Osborne v. Wells Fargo Advisors, LLC
Filing
23
ORDER granting 9 Motion to Compel Arbitration and denying 9 Motion to Dismiss. This case is stayed pending the completion of the arbitration. The parties shall file a joint report regarding arbitration every 90 days. The Clerk of Court is directed to administratively close this file. Signed by Magistrate Judge Douglas N. Frazier on 7/19/2012. (brh)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FT. MYERS DIVISION
EDWARD OSBORNE,
Plaintiff,
-vs-
Case No. 2:11-cv-691-FtM-DNF
WELLS FARGO ADVISORS, LLC,
formerly known as Wachovia Securities,
LLC,
Defendant.
______________________________________
ORDER
This cause came on for consideration on the following motion(s) filed herein:
MOTION:
MOTION TO DISMISS
ARBITRATION (Doc. No. 9)
AND
TO
COMPEL
FILED:
December 28, 2011
_____________________________________________________________
THEREON it is ORDERED that the Motion to Compel Arbitration is
GRANTED and the Motion to Dismiss is DENIED.
I. Background
Defendant, Wells Fargo Advisors, LLC, f/k/a Wachovia Securities, LLC, is requesting that the
Court refer all claims in this matter to arbitration and either stay or dismiss this action. This action
arises out of Plaintiff, Edward Osborne’s employment with Defendant and two Promissory Notes
(“Note 1" “Note 2" collectively “the Notes”) Plaintiff executed in connection with that employment.
(Doc. 9, p. 1). Plaintiff also executed Forgivable Loan Disclosure Statements in connection with the
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Notes. (Doc. 9, Ex. 2). The Forgivable Loan Disclosure Statements forgave the money loaned to
Plaintiff under the Notes over an extended period of time. (Doc. 9, Ex. 2). Note 1 was executed as an
incentive for Plaintiff to start employment with Defendant and Note 2 was executed based on
Plaintiff’s productivity during his employment with Defendant. (Doc. 9, p. 3). Pursuant to the terms
of the Notes, Plaintiff was required to repay any outstanding balances on the Notes upon his
termination or resignation. (Doc. 18, Ex. 1, p. 1). Plaintiff resigned from his employment with
Defendant which caused the remaining balances on the Notes to become due. (Doc. 18, Ex. 1, p. 1).
Defendant initially filed a Statement of Claim in Arbitration with the Financial Industry
Regulatory Authority (“FINRA”) requesting an award for the remaining balance on the Notes. (Doc.
9, p. 2). Plaintiff opposed arbitration filing a Motion to Decline Jurisdiction with the FINRA. (Doc.
9, p. 2). The FINRA denied Plaintiff’s motion and notified the parties that arbitration would proceed
before the FINRA. (Doc. 9, p. 2). Plaintiff then filed a Statement of Answer with the FINRA and a
Complaint with the Circuit Court of Charlotte County, Florida, seeking a declaration of the rights of
the parties under the Notes. (Doc. 9, p. 2). Defendant removed the State Court action to this Court
pursuant to 28 U.S.C. § 1441. (Doc. 9, p. 2). Plaintiff’s Complaint seeks a declaratory judgment that
he is not obligated to participate in arbitration and that the Notes he executed with Defendant are
unenforceable. (Doc. 2, p. 2).
II. Analysis
The issue is whether there is an enforceable arbitration agreement between Plaintiff and
Defendant. Defendant argues that Plaintiff should be compelled to arbitrate because the Uniform
Application for Securities Industry Registration or Transfer (“Form U-4") Plaintiff signed requires
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arbitration under the FINRA. (Doc. 9, p. 5). Plaintiff argues that the dispute with Defendant falls
outside of the scope of the FINRA which would require him to arbitrate. (Doc. 12, p. 2).
There is a strong federal policy supporting arbitration. See Moses H. Cone Mem'l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24 (1983). “[A]ny doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221
(1985) (citing Moses, 460 U.S. at 24-25). However, “no party may be forced to submit a dispute to
arbitration that the party did not intend and agree to arbitrate.” Seifert v. U.S. Home Corp., 750 So. 2d
633, 636 (Fla. 1999).
“[T]he [Federal Arbitration Act] requires a court to either stay or dismiss a lawsuit and to
compel arbitration upon a showing that (a) the plaintiff entered into a written arbitration agreement
that is enforceable ‘under ordinary state-law’ contract principles and (b) the claims before the court
fall within the scope of that agreement.” Lambert v. Austin Ind., 544 F.3d 1192, 1195 (11th Cir. 2008)
(citing 9 U.S.C. §§ 2-4). “Generally, when deciding whether the parties agreed under the FAA to
arbitrate a certain matter, courts ‘should apply ordinary state-law principles that govern the formation
of contracts.’” Senti v. Sanger Works Factory, Inc., 2007 WL 1174076, *5 (M.D. Fla. Apr. 18, 2007)
(quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). “Therefore, the Court
looks to Florida law to determine if there is an enforceable arbitration agreement.” Id. (citing A.I.
