[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
_____________ November 18, 2004
THOMAS K. KAHN
No. 03-11646 CLERK
_____________
D.C. Docket No. 02-00009 CV-FTM-29-DNF
MONY SECURITIES CORP.,
Plaintiffs-Appellant,
versus
LELAND BORNSTEIN,
JUDITH A. BORNSTEIN,
Defendants-Appellants.
__________________________
Appeal from the United States District Court
Middle District of Florida
__________________________
(November 18, 2004)
Before TJOFLAT and MARCUS, Circuit Judges, and MUSGRAVE*, Judge.
*
Honorable R. Kenton Musgrave, Judge, United States Court of International Trade,
sitting by designation.
TJOFLAT, Circuit Judge:
This case concerns Rules 10101 and 10301 of the National Association of
Securities Dealers (NASD) Code of Arbitration Procedure. The district court
granted summary judgment, concluding that these Rules coalesce to create two
requirements, and that there was no question of fact on either requirement. We
agree, and thus affirm.
This opinion proceeds in four parts. Part I lays out the factual and
procedural background. Part II states and applies the applicable law, concluding
that the district court did not err because the law is settled and the material facts
are undisputed. Part III addresses counterarguments. Part IV concludes.
I.
The events began in November 1997. Leland and Judith Bornstein
contacted Lawrence Keller in response to an advertisement that Keller placed in
local newspapers. Keller worked in the financial-planning business, and he had
affiliations with several business. One such business was MONY Securities
Corp., a broker-dealer who sold securities. MONY is a member of the NASD.
Keller came to the Bornsteins’ home and described several investment
opportunities. The Bornsteins selected viatical settlement contracts, which are
contracts in which an insured sells her life insurance policy to an investor for a
2
payment approximating the discounted present value of the policy. The
Bornsteins invested in five viatical contracts through a company unrelated to
MONY.
The Bornsteins’ investments went bad. Beginning in October 1998 and
continuing through June 2001, the Bornsteins received letters from—and sent
letters to—the Florida Department of Insurance and the unrelated company that
offered the viatical contracts. In June 2001, the Bornsteins complained to MONY.
In November 2001, the Bornsteins filed an arbitration claim with the NASD
against MONY alleging that MONY breached several duties. We need not discuss
these allegations because the Bornsteins’ underlying claims are irrelevant to this
appeal; rather, we focus solely on the district court’s summary judgment decision
regarding arbitration.
MONY responded by filing a complaint in the District Court for the Middle
District of Florida seeking declaratory and injunctive relief. MONY argued that
arbitration was inappropriate. After extensive procedural wrangling, including the
reassignment of the case to another judge, the district court granted the Bornsteins’
motion for summary judgment. The district court’s opinion, Mony Securities
Corp. v. Bornstein, 250 F. Supp. 2d 1352, 1353-54 (M.D. Fla. 2003), and the
record are replete with facts, some of which are disputed. We need not discuss
3
these facts because our summary provides those undisputed facts that are
necessary for our judgment.
On appeal, MONY argues that the district court erred in entering summary
judgement. Specifically, MONY argues the district court erred by, among other
things, using the wrong presumption, overlooking disputed issues of material fact,
denying MONY its right to a trial under Section 4 of the Federal Arbitration Act,
misapplying the law-of-the-case doctrine, and misconstruing the NASD Code.
II.
“This Court reviews de novo questions of law, such as a district court’s
interpretation of an agreement to arbitrate (and whether it binds the parties to
arbitrate) . . . .” Multi-Financial Sec. Corp. v. King, No. 03-15078, 2004 WL
2246220, at *2 (11th Cir. Oct. 6, 2004).
Before we review the district court’s decision, we must address two
preliminary questions: (1) Is there an agreement to arbitrate? (2) What law
governs? These questions are preliminary because they—like the de novo
standard of review—frame our review of the district court’s decision.
MONY dwells on the first question, arguing that the Bornsteins are not
eligible for arbitration because there was never an agreement to arbitrate. This
argument fails because the NASD Code itself constitutes the agreement. MONY
4
concedes, as it must, that it is a member of the NASD. And as this court has
recently held, even if “there is no direct written agreement to arbitrate . . . , the
[NASD] Code serves as a sufficient agreement to arbitrate, binding its members to
arbitrate a variety of claims with third-party claimants.” King, 2004 WL 2246220,
at *2; see also Washington Square Sec. Inc. v. Aune, 385 F.3d 432, 435 (4th Cir.
2004) (“The NASD Code constitutes an ‘agreement in writing’ under the Federal
Arbitration Act, 9 U.S.C. § 2, which binds . . . [an] NASD member, to submit an
eligible dispute to arbitration upon a customer’s demand.”).
