Opinion
Civil Action No. 3:00-CV-2205-BC
January 19, 2001
MEMORANDUM OPINION AND ORDER
The parties in this case have consented to the jurisdiction of the United States magistrate. Accordingly, this order is entered pursuant to 28 U.S.C. § 636 (c)(1).
Before the Court is Defendants' Motion to Dismiss, filed October 16, 2000. The instant motion seeks dismissal pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction for the reason that the dispute is subject to arbitration. The Court construes Defendants' motion as a motion to compel arbitration. For the reasons given below, Defendants' motion is GRANTED. Plaintiff's claims against both Defendants are REFERRED TO ARBITRATION and the case is DISMISSED.
Jurisdiction in this case is based on diversity of citizenship. (Defs.' Notice of Removal at 2.) The Court is not deprived of subject matter jurisdiction merely because the dispute is subject to arbitration. See, e.g., Local 1351 Int'l Longshoremens Ass'n v. Sea-Land Svc. Inc . , 214 F.3d 566 (5th Cir. 2000), cert. denied sub nom., SL Svc., Inc. v. Office Prof. Emp . , 69 U.S.L.W. 3334 (U.S. Jan. 8, 2001) (No. 00-714); Webb v. Investacorp, Inc . , 89 F.3d 252 (5th Cir. 1996).
I. Background
Plaintiff Kevin Brennan ("Brennan") filed this case in state court on August 23, 2000 against his former employer, Defendant Aetna Life Insurance Annuity Company ("ALIAC"), and ALIAC's parent corporation, Defendant Aetna Retirement Services, Inc. ("ARS"). Defendants removed to federal court on October 5, 2000.
Brennan worked as a sales representative for ALIAC from June 1997 until October 1998. He seeks to recover approximately $38,000 in commissions allegedly earned during that time, plus statutory damages and attorneys' fees. (Pl.'s Original Pet. ¶¶ 7, 9, 11.) According to Defendants, the Court should dismiss this case because Brennan's claims are subject to arbitration pursuant to the Federal Arbitration Act ("FAA").
II. Legal Standards
The FAA establishes a federal policy favoring arbitration that requires courts to rigorously enforce agreements to arbitrate. Shearson/American Express, Inc. v. McMahon , 482 U.S. 220, 226 (1987) (citations and internal quotation marks omitted). The Court is required to stay proceedings once it determines that any issues are referable to arbitration. 9 U.S.C.A. § 3 (West 1999). However, the Court may, in its discretion, dismiss the action if it finds that all the issues are subject to arbitration. Alford v. Dean Witter Reynolds, Inc . , 975 F.2d 1161, 1164 (5th Cir. 1992).
Consideration of a motion to compel arbitration under the FAA involves a two-step inquiry: (1) whether there is a valid agreement to arbitrate between the parties and (2) whether the dispute in question falls within the scope of that arbitration agreement. Webb v. Investacorp., Inc . , 89 F.3d 252, 257-58 (5th Cir. 1996).
Before turning to the merits of the motion, the Court first reviews the applicable arbitration provisions.
III. Analysis
A. Arbitration provisions
The Defendants argue that Brennan's claim is subject to arbitration under an arbitration clause contained in his application for registration with the National Association of Securities Dealers ("NASD"). As a condition of employment, Brennan was required to register with the NASD by filling out a Form U-4 Uniform Application for Securities Industry Registration or Transfer ("Form U-4"). (Defs.' Mot. at 1-2; Brennan Aff. ¶ 4.) The Form U-4 contains the following arbitration clause:
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 [NASD]. (Form U-4 p. 4, at Defs.' Mot. Ex. A.)
The NASD Code of Arbitration Procedure in turn describes the disputes that are "eligible for submission."
[A]ny 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:
(a) between or among members;
(b) between or among members and associated persons;
(c) between or among members or associated persons and public customers, or others; and NASD Manual Rule 10101.
NASD Rule 10102 states that matters eligible for submission shalt be arbitrated 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. NASD Manual Rule 10201(a).
The Court now turns to consider the application of these provisions.
B. Brennan's claims against ALIAC are arbitrable
As a threshold matter, the Court concludes that Brennan's claims for commissions earned during his term of employment is a "dispute arising out of the employment of [an] associated person with [a] member." NASD Manual Rule 10101. Brennan does not dispute that his claim arises from his employment. He argues instead that Defendants do not have standing to compel arbitration.
The NASD by-laws permit members to initiate arbitration against persons associated with a member. NASD Rule 10102(2). Brennan is a "person associated with a member" by virtue of his registration with NASD. NASD By-Laws, art. I, def. ee. Defendant ALIAC was a member of NASD until November 28, 2000. (Kelsey Aff. ¶ 2.) Thus, ALIAC was a member of NASD during the time of Brennan's employment and when this lawsuit was filed. Accordingly, ALIAC may compel arbitration with Brennan.
