COR Clearing, LLC v. Jarvis

Filing 26

ORDER - IT IS ORDERED: The defendant's Motion to Stay Proceedings and Compel Arbitration (Filing No. #16 ) is granted. The defendant's Motion to Stay Discovery and Other Pretrial Proceedings, and For a Protective Order, Pending Resolution of Defendant's Motion to Stay Proceedings and Compel Arbitration (Filing No. #18 ) is granted. The case shall be stayed until further order of this court. Counsel shall file a joint status report concerning the status of this case on May 23, 2014, and every 90 days thereafter, such report to include counsel's position(s) concerning whether the stay should continue in effect or whether the stay should be lifted. Pursuant to NECivR 72.2 any objection to this Order2 shall be filed with the Clerk of the Court within fourteen (14) days after being served with a copy of this Order. Failure to timely object may constitute a waiver of any objection. The brief in support of any objection shall be filed at the time of filing such objection. Failure to file a brief in support of any objection may be deemed an abandonment of the objection. Ordered by Magistrate Judge Thomas D. Thalken. (TCL )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA

COR CLEARING, LLC,
Plaintiff,

8:13CV292

vs.

ORDER

DAVID H. JARVIS,
Defendant.

This matter is before the court on the defendant’s Motion to Stay Proceedings
and Compel Arbitration (Filing No. 16) and Motion to Stay Discovery and Other Pretrial
Proceedings, and For a Protective Order, Pending Resolution of Defendant’s Motion to
Stay Proceedings and Compel Arbitration (Filing No. 18). The defendant filed a brief
(Filing No. 17) with evidence attached1 in support of the motion to compel arbitration
and a brief (Filing No. 19) with evidence attached in support of the motion to stay. The
plaintiff filed a brief (Filing No. 22) and an index of evidence (Filing No. 23) in opposition
to the motion to compel arbitration and a brief (Filing No. 21) in opposition to the motion
to stay. The defendant filed a brief (Filing No. 24) and an index of evidence (Filing No.
25) in reply.

BACKGROUND
The plaintiff brought suit against the defendant for breach of a fiduciary
relationship. See Filing No. 1 - Complaint ¶ 1. The plaintiff, a clearing broker, is “an
independent

full-service

clearing

and

settlement

firm,”

providing

“technology,

administrative services and product offerings through multiple customized platforms” to
“approximately 75 introducing brokers.” Id. ¶ 10; see Filing No. 17 - Brief p. 7 n.1. An
introducing broker has a direct relationship with an investing client and delegates the
work of the floor operation, trade execution, and handling of securities and money to a
clearing broker. See Filing No. 17 - Brief p. 7 n.1.
1

All filings shall comply with the Federal Rules of Civil Procedure and the Civil Rules of the United States
District Court for the District of Nebraska. Specifically, any brief and index of evidence shall be filed
separately from each other. See NECivR 7.1(a)(1) and (a)(2)(B). Documents which are not filed in
compliance with the rules may be stricken from the record or disregarded by the court.

In January 2012, the plaintiff acquired Legent Clearing.
Complaint ¶ 10.

See Filing No. 1 -

The defendant had been employed by Legent Clearing since

December 31, 2009, as the Executive Vice President and General Counsel, and
continued to work for the plaintiff as an employee, an attorney, and as General Counsel
or Deputy General Counsel, until September 30, 2012. Id. ¶ 12; see Filing No. 17 Brief p. 2-3. On December 31, 2009, as part of his employment, the defendant signed
Legent Clearing’s Arbitration Policy form, which provided:
I further agree that . . .
I will submit any dispute - including but not limited to my
termination - arising under or involving my employment with
Legent Clearing to binding arbitration within one (1) year
from the date the dispute first arose. I agree that arbitration
shall be the exclusive forum for resolving all disputes arising
out of or involving my employment with Legent Clearing or
the termination of that employment. . . .
Filing No. 17 - Ex. R Legent Clearing Arbitration Policy.
The defendant was an independent contractor for the plaintiff from October 1,
2012, until December 31, 2012. See Filing No. 17 - Brief p. 3. As part of the change in
his status, in October 2012, the defendant signed a Separation Agreement and General
Release, including a Contractor Agreement.