The second question—what law governs?—is easy to answer. Both the
Supreme Court and the Eleventh Circuit hold that courts “must interpret the
[NASD] Code as it would a contract under the applicable state law.” King, 2004
WL 2246220, at *2 (citing Perry v. Thomas, 482 U.S. 483, 492 n.9, 107 S. Ct.
2520, 2527 n.9, 96 L. Ed. 2d 426 (1987)). Here, that law is Florida’s.
Combining our answers to these preliminary questions, we are left with the
following: the parties have a written agreement to arbitrate, and to determine how
the agreement applies to the current dispute, we apply Florida law.1
1
The parties disagree about whether there is a presumption in favor of arbitration in this
case. The Bornsteins argue that the Federal Arbitration Act creates a presumption in favor of
arbitration. See generally 9 U.S.C. §§ 1-16 (2000). MONY responds that the presumption does
not apply here because it disputes the existence of an agreement to arbitrate. Both parties have
some support. For MONY, the Fifth Circuit recently stated that arbitrability under the NASD
was a threshold question, and that “the federal policy favoring arbitration does not apply . . .
5
With these questions answered, we now review the district court’s decision.
If we were dealing with a case of first impression, we would scour the record and
our precedent to explicate the applicable laws, balance competing interests, and
detail our analysis. But this is not a case of first impression. Instead, most of
MONY’s arguments were settled by King, which is a legally and factually similar
case.
In both King and here, the applicable law centers around Rules 10101 and
10301 of the NASD Code. These rules contain similar—though not
identical—language. Rule 10101, entitled “Matters Eligible for Submission,”
provides “for the arbitration of any dispute, claim, or controversy arising out of or
in connection with the business of any member of the Association . . . between or
among members or associated persons and public customers, or others.” Rule
when a court is determining whether an agreement to arbitrate exists.” California Fina Group,
Inc. v. Herrin, 379 F.3d 311, 316 n.6 (5th Cir. 2004). For the Bornsteins, both the Eleventh and
Fourth Circuits hold that because the NASD Code is a written agreement to arbitrate, the only
dispute goes to the scope of that agreement and thus the general presumption applies. See King,
2004 WL 2246220, at *2 (clarifying that “any doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration” (quoting Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983)) (internal
quotation marks omitted)); Washington Square Sec., 385 F.3d at 435 (“[I]n applying general state
law principles of contract interpretation to the interpretation of an arbitration agreement . . ., due
regard must be given to the federal policy favoring arbitration.” (quoting Volt Info. Sciences, Inc.
v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76, 109 S. Ct. 1248, 1254, 103 L.
Ed. 2d 488 (1989)) (internal quotation marks omitted)). However, the presumption is not
necessary in this case because we can decide the issue as a matter of law without resorting to a
presumption. Accordingly, we recognize that King addresses the applicable presumption, but we
need not dwell on it in this case.
6
10301(a), entitled “Required Submission,” states:
Any dispute, claim, or controversy eligible for submission under the
Rule 10100 Series between a customer and a member and/or
associated person arising in connection with the business of such
member or in connection with the activities of such associated
persons shall be arbitrated under this Code, as provided by any duly
executed and enforceable written agreement or upon the demand of
the customer.
The King court interpreted these Rules as providing for a two-part test to
compel arbitration: “an investor must show that his or her claim[] involves a
dispute between a member and a customer or an associated person of the member
and a customer; and, arises in connection with the business activities of the
member or in connection with the activities of the associated person.” King, 2004
WL 2246220, at *3. King thus focused on the interplay between the two
applicable Rules.2 In other words, instead of parsing the Rules, King interpreted
their combined requirements as creating a two-part test.
The King court then applied its two-part test to the facts. To provide
2
MONY argues that Rule 10101 erects an independent barrier because it excludes
disputes that arise from the activities of associated persons; that is, it focuses on only the
activities of the member. The Eleventh Circuit implicitly rejected this argument in King by
focusing on the interplay between Rules 10101 and 10301 to create a two-part test. Moreover,
even if MONY’s argument was true, the argument fails because, as discussed in Part II,
supervision arises from the business of the firm itself. See Washington Square Sec., 385 F.3d at
437 (stating that Rules 10101 and 10301 contain similar requirements, and that “this clause is
susceptible to an interpretation which encompasses the Investors’ dispute concerning [the firm’s]
supervision over its associated person”). As a result, MONY’s argument about Rule 10101 is not
persuasive in this case.
7
context, the material facts follow. Rua King was an investor. Anthony Micciche
was a representative of IFG Network Securities, Inc., a member of the NASD.
