Opinion ID: 76765
Heading Depth: 2
Heading Rank: 1

Heading: Customer Disputes

Text: 19 King's dispute with IFG is one between a customer and a member. Rule 10101(c) only applies to disputes ... between or among members or associated persons and public customers, or others and Rule 10301(a) only applies to disputes ... between a customer and a member and/or associated person. Preliminarily, whether King is an IFG customer, as defined by the Code, is a legal question of contract interpretation for the Court, see Aetna Cas. & Sur. Co. v. Warren Bros. Co., Div. of Ashland Oil, Inc., 355 So.2d 785, 787 (Fla.1978), and, under the circumstance at bar, the Court does not require an evidentiary hearing because the underlying factual circumstances are undisputed (the parties agree that King was a customer of Micciche and that Micciche was a person associated with IFG). The instant matter is distinguishable from Bensadoun v. Jobe-Riat, 316 F.3d 171 (2d Cir.2003), where the Second Circuit found that whether certain investors actually were customers at all presented a triable issue of material fact. Id. at 177-78. Unlike Bensadoun, there is no proffer of facts to contradict King's allegations that she dealt directly with Micciche, whom IFG concedes was its representative; rather, the different question posed to this Court is whether King was a customer, as that term is used in Rules 10101(c) and 10301(a), solely because she is a customer of a person associated with IFG. 20 We conclude that King is a customer, as that term is defined and used by the NASD. 2 The NASD generally defines the term customer as anyone who is not a broker or a dealer. NASD Rule 0120(g). Although it concedes that King was Micciche's customer, as that term is used in the Code, IFG argues that King was not its customer. Rules 10101(c) and 10301(a), however, unambiguously provide that the King is a customer as long as she is not a broker or dealer; nothing in the Code directs otherwise or requires more. 3 Enforcing the limitation IFG seeks would be tantamount to reading language into the Code that is conspicuously absent. Other inapplicable NASD rules do make a distinction between customers generally and customers of the member. The NASD rule pertaining to disclosure of financial condition to customers, for example, defines customer as any person who, in the regular course of such member's business, has cash or securities in the possession of such member. NASD Rule 2270(b). The NASD rule regarding margin requirements similarly provides that customer means 21 any person for whom securities are purchased or sold or to whom securities are purchased or sold whether on a regular way, when issued, delayed or future delivery basis. It will also include any person for whom securities are held or carried and to or for whom a member organization extends, arranges or maintains any credit. NASD Rule 2520(a)(3). 22 Rules 2270(b) and 2520(a)(3) show that the NASD could limit the term customer specifically to those with whom the member has a direct relationship. Its clear and unambiguous choice to leave the term as defined generally immediately leads to the conclusion that King satisfies the customer requirement because she is not a broker or a dealer, even though she may not have been a direct customer of IFG. 23 Our interpretation of the Code's unambiguous language finds support in almost every other decision on this issue. In John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48 (2d Cir.2001), for example, the Second Circuit held that investors could compel arbitration against a member notwithstanding the lack of a direct transactional relationship. See id. at 58-60. There, the court held that the plain language of Rule 10301(a) supports the view that the term customer refers to either a member's or an associated person's customer, affording customers of an associated person a right to compel arbitration against a member. Id. Numerous other courts have interpreted the Code similarly. See, e.g., California Fina Group, Inc. v. Herrin, 379 F.3d 311, 318 (5th Cir.2004) (`[C]ustomer' as used in Rule 10301(a) is plainly broad enough to include persons who purchased securities from a registered representative of an NASD-member firm, a.k.a. an `associated person,' and who are not themselves brokers or dealers.); Vestax Secs. Corp. v. McWood, 280 F.3d 1078, 1082 (6th Cir.2002) (rejecting the argument that the Code requires