OPINION & ORDER
Plaintiffs Zlatka Cular and Louis E. Pappas advance six claims arising from their employment with Metropolitan Life Insurance Company and from the defendants' overseas insurance sales practices.
They also advance a claim for fraudulent inducement to enter into a life insurance contract. Defendants, relying on arbitration clauses in agreements executed by both plaintiffs, move to compel Cular and Pappas to submit their claims to arbitration and to stay all proceedings before this Court, pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 3, 4.
Plaintiffs oppose the motion. They challenge the validity of the arbitration agreements; they argue that the agreements do not apply to them as "mere salespeople;" and they contend that the claims in the amended complaint are outside the scope of the arbitration agreement. Plaintiffs also ask this Court, pursuant to Fed. R. Civ. P. 42(a), to consolidate this action with Dornberger v. Metropolitan Life Ins. Co., 961 F. Supp. 506 (LBS), a related class action suit brought by life insurance policyholders.
For the reasons set forth below, defendants' motion to compel arbitration is granted as to counts one through six of the amended complaint. Plaintiffs' motion to consolidate is granted only with respect to count seven (fraudulent inducement to enter into a life insurance contract).
A. Factual background.
This action arises out of the same conduct at issue in Dornberger v. Metropolitan Life Ins. Co. et al., 961 F. Supp. 506, 1997 U.S. Dist. LEXIS 3549 a class action brought by individuals living in Europe who purchased the defendants' life insurance policies. Familiarity with the opinion in that case, issued today, and the facts therein, is assumed. See Dornberger v. Metropolitan Life Ins. Co. et al., 961 F. Supp. 506, 1997 U.S. Dist. LEXIS 3549, S.D.N.Y. 1997).
Both cases involve claims that MetLife illegally sold insurance policies to clients living in Europe.
According to the plaintiffs in both actions, the defendants offered these policies for sale even though they were aware that their sale violated European and New York state laws governing the sale of insurance in European countries.
The putative plaintiff class (as yet uncertified) in the Dornberger action alleges a violation of the civil component of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. Specifically it alleges that its members, as policy holders, were defrauded as a result of this conspiracy. The Dornberger plaintiffs also allege common law tort and contract claims, and violation of the New York State Insurance Law. Class Action Compl. P 3.
Cular and Pappas allege that they were unwitting participants in, and ultimately victims of, the defendants' illegal insurance scheme. Cular sold "life insurance, mutual funds and other financial products" in Switzerland between 1991 and 1994. Compl. PP 4, 61, 114. Pappas sold "life insurance and other financial products" in Greece from 1977 until 1995 and, from 1990 until 1995, to American military personnel stationed in Germany. Id. PP 5, 59-60, 120-23. They both allege that they were induced to take these jobs based on representations by the defendants that MetLife's overseas insurance sales practices were legal. More specifically, Cular and Pappas allege that the defendants promised them lifetime employment in Europe and lucrative opportunities during the course of that employment, and that they relied on these promises to their detriment. The plaintiffs now argue that the policies were illegal, and that some or all of the defendants knew this from the inception of MetLife's overseas operations.
In 1994, Cular was informed, first by a client and then by Swiss authorities, that the insurance and mutual fund sales were illegal. She in turn notified defendant Ted Athanassiades, President of MetLife. Cular alleges that her superiors responded to her revelation in a retaliatory fashion, despite their explicit assurances that employees would not be punished for revealing illegal insurance practices. The overseas operations (except for those on American military bases) were suspended and Cular and several other European sales representatives were told that they could either accept transfers to the United States or their employment with MetLife would be terminated. Cular made repeated inquiries concerning the terms of her transfer. These inquiries, she claims, were never answered. Instead, the defendants terminated her employment.
In 1995, Pappas was informed by German authorities that the sale of insurance in Germany by MetLife violated German law. He informed the defendants. They subsequently asked him to stop servicing his existing clients in Greece, as insurance sales to those clients were also illegal.
Plaintiffs seek relief for (1) civil RICO violations; (2) breach of contract; (3) fraudulent inducement of contract; (4) fraud; (5) prima facie tort; (6) intentional infliction of emotional distress; and (7) fraudulent inducement to enter into a life insurance contract.
The plaintiffs seek damages for their expenses in relocating to Europe, in setting up sales operations in their respective territories, and in lost commissions, salary and benefits--both retrospective and prospective. They also seek damages for the harm their careers have suffered as a result of their entanglement in MetLife's illegal insurance practices. They claim this entanglement severely limits their ability to work as insurance salespeople and, in the case of Cular, damages her future as a securities broker.
B. The arbitration agreements.
As one of the conditions of their employment, Cular and Pappas were each required to complete a Uniform Application for Securities Industry Registration or Transfer (a "Form U-4"). The Form U-4, promulgated by the Securities Exchange Commission, must be completed by anyone seeking to be registered as a securities dealer. Insurance companies may require salespeople to execute these agreements if there is a possibility that they might also be involved in the sale of securities. Pappas never took the NASD exam and never engaged in securities transactions. Cular concedes that she did sell mutual funds on behalf of the defendants. Id. PP 4, 83, 86-87, 97.
Above the signature of the applicant on page 4 of the Form U-4, and below the admonition "THE APPLICANT MUST READ THE FOLLOWING VERY CAREFULLY," appears this arbitration clause:
5. 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 with which I register, as indicated in item 10 as may be amended from time to time.
Decl. of Derek Rotolo, Exh. D.
Both Cular and Pappas signed page 4 of their respective Forms U-4. Both indicated in item 10 an intent to register with the NASD (the National Association of Securities Dealers). The arbitration clause of their Forms U-4 is thus subject to the NASD Manual--Code of Arbitration Procedures (the "Manual"). The Manual defines the following disputes as "Matters Eligible for Arbitration":
P 3701. Sec. 1. This Code of Arbitration Procedure is prescribed and adopted pursuant to . . . the By-Laws of the [NASD] for the arbitration of any dispute, claim, or controversy arising out of or in connection with the business of any member of the [NASD], or arising out of the employment or termination of employment of associated person(s) with any member, with the exception of disputes involving the insurance business of any member which is also an insurance company: