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. e du/thir dc ir c uit_1998/2Filed January 7, 1998

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 96-5329

*IN RE: THE PRUDENTIAL INSURANCE COMPANY

OF AMERICA SALES PRACTICE LITIGATION

ALL AGENT ACTIONS

HERBERT SCHULTE, MDL transfer; S.D. Illinois; DNJ C iv. 95-4740; MICHAEL D. GORDON, MDL Transfer; W.D. Kentucky (Paducah); DNJ Civil Action 95-4738; RICK A. MARTIN, MDL transfer, W.D. Kentucky (Paducah), DNJ Civil Action 95-5013; KENNETH R. YOUNG, MDL transfe r, M.D. Florida (Tampa), DNJ Civil Action 95-5010; MICHAEL WEAVER, MDL transfer, S.D. Illinois (E. St. Louis), DNJ Civil Action 95-5011

v.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,

Appellant

*(Amended as per the Clerk's 6/20/96 Order)

ON APPEAL FROM THE

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 95-cv-04704)

Argued September 8, 1997

BEFORE: GREENBERG, ALITO and SEITZ, Circuit Judges.

(Opinion Filed: January 7, 1998)Neil J. Maune, Esquire (ARGUED

FOR ALL APPELLEES)
2013B Johnson Road

P.O. Drawer B. Granite City, Illinois 62040 Attorney for Appellee
Michael R. Weaver

J. Bruce Miller, Esquire

4th Floor
621 West Main Street Louisville, Kentucky, 40202 Attorney for Appellee
Rick A. Martin

Delmar O. Koebel, Esquire
6 Joshua Drive O'Fallon, Illinois 62269 Attorney for Appellee

Herbert Schulte

Kenneth W. Scott, Esquire

Scott & Jahn 7415 Burlington Pike

P.O. Box 671 Florence, Kentucky 41022 Attorney for Appellee
Michael D. Gordon

Karla R. Spaulding, Esquire
James, Hoyer & Newcomer 4830 West Kennedy Boulevard One Urban Center, Suite 147 Tampa, Florida 33609 Attorney for Appellee Kenneth R. Young

2Michael H. Barr, Esquire (ARGUED)

Reid L. Ashinoff, Esquire William M. Walsh, Esquire
Sonnenschein Nath & Rosenthal
1221 Avenue of The Americas New York, New York 10020

Alan E. Kraus, Esquire Riker, Danzig, Scherer, Hyland
& Perretti Headquarters Plaza One Speedwell Avenue Morristown, New Jersey 07960 Attorneys for Appellant

OPINION OF THE COURT

SEITZ, Circuit Judge.

This appeal presents a novel question in this court of whether the "insurance business" exception found in the National Association of Securities Dealers ("NASD") Code of Arbitration Procedure precludes arbitration of empl oyment disputes that implicate insurance issues.1

I. Background

A. Facts and Procedural History

Certain questionable sales practices of the Prudent ial Insurance Company of America ("Prudential") gave ri se to

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1. The district court relied on diversity jurisdict ion, 28 U.S.C. S 1332, and federal question jurisdiction, 28 U.S.C. S 1331 , to entertain plaintiffs' state law claims and causes of action u nder the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. SS 1961- 1968. We exercise jurisdiction under the Federal Ar bitration Act, 9 U.S.C. SS 16(a)(1)(A) and 16(a)(1)(C). Because this appeal presents a legal question concerning the applicability and scope of an arbitration agreement, our standard of review is plenary. See P ritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc. 7 F.3d 1110, 11 13 (3d Cir. 1993).

3several lawsuits against it by former employees.2 P laintiffs

are former Prudential sales agents who brought suit alleging that Prudential took adverse employment ac tion against them in alleged retaliation for their refus al to participate in the company's insurance sales fraud. In response to the plaintiffs' action, Prudential move d, under section 3 of the Federal Arbitration Act, to compel arbitration of plaintiffs' claims. Prudential relie d upon the fact that each plaintiff had signed a Uniform Appli cation for Securities Industry Registration or Transfer ("Form U-4") which incorporated by reference the arbitration pro visions of the NASD Code. The plaintiffs opposed the motion
, arguing that Prudential could not invoke Form U-4 b ecause it is not a party to that agreement, and, in the al ternative, that the Code contains an exception for disputes in volving the "insurance business" which would preclude arbit ration
in this case.

Upon considering the contested motion, the district court
held that Prudential could seek to enforce the arbi tration agreement even though it is not a signatory to Form U-4. Having ruled that Form U-4 applied to the appropria te parties, the court addressed whether the arbitratio n agreement covered the legal claims pressed by the plaintiffs. Interpreting the scope of the agreement embodied in Form U-4, the court found that the relevant lang uage applied to the plaintiffs' causes of action.

