Source: https://law.justia.com/cases/federal/appellate-courts/F3/133/225/590081/
Timestamp: 2020-06-03 06:51:43
Document Index: 101418585

Matched Legal Cases: ['§ 8', '§ 302', '§ 1', '§ 1332', '§ 1331', '§ 1961', '§ 16', '§ 78', '§ 78', '§ 1011']

* in Re the Prudential Insurance Company Ofamerica Sales Practice Litigation All Agent Actions.herbert Schulte, Mdl Transfer; S.d. Illinois; Dnj Ci v. 95-4740; Michael D. Gordon, Mdl Transfer; W.d. Kentucky(paducah); Dnj Civil Action 95-4738; Rick A. Martin, Mdltransfer, W.d. Kentucky (paducah), Dnj Civil Action 95-5013;kenneth R. Young, Mdl Transfer, M.d. Florida (tampa), Dnjcivil 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, 133 F.3d 225 (3d Cir. 1998) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Third Circuit › 1998 › * in Re the Prudential Insurance Company Ofamerica Sales Practice Litigation All Agent Actions.herbe...
* in Re the Prudential Insurance Company Ofamerica Sales Practice Litigation All Agent Actions.herbert Schulte, Mdl Transfer; S.d. Illinois; Dnj Ci v. 95-4740; Michael D. Gordon, Mdl Transfer; W.d. Kentucky(paducah); Dnj Civil Action 95-4738; Rick A. Martin, Mdltransfer, W.d. Kentucky (paducah), Dnj Civil Action 95-5013;kenneth R. Young, Mdl Transfer, M.d. Florida (tampa), Dnjcivil 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, 133 F.3d 225 (3d Cir. 1998)
U.S. Court of Appeals for the Third Circuit - 133 F.3d 225 (3d Cir. 1998) Argued Sept. 8, 1997. Decided Jan. 7, 1998
Part II § 8 of the Code mandates arbitration for " [a]ny dispute, claim, or controversy eligible for submission under Part I of this Code between or among members and/or associated persons...."
A threshold inquiry under the Federal Arbitration Act is to determine, under recognized principles of contract law, the validity of, and the parties bound by, the arbitration 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, 648, 106 S. Ct. 1415, 1418, 89 L. Ed. 2d 648 (1986) (quoting United Steelworkers of America v. Warrior and Gulf Navigation Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 1352-53, 4 L. Ed. 2d 1409 (1960)). The identification of the parties bound by the agreement to arbitrate need not be confined to the limited inquiry of identifying the signatories to the arbitration agreement. Rather, the dispositive finding is an " 'express' and 'unequivocal' " agreement between parties to arbitrate 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, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995).
As this court has previously recognized, "a variety of nonsignatories of arbitration agreements have been held to be bound by such agreements under ordinary common law contract and agency principles." Barrowclough v. Kidder, Peabody & Co., Inc., 752 F.2d 923, 938 (1985) (citations omitted), overruled on other grounds by Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1112 (3d Cir. 1993). Indeed, courts have been willing to apply third party beneficiary law in examining the contractual standing of a non-signatory party to a dispute, provided there is an expression of the requisite intent between the third party and the plaintiff to arbitrate their claims. See McPheeters 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. Moseley, Hallgarten, Estabrook & Weeden, Inc., 795 F.2d 1111, 1116-17 (1st Cir. 1986); Stone v. Pennsylvania Merchant Group, Ltd., 949 F. Supp. 316, 320-21 (E.D. Pa. 1996).
The parties in this case do not contest the validity of the arbitration clause itself. Rather, they dispute the identity of the parties bound by Form U-4.6 At the outset, we do not find Prudential is without standing here simply because it is not a signatory to the arbitration argument; nor will we deny standing because Pruco is listed as the only "firm" referenced in Form U-4. Instead, we turn to the text of the Form U-4 arbitration agreement to see if there is an express and unequivocal intent that the plaintiffs would arbitrate their claims against, inter alia, Prudential, and whether "both parties to the contract express an intention to benefit the third party in the contract itself...." Scarpitti v. Weborg, 530 Pa. 366, 372-73, 609 A.2d 147, 150 (1992); see also Restatement (Second) of Contracts § 302(1) (b) (1981).
As stated in Form U-4, the plaintiffs agreed to arbitrate 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 section 8 of the NASD Code, plaintiffs agreed to arbitrate certain disputes "between or among members and/or associated persons...." There is no question that Prudential is a member of the NASD, and the plaintiffs are associated persons within the meaning of the Code.7 Thus, we conclude, as did the district court, there is a clear and unequivocal intent to arbitrate claims with third parties such as Prudential, and not just Pruco, to the extent they are eligible for arbitration under § 1. Cf. Armijo v. Prudential Insurance Co. of America, 72 F.3d 793, 799 n. 7 (10th Cir. 1995) (finding an intent to arbitrate with Prudential as well as Pruco through the maintenance of registration with Prudential).
