Cade v. Zions First Nat. Bank

• Decision Date: 02 April 1998
• Docket Number: No. 970311-CA,970311-CA
• Citation: 956 P.2d 1073
• Parties: 340 Utah Adv. Rep. 16 David G. CADE, Plaintiff and Appellant, v. ZIONS FIRST NATIONAL BANK, Defendant and Appellee.
• Court: Utah Court of Appeals

Page 1073

956 P.2d 1073

340 Utah Adv. Rep. 16

David G. CADE, Plaintiff and Appellant, v. ZIONS FIRST NATIONAL BANK, Defendant and Appellee.

No. 970311-CA Court of Appeals of Utah.

April 2, 1998.

Anthony L. Rampton and Robert A. Garda, Salt Lake City, for Appellant.

James R. Holbrook and T. Richard Davis, Salt Lake City, for Appellee.

Before DAVIS, P.J., WILKINS, Associate P.J., and GREENWOOD, J.

OPINION

GREENWOOD, Judge.

David G. Cade appeals from three separate district court orders: (1) an order denying his Motion to Vacate Award of Arbitrators and granting Zions First National Bank's Motion to Confirm Arbitration Award; (2) the underlying Order Compelling Arbitration; and (3) an order denying his motion to disqualify attorney T. Richard Davis and Davis's firm, Callister Nebeker & McCullough. We reverse the district court's arbitration orders and remand the dispute for trial. We affirm the district court's order denying disqualification.

BACKGROUND

Arbitration

On December 13, 1988, Cade executed a two-year employment contract with Zions First National Bank (the Bank). Cade's responsibilities primarily involved the purchase and sale of SBA loans, a form of securities not regulated by either the Securities Exchange Commission (SEC) or the National Association of Securities Dealers, Inc. (NASD).

On January 19, 1989, Cade completed a Form U-4 Uniform Application for Securities Registration or Transfer (Form U-4). On the Form U-4, Cade listed Zions Discount Brokerage (Zions Discount), a sister corporation of the Bank, as the firm through which he was registering. Although both the Bank and Zions Discount were at the time wholly-owned subsidiaries of Zions Bancorp, Inc., only Zions Discount was a member of the NASD and could deal in securities regulated by both the SEC and the NASD. The Bank was not qualified to be a member of the NASD and none of Cade's work for the Bank involved SEC- or NASD-regulated securities. Cade listed the Bank on the Form U-4 as his employer but did not list it as an entity with which he intended to maintain concurrent registration.

The Form U-4 included a provision under which Cade agreed "to arbitrate any dispute, claim or controversy that may arise between me and my firm ... or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organizations with which I register." The only organization with which Cade registered was the NASD.

The Bank terminated Cade's employment on April 19, 1991. On July 11, 1991, Cade initiated a lawsuit against the Bank in connection with that termination. On May 28, 1993, the Bank filed a Motion to Compel Arbitration pursuant to Cade's Form U-4. Cade argued that there was no arbitration agreement between himself and the Bank. On August 3, 1993, after a hearing, the district court issued an Order Compelling Arbitration, ruling that the Form U-4 arbitration provision "extends to and includes ... the subject matter of this action." The district court then stayed Cade's action and certified its order as ripe for appeal.

In August 1993, Cade executed a Uniform Submission Agreement for NASD Arbitration. The NASD arbitration commenced on August 26, 1993, and an award in favor of Cade was entered in April 1996.

Subsequently, Cade filed a Motion to Vacate Award of Arbitrators ¹ and the Bank responded by filing a Motion to Confirm Arbitration Award. On December 17, 1996, the district court entered an Order and Judgment denying Cade's motion and granting the Bank's motion to confirm.

Disqualification of Davis and Callister Nebeker & McCullough

During the NASD arbitration proceeding, Cade was primarily represented by attorneys Daniel R. Bartley and Sharon Green. On May 13, 1996, after the arbitration award was issued, Cade notified Bartley and Green that he had obtained new counsel--his current counsel--to challenge the arbitration award. The relationship between Bartley, Green, and Cade thereafter disintegrated quickly. Throughout these proceedings, the Bank has been represented by T. Richard Davis, of Callister Nebeker & McCullough.

On September 18, 1996, Cade filed a motion to disqualify both Davis and his firm, alleging Davis had improperly gained confidential information about the case from Bartley and Green. All the allegedly inappropriate communications, however, occurred after the arbitration award was issued. The district court denied Cade's motion to disqualify but indicated Cade could renew his motion should the arbitration award be vacated.