Finally, the court examined the insurance business exception, which would potentially exempt arbitrati on in this case. While recognizing a liberal federal poli cy in favor of arbitration, the court nevertheless held that th e exception applied on the ground that plaintiffs' cl aims are "intricately related" to Prudential's insurance bus iness. It added that the looming class action suits against Prudential may raise the same issues as those subje ct to arbitration. This consideration, in the district co urt's view, compelled a finding favoring the application of the

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2. These lawsuits were consolidated with actions br ought by Prudential policyholders before the District Court pursuant to 28 U.S.C. S 1407. Because Prudential sought to compel arbitration onl y against the plaintiffs, the policyholder claims are not before us in this proceeding.

4exception. Accordingly, the court denied Prudential 's

motion under the Arbitration Act. This appeal follo wed.

B. The Arbitration Provisions

The resolution of the issues in this appeal first c alls for a parsing of the relevant documentation and, in par ticular, the language of Form U-4 itself.3 This form provide s that the applicant agreed 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 arbitra ted under the rules, constitutions, or by-laws of the ...[NASD] as may be amended from time to time.

Form U-4 further states that each applicant will:

abide by, comply with, and adhere to all the provisions, conditions and covenants of the statutes, co nstitutions, certificates of incorporation, by-laws and r ules and regulations of the ... [NASD] as they are an d may be adopted, changed or amended from time to tim e....

Incorporated by reference through these two provisi ons is
the NASD Code of Arbitration. Part I Section One of the Code articulates which matters are eligible for arb itration:

any dispute, claim, or controversy arising o ut of or in connection with the business of any member o f the [NASD], or arising out of the employment or termination of employment of associated pers ons(s) with any member, with the exception of dispu tes involving the insurance business of any memb er which is also an insurance company:

(1) between or among members;

(2) between or among members and associated

persons;

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3. The relevant language at issue refers to the mos t current Form U-4 and the NASD Code of Arbitration, as amended in 199 3. Although the plaintiffs had argued before the district court tha t the pre-1993 Code of Arbitration applied, they do not raise that content ion on appeal.

5(3) between or among members or associated p ersons

and public customers, or others; and

(4) between or among members, registered cle aring agencies with which the [NASD] has entered i nto an agreement to utilize the [NASD] arbitrati on facilities and procedures, and participants, pledges, or other persons using the faciliti es of a registered clearing agency, as these terms a re defined under the rules of such a registered clearing agency.

Part II Section 8 of the Code mandates arbitration for "[a]ny dispute, claim, or controversy eligible for submiss ion under Part I of this Code between or among members and/or associated persons...."

All the plaintiffs signed Form U-4 as a condition precedent to their employment at Prudential.4 Prude ntial, however, is not a signatory to the agreement.5 Rath er, the "firm" identified in Form U-4, is Pruco Securities Corp., a wholly-owned Prudential subsidiary.

II. Arbitration

A. Prudential's Standing

A threshold inquiry under the Federal Arbitration A ct is to determine, under recognized principles of contra ct law, the validity of, and the parties bound by, the arbi tration agreement. As explained by the Supreme Court, " `arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.' " AT&T Technologies v. Communications Workers of America, et al., 475 U.S. 643,

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4. We note that plaintiffs Martin and Schulte signe d an earlier version of Form U-4, which differed slightly from the agreemen t signed by the remaining plaintiffs. The provisions at issue in th is appeal, however, are materially identical.

5. The Form U-4 agreement is more correctly underst ood as between the plaintiffs and the NASD. See Gilmer v. Interstate/J ohnson Lane Corp., 500 U.S. 20, 25 n.2. (1985).

6648 (1986) (quoting United Steelworkers of America v.

Warrior and Gulf Navigation Co., 363 U.S. 574, 582 (1960)). The identification of the parties bound by the agre ement to arbitrate need not be confined to the limited inqui ry of identifying the signatories to the arbitration agre ement. Rather, the dispositive finding is an " `express' a nd `unequivocal' " agreement between parties to arbitr ate their disputes. Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1512 (3d Cir. 1994) (citations omitted), aff' d, 514 U.S. 938 (1995).

As this court has previously recognized, "a variety of nonsignatories of arbitration agreements have been hel d to be bound by such agreements under ordinary common law contract and agency principles." Barrowclough v. Ki dder, Peabody & Co., Inc., 752 F.2d 923, 938 (1985) (cita tions omitted), overruled on other grounds by Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1 112 (3d Cir. 1993). Indeed, courts have been willing to app ly third party beneficiary law in examining the contractual standing of a non-signatory party to a dispute, provided the re is an expression of the requisite intent between the thir d party and the plaintiff to arbitrate their claims. See Mc Pheeters v. McGinn, Smith & Co., 953 F.2d 771, 772-73 (2d Cir. 1992) (per curiam); Nesslage v. York Sec., Inc., 823 F.2d 231, 233- 34 (8th Cir. 1987); Letizia v. Prudential Bache Sec ., Inc., 802 F.2d 1185, 1187 (9th Cir. 1986); Mowbray v. Mos eley, Hallgarten, Estabrook & Weeden, Inc., 795 F.2d 1111
, 1116-17 (1st Cir. 1986); Stone v. Pennsylvania Merc hant Group, Ltd., 949 F.Supp. 316, 320-21 (E.D.Pa. 1996)

.