See Filing No. 23 - Ex. 1(A).

The

Separation Agreement states:
This Agreement contains the entire understanding and
agreement between COR and Mr. Jarvis with respect to the
subject matter hereof and supersedes and replaces any and
all prior agreements and understandings concerning the
subject matter of this Agreement, with the exception of
any agreements signed by both parties hereto on or after the
effective date of this Agreement.
Filing No. 23 - Ex. 1(A) Separation Agreement and General Release ¶ 7 (emphasis
added). Although the agreement does not mention arbitration it contains a section titled
Governing Law, which states:
This Agreement shall be construed and interpreted in
accordance with the substantive laws of the State of
Nebraska without giving effect to its conflict-of-laws
principles. Mr. Jarvis submits to the jurisdiction of the
federal and state courts located in Douglas County,
Nebraska and consents that he may be served with any
process or paper by certified or registered mail or by
2

personal service within or without the State of Nebraska in
accordance with applicable law. Furthermore, Mr. Jarvis
waives and agrees not to assert in any action, suit or
proceeding brought by COR to enforce this Agreement that
he is not personally subject to the jurisdiction of such
Douglas County, Nebraska courts, that the action, suit or
proceeding is brought in an inconvenient forum or that the
venue of the action, suit or proceeding is improper.
Id. ¶ 8 (emphasis added).
In late 2012 and early 2013, more than one of the plaintiff’s introducing brokers,
independent of their relationships with the plaintiff, became clients of the defendant.
See Filing No. 17 - Brief p. 7; see also Filing No. 1 - Complaint ¶¶ 18-22. The plaintiff
alleges that in May and June 2013, the defendant contacted the plaintiff by identifying
himself as the attorney for two of the plaintiff’s clients. See Filing No. 1 - Complaint ¶¶
19, 21. In these communications, the defendant represented the clients in disputes
against the plaintiff. Id. ¶¶ 19-22. The plaintiff alleges the defendant “appeared” to
have disclosed the plaintiff’s confidential information and strategies to the clients to
assist them in their disputes against the plaintiff. Id. ¶¶ 20, 22.
The plaintiff also alleges it has “uncovered multiple instances” of the defendant
disclosing information he received during privileged legal communications with the
plaintiff’s Board of Directors to non-essential employees, placing the communications at
risk while he was still employed with the plaintiff. Id. ¶¶ 23-24. The plaintiff alleges the
defendant has continued to disclose privileged communications since his departure. Id.
¶ 23. The plaintiff contends these disclosures significantly disadvantaged the plaintiff in
dealings with its adversaries and damaged its relationships with clients.

Id. ¶ 28.

Based on these allegations, the plaintiff asserts claims for breach of fiduciary duty
(Claim 1) and negligence (Claim 2) against the defendant. Id. at 7-11. Additionally, the
plaintiff seeks injunctive relief forbidding the defendant from disclosing confidential
attorney-client communications and confidential documents and information. Id. at 1114.
The defendant has not yet filed an answer. Instead the defendant seeks a stay
of all proceedings pending resolution of his motion to compel arbitration. See Filing
Nos. 16, 18. Specifically, the defendant argues the December 31, 2009, agreement is a
binding arbitration agreement that requires these proceedings be stayed until the parties
3

have an opportunity to arbitrate.

See Filing No. 16.

Additionally, the defendant

contends the parties are bound to arbitrate by virtue of the plaintiff’s broker-dealer
license through the United States Securities and Exchange Commission (SEC) and the
Financial Industry Regulatory Authority (FINRA). See Filing No. 17 - Brief p. 10. The
plaintiff argues a third agreement, the October 2012 Separation Agreement, supersedes
and nullifies any prior obligation to arbitrate. See Filing No. 21 - Response p. 1.