The Court has no discretion but to compel arbitration of arbitrable claims. Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 218 (1985). Accordingly, the claims against ALIAC must be referred to arbitration.
C. Arbitration with non-parties
Brennan's argument that ALIAC cannot compel him to arbitrate because it is not a party to the Form U-4 is without merit. By its terms, the arbitration clause requires Brennan to arbitrate not only with his firm, listed on the Form U-4 as Aetna Investment Services, Inc., but also with "any other person" whom the NASD by-laws require him to arbitrate. (Form U-4 p. 4.)
Aetna Investment Services Inc. is not named as a defendant in this case.
The Form U-4 constitutes an agreement between the registrant, Brennan in this case, and the NASD. Gilmer v. Interstate/Johnson Lane Corp . , 500 U.S. 20, 25 n. 2 (1991). However, there is no question that a registrant may be compelled to arbitrate by non-parties on the basis of the arbitration clause contained in the Form U-4. See id.; Perry v. Thomas , 482 U.S. 483 (1987) (holding that the Form U-4 required a former employee of a securities firm to arbitrate his statutory claim for commissions on the sale of securities); Williams v. Cigna Fin. Advisors, Inc . , 56 F.3d 656 (5th Cir. 1995) (holding that former securities representative was required pursuant to Form U-4 arbitration clause to arbitrate age discrimination claim).
Pennzoil Exploration Prod. Co. v. Ramco Energy, Ltd. and Taylor v. Investors Associates, Inc., on which Brennan relies for the proposition that non-parties may not enforce an arbitration agreement, are inapplicable because neither case involves the arbitration clause contained in the Form U-4. Pennzoil Exploration Prod. Co. v. Ramco Energy Ltd . , 139 F.3d 1061 (5th Cir. 1998) (arbitration clauses contained in five operating agreements between the parties); Taylor v. Investors Associates, Inc . , 29 F.3d 211, 213 (5th Cir. 1994) (arbitration clause contained in client agreement).
D. Defendant ARS will be permitted to join the arbitration
Brennan argues that even if his dispute with ALIAC is subject to arbitration, he cannot be compelled to arbitrate with Defendant ARS, who is not a member of NASD. Brennan's claims against ARS are based on a letter to him on ARS letterhead, which describes the terms of his employment. (Pl.'s Original Pet. Ex. A.) According to Brennan, his primary dispute is with ARS, whom he (apparently erroneously) believed to be his employer. Brennan argues that because this primary dispute is not arbitrable, the entire dispute must remain in federal court under the "intertwining doctrine." The intertwining doctrine holds that "where a party asserts several causes of action, of which at least one lies within the federal court's exclusive jurisdiction, the entire case must remain in federal court." Brown-McKee, Inc. v. Fiatallis Constr. Mach., Inc . , 587 F. Supp. 38, 39 (N.D.Tex. 1984) (citing Tai Ping Ins. Co. v. M/V Warschau , 731 F.2d 1141, 1146 (5th Cir. 1984).
Whether the intertwining doctrine is still a viable principle of law is questionable. The Fifth Circuit has noted that the Supreme Court reversed and expressly rejected application of the intertwining doctrine when it held that the FAA leaves no room for the exercise of discretion and that a court must "compel arbitration of pendant arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums." Austin Municipal Sec. v. NASD , 757 F.2d 676, 696-97 (5th Cir. 1985) (citing Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. at 217); see also Torrence v. Murphy , 815 F. Supp. 965, 974 (S.D.Miss. 1993) (describing intertwining doctrine as "defunct"). Thus, it appears that the intertwining doctrine has been rejected in the Fifth Circuit.
Even if the intertwining doctrine retains vitality, however, it is not applicable on the facts of this case. The intertwining doctrine applies when the plaintiff has multiple claims, of which some are arbitrable and others are not. In this case, all of Brennan's claims are arbitrable. Brennan does not argue that some of his causes of action are arbitrable while others are not; he argues rather that while one defendant may be entitled to arbitration, the other defendant is not. Under Austin Municipal, the Court must refer arbitrable claims, in this case, all the claims against ALIAC, even if it results in separate proceedings against each Defendant — one proceeding in federal court and one proceeding in arbitration. See also Moses H. Cohen Memorial Hosp. v. Mercury Constr. Co . , 460 U.S. 1, 20 (1983) ("federal law requires piecemeal resolution when necessary to give effect to an arbitration agreement) (emphasis in original).
However, the Court will not maintain separate proceedings in this case: The claims against ARS will also be referred to arbitration along with the claims against ALIAC. Brennan is correct that ARS lacks standing to compel arbitration. However, the Court may nevertheless permit ARS to join in the arbitration of the claims between ALIAC and Brennan. Paul Revere Variable Annuity Ins. Co. v. Thomas , 66 F. Supp.2d 217, 225 (D. Mass. 1999), aff'd sub nom on other grounds, Paul Revere Variable Annuity Ins. Co. v. Kirschhofer , 226 F.3d 15 (1st. Cir. 2000).
