Court Opinion

ID: 4502492
Source: CourtListenerOpinion
Date Created: 2020-01-29 15:07:41.726594+00
Date Added: 2024-06-11T15:38:48.372894
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-3464-18T2

JOHN GAFFNEY,

          Plaintiff-Appellant,

v.

ALAN LEVINE, DIVERSIFIED
FINANCIAL CONSULTANTS,
LLC, LPL FINANCIAL HOLDINGS,
INC., PATRICK SULLIVAN, and
PRIVATE ADVISOR GROUP, LLC,

          Defendants-Respondents,

and

MORRISTOWN FINANCIAL GROUP,

     Defendant.
__________________________________

                    Argued December 10, 2019 – Decided January 29, 2020

                    Before Judges Gilson and Rose.

                    On appeal from the Superior Court of New Jersey, Law
                    Division, Bergen County, Docket No. L-8124-18.
            Lawrence N. Lavigne argued the cause for appellant
            (Lawrence N. Lavigne, of counsel and on the briefs;
            Jignesh Shah, on the briefs).

            Rosaria A. Suriano argued the cause for respondents
            Alan Levine and Diversified Financial Consultants,
            LLC (Brach Eichler LLC, attorneys; Rosaria A.
            Suriano, of counsel and on the brief; Mark E. Critchley,
            on the brief).

            Robyn L. Silvermintz argued the cause for respondents
            LPL Financial Holdings, Inc., Patrick Sullivan and
            Private Advisor Group, LLC (Winget, Spadafora &
            Schwartzberg, LLC, attorneys; Robyn L. Silvermintz,
            on the brief).

PER CURIAM

      Plaintiff John Gaffney appeals from orders dismissing his complaint

against defendants and compelling him to arbitrate all of his claims. We affirm

the portions of the orders that compelled arbitration, but remand with direction

that new orders be entered staying the action pending the arbitration.

                                       I.

      Plaintiff is an accredited investment fiduciary and certified fund

specialist. He is also licensed as a registered investment advisor. In connection

with those positions, plaintiff is subject to the rules and regulations of the

Financial Industry Regulatory Authority (FINRA), formerly known as the

National Association of Securities Dealers (NASD). FINRA is a self-regulatory

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organization created under the federal Securities Exchange Act of 1934, 15

U.S.C. §§ 78a to 78qq, and is under the supervision of the Securities and

Exchange Commission.

      The FINRA regulations include a Code of Arbitration Procedure for

Industry Disputes (FINRA Arb. Code). Under that Code, FINRA members and

associated persons must arbitrate disputes arising "out of the business activities

of a member or an associated person." FINRA Rule 13200. The FINRA Arb.

Code does not cover statutory-based claims of employment discrimination but

does allow parties to agree to arbitrate such claims. Id. at 13201(a). In that

regard, the FINRA Arb. Code states:

            A claim alleging employment discrimination, including
            sexual harassment, in violation of a statute, is not
            required to be arbitrated under the Code. Such a claim
            may be arbitrated only if the parties have agreed to
            arbitrate it, either before or after the dispute arose. If
            the parties agree to arbitrate such a claim, the claim will
            be administered under Rule 13802.

            [Ibid.]

      In 2007, plaintiff became a registered representative of LPL Financial

Holdings, Inc. (LPL). As a representative of LPL, plaintiff managed his own

office and business. When he joined LPL, plaintiff signed a Branch Office

Manager Agreement (BOMA) and a Representative Agreement (RA). Both

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agreements contained substantively identical arbitration provisions, which

stated:

            Branch Office Manager [and Representative] hereby
            expressly agrees to submit to final and binding
            arbitration before the NASD any and all disputes,
            claims or controversies relating to Branch Office
            Manager's [and Representative's] association with or
            termination from LPL. Branch Office Manager [and
            Representative] expressly gives up [the] right to sue in
            a court of law or equity, including the right to a trial by
            jury. Specific examples of disputes, claims or
            controversies that are required to be arbitrated include,
            but are not limited to, allegations of unlawful
            termination, sexual or racial harassment or
            discrimination on the job, gender discrimination, and
            claims of age or handicap discrimination.

