Opinion ID: 75971
Heading Depth: 2
Heading Rank: 1

Heading: the decision in riccard ii to compel nasd arbitration

Text: 27 (ORDER 1) 28 In 1982, as a condition of his continued employment with Prudential, Riccard executed a Form U-4, which is an application to the NASD for registration as a general securities representative. In the U-4 form Riccard signed, he agreed, among other things, to arbitrate any dispute or claim arising between him and his firm or any other person that is required to be arbitrated under the rules, constitutions, or bylaws of the NASD. Rules 10101 and 10201 of the NASD's Code of Arbitration Procedure make employment disputes between a member firm and an associated person, such as Riccard, subject to arbitration by the NASD at the behest of an NASD member. See National Association of Securities Dealers, Code of Arbitration Procedure (1973). 29 On the U-4 form, Riccard identified Pruco Corporation (Pruco) as his firm. Pruco is a wholly-owned, broker-dealer subsidiary of Prudential and is a registered member of the NASD. The U-4 is a contract between the registrant (Riccard) and the NASD, not between the registrant and his firm. 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 (1991). At the time Riccard signed the U-4 form Prudential, as well as Pruco, was a registered member of the NASD. And at all relevant times, the parties considered Riccard to be an employee of Prudential, not Pruco. 3 30 If Prudential had still been an NASD member at the time it filed the motion to compel arbitration, we would not have this issue to resolve, because both sides agree that the NASD Code, which Riccard agreed to be bound by when he signed the U-4 form, covers employment disputes such as this one and provides for mandatory arbitration at the instance of a member. 4 The question arises because although Prudential was an NASD member at the time the events which gave rise to the dispute occurred in 1995 and at the time Riccard filed the EEOC complaint concerning those events in April 1996, its membership in NASD ended in May 1996, which was before the EEOC issued a right to sue letter in September 1997 and before Riccard filed his lawsuit in November 1997 which resulted in Prudential's motion to compel arbitration. 31 The relevant part of the NASD Code, which sets forth the claims that are required to be arbitrated, provides as follows: 32  [a] dispute, claim or controversy eligible for submission under [Rule 10101] 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. 33 National Association of Securities Dealers, Code of Arbitration Procedure, Rule 10201(a) (1973) (emphases added). 34 Under this rule, an employment dispute, claim, or controversy between a member and an associated person is subject to mandatory arbitration at the instance of a member. Riccard's dispute with Prudential (it was not with Pruco) was subject to mandatory arbitration at the instance of Prudential if Riccard is considered an associated person (as provided in the NASD by-laws) 5 at the relevant time and if Prudential is considered a member of NASD at the relevant time. 6 The disagreement between the parties is over what constitutes the relevant time for ascertaining whether Prudential was an NASD member for Rule 10201(a) purposes. Riccard assumes that NASD membership for Rule 10201(a) purposes must be judged at the time of the motion to compel or at least at the time of the filing of the lawsuit which resulted in the motion. Prudential, on the other hand, argues that status as an NASD member should be judged at the time of the events leading to the dispute or claim or when the dispute or claim arose. 35 The language of Rule 10201(a) is somewhat ambiguous on this point. On the one hand, it speaks of arbitration at the instance of a member or person associated with a member, which seems to suggest that the party insisting upon arbitration would have to be a member or associated with a member at the time it did the insisting. On the other hand, the language speaks of the disputes, claims, and controversies that are subject to mandatory arbitration as being those arising in connection with the business of a member or arising out of the employment or termination of employment of persons associated with a member, and that sounds as though the focus is on membership at the time of the arising of the dispute, claim, or controversy. 36 We think the key is that the rule explicitly includes among the claims, disputes, and controversies subject to mandatory arbitration those between a member and associated person arising out of the ... termination of employment of such associated person(s) with such member. That indicates to us that the status of association with a member must be determined at the time of the events giving rise to the dispute or claim. If not, a termination of employment could never be arbitrated, because from the time the termination occurred the employee (no longer controlled by his employer) would no longer be a person associated with a member. 7 This would defeat the rule's clear intent that termination of employment claims be subject to mandatory arbitration after an employee is terminated. Of course, the question here is when Prudential's membership status is to be judged, but we do not see why the NASD rule would make associated person status count to enable insistence on arbitration if that status existed at time of the events (such as a termination of employment) giving rise to the dispute or claim, but not make membership count if membership existed at that same time. Accordingly, Prudential's membership status should be judged at the time of the events giving rise to the dispute or claim. 37 Because Prudential was a member in the NASD at the time of the 1995 events giving rise to the dispute, claim, or controversy, Prudential was entitled to insist upon mandatory arbitration even though it was not an NASD member at the time the lawsuit was filed in 1997. The district court did not err in granting Prudential's motion to compel arbitration. 8 38