ANALYSIS
“The Federal Arbitration Act, 9 U.S.C. § 4, states that a party aggrieved by the
failure of another to arbitrate under a written agreement may petition the district court for
an order compelling arbitration.” Art Etc. LLC v. Angel Gifts, Inc., 686 F.3d 654, 656
(8th Cir. 2012). “[A]rbitration is simply a matter of contract between the parties; it is a
way to resolve those disputes-but only those disputes-that the parties have agreed to
submit to arbitration.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943
(1995). A dispute falling within the scope of a valid arbitration agreement must be
submitted to arbitration. See Simmons Foods, Inc. v. H. Mahmood J. Al-Bunnia &
Sons Co., 634 F.3d 466, 468 (8th Cir. 2011).
The issue of “whether the parties have a valid arbitration agreement at all” is a
“gateway matter” that requires judicial resolution. Green Tree Fin. Corp. v. Bazzle,
539 U.S. 444, 452 (2003) (plurality opinion); see Howsam v. Dean Witter Reynolds,
Inc., 537 U.S. 79, 83 (2002) (“[W]hether the parties have agreed to submit a particular
dispute to arbitration is typically an issue for judicial determination.”) (internal citation
omitted); see also Barker v. Golf U.S.A., Inc., 154 F.3d 788, 791 (8th Cir. 1998)
(stating “a court must decide whether [an] agreement to arbitrate is valid”).

The

Supreme Court noted the arbitrability determination depends on whether the parties
“agree[d] to submit the arbitrability question itself to arbitration.” Kaplan, 514 U.S. at
943. “[W]hen courts decide whether a party has agreed that arbitrators should decide
arbitrability: Courts should not assume that the parties agreed to arbitrate arbitrability
unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so.” Kaplan, 514 U.S.
at 944 (alterations in original) (citing AT & T Techs., Inc. v. Comm’s Workers of Am.,
475 U.S. 643, 649 (1986)).

“Unless the parties clearly and unmistakably provide

4

otherwise, the question of whether the parties agreed to arbitrate is to be decided by the
court, not the arbitrator.” AT & T Techs., 475 U.S. at 649.
“The Federal Arbitration Act create[s] a body of federal substantive law of
arbitrability, applicable to any arbitration agreement within the coverage of the Act.”
Donaldson Co., Inc. v. Burroughs Diesel, Inc., 581 F.3d 726, 731 (8th Cir. 2009)
(internal citation omitted).

However “[w]hen deciding whether the parties agreed to

arbitrate a certain matter . . . courts generally . . . should apply ordinary state-law
principles that govern the formation of contracts.” Hudson v. ConAgra Poultry Co.,
484 F.3d 496, 500 (8th Cir. 2007) (citing Kaplan, 514 U.S. at 944).

“Thus, state

contract law governs the threshold question of whether an enforceable arbitration
agreement exists between litigants; if an enforceable agreement exists, the federal
substantive law of arbitrability governs whether the litigants’ dispute falls within the
scope of the arbitration agreement.” Donaldson, 581 F.3d at 731.
The parties agree Nebraska contract law applies. See Filing No. 23 - Ex. 1(A)
Separation Agreement and General Release ¶ 8. “To create a contract, there must be
both an offer and an acceptance; there must also be a meeting of the minds or a
binding mutual understanding between the parties to the contract.” City of Scottsbluff
v. Waste Connections of Neb., 809 N.W.2d 725, 740 (2011). “[W]here the terms of a
contract are clear, they are to be accorded their plain and ordinary meaning.” Gridiron
Mgmt. Group, LLC v. Travelers Indem. Co., 839 N.W.2d 324, 330 (Neb. 2013).

A.

December 31, 2009, Agreement
The December 31, 2009, agreement does not require the court to compel

arbitration. The defendant signed Legent Clearing’s Arbitration Policy form at the outset
of his employment. The form agreement provides only that the signing employee will
submit any employment-related dispute to arbitration. See Filing No. 17 - Ex. R Legent
Clearing Arbitration Policy (“I will submit any dispute . . . arising under or involving my
employment . . . to binding arbitration. . . .”). There is no evidence before the court the
plaintiff’s policy contained a similar requirement for the employer to submit disputes to
arbitration or the plaintiff would have understood the agreement to do so, and the court
will not impose such a requirement. See 1 Domke on Commercial Arbitration § 8:16 n.6
(rev. ed. Aug. 2013) (citing cases) (“When a contract as a whole is otherwise supported
5

by consideration on both sides, an arbitration clause will not be invalidated for lack of
mutuality, even when the clause compels one party to submit all disputes to arbitration,
but allows the other party the choice of pursuing arbitration or litigation in the courts.”);
see also Barker, 154 F.3d at 791 (interpreting Oklahoma law holding “mutuality in
arbitration clauses is not required”). Likewise no evidence suggests the plaintiff signed
a separate agreement or otherwise assented to bind itself to arbitrate employmentrelated disputes.