Plaintiff signed the BOMA in March 2007, and that agreement states that it is

governed by California law. The RA was signed in May 2007, and states that it

is governed by Massachusetts law.

      In April 2007, plaintiff also signed a Uniform Application for Securities

Industry Registration or Transfer (Form U-4). FINRA requires that form to be

completed before entry into a registered representative agreement with a broker

or dealer. Form U-4 also contains an arbitration clause. 1

1
  At oral argument before us, LPL conceded that it did not send certain notices
in connection with Form U-4 and, therefore, it was not relying on the arbitration
provision in Form U-4.
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      In 2016, plaintiff began to suffer from certain health problems. He alleges

that Patrick Sullivan, who was his "contact" with LPL, encouraged him to sell

his business to another LPL representative, Alan Levine. Sullivan was the

managing director of Private Advisor Group, LLC (PAG). Levine operated his

business under a limited liability company, known as Diversified Financial

Consultants, LLC (DFC). Plaintiff further alleges that he agreed to sell his

business to Levine, but Levine later reneged on the agreement and effectiv ely

stole and damaged his business. After plaintiff reported Levine's activities, LPL

terminated the RA and its relationship with plaintiff.

      In November 2018, plaintiff filed a complaint alleging twelve causes of

action against Levine, DFC, LPL, Sullivan, and PAG.2 Against Levine and DFC

(collectively, the Levine defendants), plaintiff alleged breach of contract, fraud,

and theft related to the aborted sale of, and damage to, his business. Against

LPL, PAG, and Sullivan (collectively, the LPL defendants) plaintiff alleged

complicity in Levine's alleged illegal actions, such as negligence, aiding and

abetting, and tortious interference with prospective economic advantage. In

addition, plaintiff asserted claims against LPL for violations of the New Jers ey

2
   Plaintiff also named Morristown Financial Group (MF) as a defendant, but
later voluntarily dismissed his claims against MF.
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Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -49, and the

Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -14.

      Defendants moved to stay or dismiss plaintiff's complaint and compel

arbitration. The LPL defendants sought to compel arbitration under the BOMA,

the RA, and the FINRA Arb. Code. The Levine defendants sought to compel

arbitration under the FINRA Arb. Code.

      After hearing oral argument, on March 29, 2018, the trial court entered

two orders (1) dismissing with prejudice the claims against PAG and MF; (2)

compelling all other claims to arbitration; and (3) dismissing plaintiff's

complaint without prejudice. On the record, the trial court reasoned that there

was a "comprehensive body of law" that compelled arbitration of disputes

among brokers and brokerage firms and that under the BOMA, the RA, and the

FINRA Arb. Code, all of plaintiff's claims were subject to mandatory arbitration.

                                       II.

      On appeal, plaintiff challenges both orders compelling arbitration. He

makes six arguments, contending (1) neither the BOMA nor the RA are valid

because he agreed to arbitrate before NASD and that organization no longer

exists; (2) the arbitration provisions in the BOMA and the RA are

unconscionable because they are not mutual in that only his claims are subject

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to arbitration; (3) the arbitration provision in the BOMA is unenforceable under

California law; (4) the arbitration provision in the RA is unenforceable under

Massachusetts law; (5) the arbitration provisions in the BOMA and RA are in

conflict and are not sufficiently clear to be enforceable; and (6) the FINRA Arb.

Code does not cover his LAD or CEPA claims.

      We are not persuaded by any of plaintiff's arguments and we affirm the

portions of the orders compelling arbitration.     We start by identifying our

standard of review. Next, we review the three arbitration provisions. Finally,

we address plaintiff's arguments.

                                     A.

      We use a de novo standard of review when determining the enforceability

of arbitration agreements. Goffe v. Foulke Mgmt. Corp., 238 N.J. 191, 207

(2019) (citing Hirsch v. Amper Fin. Servs., LLC, 215 N.J. 174, 186 (2013)).