The parties in this case do not contest the validit y of the arbitration clause itself. Rather, they dispute the identity of the parties bound by Form U-4.6 At the outset, we d o not find Prudential is without standing here simply bec ause it is not a signatory to the arbitration argument; nor will we deny standing because Pruco is listed as the only"f irm" referenced in Form U-4. Instead, we turn to the tex t of the Form U-4 arbitration agreement to see if there is a n express

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6. The parties raise this issue in response to this court's direction to address the significance, if any, of Dayhoff Inc. v . H.J. Heinz Co., 86

F.3d 1287 (3d Cir.), cert. denied, 117 S.Ct. 583 (1996), to this case.

7and unequivocal intent that the plaintiffs would ar bitrate

their claims against, inter alia, Prudential, and w hether "both parties to the contract express an intention to benefit the third party in the contract itself...." Scarpit ti v. Weborg, 530 Pa. 366, 372-73, 609 A.2d 147, 150 (1992); see also Restatement (Second) of Contracts S 302(1)(b) (1981 ).

As stated in Form U-4, the plaintiffs agreed to arb itrate any dispute not only with Pruco, but also with "any other person" where the claim itself would be subject to
arbitration under the NASD Code. Pursuant to sectio n 8 of the NASD Code, plaintiffs agreed to arbitrate certa in disputes "between or among members and/or associate d persons...." There is no question that Prudential i s a member of the NASD, and the plaintiffs are associat ed persons within the meaning of the Code.7 Thus, we conclude, as did the district court, there is a cle ar and unequivocal intent to arbitrate claims with third p arties such as Prudential, and not just Pruco, to the exte nt they are eligible for arbitration under S 1. Cf. Armijo v. Prudential Insurance Co. of America, 72 F.3d 793, 799 n.7 (10t h Cir. 1995) (finding an intent to arbitrate with Prudenti al as well

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7. An "associated person" is defined as:

every sole proprietor, partner, officer, dir ector, or branch manager of any member, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business wh o is directly or indirectly controlling or controlled by such member....

NASD By-Laws P 1101(q). We find no merit to plainti ff Young's argument that he is not an "associated person" within the me aning of the NASD Code. Indeed, Young's entire theory of recovery is premised on the fact that he was a Prudential employee with authority to trade in securities. Young would certainly be an "associated person" for purposes of the Securities Exchange Act, which uses similar languag e as the NASD's definition and provides the statutory basis for the NASD. See 15 U.S.C. S 78c(a)(21); Kaplan, 19 F.3d at 1517; Cular v. Met ropolitan Life Ins.
Co., 961 F.Supp. 550, 556-57 (S.D.N.Y. 1997). Even if Yo ung, as an employee, is not an associated person for purposes of the NASD definition, his degree of involvement in these disp utes would, at the very least, place him as a "certain other" under Section 8 of the NASD Code. See Thomas James Associates, Inc. v. Jameson, 102 F .3d 60, 67-68 (2d Cir. 1996).

8as Pruco through the maintenance of registration wi th

Prudential).

Moreover, it is clear from the text and purpose of Form U-4, that the parties to the agreement intended to benefit such non-signatory, third parties as Prudential. Wh ile Form U-4 is only an agreement between the NASD and the applicant, it was adopted as a broader effort by se lfregulatory organizations, including the NASD, to re gulate the securities industry.8 See 1 Ian R. MacNeil, et al., Federal Arbitration Law: Agreements, Awards, and Remedies under the Federal Arbitration Act S 13, at 3-8, 43-44 (1996); Stephen J. Ware, Employment Arbitrati on and Voluntary Consent, 25 Hofstra L.Rev. 83, 146 (1996) . The intention, as Form U-4 unambiguously indicates, was not limited to arbitrating disputes between the NASD an d the applicant or member "firms" explicitly recognized i n the text. Rather, the arbitration agreement and the NAS D Code
of Arbitration establish certain classes of individ uals -- member firms of the NASD, customers, and so on -- w ho would benefit from the applicant's agreement with t he NASD. The applicant, in return, would become a regi stered broker with the NASD and could properly conduct bus iness under the federal securities laws. Therefore, we ha ve no doubts that the parties to Form U-4 unequivocally i ntended that each applicant would submit to arbitration aga inst non-signatory third parties such as Prudential. A h olding that would restrict the right of these third partie s to invoke arbitration because they had not signed Form U-4 wo uld essentially require the NASD and the applicants to seek explicit textual recognition of all intended benefi ciaries, whether known or unknown. We think such a requireme nt would frustrate the purpose and text of Form U-4 an d accordingly hold that Prudential may properly seek enforcement of the arbitration clause against the p laintiffs.