In Paul Revere, the court allowed a nonmember petitioner to join a compelled arbitration because the claims against the nonmember were based on the same set of facts as the claims against the member. Paul Revere Variable Annuity Ins. Co . , 66 F. Supp.2d at 225 . The court found that all of the petitioners seeking arbitration were "closely affiliated" and the claims against them were "inextricably intertwined." Paul Revere Variable Annuity Ins. Co . , 66 F. Supp.2d at 225 .
This Court agrees with the reasoning in Paul Revere and finds the claims against the Defendants in this case are likewise inextricably intertwined. First, the claims against ALIAC and ARS are interrelated and overlapping. Brennan's complaint lists three counts based on the same set of facts: statutory liability, breach of contract, and quantum meruit. Pl.'s Original Pet. ¶¶ 5-18.) The claims are in essence three theories of recovery based on the same allegation — that he was wrongfully denied commissions. Brennan claims that his primary dispute is with ARS; however, ALIAC was his employer. (Kelsey Aff. ¶ 3.) Although factual allegations are scant at this stage of the proceedings, determination of the amount of commissions owed will likely involve determination of ALIAC's obligations as Brennan's employer. Second, the two Defendants are closely affiliated. ALIAC is a wholly owned subsidiary of ARS that manufactures ARS' financial services products. (Kelsey Aff. ¶ 3.)
In sum, the claims against Defendant ARS are inextricably intertwined with the claims against Defendant ALIAC; thus, ARS is permitted to join in the arbitration of the claims between ALIAC and Brennan.
E. Insurance exception
Brennan argues that his claims are excepted from arbitration by the so-called "insurance exception." The NASD rules provide an exception to mandatory arbitration for "disputes involving the insurance business of any member which is also an insurance company." NASD Manual Rules 10101. Brennan argues that this dispute falls within the exception because "analysis of commissions due to [him] goes to the very heart of the insurance business of Defendants" and thus, are excepted from arbitration. (Pl.'s Resp. at 6.)
The Court disagrees. A case that is essentially an employment-related suit, but which happens to involve an insurance company does not trigger the insurance exception. Mouton v. Metropolitan Life Ins. Co . , 147 F.3d 453, 456-57 (5th Cir. 1998). Only a dispute fundamentally concerning insurance will invoke the exception and thereby bypass mandatory arbitration. Mouton , 147 F.3d at 456-57 . In Mouton, the Fifth Circuit held that Plaintiff Mouton's Title VII retaliation claim did not trigger the insurance exception because it involved Defendant Metropolitan's obligations as an employer rather than an insurer. Mouton , 147 F.3d at 456-57 .
Although calculation of his commissions may, as Brennan argues, require reference to Defendants' insurance products, this does not distinguish the facts of this case from Mouton or invoke the insurance exception. This case is fundamentally an employment dispute involving ALIAC's obligations as an employer rather than as an insurer. This conclusion is reinforced by the nature of Brennan's causes of action. Count I of his petition alleges a claim for damages under § 35.84 of the Texas Business and Commerce Code. (Pl.'s Original Pet. ¶ 11.) Section 35.84 imposes liability on "principals" who fail to pay commissions to "sales representatives." Tex. Bus. Com. Code Ann. § 35.84 (Vernon Supp. 2000). This section applies to Contracts to sell any type of product and is in no way limited to the insurance business. Tex. Bus. Com. Code Ann. §§ 35.81-35.84. The entire subchapter is concerned primarily with the relationship between principals and their sales agents. Tex. Bus. Com. Code Ann. §§ 35.81-35.84. Thus, the provisions on which Brennan relies for his statutory cause of action Brennan's claims implicate the employment or agency relationship between the parties, not the insurance business of the Defendants. Brennan's claims for breach of contract and quantum meruit likewise implicate the terms of Brennan's employment.
In sum, Brennan's claim for commissions is an arbitrable dispute that does not fall within the insurance exception.
F. Waiver of the judicial forum
Finally, Brennan argues that he should not be compelled to arbitrate because he did not knowingly or voluntarily waive his right to a judicial forum, or in other words, that he was not aware when he signed the Form U-4 that it contained an arbitration clause. This argument has been rejected in this circuit and is without merit. Mouton , 147 F.3d at 457 .
F. Evidentiary objection
Brennan complains that Defendants failed to authenticate the Form U-4 attached to their motion. This objection is without merit. Brennan does not dispute the authenticity of the form, nor does he deny that he signed it; in fact, he acknowledges that Defendants' exhibit is a standard U-4 form, which he was required to sign. (Brennan Aff. ¶¶ 3-4.)
IV. Conclusion
This case is REFERRED TO ARBITRATION and all claims are DISMISSED.