated person," is required to arbitrate under the
NASD Code. The NASD By-Laws define an "associated person of a
member" as, inter alia, "every . . . branch manager of any
member, . . . or any natural person engaged in the investment
banking or securities business who is directly or indirectly
controlling or controlled by such member." NASD By-Laws Art.
I(q), ¶1101(m) (1994). In McMahan Securities Co. L.P. v. Forum
Capital Markets L.P., supra, 35 F.
3d at 87-88, the Court of
Appeals for the Second Circuit compelled arbitration of an
associated person's disputes with an entity closely affiliated
with an NASD member. The Second Circuit held that the closely-affiliated entity, a registered investment advisor, was
"sufficiently immersed in the underlying controversy", that it
fell within the list of those persons and entities who could be
compelled to submit their claims to arbitration under the terms
of sections 1 and 8(a) of the NASD Code, supra. Id. at 87-88.
The McMahan court reasoned that:
A person who is neither a member nor an
associated person is nevertheless
appropriately joined in [an] arbitration
where that party plays an active role in the
securities industry, is a signatory to a
securities-industry arbitration agreement (or
is an instrument of another party to the
arbitration), and has voluntarily
participated in the particular events giving
rise to the controversy underlying the
arbitration.
[Id. at 88.]
Pursuant to an assignment from STL, Hamilton's sole general
partner, defendant alone served Hamilton as its investment
advisor, and conducted Hamilton's trading as its agent.
Plaintiff supervised such trading as an employee/manager of
defendant. Clearly, defendant was affiliated under common
ownership with Hamilton's general partner, STL. In asserting his
wrongful termination claim against defendant in this action,
plaintiff placed defendant at the center of the dispute involving
the trading of Hamilton's assets that he supervised. See Fleck
v. E.F. Hutton Group, Inc.,
891 F.2d 1047, 1054 (2d Cir. 1989).
Defendant's relationship with Hamilton was so close and so
intertwined that any claim against defendant should appropriately
be arbitrated under the agreement executed by plaintiff. Compare
Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
7 F.3d 1110, 1121-22 (3d Cir. 1993); Nesslage v. York Sec. Inc.,
823 F.2d 231, 233-34 (8th Cir. 1987); Interocean Shipping Co. v.
National Shipping & Trading Corp.,
523 F.2d 527, 539 (2d Cir.
1975), cert. denied,
423 U.S. 1054,
96 S. Ct. 785,
46 L. Ed.2d 643 (1976).
To adopt plaintiff's "privity" argument, would render
meaningless the language of the NASD Code, which requires
arbitration of employment-related disputes, since Hamilton, the
entity he contends is his firm for Form U-4 arbitration purposes,
has no employees and undertakes all of its trading through
defendant. The reason that plaintiff registered with the NASD
was that it was a legally-mandated condition of undertaking his
employment responsibilities and duties managing Hamilton's
trading, first as an employee of STL, and then as an employee of
defendant. Plaintiff's registration with the NASD was an
integral part of his relationship with both STL and defendant.
Thus, by the terms of the Form U-4 which he signed, plaintiff was
obligated to arbitrate his employment-related disputes with his
employer-defendant, even though defendant did not execute the
Form U-4 as plaintiff's employer. See Pitter v. Prudential Life
Ins. Co. of Am., supra, 906 F. Supp. at 132 n.2; see also
Prudential Ins. Co. of Am. v. Shammas, 865 F. Supp. at 430-31.
Much like the relationship between Prudential and Pruco
Securities Corporation described in Pitter v. Prudential Life
Ins. Co. of America, supra, STL and defendant are both under
substantially common control and ownership. See Foley v.
Presbyterian Ministers' Fund, No. CIV A-90-1053, 1
992 WL 63269 at
*2 (E.D. Pa. Mar. 19, 1992); see also Lombard Sec. Inc. v. Thomas
F. White & Co., Inc., 903 F. Supp. 895, 898 (D. Md. 1995).
Furthermore, the persons with whom plaintiff was required to
arbitrate under Section 8(a) of the NASD Code are not limited to
"his firm" or "associated persons" -- a term that includes
corporations and partnerships as well as individuals. See
McMahan Sec. Co. L.P. v. Forum Capital Markets L.P., supra, 35
F.