The validity of an arbitration agreement is a question of law, and we conduct a

plenary review of such legal questions. Atalese v. U.S. Legal Servs. Grp., L.P.,

219 N.J. 430, 446 (2014) (citing Hirsch, 215 N.J. at 186); Barr v. Bishop Rosen

& Co., Inc., 442 N.J. Super. 599, 605 (App. Div. 2015) (citation omitted) (citing

Hirsch, 215 N.J. at 186).

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                                     B.

      Under both federal and state law, arbitration is a creature of contract. 9

U.S.C. § 2; Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67 (2010); Pinnacle

Museum Tower Ass'n v. Pinnacle Mkt. Dev. (U.S.), LLC, 282 P.3d 1217, 1224

(Cal. 2012) (citation omitted) (quoting Craig v. Brown & Root, Inc., 100 Cal.

Rptr. 2d 818, 820 (Ct. App. 2000)); McInnes v. LPL Fin., LLC, 994 N.E.2d 790,

794 (Mass. 2013) (citations omitted); Hirsch, 215 N.J. at 187 (citations omitted).

The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 to 16, was enacted "to

abrogate the then-existing common law rule disfavoring arbitration agreements

'and to place arbitration agreements upon the same footing as other contracts.'"

Martindale v. Sandvik, Inc., 173 N.J. 76, 84 (2002) (quoting Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)). Section 2 of the FAA

provides:

            A written provision in any . . . contract evidencing a
            transaction involving commerce to settle by arbitration
            a controversy thereafter arising out of such contract or
            transaction, or the refusal to perform the whole or any
            part thereof, or an agreement in writing to submit to
            arbitration an existing controversy arising out of such a
            contract, transaction, or refusal, shall be valid,
            irrevocable, and enforceable, save upon such grounds
            as exist at law or in equity for the revocation of any
            contract.

            [9 U.S.C. § 2.]

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      The California Arbitration Act (CAA), the Massachusetts Arbitration Act

(MAA), and the New Jersey Arbitration Act are similar to the FAA in enforcing

arbitration provisions. Tiri v. Lucky Chances, Inc., 171 Cal. Rptr. 3d 621, 627-

28 (Ct. App. 2014) (citations omitted); McInnes, 994 N.E.2d at 794 (citation

omitted); Hirsch, 215 N.J. at 187. In determining whether a matter should be

submitted to arbitration, a court must evaluate (1) whether a valid agreement to

arbitrate exists, and (2) whether the dispute falls within the scope of the

agreement. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 626 (1985); Bruni v. Didion, 73 Cal. Rptr. 3d 395, 405 (Ct. App. 2008)

(citations omitted); Carpenter v. Pomerantz, 634 N.E.2d 587, 588 (Mass. App.

Ct. 1994); Martindale, 173 N.J. at 92.

      Plaintiff agreed to arbitrate disputes under three arbitration provisions: (1)

the FINRA Arb. Code; (2) the BOMA; and (3) the RA. The FINRA Arb. Code

involves business and transactions affecting interstate commerce and is,

therefore, governed by the FAA. 9 U.S.C. §§ 1 to 2; see also Valentine Capital

Asset Mgmt., Inc. v. Agahi, 94 Cal. Rptr. 3d 526, 531 (Ct. App. 2009) (citations

omitted); McInnes, 994 N.E.2d at 794 (citation omitted); State Farm Gaur. Ins.

Co. v. Hereford Ins. Co., 454 N.J. Super. 1, 5 (App. Div. 2018) (citations

omitted). The FINRA Arb. Code states that "a dispute must be arbitrated under

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the Code if the dispute arises out of the business activities of a member or an

associated person and is between or among:          [m]embers; [m]embers and

[a]ssociated [p]ersons; or [a]ssociated [p]ersons." FINRA Rule 13200(a). LPL

is a member of FINRA. Id. at 13100(q) (defining a member to include "any

broker or dealer admitted to membership in FINRA"). Plaintiff, Levine, and

Sullivan are all associated persons because they were associated with LPL. Id.

at 13100(b) (defining "associated person" to include "a person associated with a

member"). Accordingly, the FINRA Arb. Code covers plaintiff's claims against

the Levine defendants because those claims arise out of the business activities

of associated persons. The FINRA Arb. Code also covers all of plaintiff's claims

against the LPL defendants, with the exception of the LAD and CEPA claims.