This case is distinguishable from Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287 (3d Cir.), cert. denied, --- U.S. ----, 117 S. Ct. 583, 136 L. Ed. 2d 513 (1996), where we held that a non-signatory parent corporation cannot "by reason of their corporate relationship" enforce an arbitration clause, signed by a wholly-owned subsidiary, absent an express agreement to that effect. Id. at 1297. In Dayhoff, unlike the scenario before us, there was no unambiguous expression of intent 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 Dayhoff panel was particularly concerned that the non-signatory parent corporation had essentially created an "option to accept 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 arbitrate. Id. Such is not the case here.
Having found that Prudential has standing to seek enforcement of the arbitration agreement against the plaintiffs, the next step in the analysis is to identify 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 critical focus is on a clear intention to arbitrate a specific claim or dispute between the parties. In the court's undertaking 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, 944, 115 S. Ct. 1920, 1924, 131 L. Ed. 2d 985 (1995) (citations omitted).
It is important to note that the Federal Arbitration Act provides the authority for the enforcement of arbitration clauses as a matter of federal law and, as such, federal policies govern. Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983). The Federal Arbitration Act reflects a pervasive federal interest in promoting arbitration and encouraging courts to uphold arbitration clauses. See id. The underpinnings of this strong federal policy in favor of arbitration have been exhaustively reviewed by the Supreme Court, and need not be reiterated here. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24-26, 111 S. Ct. 1647, 1651-52, 114 L. Ed. 2d 26 (1991); Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219-220, 105 S. Ct. 1238, 1241-42, 84 L. Ed. 2d 158 (1985); Moses H. Cone, 460 U.S. at 24-25, 103 S. Ct. at 941-42. However, we will emphasize certain settled principles of federal arbitration law that are relevant here.
Any inquiry into the scope of an arbitration clause must necessarily begin with the presumption that arbitration applies. In considering the nature of the dispute and the scope of the arbitration clause, this court must operate 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 assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.' " AT & T Technologies, 475 U.S. at 650, 106 S. Ct. at 1419 (quoting Warrior & Gulf, 363 U.S. at 582-83, 80 S. Ct. at 1352-53). Thus, when it cannot be said "with positive assurance" that the parties have clearly and unequivocally excepted a certain dispute from arbitration, the court must compel arbitration. A necessary corollary of this axiomatic rule in favor of arbitration is that doubts in interpreting the precise scope of the arbitration agreement are to be resolved in favor of arbitration. Moses H. Cone, 460 U.S. at 24, 103 S. Ct. at 941. While this approach is not a mandate for courts to ignore explicit textual agreements or to reshape the parties' obvious intent, it nevertheless weighs genuine ambiguities against the resisting party. PaineWebber Inc. v. Hartmann, 921 F.2d 507, 512-13 (3d Cir. 1990).
No party contests the employment nature of the plaintiffs' claims. Indeed, all the causes of action set forth revolve around the damage suffered through Prudential's decision to terminate employment or intentionally interfere with the plaintiffs' business expectations as insurance agents. Unique to these claims, however, is the involvement of Prudential's insurance business in the dispute. The plaintiffs cannot recover under their various theories of liability without necessarily implicating the illegal nature of Prudential's insurance practices. To this extent, the grievances cited by the plaintiffs are accurately described as arising out of the employment or termination of employment, but they nevertheless implicate the legality of certain insurance practices. We cannot simply ignore, 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); Prudential Ins. Co. Of America v. Shammas, 865 F. Supp. 429, 432 (W.D. Mich. 1993); Trumbetta v. Metropolitan Life Ins. Co., 1994 WL 481152 (E.D. Pa. 1994) (unreported disposition). Rather, we identify the issues raised by the plaintiffs in order to determine whether they fall within the intended scope of arbitration.
Courts that have grappled with this conundrum generally attempt to isolate certain aspects of the dispute and ascertain whether they pose central insurance questions. See, e.g., Young v. Prudential Ins. Co. of America, 297 N.J.Super. 605, 688 A.2d 1069, 1081 (1997) (looking to whether insurance practices are "at the heart of [the] case"); Vitone v. Metropolitan Life Ins. Co., 943 F. Supp. 192, 198 (D.R.I. 1996) (inquiring whether a "comprehensive evaluation" of the defendant's insurance business would 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 insurance practices and not merely wrongful employment conduct directed toward plaintiff); Prudential Ins. Co. of America v. Shammas, 865 F. Supp. 429, 432 (W.D. Mich. 1993) (looking for claims that invoke a "specific [ ]" relationship with insurance); Trumbetta v. Metropolitan Life Ins. Co., 1994 WL 481152 (E.D. Pa. 1994) (unreported disposition) (looking to the "actual basis" of plaintiff's claim).