This case is distinguishable from Dayhoff Inc. v. H .J. Heinz Co., 86 F.3d 1287 (3d Cir.), cert. denied, 11 7 S.Ct. 583 (1996), where we held that a non-signatory pare nt

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8. In fact, the Securities Exchange Act of 1934 req uires brokers and dealers to register with, and submit to the rules o f, the NASD as a condition to trading in securities. 15 U.S.C. S 78o (b)(8).

9corporation cannot "by reason of their corporate

relationship" enforce an arbitration clause, signed by a wholly-owned subsidiary, absent an express agreemen t to that effect. Id. at 1297. In Dayhoff, unlike the sc enario before us, there was no unambiguous expression of i ntent between the parties to the arbitration agreement to create a class of intended beneficiaries who might invoke arbitration. Id. at 1296-97. In addition, the Dayho ff panel was particularly concerned that the non-signatory p arent corporation had essentially created an "option to a ccept or reject the arbitration and forum selection clauses. ..." Id. at 1297. The panel found that the existence of "such a choice belie[d] the existence of an agreement" to arbitrat e. Id. Such
is not the case here.

B. The Nature of the Dispute

Having found that Prudential has standing to seek enforcement of the arbitration agreement against th e plaintiffs, the next step in the analysis is to ide ntify the nature of the dispute at issue and the scope of the
arbitration clause. Because arbitration clauses are fundamentally a creature of contract law, the criti cal focus is on a clear intention to arbitrate a specific cla im or dispute between the parties. In the court's underta king to determine the parties' intent, the analytical tools of ordinary contractual interpretation become relevant . First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 9 44 (1995) (citations omitted).

It is important to note that the Federal Arbitratio n Act provides the authority for the enforcement of arbit ration clauses as a matter of federal law and, as such, fe deral policies govern. Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (1982). The F ederal Arbitration Act reflects a pervasive federal intere st in promoting arbitration and encouraging courts to uph old arbitration clauses. See id. The underpinnings of t his strong federal policy in favor of arbitration have been exhaustively reviewed by the Supreme Court, and nee d not be reiterated here. See, e.g., Gilmer v. Interstate /Johnson Lane Corp., 500 U.S. 20, 24-26 (1991); Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219-220 (1985) ; Moses

10H. Cone, 460 U.S. at 24-25. However, we will emphas ize

certain settled principles of federal arbitration l aw that are

relevant here.

Any inquiry into the scope of an arbitration clause must necessarily begin with the presumption that arbitra tion applies. In considering the nature of the dispute a nd the scope of the arbitration clause, this court must op erate under a "presumption of arbitrability in the sense that `[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assuranc e that the arbitration clause is not susceptible of an int erpretation that covers the asserted dispute.' " AT&T Technolog ies, 475 U.S. at 650 (quoting Warrior & Gulf, 363 U.S. at 58 2-83). Thus, when it cannot be said "with positive assuran ce" that the parties have clearly and unequivocally excepted a certain dispute from arbitration, the court must co mpel arbitration. A necessary corollary of this axiomati c rule in favor of arbitration is that doubts in interpreting the precise scope of the arbitration agreement are to be resolv ed in favor of arbitration. Moses H. Cone, 460 U.S. at 24 . While this approach is not a mandate for courts to ignore explicit textual agreements or to reshape the parties' obvio us intent, it nevertheless weighs genuine ambiguities against the resisting party. Painewebber Inc. v. Hartmann, 921 F.2d 507, 512-13 (3d Cir. 1990).

With these principles in mind, we turn to the natur e of the disputes here in order to determine whether the y fall within the scope of the relevant arbitration clause . The plaintiffs have alleged various state violations -- employment, contractual, and tortious in nature -- based on their discharge in retaliation for their refusal to participate in the alleged fraudulent insurance pra ctices of Prudential. Several plaintiffs have also alleged RI CO violations in which the requisite predicate acts of racketeering activity involve Prudential's insuranc e fraud. These plaintiffs allege that RICO standing under 18 U.S.C. S 1964(c) stems from the injury caused by wrongful employment termination.

