Opinion ID: 1533142
Heading Depth: 1
Heading Rank: 2

Heading: NASD Code of Arbitration Procedure 10201

Text: Turning now to the merits, we must decide whether the U-4 agreement, the arbitration clause contained therein, and the NASD Code of Arbitration Procedure 10201 required arbitration of Mr. Lewis's tort claims against Llama Capital, Llama Mortgage, and Ms. Walton. As mentioned previously, the U-4 agreement Mr. Lewis signed in connection with his employment with Llama Company provided in relevant part that: I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organization indicated in Item 10 [the NASD by-laws including the Code of Arbitration Procedures] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction. NASD Code of Arbitration Procedures 10201(a), entitled Required Submission, provides that: Any dispute, claim, or controversy eligible for submission under the Rule 10100 Series between or among members and/or associated persons, and/or certain others, arising in connection with the business of such member(s) or in connection with the activities of such associated person(s), or arising out of the employment or termination of employment of such associated person(s) with such member, shall be arbitrated under this Code, at the instance of: (1) a member against another member; (2) a member against a person associated with a member or a person associated with a member against a member; and (3) a person associated with a member against a person associated with a member. (Emphasis added.) Pursuant to the unambiguous language of this provision, we believe that a court is required to compel arbitration, under the NASD Code, if the underlying dispute either arises: 1) in connection with the business of such member(s) or in connection with the activities of such associated person(s), or 2) out of the employment or termination of employment of such associated person(s) with such a member.
In their briefs, the appellants assert that the first reason this dispute must be arbitrated is that the dispute arose out of the Lewis' employment with Llama Company. This is the second subject matter listed above. Article I(q) of the NASD by-laws defines person associated with a member or associated person of a member as: every sole proprietor, partner, officer, director, 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 who is directly or indirectly controlling or controlled by such member, whether or not any such person is registered or exempt from registration with the Corporation pursuant to these By-Laws. Furthermore, Article I(m) and (g) of the NASD by-laws define member as any broker or dealer admitted to membership in the Corporation [NASD]. The parties agree that Mr. Lewis is the associated person and that Llama Company is the member. Moreover, there is nothing in the record that suggests that either Llama Capital, Llama Mortgage, Ms. Walton, or the joint venture are members of NASD. Although the appellants cite many cases in their brief that define what type of dispute arises out of employment, we think that the salient issue in this case is whether the dispute over the proceeds of the bonus plan arose out of Mr. Lewis's employment with Llama Company. [3] After a careful analysis of the relevant relationships in this case, we must answer this question in the negative. The parties admit that Llama Company is the only NASD member in this case. As an employee of an NASD member, Mr. Lewis signed an arbitration agreement embodied in the U-4 form. The underlying dispute in this case is whether Mr. Lewis is entitled to payment under the terms of the joint venture's Capital Markets Bonus Plan, and not whether Mr. Lewis is entitled to payment under any agreement with Llama Company. Importantly, the Capital Markets Bonus Plan does not indicate that Mr. Lewis served on the Capital Markets Committee as a representative of any Llama company. We are also persuaded by the fact that neither the joint venture nor any of its individual members (Llama Capital, Llama Mortgage, or Boston Capital Corporation) are members of NASD. Hence, the appellants claim that the NASD arbitration agreement applies in this case because two of the members of the joint venture, Llama Capital and Llama Mortgage, were one of the fifteen or so business entities loosely associated with Llama Company, the only NASD member. In fact, the only thing that Llama Company has in common with Llama Capital and Llama Mortgage is that all three entities are owned by Alice Walton, who was sued in her individual capacity and not as a director or officer of any of the relevant Llama entities. We agree with the trial court that this connection is much too tenuous to say that the underlying dispute in this case arose out of Mr. Lewis's employment with Llama Company, the sole NASD member.
Next, the appellants turn to the first phrase of Section 10201(a) defining the subject matter of disputes that must be submitted to arbitration. Specifically, they allege in this section of their briefs that the second reason the subject matter of this dispute must be arbitrated is that it arose out of the business of Lewis' employer, Llama Company. [4] For the reasons explained above, we agree with the trial court that the dispute over the bonus-plan proceeds has to do with the business of the joint venture, and not with the business of Llama Company, the sole NASD member in this case.