3d at 87-88. On the contrary, plaintiff is required to
arbitrate with defendant. Plaintiff's original employer, STL,
the sole general partner of Hamilton and an affiliate of
defendant, is an "associated person" under the NASD Code with
which plaintiff is required to arbitrate disputes. It would
exalt form over substance to hold that the assignment of
plaintiff's employment contract by STL to its affiliate defendant
would eliminate plaintiff's obligation to the NASD to arbitrate
his disputes with his employer. Such a ruling would create chaos
in the securities industry, where firms frequently merge,
consolidate or otherwise change their corporate structure or
name, and where, as is the case with plaintiff, their employees
continue to function in precisely the same manner.
Finally, we are satisfied that, contrary to plaintiff's claim, the appeal is not rendered moot by the NASD's decision of December 15, 1995, which determined that defendant cannot compel plaintiff to arbitrate the pending dispute and which thus removed defendant as a party in that matter. In reaching this decision, the NASD stated:
Please be advised that the Director of Arbitration has reviewed and considered all documentation submitted by the parties regarding Respondent's Motion to Dismiss the above referenced matter.
Respondent Jonathan Singer's Motion to Dismiss has been denied. Pursuant to Article I Section 1101 subsection (q) of the By-Laws of the NASD Manual, which states in relevant
part, that an associated person of a member
firm may be "... any natural person engaged
in the.....securities business who is
directly or indirectly controlling or
controlled by such member, whether or not any
such person is registered or exempt from
registration...". Therefore, due to the fact
that Respondent Singer was an associated
person of Hamilton Partners, a NASD member
firm, Respondent Singer can be compelled to
arbitrate disputes arising out of his
employment for Hamilton Partners.
However, Commodities Corporation USA, a non
NASD member firm, is being removed as a
Claimant in the above reference matter.
Pursuant to Sections 1 and 8 of the NASD Code
of Arbitration Procedure, Respondent Singer
can only be compelled to arbitrate a dispute
at the instance of another Member Firm or an
Associated Person. Claimant, Commodities
Corporation USA, is not a member firm of the
NASD, nor are they an Associated Person as
provided for by the By-Laws of the NASD,
Article I, Section 1, Paragraph 1101 (q). In
view of the above, absent a court order
compelling Respondent Singer to arbitrate
this dispute and/or the filing of a
Commodities Corporation USA predispute
arbitration agreement to arbitrate this
dispute signed by Jonathan Singer,
Commodities Corporation USA cannot compel
Jonathan Singer to arbitrate this dispute.
Therefore, Commodities Corporation USA is
being removed as a party in the above matter.
Please be advised that since the NASD, Inc.
will honor any properly obtained court order,
there is no need to name the NASD in the
event that a party attempts to obtain said
court order.
Parties may, in their discretion, reassert
these issues with the panel of arbitrators.
First, there is nothing in the Form U-4 requiring that arbitration between plaintiff and defendant take place before the NASD, although the NASD is the most logical arbitration forum. The arbitration clause contained in the Form U-4 defines those
disputes that plaintiff is required to arbitrate and with whom.
It does not determine where the arbitration must take place.
Thus, the NASD's decision which determined that defendant cannot
compel plaintiff to arbitrate this dispute before it and,
therefore, removed defendant as a party to the arbitration,
involved no more than the question of where that required
arbitration may take place.
Second, it is significant that the NASD's December 15, 1995,
decision removing defendant as a party to the pending
arbitration, expressly stated that the NASD will "honor any
properly obtained court order" compelling plaintiff to arbitrate
this dispute. Moreover, the NASD reserved to the parties the
right to reassert the issues raised on plaintiff's motion to
dismiss with the panel of arbitrators. Thus, not only is the
NASD decision subject to review by the NASD panel of arbitrators,
but it is also subject to reversal or change by a court order
compelling arbitration. Since we hold that plaintiff's
employment-related claims against defendant are arbitrable and
that defendant is a proper party to the NASD arbitration, we
direct that such claims be arbitrated before the NASD, the most
logical arbitration forum.
Accordingly, the orders under review are reversed. Plaintiff is ordered to submit his employment-related disputes to arbitration before the NASD and this action in the Law Division
is stayed pending completion of the NASD arbitration. We do not
retain jurisdiction.