No party contests the employment nature of the plai ntiffs' claims. Indeed, all the causes of action set forth revolve around the damage suffered through Prudential's dec ision

11to terminate employment or intentionally interfere with the

plaintiffs' business expectations as insurance agen ts. Unique to these claims, however, is the involvement of Prudential's insurance business in the dispute. The plaintiffs cannot recover under their various theor ies of liability without necessarily implicating the illeg al nature of Prudential's insurance practices. To this extent, t he grievances cited by the plaintiffs are accurately d escribed as arising out of the employment or termination of employment, but they nevertheless implicate the leg ality of certain insurance practices. We cannot simply ignor e, as some other courts seem to have done, the insurance aspects of this case. See, e.g., Metropolitan Life Ins. Co. v. Lindsay, 920 S.W.2d 720 (Tex. App. Ct. 1996); Prude ntial Ins. Co. Of America v. Shammas, 865 F.Supp. 429, 43 2 (W.D. Mich. 1993); Trumbetta v. Metropolitan Life I ns. Co., 1994 WL 481152 (E.D. Pa. 1994) (unreported disposit ion). Rather, we identify the issues raised by the plaint iffs in order to determine whether they fall within the int ended scope of arbitration.

C. Scope of the Arbitration Agreement and the Insurance Exception

Given the nature of the dispute, we address the agreement embodied in Form U-4 and the NASD Code incorporated by reference in order to ascertain whe ther this controversy falls within the intended scope of arbi tration. Form U-4 itself merely provides that the parties ag ree to arbitrate any dispute that is required to be arbitr ated under the NASD Code. The Code's language is broadly draft ed and

covers:

any dispute, claim, or controversy arising o ut of or in connection with the business of any member o f the [NASD], or arising out of the employment or termination of employment of associated pers on(s) with any member, with the exception of disputes i nvolving the insurance business of any member which i s also an insurance company....

NASD Code S 1. At the very least, the section's pla in language differentiates between two types of disput es, both

12of which are arbitrable. There is no question that the

parties intended to arbitrate any dispute "arising out of the employment or termination of employment". Beyond th ese employment disputes, claims "in connection with the
business of members" are also within the intended s cope of
arbitration.

The language of the Code carves out an exception wh ere the dispute involves the "insurance business of any member." In these situations, there is a clear inte nt not to
arbitrate but rather to leave the matter within the province of the courts. Less clear, however, is the coverage of this exception, as several ambiguities immediately arise in the clause's interpretation. For example, it is not cle ar whether the business of insurance exception applies to empl oyment related disputes, to disputes in connection with a member's business, or to both.9 More importantly, neither th e Code nor NASD by-laws defines what is meant by the "insu rance business" and the intended scope of its coverage. 1 0

The history of NASD Code S 1 reflects the above conclusions, but sheds little light on the scope of arbitration or the insurance business exception. Be fore 1993, S 1 made the following claims eligible for ar bitration: "any dispute, claim or controversy arising out of o r in connection with the business of any member of the Association, with the exception of disputes involvi ng the insurance business of any member which is also an insurance company...." 58 Fed. Reg. 39,070 (1993). At this point, it was clear that the insurance business exc eption

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9. We note that under settled principles of statuto ry construction, the doctrine of the last antecedent phrase would sugges t that the business of insurance exception applies only to the phrase i mmediately preceding it which, in this case, is employment disputes. See Norma J. Singer, Statutes and Statutory Construction S 47.26, at 240 -41 (5th ed. 1992); 24 Words and Phrases, Last Antecedent 453-66 (1966)

.

10. Counsel for Prudential would have us rely on su ch Supreme Court cases as Union Labor Life Ins. Co. v. Pireno, 458 U .S. 119 (1982) which define the "business of insurance" for purposes of the McCarranFerguson Act, 15 U.S.C. S 1011 et seq. This suggest ion, however, is beside the mark. What Congress intended by "insuran ce" for purposes of the McCarran-Ferguson Act is simply irrelevant to h ow the parties before us define insurance and the scope of disputes subje ct to arbitration.

13only applied to disputes in connection with a membe r's

business. The stated purpose of the exception was t o:

exclude ... disputes on [the] belief that th e number of insurance-only claims involving insurance co mpanies is so disproportionately large in relation t o their
securities business that to include such cla ims would unduly burden the arbitration system. In add ition, the
inclusion of such claims could result in a r equirement to arbitrate matters that are intrinsically insurance, that is, matters with respect to which the A ssociation
does not believe it should mandate arbitrati on.

44 Fed. Reg. 75,255 (1979). The intent to be inferr ed from this phrase is that where the dispute is "insurance -only" or even "intrinsically insurance" it falls beyond the scope of arbitration. But apart from a stated concern regard ing the sheer volume of insurance claims, nothing further s uggests what is meant by an "intrinsically insurance" dispu te or a claim that is "insurance only".

In 1993, however, the NASD amended the section to include the phrase, "or arising out of the employme nt or termination of employment of associated person(s) w ith any member". 58 Fed. Reg. at 39,070. The stated intent behind
this amendment was to "assure that the arbitration of industry employment disputes may be compelled at th e instance of one of the parties to the dispute." Id. at 39,071. Moreover, the NASD intended the newly proposed clau se to be read broadly so that employment disputes that al so invoked matters "involving public policy issues" wo uld still be arbitrated. Id. at 39,071-72. To illustrate, the amendment provided "that in cases involving employm ent discrimination claims or claims involving public po licy issues, the panel should consist of a majority of p ublic arbitrators." Id. at 39,071. Nevertheless, the NASD did not comment as to the potential interplay between the employment clause and the insurance business except ion so as to illuminate the intended scope of arbitrabl e disputes
in that context.

