Metropolitan Life Insurance Company v. Puzzo

Filing 16

OPINION and ORDER denying 11 Defendant's Motion to Stay Action and to Compel Arbitration. Signed by Judge Thomas W. Thrash, Jr. on 5/2/2014. (bdb)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
METROPOLITAN LIFE
INSURANCE COMPANY,
Plaintiff,
v.

CIVIL ACTION FILE
NO. 1:13-CV-3858-TWT

GARRETT PUZZO,
Defendant.

OPINION AND ORDER

This is a breach of contract action. It is before the Court on the Defendant
Garrett Puzzo’s Motion to Stay Action and Compel Arbitration [Doc. 11]. For the
reasons set forth below, the Defendant’s Motion to Stay Action and Compel
Arbitration [Doc. 11] is DENIED.
I. Background
The Defendant Garrett Puzzo was the Managing Director of the Plaintiff
Metropolitan Life Insurance Company’s Atlanta, Georgia agency. (Compl. ¶ 10.) On
February 16, 2010, the Plaintiff and the Defendant entered into a non-solicitation
agreement as a condition of the Defendant’s continued employment. (Compl. ¶ 10.)
The non-solicitation agreement stipulated that while the Defendant was employed
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with the Plaintiff, and for eighteen months following a termination of that
employment, the Defendant would “not induce or attempt to induce, or assist in the
inducement of, or facilitate any person in the employ of MetLife to leave MetLife’s
employ . . ..” (Compl. ¶ 11.)
On October 23, 2012, the Defendant’s employment with the Plaintiff was
terminated. (Compl. ¶ 13.) Then, on November 28, 2012, the Plaintiff and the
Defendant entered into a separation agreement. (Compl. ¶ 14.) In exchange for
severance pay of $219,795.00, the Defendant: “(a) waived all potential claims against
MetLife that arose out of or related to his employment and/or termination; and (b)
reiterated his promise to abide by his Non-Solicit Agreement.” (Compl. ¶¶ 15-16.)
The separation agreement stipulates that if the Defendant breaches the non-solicitation
agreement, he must return seventy-five percent of his severance pay. (Compl. ¶ 17.)
After his tenure with the Plaintiff had ended, the Defendant joined Prudential
Financial, Inc. as the Managing Director of its agency in Tampa, Florida. (Compl. ¶
19.) Prudential is a competitor of the Plaintiff. (Compl. ¶ 19.) As part of his duties, the
Defendant is responsible for recruiting and hiring agents for Prudential. (Compl. ¶ 20.)
Additionally, the Defendant’s consent is required before an agent may be assigned to
Prudential’s Tampa agency. (Compl. ¶ 25.)

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The Plaintiff alleges that the Defendant successfully recruited three employees
of the Plaintiff’s Atlanta agency to join Prudential’s Tampa agency. (Compl. ¶¶ 2124.) The Plaintiff alleges that the Defendant was responsible for hiring these three
agents, and at minimum consented to their hire. (Compl. ¶ 25.) The Plaintiff filed suit,
asserting a contract claim against the Defendant. The Plaintiff argues that because the
Defendant breached the non-solicitation agreement, the Plaintiff is entitled to
restitution – under the separation agreement – of seventy-five percent of the
Defendant’s severance pay; or, $164,845.25. The Plaintiff is not seeking equitable
relief or any other form of damages. The Defendant now moves, under 9 U.S.C. §§
3-4, to stay this action and compel arbitration.
II. Legal Standard
“The liberal federal policy favoring arbitration agreements . . . is at bottom a
policy guaranteeing the enforcement of private contractual arrangements.” Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 (1985). When
considering a motion to compel arbitration, the Court must first “determine whether
the parties agreed to arbitrate that dispute.” Id. at 626. If they have, the Court must
then determine whether the arbitration clause is valid. It may be unenforceable on
grounds that would permit the revocation of any contract, such as fraud or
unconscionability. See id. at 627 (“[C]ourts should remain attuned to well-supported

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claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming
economic power that would provide grounds ‘for the revocation of any contract.’”)
(citing 9 U.S.C. § 2). There may also be legal constraints precluding arbitration, such
as a clear congressional intention that a certain claim be heard in a judicial forum. See
id. at 628 (“Having made the bargain to arbitrate, the party should be held to it unless
Congress itself has evinced an intention to preclude a waiver of judicial remedies for
the statutory rights at issue.”). “[A]s a matter of federal law, any doubts concerning
the scope of 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 Mem’l Hosp. v.
Mercury Const. Corp., 460 U.S. 1, 24-25 (1983).
III. Discussion
The question before the Court is whether the Financial Industry Regulatory
Authority (“FINRA”) Arbitration Code requires the Plaintiff to arbitrate its contract
claim.1 When the Defendant began his employment with the Plaintiff, the latter was