Trade Finance, Inc. v. Petra International Banking Corp., 62 F.3d 1454, 1563 (D.C. Cir. 1995)).
“Under both federal statutory provisions and Florida's arbitration code, there are three elements for
courts to consider in ruling on a motion to compel arbitration of a given dispute: (1) whether a valid
written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right
to arbitration was waived.” Seifert v. U.S. Home Corp., 750 So. 2d 633, 636 (Fla. 1999) (citing
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Terminix Int'l Co. L.P. v. Ponzio, 693 So.2d 104, 106 (Fla. 5th DCA 1997)). Waiver is not at issue
here, therefore the Court will address the first two issues.
A. Whether a valid written agreement to arbitrate exists.
The Form U-4 signed by Plaintiff states in pertinent part:
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-law of the SROs indicated in Section 4 (SRO
REGISTRATION) 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.1
(Doc. 9, Ex. 7, p. 9). Plaintiff also signed a Pre-Dispute Arbitration Clause when he signed the Form
U-4. (Doc. 9, p. 4). The Pre-Dispute Arbitration Clause Plaintiff signed stated the agreement’s purpose
was to, “inform or remind [Plaintiff] that the Form U-4 includes a Pre-Dispute Arbitration Clause.”
(Doc. 9, Ex. 8). The agreement stated Plaintiff was agreeing to, “arbitrate any dispute, claim, or
controversy between [Plaintiff] and [Plaintiff’s] firm . . . that is required to be arbitrated under the
rules of the self-regulatory organizations with which [Plaintiff was] registering.” (Doc. 9, Ex. 8). In
Dunn v. Citigroup Global Markets, Inc., 2009 WL 909480 (S.D. Fla. Apr. 1, 2009) the Court found
that the language of the Form U-4, “unambiguously provide[d] for arbitration.” Id. at 2.2 See Kidd v.
Equitable Life Assur. Soc. of U.S., 32 F.3d 516, 520 (11th Cir. 1994) (Form U-4 subjects employment
disputes to arbitration). The Form U-4 is a written agreement in which Plaintiff agreed to arbitrate any
disputes that may arise with his firm under the SROs with which he was applying. Additionally, the
1
The self-regulatory organization (“SRO”) in this case is the FINRA. The FINRA was formed
by consolidating the National Association of Securities Dealers (“NASD”) and the New York Stock
Exchange.
2
The Form U-4 agreement in Dunn is virtually identical to the Form U-4 agreement in the
present case.
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Pre-Dispute Arbitration Clause reminded or informed Plaintiff that he was agreeing to arbitrate under
the appropriate SRO in the Form U-4. The SRO in this case is the FINRA. Besides stating in his
Complaint that Plaintiff, “never signed an arbitration agreement specific to this matter,” (Doc. 2, p.
2) Plaintiff makes no legal arguments contesting the validity of the Form U-4 agreement to arbitrate
under the FINRA. Therefore, the Court finds that the Form U-4 is a valid written agreement to
arbitrate disputes between Plaintiff and Defendant under the FINRA.
B. Whether an arbitrable issue exits under the FINRA.
FINRA Rule 13100 states that an Associated Person is defined as, “a person associated with
a member, as that term is defined in paragraph (r).” (Doc. 9, Ex. 12, p.1). Paragraph (r) defines a
person associated with a member as, “[a] natural person who is registered or has applied for
registration under the Rules of FINRA,” and includes, “a person formerly associated with a member.”
(Doc. 9. Ex. 12, p. 2-3). FINRA Rule 13100 defines a member as, “any broker or dealer admitted to
membership in the FINRA, whether or not the membership has been terminated or cancelled.” (Doc.
9 Ex. 12, p. 2). Defendant is a broker-dealer registered with the Securities and Exchange Commission
in Florida and a member of the FINRA which makes it a member as defined by FINRA Rule 13100.
(Doc. 18, Ex. 1, p. 2). Plaintiff is a former employee of Defendant and registered under the Rules of
the FINRA making him an associated person as defined by FINRA Rule 13100. (Doc. 9, p. 1).
FINRA Rule 13200 states in pertinent part, “a dispute must be arbitrated under the Code if the
dispute arises out of the business activities of a member or an associated person and is between or
among: Members; Members and Associated Persons; or Associated Persons.” (Doc. 9, Ex. 11, p. 1).
Applying FINRA Rules 13100 and 13200 the Court finds that the dispute is an arbitrable issue under
the FINRA because the dispute arises from the business activities between a member (Defendant) and
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an associated person (Plaintiff). Plaintiff argues that the current dispute is outside the scope of FINRA
Rule 13200 because the Notes are personal loans and liabilities and in no way relate to the business
activities regulated by the FINRA. (Doc. 12, p. 4).