      Plaintiff's LAD and CEPA claims must be arbitrated under either the

BOMA or the RA. Both those agreements expressly include discrimination

claims. Under the FAA, CAA, and MAA statutory discrimination claims can be

arbitrated so long as the claimant can pursue the statutory cause of action in the

arbitration forum and is accorded certain procedural rights. See Gilmer, 500
U.S. at 26-27 (citations omitted); Pearson Dental Supplies, Inc. v. Superior

Court, 229 P.3d 83, 91 (Cal. 2010) (citations omitted); Joule, Inc. v. Simmons,

944 N.E.2d 143, 148 (Mass. 2011) (citations omitted).

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      The arbitration provisions in the BOMA and the RA are valid and

enforceable against plaintiff. Plaintiff signed both agreements. The agreements,

moreover, were the product of mutual assent and they state that plaintiff was

giving up the right to pursue in court "any and all disputes" relating to his

employment, including employment-related discrimination claims, and instead,

agreed to arbitrate those claims through the procedures provided by the FINRA

Arb. Code. See Atalese, 219 N.J. at 442 ("An agreement to arbitrate, like any

other contract, 'must be the product of mutual assent, as determined under

customary principles of contract law.'" (quoting NAACP of Camden Cty. E. v.

Foulke Mgmt. Corp., 421 N.J. Super. 404, 424 (App. Div. 2011))).

                                     C.

      Plaintiff first argues that there was no meeting of the minds because the

BOMA and the RA identify NASD as the arbitration forum and NASD no longer

exits. We reject this argument.

      In July 2007, NASD was renamed FINRA. See Program for Allocation

of Regulatory Responsibilities, 72 Fed. Reg. 42146, 42147 (Aug. 1, 2007).

Accordingly, because FINRA is the successor entity to NASD, courts have

consistently compelled arbitration before FINRA, where, as here, the arbitration

agreement specified that arbitration will occur under the rules of NASD. See,

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e.g., Lewis v. UBS Fin. Servs., 818 F. Supp. 2d 1161, 1166 (N.D. Cal. 2011)

(citations omitted); see also Hirsch, 215 N.J. at 182-83 (recognizing FINRA as

the successor to NASD and that contracts calling for arbitration under NASD

are to be arbitrated under FINRA); Ronay Family Ltd. P'ship v. Tweed, 157 Cal.

Rptr. 3d 680, 688 (Ct. App. 2013) (citations omitted) (finding that agreement to

arbitrate in accordance with the rules of NASD required abiding by parallel rules

established subsequently by FINRA); McInnes, 994 N.E.2d at 799 n.10

(equating the obligation to abide by NASD rules with an obligation to abide by

FINRA rules).

      Next, plaintiff contends that the arbitration provisions in the BOMA and

the RA are unconscionable because they are not mutual. We disagree with this

argument for several reasons.

      First, under the FINRA Arb. Code, all parties to this dispute are required

to arbitrate all of their claims, except for the CEPA and LAD claims. Second,

we construe the language in the arbitration provisions in the BOMA and the RA

as mutual. That is, both plaintiff and LPL are required to arbitrate "any and all"

disputes with each other. See Serpa v. Cal. Surety Investigations, Inc., 155 Cal.

Rptr. 3d 506, 513 (Ct. App. 2013) (citations omitted) (finding that an agreement

to arbitrate is mutual when the agreement includes language that subjects "all"

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or "any" disputes to arbitration). Finally, since only plaintiff can bring a LAD

or CEPA claim, there is nothing unconscionable about enforcing the arbitration

provisions in the BOMA and the RA against plaintiff.