B.

Financial Industry Regulatory Authority
The plaintiff is subject to arbitration pursuant to FINRA rules.

FINRA Rule

13200(a) provides that “[e]xcept 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 Members; Members and Associated
Persons; or Associated Persons.”

A member is “any broker or dealer admitted to

membership in FINRA.” FINRA R. 13100(o). The evidence before the court suggests,
and the plaintiff does not dispute, the plaintiff is a member of FINRA.
“Associated Person” is defined as “a natural person who is registered or has
applied for registration under the Rules of FINRA” or
[a] sole proprietor, partner, officer, director, or branch
manager of a member, or other natural person occupying a
similar status or performing similar functions, or a natural
person engaged in the investment banking or securities
business who is directly or indirectly controlling or controlled
by a member, whether or not any such person is registered
or exempt from registration with FINRA under the By-Laws
or the Rules of FINRA.
FINRA R. 13100(a), (r). The plaintiff states the defendant had an “alleged prior status
as an associated person under FINRA,” arguing such status is irrelevant because the
defendant’s status changed when he signed the October 2012 agreement. See Filing
No. 21 - Brief p. 2-3. However, “a person formerly associated with a member is a
person associated with a member.” FINRA R. 13100(r). Under the broad language of
the rules, the defendant, who was an officer of the plaintiff, is a person associated with a
member.

6

Accordingly, the parties here must arbitrate their dispute “if the dispute arises out
of the business activities of a member or an associated person.” FINRA R. 13200(a). A
dispute is broadly defined as “a dispute, claim or controversy.” FINRA R. 13100(l).
However, “the Court must examine the nature of this dispute to see if it falls within the
class of disputes wherein the issues are reasonably related to FINRA regulated
activities.” Lorbietzki v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 2:11cv1585,
2011 WL 855354, at *3 (D. Nev. Mar. 9, 2011) (noting disputes “utterly unrelated to the
securities industry” should not fall under the rule). Nevertheless, “[f]or a dispute to fall
within the purview of Rule 13200, it need only ‘pertain to matters with some nexus to the
activity [of the member or associated person] actually regulated by FINRA.’”

NDX

Advisors, Inc. v. Advisory Fin. Consultants, Inc., No. C 11-3234, 2012 WL 6520689,
at *3 (N.D. Cal. Dec. 13, 2012) (alteration in original) (citation omitted). Courts “have
uniformly deemed employment-related claims—including claims regarding alleged
conduct occurring after the termination of employment—between brokerage firms and
their agents as disputes ‘arising out of the business activities’ of FINRA members.”
Hawkins v. Questar Capital Corp., 5:12cv376, 2013 WL 5596897, at * (E.D. Ky. Oct.
11, 2013) (noting claims involving third parties and arising after cancellation of an
employment contract fell under broad scope of FINRA arbitration rule); P & M Corp.
Fin., LLC v. Paparella, No. 2:10cv10448, 2010 WL 4272829, at *3 (E.D. Mich. Oct. 22,
2010) (compelling arbitration pursuant to FINRA rules because the case involved
whether the defendant misappropriated confidential information and solicited direct
competitors of the plaintiff, which was a dispute over business activities between a
member and an associated person).
Although the defendant worked as an attorney, rather than a financial analyst or
agent, he performed the functions of an individual engaged in the investment banking or
securities business who was directly or indirectly controlling or controlled by a member,
in his employment as an officer of the plaintiff. The plaintiff’s claims allege that the
defendant, in such capacity, was in a position to obtain confidential trade and business
secrets and other confidential business information, which the defendant then
improperly disclosed to the plaintiff’s non-essential employees and clients.