the defendant-investors be direct customers of the NASD member firm in order to compel arbitration against the member) ; Daugherty v. Washington Square Secs., Inc., 271 F.Supp.2d 681, 690 (W.D.Pa.2003) (The majority of federal courts faced with interpreting NASD Rule 10301(a) concluded that NASD members must arbitrate disputes raised by customers of their associated persons.); Washington Square Secs., Inc. v. Aune, 253 F.Supp.2d 839, 841 n. 1 (W.D.N.C.2003) (The majority view is stated in the John Hancock opinion ... holding that customers of the NASD member firm's representative/associated person can require the NASD member to submit to arbitration.); BMA Fin. Servs., Inc. v. Guin, 164 F.Supp.2d 813, 820 (W.D.La.2001) (Rule 10301(a) does not require the Defendant-Investors to be direct customers of [the member]. Instead, they fit within the confines of the Rule—and therefore may require [the member] to arbitrate—even if they are only customers of [the member's] `associated person' and not [the member].); Fin. Network Inv. Corp. v. Becker, 305 A.D.2d 187, 762 N.Y.S.2d 25, 27 (N.Y.App.Div.2003) (NASD's definition of `customer' is broad, excluding only a broker or dealer, and plainly including customers of an associated person as well as of the member itself.). 24 The case law is not unanimous. At least one federal court has taken an opposite view. In Investors Capital Corp. v. Brown, 145 F.Supp.2d 1302 (M.D.Fla.2001), the Middle District of Florida, from which the instant matter arises, held that being a customer of an associated person is not, in itself, a sufficient basis for compelling arbitration with a member. Id. at 1307. That court required some indicia of a direct customer relationship between the NASD member firm and the investor. Id. at 1308 ([I]n joining the NASD, [the member] agreed to arbitrate disputes with its customers, rather than the customers of every person associated with [the member]. The opposite construction of Rule 10301(a), the Court concludes, would do significant injustice to the reasonable expectations of NASD members (quotation marks and citations omitted)). Another case in that district followed the Investors Capital holding. Mony Secs. Corp. v. Vasquez, 238 F.Supp.2d 1304, 1306-08 (M.D.Fla.2002). The reasoning of these decisions is not persuasive, however, because they read a limitation into the Code that is absent from its language. The NASD, moreover, has been on notice at least since 2001—when the Second Circuit issued John Hancock —of the broad meaning the courts would attribute to the language used. The NASD could have prevented any purported significant injustice merely by including simple limiting language, as it did with Rules 2270(b) and 2520(a)(3). The NASD has not done so, and this Court only can conclude that the John Hancock interpretation is consistent with the NASD members' reasonable expectations. Finally, the Code's second requirement, that the dispute arise in connection with the business of the member, provides for the general connection between the customer's dispute and the member's conduct that these decisions impose upon the customer-member requirement. 25 Even if the Code were not written so broadly and a member could only be compelled into arbitration by its own customers, King still could have compelled IFG into arbitration. When an investor deals with a member's agent or representative, the investor deals with the member. Vestax, 280 F.3d at 1081; Oppenheimer & Co. Inc. v. Neidhardt, 56 F.3d 352 (2d Cir.1995); see also Washington Square Secs. Inc. v. Sowers, 218 F.Supp.2d 1108, 1116 (D.Minn.2002) (Federal case law plainly states that when the investor deals with an agent or representative [of a member], the investor deals with the member, and on that basis the investor is entitled to have resolved in arbitration any dispute that arises out of that relationship (quotation marks and citation omitted)); Summit Brokerage Servs., Inc. v. Cooksley, No. CA 02-11137 AO, 2002 WL 31478190 (Fla.Cir.Ct. Nov. 1, 2002) ([B]y dealing with [the firm's] registered representative, [the investor] became a customer of that firm for purposes of NASD arbitration obligations.). The parties agree that King dealt with Micciche, so King, in turn, dealt with IFG. The Court, therefore, holds that King has satisfied the first requirement of Rules 10101(c) and 10301(a) by demonstrating that she is a customer and that IFG is a member.