1

To be specific, the parties claim that the relevant arbitration agreement is the
arbitration clause in the Form U-4 that the Defendant signed upon beginning his
employment with the Plaintiff. This arbitration clause simply incorporates the
Arbitration Code of the NASD (FINRA’s predecessor), “as may be amended from
time to time.” (Puzzo Decl., Ex. B.) Because the Arbitration Code independently
serves as a binding arbitration agreement, see Multi-Financial Securities Corp. v.
King, 386 F.3d 1364, 1367 (11th Cir. 2004) (“Although there is no direct written
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a member of the National Association of Securities Dealers (“NASD”), the
predecessor to the FINRA.2 The Plaintiff terminated its membership on July 9, 2007,
(Pl.’s Resp. to Def.’s Mot. to Compel Arbitration, at 8), years before any of the
material events giving rise to this action occurred.3 The arbitration requirement found
in the FINRA Arbitration Code – Rule 13200 – states:
Except as otherwise provided in the Code, 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: [1] Members; [2] Members and
Associated Persons; or [3] Associated Persons.”
(Alonso Decl., Ex. 1) (emphasis added). Additionally, the FINRA Arbitration Code
defines “member” as “any broker or dealer admitted to membership in FINRA,

agreement to arbitrate between IFG and King, the [NASD] Code serves as a sufficient
written agreement to arbitrate, binding its members . . ..”); MONY Securities Corp.
v. Bornstein, 390 F.3d 1340, 1342 (11th Cir. 2004) (“MONY . . . argu[es] that the
Bornsteins are not eligible for arbitration because there was never an agreement to
arbitrate . . . [but] the NASD Code itself constitutes the agreement.”), the Court need
not focus on the Form U-4.
2

“On July 26, 2007, NYSE and NASD were consolidated . . . [and] [t]he
‘expanded’ NASD was then renamed the Financial Industry Regulatory Authority,
i.e., FINRA.” Lewis v. UBS Fin. Servs. Inc., 818 F. Supp. 2d 1161, 1165-66 (N.D.
Cal. 2011). “Given that FINRA is merely the successor entity to NASD, courts have
compelled arbitration before FINRA where, as in this case, the arbitration agreement
specifies that arbitration will occur under the rules of NASD.” Id. at 1166.
3

The earliest event material to this litigation occurred in February of 2010,
when the Defendant signed the non-solicitation agreement. (Compl. ¶ 10.)
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whether or not the membership has been terminated or cancelled . . ..” (Alonso Decl.,
Ex. 2) (emphasis added).
The parties disagree as to whether the Plaintiff was a FINRA “member” at the
time of the events giving rise to this action. The Defendant argues that the clause
“whether or not the membership has been terminated or cancelled” found within the
“member” definition suggests that a broker or dealer that terminates its membership
does not cease to be a FINRA member – at least for the purposes of the FINRA
Arbitration Code. (Def.’s Mot. to Compel Arbitration, at 8-9.) Conversely, the
Plaintiff argues that this clause is not meant to expand the definition of “member” to
include those that have terminated their membership. Rather, the clause simply
clarifies that a broker or dealer that was a member during the events giving rise to the
claim must arbitrate that claim regardless of whether its membership has since ended.
(Pl.’s Resp. to Def.’s Mot. to Compel Arbitration, at 11-15.) Thus, the Plaintiff argues,
because it terminated its FINRA membership prior to the events giving rise to its
contract claim, the FINRA arbitration requirement is inapplicable. (Id.) The Court
agrees with the Plaintiff, and concludes that – as per the FINRA Arbitration Code –
a broker or dealer is a FINRA “member” if it has been admitted to membership in
FINRA, and it may be subject to the FINRA arbitration requirement as long as its

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membership has not been terminated or cancelled prior to the material events giving
rise to the dispute.4
To start, when “construing an arbitration clause, courts . . . must give effect to
the contractual rights and expectations of the parties . . . [and] [i]n this endeavor, as
with any other contract, the parties’ intentions control.”5 Stolt-Nielsen S.A. v.
AnimalFeeds Int’l Corp., 559 U.S. 662, 682 (2010) (internal quotation marks

4

At least one other District Court has construed the FINRA arbitration
requirement in a similar manner. See Biremis, Corp. v. Merrill Lynch, Pierce, Fenner
& Smith Inc., CV-11-4934 LDW, 2012 WL 760564, at *2 (E.D.N.Y. Mar. 8, 2012)
(“It is clear that Biremis and Merrill Lynch were both FINRA members at the time of
the [contract] . . . they are therefore bound to arbitrate any dispute arising out of their
business relationship[,] [and] [t]he subsequent cancellation of Plaintiff[’]s broker
dealer status does not change the court’s conclusion.”).
5

The Eleventh Circuit has stated that a court must “interpret the [NASD] Code
as it would a contract under the applicable state law . . . giving effect (as it does when
interpreting any contract) to the parties’ intent expressed by the ordinary meaning of
the language they used.” King, 386 F.3d at 1367 (emphasis added). Neither party
specifies which state law governs interpretation of the FINRA rules. “A number of
agreements pursuant to which FINRA was formed state that they are governed by
Delaware law.” UBS Fin. Servs., Inc. v. West Virginia Univ. Hospitals, Inc., 660 F.3d
643, 649 n.3 (2d Cir. 2011). However, “[i]n interpreting the FINRA Rules, [the Court]
need not reach the issue of which state law applies.” Id. at 649. “Under New York .
. . or Delaware law, a written agreement that is complete, clear and unambiguous on
its face must be enforced according to the plain meaning of its terms[.]” Id. (internal
quotation marks omitted). And the same is true under Georgia law. See CareAmerica,
Inc. v. Southern Care Corp., 229 Ga. App. 878, 880 (1997) (“If [the language is clear
and unambiguous], the court simply enforces the contract according to its clear terms;
the contract alone is looked to for its meaning.”).