The

defendant’s alleged conduct involves the plaintiff’s and the defendant’s business
activities and have some nexus to the activity of the member actually regulated by
7

FINRA. For this reason, the parties are subject to arbitration pursuant to FINRA rules
unless their obligation was superseded.

C.

October 2012 Agreement
The plaintiff argues the October 2012 agreement “voided the arbitration

agreement” by superseding and replacing all previous agreements. See Filing No. 21 Brief p. 3. The plaintiff specifically relies on paragraphs seven and eight of the October
2012 agreement. Id. By contrast, the defendant argues the October 2012 agreement
applies only to “the subject matter of [the October 2012 agreement]” and fails to exclude
or even reference arbitration, thus is inadequate to supersede the FINRA rules. See
Filing No. 24 - Reply p. 3-6 (quoting Filing No. 23 - Ex. 1(A) Separation Agreement and
General Release ¶ 7).
The FINRA obligation to arbitrate may be superseded and displaced by an
agreement between parties. See UBS Fin. Servs., Inc. v. Carilion Clinic, 706 F.3d
319, 328 (4th Cir. 2013). “Any such provision, however, must be sufficiently specific to
impute to the contracting parties the reasonable expectation that they are superseding,
displacing, or waiving the arbitration obligation created by FINRA. . . .” Id. (applying
parties’ contract to FINRA R. 12200 as between a FINRA member and a customer).
Although more than one interpretation of a provision might be possible, the presumption
in favor of arbitration requires a sufficiently specific forum selection clause to preclude
arbitration. Id. at 329 (noting “one would reasonably expect that a clause designed to
supersede, displace, or waive arbitration would mention arbitration”); Newman v. First
Montauk Fin. Corp., 2010 WL 2933281, at *5 (E.D.N.C. July 23, 2010) (“Furthermore,
where an arbitration clause is reasonably susceptible of an interpretation that covers the
dispute between the parties, only an ‘express provision’ in the arbitration agreement
excluding the dispute, or ‘the most forceful evidence of a purpose to exclude the claim
from arbitration’ suffices to preclude arbitration.”) (quoting Washington Square Sec.,
Inc. v. Aune, 385 F.3d 432, 436 (4th Cir. 2004)); see Applied Energetics, Inc. v.
NewOak Capital Mkts., LLC, 645 F.3d 522, 525 (2d Cir. 2011) (noting “the
presumption in favor of arbitrability should only be applied ‘where a validly formed and
enforceable arbitration agreement is ambiguous about whether it covers the dispute at
hand’”) (quoting Granite Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct. 2847, 28588

59 (2010)). Therefore, a broad arbitration agreement governs disputes despite parties
assent to a nonexclusive forum selection clause in a subsequently enacted agreement.
Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278, 284 (2d Cir. 2005); Offshore
Exploration & Prod. LLC v. Morgan Stanley Private Bank, N.A., No. 13 Civ. 3537, --F. Supp. 2d ----, 2013 WL 6230324, at *8-9 (S.D.N.Y. Dec. 2, 2013) (slip op.) (staying
case pending arbitration when absence of conflict between arbitration clause in one
agreement and forum selection clause, silent on arbitration, in separate later agreement
led court to harmonize agreements). An agreement to arbitrate remains in effect unless
“positive assurance” exists in the subsequent agreement to sufficiently to override
earlier agreement. Biremis, Corp. v. Merrill Lynch, Pierce, Fenner & Smith Inc., No.
CV-11-4934, 2012 WL 760564, at *3-4 (E.D.N.Y. Mar. 8, 2012) (quoting Bank Julius,
424 F.3d at 284). By distinction, a later adjudication clause will displace an arbitration
clause when “[b]oth provisions are all-inclusive, both are mandatory, and neither admits
the possibility of the other.” Applied Energetics, 645 F.3d at 525.
The forum selection clause in the October 2012 agreement is insufficiently
specific to displace the arbitration requirement contained in the FINRA rule. First, the
October 2012 agreement does not mention arbitration. Second, the forum selection
provision is not exclusive of arbitration but complimentary to it by requiring the
defendant to submit to any court proceeding in this jurisdiction. Finally, the October
2012 agreement’s merger clause specifically limits the agreement to the defendant’s
post-employment consulting arrangement, however the plaintiff’s complaint alleges
claims which arise based on information the defendant learned prior to the consulting
arrangement. Upon consideration,

IT IS ORDERED:
1.