460 U.S. at 20, 103 S. Ct. at 939 (emphasis in original) (footnotes omitted). Although the Court in Moses H. Cone considered the possibilities of duplicative and piecemeal litigation in terms of federal abstention doctrine, the interest in enforcing federal arbitration law is the same in other situations. See, e.g., Barrowclough, 752 F.2d at 938 (holding that an arbitration clause against certain parties may be enforced even if other parties were not subject to arbitration); 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 duplicative litigation and a potential for inconsistency. In re Piper Funds, Inc., Institutional Government Income Portfolio Litig., 71 F.3d 298, 303 (8th Cir. 1995). As the Supreme Court broadly stated, the Federal Arbitration Act was "motivated, first and foremost, by a congressional desire to enforce agreements into which parties had entered, and we must not ... allow the fortuitous impact of the Act on efficient dispute resolution to overshadow the underlying motivation." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 220, 105 S. Ct. 1238, 1242, 84 L. Ed. 2d 158 (1985) (footnote omitted). Accordingly, we will also reverse the district court's ruling based on judicial efficiency and consistency.
I say that Prudential would rewrite the Code to read as I have indicated because the rewritten version renders the exception for "disputes involving the insurance business" inapplicable in disputes arising out of employment or its termination. Relying on its rewritten version of the Code, Prudential explains that " [o]nly disputes predicated directly on Prudential's contractual or other insurance-related obligations to policyholders, rather than its role and obligations as an employer, properly fall within the 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 arbitration clauses. Nevertheless, except in certain situations in which statutes require arbitration, a party only need arbitrate disputes which he or she agrees to arbitrate. Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1294 (3d Cir.), cert. denied, --- U.S. ----, 117 S. Ct. 583, 136 L. Ed. 2d 513 (1996). In my view, it is perfectly clear that the exception from arbitration for disputes involving the insurance business must apply to employment disputes because the exception directly follows the provision for their arbitration. While it could be argued that the exception does not apply to disputes "arising out of or in connection with the business of any member of the Association," as that phrase is more remote than the employment disputes provision from the exception, it cannot be argued tenably that the exception jumps over the immediately preceding employment disputes provision to modify only the more remote phrase. It is one thing to construe a contract to require the arbitration of a dispute. But it is quite another to rewrite a contract to require arbitration. A court simply cannot do that.
The majority indicates that " [t]he plaintiffs cannot recover under their various theories of liability without necessarily implicating the illegal nature of Prudential's insurance practices." Majority Opinion at 231. The majority thus sets forth that "the grievances cited by the plaintiffs are accurately described as arising out of the employment or termination of employment, but they nevertheless implicate the legality of certain insurance practices." Id. at 231. I agree with these points and thus I would affirm because the obligation to arbitrate employment disputes excludes "disputes involving the insurance business of any member which is also an insurance company." (Emphasis added.) Indeed, I regard this case as fairly straightforward. After all, a dispute implicating the legality of insurance practices surely is a dispute involving an employer's insurance business.
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 mark as is the opinion of the state court in Young, 297 N.J.Super. 605, 688 A.2d 1069. Thus, I would affirm.
The district court relied on diversity jurisdiction, 28 U.S.C. § 1332, and federal question jurisdiction, 28 U.S.C. § 1331, to entertain plaintiffs' state law claims and causes of action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968. We exercise jurisdiction under the Federal Arbitration Act, 9 U.S.C. §§ 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 Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc. 7 F.3d 1110, 1113 (3d Cir. 1993)
The Form U-4 agreement is more correctly understood as between the plaintiffs and the NASD. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 n. 2, 111 S. Ct. 1647, 1651 n. 2, 114 L. Ed. 2d 26. (1985)
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, --- U.S. ----, 117 S. Ct. 583, 136 L. Ed. 2d 513 (1996), to this case
NASD By-Laws p 1101(q). We find no merit to plaintiff Young's argument that he is not an "associated person" within the meaning 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 language as the NASD's definition and provides the statutory basis for the NASD. See 15 U.S.C. § 78c(a) (21); Kaplan, 19 F.3d at 1517; Cular v. Metropolitan Life Ins. Co., 961 F. Supp. 550, 556-57 (S.D.N.Y. 1997). Even if Young, as an employee, is not an associated person for purposes of the NASD definition, his degree of involvement in these disputes 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).
In fact, the Securities Exchange Act of 1934 requires brokers and dealers to register with, and submit to the rules of, the NASD as a condition to trading in securities. 15 U.S.C. § 78o(b) (8)
Counsel for Prudential would have us rely on such Supreme Court cases as Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 102 S. Ct. 3002, 73 L. Ed. 2d 647 (1982) which define the "business of insurance" for purposes of the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. This suggestion, however, is beside the mark. What Congress intended by "insurance" for purposes of the McCarran-Ferguson Act is simply irrelevant to how the parties before us define insurance and the scope of disputes subject to arbitration
With respect to the plaintiffs' RICO cause of action, we note that the Supreme Court has already approved arbitration of RICO claims pursuant to a pre-existing arbitration agreement. See Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S. Ct. 2332, 96 L. Ed. 2d 185 (1987)