As a result, we are left with an unanswered questio n that is at the heart of this case -- namely, whether emp loyment disputes that implicate a member's insurance busine ss fall

14under the insurance business exception. On the one hand,

it is clear, from both the language of the text and its history, that employment disputes were unequivocall y intended to be arbitrated. This is so even if the e mployment claim raises policy matters well beyond the narrow legal issue of contract breach or ordinary employment tor ts. These would include, for instance, discrimination b ased on age, sex, or race. See 58 Fed. Reg. at 39,071.

On the other hand, the NASD has expressed a clear a nd unequivocal intent not to arbitrate "insurance-only " or "intrinsically insurance" claims. The contours of a n "insurance-only" or "intrinsically insurance" claim are too amorphous to define with precision in the present f actual context, especially where it is the exception to a broad arbitration provision. We can easily imagine scenar ios, such as the one before us, where a claimant, in order to recover on normally arbitrable disputes, would require the arbitrator to decide insurance issues. Thus, it wou ld be difficult to unambiguously announce, on the basis o f the NASD Code and its drafting history, whether the par ties
intended that these sorts of controversies are "int rinsically insurance" without any further indication of the me aning of the phrase. In the end, we are left wondering to wh at extent, if any, the desire not to arbitrate "intrin sically insurance" disputes was meant to override the parti es' intention to arbitrate employment disputes -- broad ly read -- when the controversy implicates both employment and insurance aspects.

Courts that have grappled with this conundrum gener ally attempt to isolate certain aspects of the dispute a nd ascertain whether they pose central insurance quest ions. See, e.g., Young v. Prudential Ins. Co. of America, 688 A.2d 1069, 1081 (N.J. Super. Ct. App. Div. 1997) (lookin g to whether insurance practices are "at the heart of[th e] case"); Vitone v. Metropolitan Life Ins. Co., 943 F.Supp. 1 92, 198 (D.R.I. 1996) (inquiring whether a "comprehensive
evaluation" of the defendant's insurance business w ould be required to resolve plaintiff's claims); Wojcik v. Aetna Life Ins. and Annuity Co., 901 F.Supp. 1282, 1291-92 (N. D.Ill. 1995) (requiring plaintiff to allege unlawful insur ance practices and not merely wrongful employment conduc t

15directed toward plaintiff); Prudential Ins. Co. of America v.

Shammas, 865 F.Supp. 429, 432 (W.D.Mich. 1993) (loo king for claims that invoke a "specific[ ]" relationship with insurance); Trumbetta v. Metropolitan Life Ins. Co. , 1994 WL 481152 (E.D. Pa. 1994) (unreported disposition) (lo oking to the "actual basis" of plaintiff's claim).

While it is possible to construe the insurance busi ness exception so that an employee's claim is "intrinsic ally insurance" or "insurance-only" once the claim requi res a resolution of a central insurance question, such an interpretation fails for several reasons. Assuming that the business of insurance exception applies to employme nt disputes, there is nothing in the NASD Code or its drafting history to indicate the degree of insurance involve ment in a dispute that would constitute an "intrinsically ins urance" claim. Looking to the purpose behind the exception -- a concern for case volume -- does not aid the inquiry , as no party has made the contention that the types of cla ims
involved here would threaten an overload on securit ies
arbitrators.11

If this court were to determine how the insurance exception applies to employment disputes, without a ny guidance as to the meaning of the phrase "intrinsic ally insurance," our decision very well might frustrate the intent of the parties. However, because federal arbitratio n law requires doubts to be resolved against the resistin g party, we need not grope for a rule that would resolve the ambiguity here.12 Instead, we are not inclined to e xpand the

___________________________________________________ ______________

11. The district court surmised that the driving fo rce behind the exception is a general lack of expertise by securit ies arbitrators to consider insurance claims. Although this may be tru e, neither the NASD Code nor its drafting history posits this as a conc ern to the parties.

12. In fact, the text of the Code itself phrases th e exception as any dispute "involving" the insurance business while th e NASD's expression of purpose seems to limit the exception to "insuran ce-only" or "intrinsically insurance" claims. Because the word "involvement" indicates a more relaxed relationship to insurance issues than does the word "intrinsically" we are faced with a patent amb iguity of the parties' intent. Under settled contract principles, we must give effect to "all
circumstances" behind the contractual term includin g "the principal purpose of the parties." Restatement (Second) Contr acts S 202(1).