The defendant’s Motion to Stay Proceedings and Compel Arbitration

(Filing No. 16) is granted.
2.

The defendant’s Motion to Stay Discovery and Other Pretrial Proceedings,

and For a Protective Order, Pending Resolution of Defendant’s Motion to Stay
Proceedings and Compel Arbitration (Filing No. 18) is granted.
3.

The case shall be stayed until further order of this court.

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4.

Counsel shall file a joint status report concerning the status of this case on

May 23, 2014, and every 90 days thereafter, such report to include counsel’s
position(s) concerning whether the stay should continue in effect or whether the stay
should be lifted.

ADMONITION
Pursuant to NECivR 72.2 any objection to this Order2 shall be filed with the Clerk
of the Court within fourteen (14) days after being served with a copy of this Order.
Failure to timely object may constitute a waiver of any objection. The brief in support of
any objection shall be filed at the time of filing such objection. Failure to file a brief in
support of any objection may be deemed an abandonment of the objection.
Dated this 9th day of January, 2014.
BY THE COURT:
s/ Thomas D. Thalken
United States Magistrate Judge

2

A review of the case law reveals that courts are divided on whether motions to compel
arbitration are dispositive for purposes of 28 U.S.C. § 636(b)(1)(A).
Non-Dispositive. In PowerShare, Inc. v. Syntel, Inc., 597 F.3d 10, 14 (1st Cir. 2010), the court
reasoned motions to compel arbitration are non-dispositive motions. In Wilken Partners, L.P. v.
Champps Operating Corp., Case No. 11-cv-1005, 2011 WL 1257480, at *1 (D. Kan. April 4, 2011) the
court decided that a “motion to compel arbitration is non-dispositive, as an Article III judge ultimately will
be required to confirm, modify or vacate any arbitration award involving the parties to [the] action.”
Accord All Saint’s Brands, Inc. v. Brewery Group Denmark, A/S, 57 F. Supp. 2d 825 (D. Minn. 1999);
Herko v. Metro. Life Ins. Co., 978 F. Supp. 141, 142 n. 1 (W.D. N.Y. 1997); SDD99, Inc. v. ASA Int’l,
Ltd., Case No. 06-CV-6089, 2007 WL 952046 (W.D. N.Y. Mar. 29, 2007); Jackman v. Jackman, Case
No. 06-1329, 2006 WL 3792109 (D. Kan. Dec. 21, 2006).
Dispositive. In Coxcom, Inc. v. Egghead Telecom, Inc., Case No. 08-CV-698, 2009 WL
4016629, at *1 (N.D. Okl. 2009), the presiding magistrate judge noted “[c]ourts generally regard a motion
to compel arbitration either as a case dispositive matter or a matter not within the statutory authority of a
U.S. Magistrate Judge to resolve by Order.” In Flannery v. Tri-State Div., 402 F. Supp. 2d 819 (E.D.
Mich. 2005), the district court reasoned that a magistrate judge’s order compelling arbitration terminated
the litigation in district court and transferred the case to another forum; therefore, the court viewed such
an order as the functional equivalent of a dispositive matter, which was reviewable de novo pursuant to
28 U.S.C. § 636(b)(1). See also Chen–Oster v. Goldman, Sachs & Co., 785 F. Supp. 2d 394, 399 (S.D.
N.Y. 2011) (finding persuasive those cases concluding that motions to compel are not case-dispositive)
and BBCM, Inc. v. Health Sys. Int’l, LLC, Case No. C10-0086, 2010 WL 4607917, at *1 (N.D. Iowa
November 4, 2010) (noting a split of authority, the magistrate judge issued a report and recommendation
“out of an abundance of caution”).
I am inclined to agree with PowerShare and Wilken; however, if the district court determines that
the present motions are dispositive matters, then my decision on that point will be reviewable de novo.
10