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omitted). And “[w]hile ambiguities in the language of the agreement should be
resolved in favor of arbitration . . . we do not override the clear intent of the parties,
or reach a result inconsistent with the plain text of the contract, simply because the
policy favoring arbitration is implicated.” E.E.O.C. v. Waffle House, Inc., 534 U.S.
279, 294 (2002); see also Goldberg v. Bear, Stearns & Co., Inc., 912 F.2d 1418,
1419-20 (11th Cir. 1990) (“The courts are not to twist the language of the contract to
achieve a result which is favored by federal policy but contrary to the intent of the
parties.”). Here, the Defendant’s interpretation – that an entity which has terminated
its membership remains a “member” – could not have been intended by the parties to
the FINRA Arbitration Code. Aside from being illogical, the reading “preferred by
[the Defendant] would do significant injustice to the reasonable expectations of
[FINRA] members.” Wheat, First Securities, Inc. v. Green, 993 F.2d 814, 820 (11th
Cir. 1993). The Court “cannot imagine that any [FINRA] member would have
contemplated that its [FINRA] membership” would perpetually subject it to FINRA’s
arbitration requirement, even for causes of action arising long after its membership
had ended. Id.
Additionally, the history leading up to the current version of the FINRA
Arbitration Code supports the Plaintiff’s reading. Unlike the FINRA Arbitration Code,
the former NASD Arbitration Code did not include its own definition of “member.”

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See

generally

NASD

Code

of

Arbitration,

http://www.finra.org/web/groups/arbitrationmediation/@arbmed/@arbion/docume
nts/arbmed/p018653.pdf (last updated April 2, 2007). Thus, when interpreting the
NASD Arbitration Code, courts relied on the general “member” definition found in
the NASD By-laws. See, e.g., Burns v. New York Life Ins. Co., 202 F.3d 616, 619 (2d
Cir. 2000); Marcus v. Masucci, 118 F. Supp. 2d 453, 456 (S.D.N.Y. 2000). This
definition indicated that a “member” was “any broker or dealer admitted to
membership in the NASD.” McMahan Sec. Co. L.P. v. Forum Capital Markets L.P.,
35 F.3d 82, 86 (2d Cir. 1994) (internal quotation marks omitted). It did not include the
additional clause at issue here. As a consequence, it was unclear when a party had to
be an NASD “member” in order to be subject to its arbitration requirement. This very
question arose in Riccard v. Prudential Ins. Co., 307 F.3d 1277 (11th Cir. 2002).
There, when the defendant moved to compel arbitration, the plaintiff argued that the
NASD arbitration requirement was inapplicable because the defendant was no longer
an NASD member when the lawsuit was filed. See id. at 1287 (“Riccard assumes that
NASD membership . . . must be judged at the time of the motion to compel or at least
at the time of the filing of the lawsuit which resulted in the motion.”). In response, the
defendant argued “that status as an NASD member should be judged at the time of the
events leading to the dispute or claim or when the dispute or claim arose.” Id.

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Although the court ultimately sided with the defendant, it nonetheless acknowledged
that the NASD Arbitration Code was ambiguous on this question. See id. (“The
language . . . is somewhat ambiguous on this point.”). The court explained:
On the one hand, [the NASD Arbitration Code] speaks of arbitration “at the
instance” of a member or person associated with a member, which seems to
suggest that the party insisting upon arbitration would have to be a member or
associated with a member at the time it did the insisting. On the other hand, the
language speaks of the disputes, claims, and controversies that are subject to
mandatory arbitration as being those “arising” in connection with the business
of a member or “arising” out of the employment or termination of employment
of persons associated with a member, and that sounds as though the focus is on
membership at the time of the “arising” of the dispute, claim, or controversy.
Id. at 1287-88. Against this backdrop, it is likely that the additional clause found in
the “member” definition of the FINRA Arbitration Code is meant to clarify that a
party’s membership status at the time of litigation is immaterial. Accordingly, because
the Plaintiff was not a FINRA member when the material events giving rise to this
action occurred, its contract claim is not subject to the FINRA arbitration requirement.
IV. Conclusion
For these reasons, the Court DENIES the Defendant’s Motion to Stay Action
and Compel Arbitration [Doc. 11].

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SO ORDERED, this 2 day of May, 2014.

/s/Thomas W. Thrash
THOMAS W. THRASH, JR.
United States District Judge

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