16exception without a clear indication of the parties ' purpose

and intended scope of coverage.13

We ultimately cannot say with positive assurance th at the language of Form U-4 and the NASD Code, as well as their drafting histories, indicate the parties' des ire not to arbitrate employment disputes that require the reso lution of an insurance business issue. There is only one c lear expression of intent here -- that employment disput es are subject to arbitration while "intrinsically insuran ce" claims are not. Because this court cannot say with certain ty what is meant by "intrinsically insurance" claims, and w hether it embraces employment disputes, our mandate is clear: a presumption in favor of arbitration applies and dou bts in construction are resolved against the resisting par ties. Thus, we will reverse the district court's ruling t hat the insurance business exception exempted the plaintiff s'
claims from arbitration in this case.14

III. Policy Grounds and Arbitration

In addition to the textual interpretation of the in surance business exception, the district court offered anot her
reason for its denial of arbitration: a concern for potential "inconsistent results and inefficiencies" given the dozens of putative class actions against Prudential. Although the court recognized that this factor alone cannot just ify a reformation of a binding arbitration contract, it nevertheless considered the peculiar class action ramifications as a persuasive factor against commit ting the disputes to an arbitration forum.

While we share the district court's apprehension to ward inconsistent results and inefficiencies caused by

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13. Indeed, if this text were a statute, the ordina ry canons of statutory interpretation would mandate a narrow construction of the exception in the presence of ambiguity. See Norma J. Singer, Sta tutes and Statutory Construction S 47.11 (5th ed. 1992).

14. With respect to the plaintiffs' RICO cause of a ction, we note that the Supreme Court has already approved arbitration of R ICO claims pursuant to a pre-existing arbitration agreement. S ee Shearson / American Express, Inc. v. McMahon, 482 U.S. 220 (1 987).

17arbitration, we cannot frustrate the enforcement of the

arbitration clause pursuant to the Federal Arbitrat ion Act on the basis of this concern. As the Supreme Court noted
in Moses H. Cone:

[F]ederal law requires piecemeal resolution when necessary to give effect to an arbitration a greement. Under the Arbitration Act, an arbitration ag reement must be enforced notwithstanding the presenc e of other persons who are parties to the underly ing dispute but not to the arbitration agreement

.

460 U.S. at 20 (emphasis in original) (footnotes om itted). Although the Court in Moses H. Cone considered the possibilities of duplicative and piecemeal litigati on in terms of federal abstention doctrine, the interest in enf orcing
federal arbitration law is the same in other situat ions. See, e.g., Barrowclough, 752 F.2d at 938 (holding that a n arbitration clause against certain parties may be e nforced even if other parties were not subject to arbitrati on); Dayhoff, 86 F.3d at 1298 (enforcing an arbitration clause even if a party may have to "litigate its claims in three different fora with three different sets of rules")

.

The Eighth Circuit Court of Appeals, for example, specifically rejected the view that arbitration was improper when multi-district litigation may create duplicati ve litigation and a potential for inconsistency. In re Piper Funds, Inc., Institutional Government Income Portfo lio Litig., 71 F.3d 298, 303 (8th Cir. 1995). As the Supreme Co urt broadly stated, the Federal Arbitration Act was "mo tivated, first and foremost, by a congressional desire to en force agreements into which parties had entered, and we m ust not ... allow the fortuitous impact of the Act on e fficient dispute resolution to overshadow the underlying motivation." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 220 (1985) (footnote omitted). Accordingly, we will also reverse the district court's ruling based on judici al efficiency and consistency.

IV. Conclusion

For the foregoing reasons, the order of the distric t court will be reversed, to the extent it denied Prudentia l's motion

18compelling arbitration, and the matter will be rema nded for

further appropriate proceedings.

19GREENBERG, Circuit Judge, dissenting in part.

While I agree with the majority that Prudential may seek enforcement of the arbitration clause, I respectful ly dissent from its conclusion that the plaintiffs' claims are subject to arbitration. I will set forth my reasons briefly. T he NASD Code, following its 1993 amendment, reads as follow s:

This Code . . . is prescribed . . . for the arbitration of any dispute, claim or controversy arising ou t of or in connection with the business of any member o f the Association, or [dispute, claim or controve rsy] arising out of the employment or termination of empl oyment of associated person(s) with any member, with t he exception of disputes involving the insuranc e business of any member which is also an insurance com pany

. . .

The underscored words were added in 1993 and I have inserted "dispute, claim or controversy" within the m for clarity because obviously arbitration is of a dispu te, claim
or controversy.

Prudential, which contends that the insurance excep tion is inapplicable in an employment dispute, see br. a t 18, effectively would rewrite the Code so that it reads as follows:

This Code . . . is prescribed . . . for the arbitration of any dispute, claim or controversy arising ou t of or in connection with the business of any member o f the Association, with the exception of disputes involving the insurance business of any member which i s also an insurance company, or [for the arbitratio n of any dispute, claim or controversy] arising out o f the employment or termination of employment of associated person(s) with any member.

