Aiken & Co., 305 N.Y. 82, 111 N.E.2d 218, 221 (N.Y. 1953). In this case, Herko has not alleged fraud or other wrongdoing by Defendant in requiring her to execute the Form U-4. As such, Herko is conclusively presumed to have known that disputes between Herko and her employer would be subject to arbitration. Hall, supra, at *3. Accordingly, the fact that Herko was not provided with the NASD rules, regulations and by-laws regarding the arbitration provision when she signed the Form U-4 does not change the result that the arbitration provision remains applicable to Herko.
Second, Herko contends that she signed the Form U-4 only as a prerequisite to taking the licensing test that she needed to pass in order to obtain her security license and to become registered with NASD and that she was never informed that she would be bound by the provisions of the Form U-4 even if she failed the licensing exam. Without saying so directly, the implication of Herko's contention is that there was a failure of consideration rendering the agreement unenforceable.
Defendants argue that when Herko executed the Form U-4, the NASD code provided for mandatory arbitration of "any dispute, claim, or controversy . . . arising out of the employment or termination of employment of associated person(s) with any member . . . between or among members and associated persons." Defendants' Memorandum of Law, at p. 4. Further, an "associated person" is defined by the NASD by-laws as "any natural person engaged in the investment banking or securities business who is directly or indirectly . . . controlled by [a] member whether or not any such person is registered or exempt from registration with the Corporation pursuant to these By-Laws." Defendants' Memorandum of Law, at p. 4 (emphasis added). As MetLife is a "member" of the NASD, and as Herko is a natural person engaged in the investment banking or securities business who was directly or indirectly controlled by MetLife, Defendants urge that Herko was thus an "associated person" within the meaning of the NASD by-laws, and was, upon execution of the Form U-4, obligated to arbitrate any claims arising out of her employment with MetLife. Herko does not contend that if the arbitration clause covers her claims it applies to both MetLife and Mazzella.
Neither Herko nor Defendants have pointed to any precedent in direct support of their respective contentions and this court's research has located only one case on point. In Foley v. Presbyterian Ministers' Fund, 1992 U.S. Dist. LEXIS 3572, 1992 WL 63269 (E.D.Pa. 1992), the plaintiff also alleged that he was not bound by the provisions of the Form U-4 to arbitrate an employment discrimination claim as he had failed the NASD securities test and therefore never became a registered securities dealer. The court held that "the undertakings contained in the Form U-4 were contingent on executing the form, not on becoming a registered dealer." Id. at *1. Specifically, the court noted that NASD applicants were required to make agreements to arbitrate as consideration for NASD organizations and states receiving and considering their applications. Id.
In this case the court finds that, as in Foley, Herko's execution of the Form U-4 was consideration given in exchange for consideration of her membership in NASD organizations. Additionally, as discussed, under New York law execution of a contract by itself, absent fraud or other wrongdoing, establishes a conclusive presumption that the signer was aware of contents of the contract, and assented to them. As Herko has not alleged any fraud or wrongdoing on the part of Defendants calculated to induce her to sign the Form U-4, the court finds that Herko was bound by the terms of the Form U-4, including the arbitration clause. Her sexual harassment claims against Defendants are thus arbitrable pursuant to the Form U-4.
Herko urges this court to find that, if a valid agreement to arbitrate exists between her and Defendants, that Defendants have waived their right to compel such arbitration as Defendants' delay in raising the issue has caused Herko substantial prejudice. Plaintiff's Memorandum of Law in Opposition to Arbitration, at p. 3. The rule in the Second Circuit is that "litigation of substantial issues going to the merits may constitute a waiver of arbitration." Sweater Bee by Banff v. Manhattan Industries, 754 F.2d 457, 461, cert. denied, 474 U.S. 819, 88 L. Ed. 2d 55, 106 S. Ct. 68 (1985). Whether a party has waived its right to arbitration by its conduct is a purely legal question which the district courts have broad discretion in deciding. Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995). Further, in view of the "dominant federal policy favoring arbitration, waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated." Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985)(citing Demsey & Associates, Inc. v. S.S. Sea Star, 461 F.2d 1009, 1018 (2d Cir. 1972), and Carcich v. Rederi Aì Nordie, 389 F.2d 692, 696 (2d Cir. 1968)).
Defendants' eighteen month delay in seeking arbitration is not sufficient to constitute a waiver of the right absent some showing of prejudice to Herko as "the legislative history of the [Federal Arbitration] Act established that the purpose behind its passage was to ensure judicial enforcement of privately made agreements to arbitrate," Dean Witter Reynolds Inc., 470 U.S. 213 at 214, 84 L. Ed. 2d 158, 105 S. Ct. 1238, and expeditious resolution of claims was not the goal of the FAA. Rush, 779 F.2d 885 at 888. Nor does the failure to raise the agreement to arbitrate in the Answer constitute a waiver of arbitration absent some showing of actual prejudice to Herko. Rush, supra, 779 F.2d 885 at 889, citing ITT World Communications, Inc. v. Communications Workers of America, AFL-CIO, 422 F.2d 77, 82 (2d Cir. 1970).
Herko cites Com-Tech Associates v. Computer Associates International, Inc. 938 F.2d 1574 (2d Cir. 1991) in support of her contention that requiring her to submit to arbitration at this time will result in undue prejudice to her. Com-Tech is similar to this case as in Com-Tech the defendants had also failed to raise the arbitration issue in their answer and more than eighteen months had passed before the defendants filed their motion to compel arbitration. However, Com-Tech is distinguishable from the instant case as there the court noted that the defendants had also subjected the plaintiff to the expense and time involved in conducting extensive depositions and defending several pre-trial motions, including motions for judgment on the pleadings and for partial summary judgment, and that the motion to compel arbitration was brought only four months before the scheduled trial date. Com-Tech, supra, at 1576. Here, Defendants have not made any motions, other than the present motion to compel arbitration. Additionally, discovery is only in the initial stage and no trial date has yet been set.
The FAA established that "as a matter of federal law, any doubts concerning the scope an arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Memorial Hospital, supra, at 24-25. Although eighteen months had passed between the time Defendants answered the complaint and moved to compel arbitration, and while both sides have been engaged in some discovery, the court finds that neither side has engaged in the level of protracted litigation with the potential for substantial amounts of wasted legal costs that would necessitate finding that Defendants had waived their right to arbitration of Herko's claims. Even if there had been more discovery, such discovery would be helpful to Herko in prosecuting her claims in the arbitration forum.
The court therefore finds that Herko, despite failing the securities licensing examination and regardless of whether copies of the NASD regulations were ever provided to her, subjected herself to complying with the provisions of the NASD rules and regulations, including arbitration, upon executing the Form U-4. The court also finds that Defendants did not waive their right to seek arbitration of Herko's claims. As such, the court directs that Herko's employment disputes which comprise the subject of this lawsuit be submitted to arbitration in accordance with the applicable NASD rules.
2. Motion to Compel Discovery
As the court has granted Defendants' motion to compel arbitration and therefore will stay further proceedings in this action, Herko's motion to compel discovery need not be further addressed by this court and, accordingly, is DISMISSED as moot.
Based on the foregoing, Defendants' motion to compel arbitration and to stay further proceedings in this action is GRANTED; Plaintiff's motion to compel discovery is DISMISSED as moot.
LESLIE G. FOSCHIO
UNITED STATES MAGISTRATE JUDGE
DATED: January 29th, 1997
Buffalo, New York