Plaintiff relies upon Valentine Capital Asset Mgmt., Inc. v. Agahi, 174 Cal. App. 4th 606 (Cal.
Ct. App. 2009) where the Court stated that Rule 13200 required arbitration only if the dispute arises
out of, “the business activities of an individual as an associated person of a FINRA member.” Id. at
616. Plaintiff correctly cites Valentine but fails to show that the Notes are outside the scope of the
business activities, “of a member or an associated person and is between or among: Members;
Members and Associated Persons; or Associated Persons.” (Doc. 9, Ex. 11, p. 1). The Court in
Valentine wanted to limit the scope of arbitrable issues that fell under FINRA Rule 13200 stating,
“[C]ommon sense dictates that the phrase ‘business activities of . . . an associated person’ must have
some limitation.” Id. at 615. The Court further stated:
[t]here is no indication in Rule 13200 . . . suggesting that FINRA intended to bring
within the scope of FINRA arbitrations every dispute that an associated person might
have in a business he or she pursues on the side, as a free lance photographer, coin
collector, novelist, real estate agent, auto mechanic, or the like. Indeed a variety of
disputes, utterly unrelated to the securities industry, might arise between individuals
who happen to be associated persons . . . These disputes would certainly arise out of
the parties' business activities, but neither the parties nor FINRA would reasonably
expect these private disputes to be appropriate for an arbitration established as part of
the regulation of stock brokerage firms.
Id. at 615-616.
The Notes Plaintiff executed with Defendant did not arise from any side businesses of the
parties but from their EMPLOYER-EMPLOYEE RELATIONSHIP. Disputes concerning employee
compensation are an arbitrable dispute arising out of a business activity between a member and an
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associated person. Dunn v. Citigroup Global Markets, Inc., 2009 WL 909480 at *1 (S.D. Fla. Apr. 1,
2009) (Form U-4 arbitration clause enforceable when plaintiffs claimed defendant breached
employment agreement and defendant accused plaintiffs of intentionally collecting excessive
compensation); Downey v. Robert W. Baird & Co. Inc., 2007 WL 2729578 at *1 (M.D. Fla. Sept. 18,
2007) (motion to arbitrate granted when plaintiff alleged defendant failed to pay overtime and
breached employment contract by failing to pay bonuses); Chapman v. Lehman Bros., Inc., 279 F.
Supp. 2d 1286, 1287 (S.D. Fla. Aug. 26, 2003) (arbitration appropriate when plaintiff brought suit
alleging defendant failed to pay overtime compensation).
Plaintiff argues that arbitration is inappropriate because the current dispute about the Notes
is not an activity regulated by the FINRA. However, as the Eleventh Circuit stated, “[i]f the NASD
did not mandate arbitration of employer-employee disputes, there would be no reason to require
[employees] to sign U-4 forms promising to arbitrate such disputes.” Kidd v. Equitable Life Assur.
Soc. of U.S., 32 F.3d 516, 520 (11th Cir. 1994). FINRA Rule 13806 also provides that promissory note
disputes between members and associated persons fall within the scope of arbitration under the
FINRA. Rule 13806 titled “Promissory Note Proceedings” states, “this rule applies to arbitrations
solely involving a member’s claim that an associated person failed to pay money owed on a
promissory note.” (Doc. 9, Ex. 13, p. 1). In the instant case, Defendant, a member under the FINRA,
alleges that Plaintiff, an associated person failed to pay money owed on a promissory note. These facts
are directly on point with Rule 13806. Plaintiff argues that, “[t]his case is not a promissory note
between a member and an associated person, but a dispute between a broker-dealer Wachovia, and
a registered representative, Osborne.” (Doc. 12, p. 4). As stated above Defendant is a member because
FINRA Rule 13100 defines a member as, “any broker or dealer admitted to membership in FINRA.”
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(Doc. 9, Ex. 12, p. 1-2). Additionally, under Rule 13100 Plaintiff is an associated person making Rules
13200 and 13806 directly on point for this dispute. Furthermore, “employment disputes between . .
. members and their ‘registered representatives’ . . . [are] subject to mandatory arbitration.” Kidd, 32
F.3d at 520. As demonstrated by the FINRA Rules, promissory note disputes between members and
associated persons are arbitrable issues under the FINRA. Therefore, the Court finds that this dispute
must be submitted to arbitration.
IT IS HEREBY FURTHER ORDERED:
1) This case is STAYED pending the completion of the arbitration. The parties shall file a
joint report regarding arbitration every ninety (90) days.
2) The Clerk of Court is directed to administratively close this file.
DONE and ORDERED in Chambers in Ft. Myers, Florida this 19th
Copies: All Parties of Record
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day of July, 2012.
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