Gibbs v. Pfs Investments, Inc., 2:02cv266.

• Decision Date: 11 July 2002
• Docket Number: No. 2:02cv266.,2:02cv266.
• Parties: Jerry A. GIBBS, Plaintiff, v. PFS INVESTMENTS, INC., and Primerica Life Insurance Company, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Virginia

209 F.Supp.2d 620

Jerry A. GIBBS, Plaintiff, v. PFS INVESTMENTS, INC., and Primerica Life Insurance Company, Inc., Defendants.

No. 2:02cv266.

United States District Court, E.D. Virginia, Norfolk Division.

July 11, 2002.

Walter Ware Morrison, Virginia Beach, VA, for plaintiff.

Edwin Ford Stephens, Christian & Barton, LLP, Richmond, VA, for defendants.

MEMORANDUM OPINION AND ORDER

REBECCA BEACH SMITH, District Judge.

This matter comes before the court on defendants' motion to dismiss and compel arbitration or, in the alternative, motion to stay. For the reasons set forth below, defendants' motion to compel arbitration is GRANTED. Defendants' motion to dismiss is GRANTED. Defendants' motion to stay is moot.

I. Factual and Procedural History

On May 14, 1999, plaintiff Jerry A. Gibbs applied for employment with PFS Investments and Primerica Life, both of which are affiliates of Primerica Financial Services, Inc. ("PFS"). PFS Investments is a securities broker-dealer and member of the National Association of Securities Dealers ["NASD"]. Primerica Life is an insurance company. Gibbs applied to become an independent contractor sales agent for the two PFS affiliates.

In connection with the application for employment, Mr. Gibbs completed a form entitled "Personal Financial Analyst Business Application." ("business application") (Def.'s Brief, Ex. C.) Page Four of the business application contained the following question: "Have you ever been charged with, convicted of, pled guilty or nolo contendere (`no contest') to a felony or misdemeanor (other than a minor traffic violation)?" Plaintiff marked the box designated "No." (Id.) Prior to selling securities on behalf of PFS Investments, plaintiff was also required to complete and submit an application to the NASD, entitled "Uniform Application for Securities Registration or Transfer." (Id., Exs. E, F.) This is known as a "U-4" form. In his U-4 form, plaintiff represented to the NASD that he had never pled guilty to, nor had he been charged with, a felony. (Id., Ex. E.)

In 1999, PFS Investments received notice from NASD Regulation, Inc., the regulatory arm of the NASD, that plaintiff had a criminal record. Specifically, in 1996 plaintiff pled guilty in a Texas state court to a charge of aggravated assault. (Id., Ex. H.) On August 4, 2000, PFS Investments received further notice from NASD Regulation, Inc., that plaintiff had filed an amended U-4, in which he disclosed that he had been charged with an aggravated assault in Texas. (Id., Ex. I.) In the amended U-4, however, plaintiff continued to deny that he had pled guilty or nolo contendere to a felony. (Id.) Based on plaintiff's denial, the NASD determined the amended U-4 to be deficient. When plaintiff refused to further amend his U-4 to reflect his guilty plea, PFS allowed him to resign from its affiliate companies.

Subsequent to plaintiff's resignation, PFS Investments reported his resignation to the NASD by submitting a "Uniform Termination Notice for Securities Industry Registration," known as a "U-5" form. (Id., Ex. J.) Primerica Life reported plaintiff's resignation to the Virginia Insurance Bureau, as mandated by Virginia Code § 38.2-1834.1. (Id., Ex. K.) Each of the reports indicated that Gibbs resigned during the course of an investigation into alleged non-disclosure of his guilty plea in Texas to the crime of aggravated assault. (Id., Exs. J, K.) On March 26, 2002, subsequent to the disclosures, plaintiff filed a motion for judgment in the Virginia Beach Circuit Court. The motion for judgment alleged that the U-5 form and the report filed by Primerica Life with the Virginia Insurance Bureau were false, malicious, defamatory, and slanderous. On April 23, 2002, defendants filed a notice of removal to federal court. On May 17, 2002, defendants filed an application to compel arbitration and to stay the action, along with an accompanying brief in support of the application. On May 22, 2002, pursuant to a motion filed by the defendants, this court entered an order granting leave to the defendants to substitute a new brief for the one submitted on May 17, 2002, and gave the plaintiff eleven days in which to file a response. Plaintiff has not responded to the defendants' motion, and the matter is ripe for review.

