Court Opinion

ID: 8431860
Source: CourtListenerOpinion
Date Created: 2022-11-04 07:48:08.858471+00
Date Added: 2024-06-11T16:48:38.095064
License: Public Domain

AMBRO, Circuit Judge,
Dissenting.
I do not agree that the National Association of Securities Dealers (“NASD”) Form U-4 applies to Bazzone’s allegations in this case. I therefore respectfully dissent.
Form U-4, and the NASD Code provision it incorporates, require the arbitration of
any dispute, claim, or controversy arising out of or in connection with the business of any member of the Association, or arising out of the employment or termination of employment of associated person(s) with any member, with the exception of disputes involving the insurance business of any member which is also an insurance company ... between or among members and associated persons.
NASD Code § 10101. My colleagues in the majority conclude “that the Form U-4 signed by Bazzone, together with NASD Rule 10101, clearly and unambiguously require arbitration of Bazzone’s ‘redlining’ claims.” This conclusion ignores a threshold question. Do the arbitration provisions in Form U-4 and NASD Rule 10101 apply to claims, such as those alleged here, that do not relate to securities and that Bazzone claims he therefore did not intend to arbitrate?
In order to answer this question, we must look at what Bazzone intended at the time he signed Form U-4, for it is well settled that, despite our recognition of a presumption of arbitrability, “ [arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to submit.” AT & T Techs, v. Communications Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); see also Medtronic Ave Inc. v. Advanced Cardiovascular Sys. Inc., 247 F.3d 44, 55 (3d Cir.2001) (parties not required to arbitrate dispute that falls outside the scope of the arbitration agreement).
Bazzone signed Form U-4 so that he could sell variable annuity life insurance, which is considered a security and thus subject to securities regulations. Any dispute Bazzone had with Nationwide arising out of the sale of these life insurance products would clearly fall within the scope of the arbitration provision in Form U-4. But Bazzone’s redlining allegations here relate not to the sale of variable annuity life insurance, but to the sale of homeowners’ and automobile insurance — products that are not considered securities.
There is no indication that, by signing Form U-4, Bazzone intended to agree to submit all disputes arising between himself and Nationwide to arbitration. First, Bazzone sold homeowners’ and automobile insurance products before he signed Form U-4. Second, the sale of life insurance is apparently a very small percentage of Bazzone’s business. In this context, if a person sells X and Y without an agreement to arbitrate, and then signs an agreement to arbitrate claims as to Z because he wishes to sell Z products and to do so he is required to arbitrate related claims, logic leads away from arbitrating claims regarding X and Y absent an agreement explicitly extending arbitration to X and Y. Put *507another way, common sense (laymen’s logic) cannot conclude that Bazzone intended, by signing Form U-4, to agree to arbitrate disputes arising out of the sale of homeowners’ and automobile insurance — sales that he was engaged in prior to entering any agreement implicating the NASD rules and that constituted the main portion of his business.
Although our precedents considering whether disputes are arbitrable under Form U-4 do not explicitly consider whether the substantive dispute must involve securities for Form U-4 to apply, these cases arose in contexts where securities were directly at issue or where the parties had expressly agreed that Form U-4 would apply. See, e.g., John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 140 (3d Cir.1998) (parties agreed that the substantive dispute fell within the scope of the arbitration clause in Form U-4); First Liberty Inv. Group v. Nicholsberg, 145 F.3d 647, 653 (3d Cir.1998) (arbitration of breach of employment agreement was required when the employment agreement itself incorporated the NASD Code); Seus v. John Nuveen & Co., Inc., 146 F.3d 175, 177 (3d Cir.1998) (no question as to the threshold applicability of Form U-4 because the employee was one who was employed to “deal directly with the public in purchase and sale of over-the-counter securities”).4
Here, unlike our other cases in this area, the substantive dispute does not involve securities, and Bazzone does not appear to have agreed to the application of Form U-4 and the NASD Code to the non-securities part of his business. Concluding, as the majority does, that Form U-4 and NASD Rule 10101 require arbitration in this case is, in my view, an unwarranted expansion of the scope of the arbitration agreement between Bazzone and Nationwide. An arbitration provision designed for the securities industry does not, absent clear agreement, transfer to a situation where securities are not involved at all. Cf. IDS Life Ins. Co. v. Royal Alliance Assocs., 266 F.3d 645, 652 (7th Cir.2001) (Posner, J.) (noting, in holding that a dispute did not fall within the insurance business exception to arbitration under the NASD rules, that “this is not a case of an arbitration program designed for the securities industry being yanked into a class of disputes that do not involve securities.”). I perceive no choice but to dissent from my colleagues’ conclusion that “clear[ ] and unambiguous[ ]” language calls for arbitration.5

. Our decision in In re Prudential Ins. Co. of Am. Sales Practice Litig., 133 F.3d 225 (3d Cir.1998), does not, in concluding that arbitration of the Prudential sales agents’ insurance sales fraud allegations was required under Form U-4 and the NASD Code, mention what kind of insurance the alleged fraud scheme involved. However, we noted in that case that one former employee’s “entire theory of recovery [was] premised on the fact that he was a Prudential employee with authority to trade in securities.” Id. at 229 n. 7. Presumably, if there were a threshold issue in that case whether Form U-4 governed the dispute, it would have been raised by the former Prudential employees who resisted arbitration.

. Because I conclude that Form U-4 does not require arbitration in this case, I need not reach the issue whether Bazzone’s claims fall into the "insurance business exception” in NASD Rule 10101. If I reached that question, my analysis would be somewhat different from that of my colleagues in the majority. I am not convinced that In re Prudential forecloses Bazzone's argument that the insurance business exception applies here. In that *508case, we broadly stated that the insurance business exception requires arbitration of claims that are "intrinsically insurance” and that we could not define that phrase with any certainty in relation to the requirement that employment disputes be arbitrated. In re Prudential, 133 F.3d at 234. We therefore applied the presumption in favor of arbitrability to hold that employment disputes do not fall within the exception. Id. Concluding, as the majority does, that the insurance business exception also does not apply to Bazzone’s claims, which do not arise from his employment with Nationwide but rather from Nationwide's business practices, renders the exception surplusage because it is inapplicable to either category of disputes for which NASD Rule 10101 requires arbitration (employment disputes and disputes arising out of, or in connection with, an NASD member's business).
In IDS Life Ins., however, Judge Posner wrote that the purpose of the insurance business exception is to "keep arbitrators away from issues that are peculiar to insurance such as reserves, reinsurance, actuarial calculations, rates, coverage, and mandatory terms.” 266 F.3d at 652. Bazzone’s redlining allegations implicate Nationwide's sales practices, not any issues that are "peculiar to insurance.” Under the reasoning of IDS Life Ins., I would therefore hold that if Form U-4 applied to Bazzone's claims, the insurance business exception would not exempt them from arbitration.