Following Micciche’s advice, King invested in a trust agreement with an unrelated
company. King, 2004 WL 2246220, at *1. Applying the first part of its two-part
test, the King court began by clarifying that “whether King is an IFG customer, as
defined by the Code, is a legal question of contract interpretation for the Court.”
King, 2004 WL 2246220, at *3 (citing Aetna Cas. & Sur. Co. v. Warren Bros. Co.,
Div. of Ashland Oil, Inc., 355 So. 2d 785, 787 (Fla. 1978)). The court then
rejected the argument that Rules 10101(c) and 10301(a) require the investor to be
a customer of the member, as opposed to merely being a customer of an associated
person. The court rejected this argument based on “the Code’s unambiguous
language,” and based on “support in almost every other decision on this issue.”
King, 2004 WL 2246220, at *4 (collecting cases). The court thus concluded that
King was IFG’s customer. Applying the second part of its two-part test, the King
court “conclude[d] that King’s claim of negligent supervision” arose in connection
with IFG’s business. Id. at *6.
Here, our conclusion follows King’s: the district court did not err because
there is no dispute that the Bornsteins were customers of Keller and that Keller
was an associated person with MONY. To elaborate, we will briefly discuss each
8
part of the two-part test.
Under the first part, the question of whether the Bornsteins were customers
is “a legal question of contract interpretation for the Court.” King, 2004 WL
2246220, at *3. Interpreting the contract in this case (i.e., the NASD Code), we
are bound by the plain language of the Code, which defines “customer” to include
anyone who is not a broker or a dealer. See NASD Rule 0120(g) (“The term
‘customer’ shall not include a broker or dealer.”); see also John Hancock Life Ins.
v. Wilson, 254 F.3d 48, 58 (2d Cir. 2001) (“look[ing] no further than the plain
language of Rule 10301”). We are also bound by the clear mandate from King
detailed above. See King, 2004 WL 2246220, at *5 (“The parties agree that King
dealt with Micciche, so King, in turn, dealt with IFG. The Court, therefore, holds
that King has satisfied the first requirement of Rules 10101(c) and 10301(a) by
demonstrating that she is a customer and that IFG is a member.”). We thus hold
that the Bornsteins are customers under the applicable NASD Rules because it is
undisputed that they are customers of Keller, and that Keller was an associated
person with MONY.
Under the second part of the two-part test, we must decide whether, under
Rules 10101 and 10301, the dispute “arises in connection with the business
activities of the member or in connection with the activities of the associated
9
person.” King, 2004 WL 2246220, at *3. MONY argues that the events did not
arise in connection with its business because the Bornsteins invested in viatical
contracts with an unrelated company. MONY also argues that its only connection
to the Bornsteins was through an intermediary (i.e., Keller), and that its duty to
supervise Keller was not part of its business. Both arguments are wrong. To
begin, it is irrelevant that the Bornsteins invested with an unrelated company; what
matters is that Keller was also an associated person with MONY. See John
Hancock, 254 F.3d at 52, 59 (rejecting the argument “that the Investors’ claims do
not fall within the scope of the NASD Code because the promissory notes [that the
associated person] sold to the Investors were in no way related to [the member
firm’s] business”). Moreover, the Eleventh Circuit and most other courts hold that
supervision of associated persons arises in connection with the member’s business.
See e.g., King, 2004 WL 2246220, at *6 (“We conclude that King’s claim of
negligent supervision satisfies the Code’s second arbitration condition.”); Vestax
Sec. Corp. v. McWood, 280 F.3d 1078, 1082 (6th Cir. 2002) (“A dispute that
arises from a firm’s lack of supervision over its brokers arises in connection with
its business.” (quoting John Hancock, 254 F.3d at 58-59) (internal quotation marks
omitted)); WMA Sec., Inc. v. Ruppert, 80 F. Supp. 2d 786, 790 (S.D. Ohio 1999)
(“Plaintiff’s business includes the supervision of its large corps of registered
10
representatives. Because Defendants’ claims arise in connection with the
supervision of two of those representatives, they arise in connection with
Plaintiff’s business.”). Accordingly, the events arose in connection with MONY’s
business.
In sum, we conclude that the NASD Code requires MONY to arbitrate its
dispute with the Bornsteins.
III.
Part II concluded that King largely controls the outcome in this case, but
this conclusion does not end our analysis. We must proceed to answer
counterarguments. We have considered all of MONY’s and the Bornsteins’
arguments, and we conclude that they are either without merit or unnecessary to
our holding. However, we will specifically address the two counterarguments that
were the most promising. One argument is that King was wrongly decided
because it overlooked binding Eleventh Circuit precedent. The other is that while
King may be good law, it does not apply to our facts.