II. Discussion

The signature page of plaintiff's business application contains the following provision: "Any dispute with a PFS Company will be settled through Good Faith Negotiation or (if necessary) Arbitration according to the provisions (and subject to the exceptions) in the Basic Agreement and other agreements with PFS Companies." (Id., Ex. C.) The Basic Agreement contains the following arbitration provision:

15. (a) Except as otherwise provided in this Agreement or another written agreement between you and a PFS Company, any dispute between you and a PFS Company, between you and a PFS Company affiliate (or any of their past or present officers, directors or employees) or between you and another PFS agent (as long as a PFS Company or a PFS Company affiliate or any of their personnel is also involved as a party to the dispute) will be settled solely through good-faith negotiation (as described in the then-current Operating Guideline on Good Faith Negotiation) or, if that fails, binding arbitration. "Dispute" means any type of dispute in any way related to your relationship with a PFS Company that under law may be submitted by agreement to binding arbitration, including allegations of breach of contract, personal or business injury or property damage, fraud and violation of federal, state or local statutes, rules or regulations. A PFS Company may exercise rights under this Agreement without first being required to enter into food faith negotiations or initiate arbitration.

(Id., Ex. A.) The Basic Agreement defines "PFS Companies" as "PFS and other companies authorized by PFS to enter into agreements with, or to offer products or services through, agents in the PFS sales force." (Id., § 1.) This language encompasses PFS Investments and Primerica Life.

In connection with his employment, plaintiff also entered into separate contracts with Primerica Life and PFS Investments. Plaintiff's contract with Primerica Life, entitled "Primerica Life Agent Agreement," incorporates by reference the arbitration provisions contained in the Basic Agreement. (Id., Ex. B.) Plaintiff's contract with PFS Investments, entitled "PFSI Representative Agreement," also incorporates by reference the arbitration provisions contained in the Basic Agreement. (Id., Ex. D.)¹ Finally, the U-4 that plaintiff submitted to the NASD contains the following arbitration provision:

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] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.

(Id., Exs. E, F.) Thus, as mandated by this provision, plaintiff agreed to arbitration as required by NASD rules. Indeed, plaintiff's contract with PFS Investments clearly indicates that, when applicable, he will be bound by the NASD arbitration rules:

The arbitration procedures in Section 12(b) of your Basic Agreement will not apply to any dispute arising under this Agreement if the arbitration rules under one of the following organizations by their terms govern: the National Association of Securities Dealers. . . .

(Pl.'s Brief, Ex. D., ¶ 6.)² Given that the plaintiff's various contracts mandate that he resolve disputes with PFS and its affiliates through binding arbitration, the issue before this court is whether the Federal Arbitration Act, 9 U.S.C. §§ 1-16 ("FAA"), requires this court to give effect to these contracts.

A. Applicability of the FAA

The FAA provides that "[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 . . . 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. § 2.³ The Act further mandates that in the event of an alleged failure, neglect, or refusal to arbitrate, the court must compel arbitration if it is satisfied that "the making of the agreement for arbitration . . . is not in issue." Id. § 4. If, however, the court determines that the making of the agreement is at issue, the court must proceed to trial on that issue. See id.; A/S Custodia v. Lessin Intern., Inc., 503 F.2d 318 (2d Cir.1974).

As is clear from the language of § 2, the FAA applies only to contracts "evidencing a transaction involving commerce." Section 1 defines commerce as including "commerce among the States." Thus, for the FAA to apply in this case, plaintiff's agreements with the PFS companies and with the NASD must "evidence a transaction involving [interstate] commerce." That the U-4 form, filed with the NASD, satisfies this requirement is well-established in the federal courts. See, e.g., Zandford v. Prudential-Bache Secs., 112 F.3d 723 (4th Cir.1997); Williams v. Cigna Fin. Advisors, Inc., 56 F.3d 656, 659-60 (5th Cir.1995). Plaintiff's Basic Agreement, and the two contracts incorporating this agreement, also meet this requirement. Plaintiff is a Virginia resident and the PFS affiliates are headquartered in Georgia. The contracts contemplate that the plaintiff will forward applications for insurance contracts to Primerica Life and orders for securities to PFS Investments at the companies' Georgia headquarters. The companies will in turn issue insurance and securities products to plaintiff's Virginia customers. (Aff. Of Montgomery, ¶ 8.) Thus, the contracting parties were located in different states and performance was to occur across state lines. This is...