I say that Prudential would rewrite the Code to rea d as I
have indicated because the rewritten version render s the exception for "disputes involving the insurance bus iness" inapplicable in disputes arising out of employment or its termination. Relying on its rewritten version of th e Code, Prudential explains that "[o]nly disputes predicate d directly
on Prudential's contractual or other insurance-rela ted

20obligations to policyholders, rather than its role and

obligations as an employer, properly fall within th e scope of the business of insurance exception." Br. at 3.

Prudential's position is untenable. I am well aware that the courts look generously at the scope of arbitrat ion clauses. Nevertheless, except in certain situations in which statutes require arbitration, a party only need arb itrate disputes which he or she agrees to arbitrate. Dayho ff Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1294 (3d Cir.), cert. denied, 117 S.Ct. 583 (1996). In my view, it is perfectly c lear that the exception from arbitration for disputes involvi ng the insurance business must apply to employment dispute s because the exception directly follows the provisio n for their arbitration. While it could be argued that the exce ption does not apply to disputes "arising out of or in co nnection with the business of any member of the Association, " as that phrase is more remote than the employment disp utes provision from the exception, it cannot be argued t enably that the exception jumps over the immediately prece ding employment disputes provision to modify only the mo re remote phrase. It is one thing to construe a contra ct to require the arbitration of a dispute. But it is qui te another to rewrite a contract to require arbitration. A cou rt simply

cannot do that.

The majority indicates that "[t]he plaintiffs canno t recover under their various theories of liability without n ecessarily implicating the illegal nature of Prudential's insu rance practices." Majority Opinion at 12. The majority th us sets forth that "the grievances cited by the plaintiffs are accurately described as arising out of the employme nt or termination of employment, but they nevertheless im plicate the legality of certain insurance practices." Id. a t 12. I agree with these points and thus I would affirm because t he obligation to arbitrate employment disputes exclude s "disputes involving the insurance business of any m ember which is also an insurance company." (Emphasis adde d.) Indeed, I regard this case as fairly straightforwar d. After all, a dispute implicating the legality of insurance pra ctices surely is a dispute involving an employer's insuran ce business.

21The majority concludes that there must be arbitrati on

here in part because of ambiguities in the Code. It indicates
that "it is not clear whether the business of insur ance exception applies to employment related disputes, t o disputes in connection with a member's business, or to both," id. at 13, and that is uncertain "whether em ployment disputes that implicate a member's insurance busine ss fall under the insurance business exception." Id. at 14- 15. I respectfully disagree because as I have indicated t he provision for arbitration of employment disputes di rectly precedes the insurance business exception.

The majority expresses concern about the scope of t he insurance business exception. I certainly agree tha t the scope could be a problem if the insurance business aspects of the dispute are tangential to the main controver sy. But in this case insurance disputes are at the heart of the controversies for, as the majority points out, the plaintiffs "cannot recover . . . without necessarily implicati ng the illegal nature of Prudential's insurance practices" and the plaintiffs' grievances, though arising out of the e mployment or its termination, "nevertheless implicate the leg ality of certain insurance practices." Id. at 12. Indeed, if the exception to the obligation to arbitrate employment controversies for disputes involving the insurance business is inapplicable here, it is difficult to understand when it ever would be applicable.

I respect the majority's point concerning the presu mption in favor of arbitration and, as I have indicated, I am aware that in cases of doubt it is appropriate to order a rbitration. But to me this case is fairly clear and the general ized policy in favor of arbitration cannot overcome the plain m eaning

of the Code.

I also point out that the New Jersey state courts w ould resolve this case differently. In Young v. Prudenti al Ins. Co., 688 A.2d 1069 (N.J. Super. Ct. App. Div.), certif. denied, 694 A.2d 193 (N.J. 1997), the Superior Court of New Jersey, Appellate Division, construed the same Code provision involved here to permit an action in cour t in a similar case. In fact, Young found the district cou rt opinion in this very case to be "compelling" and followed i t. Id. at 1079. Accordingly, I have no doubt that the New Jer sey

22state courts will follow Young and not this case. S ee Dewey

v. R.J. Reynolds Tobacco Co., 577 A.2d 1239, 1244 ( N.J. 1990) (holding that "decisions of a lower federal c ourt are no more binding on a state court than they are on a federal court not beneath it in the judicial hierarchy") (c itation omitted). It thus appears that in New Jersey the
determination of whether there will be arbitration in controversies of the nature involved here, even aga inst the same employer, now will depend on whether a state o r federal court makes the determination.

In sum, I conclude that the district court opinion at In re: Prudential Ins. Co. of Am. Sales Practices Litig., 924 F. Supp. 627, 640-42 (D.N.J. 1996), is right on the ma rk as is the opinion of the state court in Young, 688 A.2d 1 069. Thus, I would affirm.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

23