ISSUES AND STANDARD OF REVIEW

On appeal, Cade challenges both the district court's arbitration orders, renewing his argument that no arbitration agreement exists between himself and the Bank. The Bank counters that it could enforce the Form U-4 arbitration provision because, alternatively, (1) the Bank's corporate relationship with Zions Discount allows it to enforce the provision; (2) the Bank is a "person associated with a member" or an "other" under the NASD Arbitration Code who can enforce the provision; or (3) the parties intended their disputes to be governed by the provision.

"[I]n reviewing the order of a trial court confirming, vacating, or modifying an arbitration award, 'we grant no deference to the district court's conclusions [of law] but review them for correctness,' and 'we review the district court's factual findings under a clearly erroneous standard.' " Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941, 948 (Utah 1996) (citation omitted). In this case, the district court, without an evidentiary hearing on the disputed facts, concluded that Cade's Form U-4 constituted an arbitration agreement between Cade and the Bank. Because this conclusion was a legal one, we review it for correctness. See id.

The Bank argues that even if the Form U-4 does not constitute an agreement between Cade and the Bank, Cade waived his right to challenge the arbitration award, as the district court suggested, by actively participating in the arbitration proceeding instead of continuing to challenge the district court's order. Whether a party waives his or her right to challenge an arbitration award by submitting to arbitration after being ordered to do so is a legal question which we review for correctness. See Chandler v. Blue Cross Blue Shield, 833 P.2d 356, 360 (Utah 1992) ("Whether the trial court employed the proper standards [in determining waiver] presents a legal question which is reviewed for correctness.").

Finally, Cade argues that the district court erred in denying his motion to disqualify Davis and his firm. "The ultimate decision to grant or deny a motion to disqualify counsel is within the trial court's discretion, and we will not overturn that decision absent an abuse of that discretion." State v. Gray, 851 P.2d 1217, 1227 (Utah Ct.App.1993) (citation omitted). Thus, we reverse only if we find "no reasonable basis for the decision." Crookston v. Fire Ins. Exch., 860 P.2d 937, 938 (Utah 1993).

ANALYSIS

Arbitration

Cade argues that the district court's arbitration orders must be reversed because both are based upon the erroneous conclusion that Cade's U-4 Form arbitration provision extends to this dispute.

" '[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.' " AT & T Tech., Inc. v. Communications Workers, 475 U.S. 643, 648, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986) (citation omitted). This is because "a party who has not agreed to arbitrate will normally have a right to a court's decision about the merits of its dispute." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942, 115 S.Ct. 1920, 1923, 131 L.Ed.2d 985 (1995). Thus, "[a]lthough there is a presumption in favor of arbitration, a party will not be required to arbitrate when it has not agreed to do so." Tropical Cruise Lines, S.A. v. Vesta Ins. Co., 805 F.Supp. 409, 412 (S.D.Miss.1992) (citations omitted). "[W]e must first conclude that arbitration is a remedy which has been bargained for by the parties. Only when such agreement on arbitration exists may we encourage arbitration by liberal interpretation of the arbitration provisions themselves." Reed v. Davis County Sch. Dist., 892 P.2d 1063, 1065 (Utah Ct.App.1995).

Furthermore, as a contractual right, arbitration "may not be invoked by one who is not a party to the agreement and does not otherwise possess the right to compel arbitration." Lorber Indus. of Cal. v. Los Angeles Printworks Corp., 803 F.2d 523, 525 (9th Cir.1986) (citation omitted); see also McCarthy v. Azure, 22 F.3d 351, 353 (1st Cir.1994) (holding person who executed arbitration agreement as corporate officer could not "compel arbitration of [related] claims lodged against him as an individual"); Conway v. Icahn & Co., Inc., 787 F.Supp. 340, 342-44 (S.D.N.Y.1990) (holding broker could not compel client to arbitrate where agreement broker had client sign was between client and "clearing broker," which was not party to action).

Finally, although enforcement of a Form U-4 is governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16 (1970 & Supp.1997), see Williams v. Cigna Fin. Advisors, Inc., 56 F.3d 656, 659 (5th Cir.1995), where the issue is whether particular persons or entities are parties to and may enforce an arbitration agreement, federal law incorporates state contract and agency law. See First Options, 115 S.Ct. at 1924 ("When deciding whether the parties agreed to arbitrate ..., courts generally ... should apply ordinary state-law principles that govern the formation of contracts.").

A. Bank as Sibling Corporation

The Bank's first argument in support of the district court's orders appears to be that, as a sibling corporation of Zions Discount, it was empowered to step into its sister's shoes and enforce the Form U-4 arbitration provision. We hold, however, that the existence of a corporate relationship, without more, is insufficient to...