      Plaintiff also claims that the arbitration provisions in the BOMA and the

RA are unenforceable under California and Massachusetts law. This argument

fails for two reasons.

      First, as previously noted, the disputes between plaintiff and defendant s

arise out of business and transactions affecting interstate commerce.

Accordingly, the FAA controls. See 9 U.S.C. §§ 1 to 2; Valentine, 94 Cal. Rptr.
3d at 531 (citations omitted); McInnes, 994 N.E.2d at 794 (citation omitted); see

also Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 58-64 (1995)

(holding that a generic choice of law provision, which did not expressly state

that the FAA did not apply, did not displace the FAA); Dialysis Access Ctr.,

LLC v. RMS Lifeline, Inc., 932 F.3d 1, 8-10 (1st Cir. 2019) (same).

      Second, even if we were to look to California or Massachusetts law, both

states would enforce the arbitration provisions. See Pearson Dental, 229 P.3d at

91 (citations omitted); Armendariz v. Found. Health Psychcare Servs., Inc., 6
P.3d 669, 681-89 (Cal. 2000) (citations omitted); McInnes, 994 N.E.2d at 798-

99 (citations omitted); Joule, 944 N.E.2d at 148 (citations omitted). We note,

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                                      13
furthermore, that only one of the agreements needs to be enforceable to compel

plaintiff to arbitrate his claims against the LPL defendants.

      We also note that FINRA arbitration procedures provide reasonable

procedures similar to those used in other institutional arbitrations, such as the

American Arbitration Association. See Hirsch, 215 N.J. at 182 n.3. FINRA

arbitration claims are initiated by the filing of a statement of claim, an answer,

and the appointment of arbitrators. FINRA Rules 13302 to 13303, 13400 to

13406. Discovery is provided and, typically, a hearing is held. Id. at 13500 to

13514, 13600. Following the hearing, the arbitrators render an award. Id. at

13904.

      We also reject plaintiff's argument that the arbitration provisions in the

BOMA and the RA are in conflict and are not sufficiently clear. As we have

already discussed, the arbitration provision in the BOMA is enforceable under

both federal and California law. Similarly, the arbitration provision in the RA

is enforceable under both federal and Massachusetts law. Accordingly, there is

no conflict created by the reference to California law in the BOMA and

Massachusetts law in the RA. To the extent that plaintiff had a question about

the application of the laws of two different states, he should have inquired at the

time that he signed the agreements in 2007.

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                                       14
      Finally, we have already explained that although the FINRA Arb. Code

does not automatically apply to a statutory employment discrimination claim,

the Code does allow parties to agree to arbitrate such claims. Plaintiff twice

agreed to arbitrate the LAD and CEPA claims under the BOMA and the RA. 3

                                     D.

      We disagree with the trial court in one respect. The trial court should not

have dismissed the complaint. Instead, the FAA provides that a party may

request a stay if a court action has been commenced and that action involves

"any issue referable to arbitration under an agreement in writing for such

arbitration." 9 U.S.C. § 3; see also Alfano v. BDO Seidman, LLP, 393 N.J.

Super. 560, 566, 577 (App. Div. 2007) (finding that "[u]nder [9 U.S.C. § 3] the

court must stay an arbitrable action pending its arbitration" after one of the

parties applied for a stay). Accordingly, we remand with direction that the trial

court enter new orders. Those orders will provide that plaintiff's claims are

stayed pending arbitration, and the parties are to proceed to arbitration in

accordance with the FINRA Arb. Code.

3
  LAD was amended effective March 18, 2019, to prohibit the waiver of any
substantive or procedural right or remedy related to a claim of discrimination.
That amendment, however, does not apply to the BOMA or the RA because they
were signed in 2007, and the amendment to LAD applies prospectively. N.J.S.A.
10:5-12.7 (codifying L. 2019, c. 39, § 1); L. 2019, c. 39, § 6.
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      Affirmed in part and remanded for further proceedings consistent with this

opinion. We do not retain jurisdiction.

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