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O'DONNELL v. FIRST INVESTORS CORP.

January 18, 1995

JAMES R. O'DONNELL, JR., Plaintiff, against FIRST INVESTORS CORPORATION and HOWARD FROMAN, Defendants.

Peter K. Leisure, U.S.D.J.


The opinion of the court was delivered by: PETER K. LEISURE

LEISURE, District Judge,

 This is a motion brought by defendants First Investors Corporation ("FIC") and Howard Froman ("Froman") (together the "defendants") seeking to compel arbitration, to stay the present action and to impose the cost of bringing this motion on plaintiff, James R. O'Donnell, Jr. ("O'Donnell"). Defendants argue that the underlying action brought by O'Donnell, concerning his employment contract, is subject to mandatory arbitration under National Association of Securities Dealers, Inc. ("NASD") rules. Plaintiff maintains that actions involving employment contracts prior to an October 1993 amendment to the NASD, Code of Arbitration Procedure ("Code") do not fall within the scope of mandatory arbitration.

 BACKGROUND

 FIC is a brokerage firm which is a member of NASD and which has its principal place of business in New York City. Froman is a senior vice president of FIC and a resident of Scarsdale New York. O'Donnell is a resident of New Haven, Connecticut. FIC hired O'Donnell in October 1989 as a "registered representative." At that time, FIC and O'Donnell executed an employment contract called the registered representative agreement ("RRA"). As a condition of employment, O'Donnell had to qualify as a registered representative under NASD rules. In order to do so, O'Donnell signed a Uniform Application for Securities Industry Registration or Transfer Form U-4 ("U-4"), which provided that O'Donnell would submit to arbitration under the rules of NASD.

 In October 1993, NASD amended its Code to include explicitly employment contracts within the scope of mandatory arbitration. Defendants argue that NASD has always maintained that employment contracts are subject to arbitration, and the amendment was only a clarification. Reply Memorandum on Defendants' Motion to Compel Arbitration ("Defendant reply") at 14. O'Donnell, on the other hand, takes the position that the pre-amendment Code did not include employment contracts. Memorandum of Law in Opposition to Defendants' Motion to Compel Arbitration and for a Stay ("Plaintiff opp.") at 8. Alternatively, O'Donnell argues that the MOU, not the RRA, should govern this case. Since O'Donnell executed the U-4 in connection with the RRA, he argues that the U-4, and with it the NASD Code, does not apply to the underlying action.

 DISCUSSION

 Defendants contend that the dispute surrounding O'Donnell's discharge is subject to mandatory arbitration because the U-4, which O'Donnell signed, provided that he "agreed to arbitrate any dispute, claim or controversy that may arise between me and my firm. that is required to be arbitrated under the rules, constitutions, or by-laws of [NASD]." Given the U-4's and the Federal Arbitration Act's ("FAA") "liberal federal policy favoring arbitration agreements," Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25, 114 L. Ed. 2d 26, 111 S. Ct. 1647 (1991) (quoting Moses H. Cone Memorial Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983)), defendants move for an order compelling arbitration and a stay of the pending action under FAA §§ 3 and 4. O'Donnell responds with a two-fold reply. First, he states that the MOU, not the U-4, governs the pending action. *fn1" Second, he contends that even if the U-4 were applicable, the rules of NASD, at the time O'Donnell was fired, did not include employment disputes within its scope.

 An arbitration agreement is to receive the same treatment as any contract, and the FAA was designed "to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts." Gilmer, supra, 500 U.S. at 24. This impetus towards liberally enforcing arbitration agreements "reflect[s] Congress' recognition that arbitration is to be encouraged as a means of reducing the costs and delays associated with litigation." Deloitte Noraudit A/S v. Deloitte Haskins & Sells, 9 F.3d 1060, 1063 (2d Cir. 1993) (citations omitted).

 FAA § 3 mandates that courts "upon being satisfied that the issue involved in [a] suit or proceeding is referable to arbitration under [] an agreement, shall.. . . stay the trial of the action. . . ." 9 U.S.C. § 3 (1988) (emphasis added). "'"The Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed."'" McDonnell Douglas Fin. Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 830 (2d Cir. 1988) (emphasis in original) (quoting Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir. 1987) (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218, 84 L. Ed. 2d 158, 105 S. Ct. 1238 (1985))).

 The Court, though, must first determine if the scope of the agreement includes the dispute at hand, and courts will not force parties into arbitration when such was clearly not the intent of the parties. See Chevron U.S.A., Inc. v. Consolidated Edison Co., 872 F.2d 534, 537 (2d Cir. 1989). The parties' intentions are important "but those intentions are generously construed as to issues of arbitrability." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985). Whenever an arbitration agreement exists, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration," Moses H. Cone Memorial Hosp., 460 U.S. at 24-25, and "doubts should be resolved in favor of coverage," AT&T Technologies Inc. v. Communications Workers of America, 475 U.S. 643, 650, 89 L. Ed. 2d 648, 106 S. Ct. 1415 (1986) (quotation omitted).

 1. U-4 Governs the Pending Action

 O'Donnell argues that the MOU specifically superseded the RRA and all its riders. Since the U-4 was signed as a condition to the RRA, O'Donnell argues, the U-4 ceased to be effective when O'Donnell was promoted. The U-4, however, is not a contract with defendants but rather an application to qualify with various security exchanges. The U-4 is a separate contract, and as long as this contract is effective, the terms of the agreement must be followed, regardless of the fate of a separate, though related, ...


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