The first argument focuses on law. MONY argues in its initial brief, and
then again in its reply brief, that
Under the district court’s unsupported and overly expansive concept
of “arising in connection with the business of a member firm,” all
broker-dealer firms would be obligated to arbitrate disputes arising
11
out of virtually any activity of an individual who also happens to be
affiliated with the broker/dealer without regard to whether the activity
relates to the broker/dealer’s business as an NASD member firm, and
regardless of whether the “claimant” who is seeking to force the
broker/dealer to arbitrate ever transacted business with the
broker/dealer or had reason to believe he or she was transacting
business with the member firm. This application would plainly
offend the “reasonable expectations” of member firms in joining the
NASD, see, e.g., Wheat, First Securities v. Green, 993 F.2d 814, 820
(11th Cir. 1993) . . . .
In other words, MONY argues that Wheat should control this case. But King did
not address Wheat. Therefore, one could argue that King got it wrong because it
ran afoul of the prior-panel rule, under which “we are bound by earlier panel
holdings . . . unless and until they are overruled en banc or by the Supreme Court.”
United States v. Smith, 122 F.3d 1355, 1359 (11th Cir. 1997).
This argument fails because King is consistent with Wheat. It is true that
Wheat contains some language to support MONY’s arguments: “We cannot
imagine that any NASD member would have contemplated that its NASD
membership alone would require it to arbitrate claims which arose while a
claimant was a customer of another member merely because the claimant
subsequently became its customer.” Wheat, 993 F.2d at 820. But the court
decided Wheat on much narrower grounds, holding only “that customer status for
purposes of” the NASD is “determined as of the time of the events providing the
12
basis for the allegations of fraud.” Id. In other words, Wheat discussed timing for
investors who were harmed by the firm’s successor in interest. In contrast, in both
King and here, the investor was a customer at the time the events took place.
Moreover, the Wheat court explicitly ducked the question presented in King and
here, writing that while the question whether the NASD is alone sufficient to
compel arbitration “presents a tantalizing question, we leave its resolution for
another day.” Id. To restate, King answered the tantalizing question left by
Wheat, and we subscribe to King’s answer.
MONY makes the related argument that the district court erred because its
decision conflicted with two recent decisions from the Middle District of Florida.
See generally MONY Sec. Corp. v. Vasquez, 238 F. Supp. 2d 1304 (M.D. Fla.
2002); Investors Capital Corp. v. Brown, 145 F. Supp. 2d 1302 (M.D. Fla. 2001).
MONY suggests that we accept the reasoning from those decisions. We disagree,
mainly for the reasons stated in Part II. We also disagree because King already
found those cases unpersuasive. King, 2004 WL 2246220, at *4 (“The reasoning
of these decisions is not persuasive, however, because they read a limitation into
the Code that is absent from its language.”); see also John Hancock, 254 F.3d at
60 (rejecting Investors Capital Corp. “as contrary to the plain language of Rule
10301”).
13
The second argument focuses on facts. Specifically, MONY argues that
there are disputed facts that militate against the district court’s decision granting
summary judgment for the Bornsteins. MONY cites a cornucopia of facts that it
disputes. MONY also argues that the district court’s version of the facts rested on
an erroneous law-of-the-case ruling. Even if true, these arguments fail to change
our decision.
In our review of the district court’s decision, we are unconcerned with
MONY’s cornucopia of disputed facts. Instead, we focus on those facts required
to satisfy King’s two-part test. So while there many be dozens of disputed facts,
the facts that matter in this case are undisputed: the Bornsteins were customers of
Keller, who was an associated person of MONY. This undisputed fact pattern is
somewhat common, and the overwhelming response is that the case is subject to
arbitration. See, e.g., King, 2004 WL 2246220, at *3 (focusing its decision on the
following undisputed facts: “the parties agree that [the investor] was a customer of
. . . a person associated with IFG”); John Hancock, 254 F.3d at 51 (compelling
arbitration, even though “[t]he only possible connection between [the member
firm] and the Investors was through their independent relationships with” the
associated person); First Montauk Sec. Corp. v. Four Mile Ranch Dev. Co., Inc.,
65 F. Supp. 2d 1371, 1379-82 (S.D. Fla. 1999) (granting summary judgment
14
because a firm’s lack of supervision arises in connection with its business and
because there were sufficient facts to show the investor was a customer). More
importantly, this fact pattern falls wholly within the clear language of Rules 10101
and 10301, which focus first on whether the investor is a customer, and second on
whether the dispute arose in connection with the business of the member.
IV.
For the reasons stated above, this Court concludes that the district court did
not err in entering summary judgment for the Bornsteins.
AFFIRMED.
15