In re Bradford
| Decision Date | 14 April 1995 |
| Docket Number | Bankruptcy No. 93-14682. Adv. No. 94-1098. |
| Citation | 181 BR 910 |
| Parties | In re William Earl BRADFORD, Lenore C. Bradford, Debtors. William Earl BRADFORD, Plaintiff, v. J.C. BRADFORD & CO., Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
Mark T. Young & Associates, Hixson, TN, for plaintiff.
Miller & Martin, Chattanooga, TN, for defendant.
R. THOMAS STINNETT, Bankruptcy Judge.
Mr. William Earl Bradford ("Mr. Bradford"), the debtor in this voluntary Chapter 7 case, filed this adversary proceeding against J.C. Bradford & Company ("J.C. Bradford") for employment discrimination. He alleges that J.C. Bradford fired him solely because of his bankruptcy, a violation of Bankruptcy Code § 525(b)1.
J.C. Bradford has filed a motion to dismiss or compel arbitration. This is not a core proceeding, but the parties have consented to the jurisdiction of this court subject to J.C. Bradford's alleged right to compel arbitration. 28 U.S.C. § 157(c)(2). Because the court is of the opinion J.C. Bradford may have the right to compel arbitration, subject to the rules of the New York Stock Exchange, Inc. ("NYSE"), the motion will be sustained and this proceeding will be stayed.
The facts necessary for disposition of this motion are undisputed. In December 1993, Mr. Bradford accepted a position with J.C. Bradford as a broker trainee. He was told to report for work on January 3, 1994. Later in December 1993, Mr. and Mrs. Bradford filed a chapter 7 bankruptcy case.
Mr. Bradford reported for work at J.C. Bradford on January 3, 1994. On January 4, 1994, Mr. Bradford signed a Broker Trainee Agreement ("Trainee Agreement"). He also signed a Uniform Application for Securities Industry Registration or Transfer, commonly called a U-4 ("U-4"). J.C. Bradford fired Mr. Bradford later the same day.
J.C. Bradford relies upon the arbitration clauses in the Trainee Agreement and the U-4 to require Mr. Bradford to submit his claim to arbitration. The Trainee Agreement provides:
The instructions for the U-4 indicate that an individual applies for registration by filing the U-4 with the Central Registration Depository (CRD). The instructions require the filing of a complete U-4 if "the applicant has never been registered." The U-4 includes the following terms relevant to arbitration:
Item 10 of the U-4 lists 10 organizations with a check box for each. The list includes the NYSE and the National Association of Securities Dealers ("NASD"). The instructions for the U-4 direct the employer to complete items 1-12. The instructions for Item 10 provide:
Indicate the self-regulatory organizations and jurisdictions where registration is being sought. The checking of a box in Item 10 constitutes an application for registration via the CRD and will cause the applicable fee to be charged to the broker-dealer CRD account.
J.C. Bradford has filed a copy of Mr. Bradford's U-4 completed only by him. None of the boxes in Part 10 are checked.
J.C. Bradford first contends that arbitration may be compelled under the U-4. Pursuant to the U-4, when a person registers with the NYSE or the NASD, the registrant becomes a party to a contract among the members ("membership agreement"). The membership agreement includes the organization's arbitration rules. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991); Willis v. Dean Witter Reynolds, 948 F.2d 305 (6th Cir.1991); Cullen v. Paine, Webber, Jackson & Curtis, Inc., 587 F.Supp. 1520 (N.D.Ga. 1984); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367 (D.D.C.1972).
The membership agreement also evidences a transaction in interstate commerce. That makes the membership agreement and the parties to it subject to the Federal Arbitration Act. 9 U.S.C. §§ 1 & 2; Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991); Willis v. Dean Witter Reynolds, 948 F.2d 305 (6th Cir.1991); Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698 (2nd Cir.1985); Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d 1163 (8th Cir.1984).
The Federal Arbitration Act requires the courts to enforce arbitration agreements in contracts evidencing a transaction in interstate commerce. 9 U.S.C. §§ 1 & 2. It was enacted to overcome the courts' former reluctance to experiment with alternative dispute resolution. Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987); Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984).
The Federal Arbitration Act does not apply to employment contracts of seamen, railroad employees, or any other class of workers engaged in interstate commerce. 9 U.S.C. § 1. This exception does not apply to the membership agreement that results from registration with the NYSE or the NASD because it is not an employment contract. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991); Willis v. Dean Witter Reynolds, 948 F.2d 305 (6th Cir.1991).
Mr. Bradford contends that he never became a party to the membership agreement. The court agrees. When Mr. Bradford signed the U-4, he gave J.C. Bradford the authority to complete it and file it; however, J.C. Bradford fired Mr. Bradford before he completed and filed the U-4. This revoked J.C. Bradford's authority to complete and file the U-4. See Preszler v. Dudley, 153 Cal.App.2d 120, 314 P.2d 138 (1957); Van Houten v. Trust Co. of Chicago, 413 Ill. 310, 109 N.E.2d 187 (1952); Southwest Virginia Hospitals v. Lipps, 193 Va. 191, 68 S.E.2d 82 (1951); 3 AM.JUR.2D, Agency §§ 47-50 & § 60 (1986). As a result, Mr. Bradford never became a party to the membership agreement among the members of the NYSE, the NASD, or any other organization listed in Part 10 of the U-4. See Brown v. Merrill Lynch, Pierce, Fenner & Smith, 664 F.Supp. 969 (E.D.Pa.1987).
Although some cases suggest merely signing the U-4 imposes the burdens of membership, those cases apparently involve U-4's that had been completed and filed. Chisolm v. Kidder, Peabody Asset Management, Inc., 810 F.Supp. 479 (S.D.N.Y.1992); Cherry v. Wertheim Schroder & Co., 868 F.Supp. 830 (D.S.C.1994); see also McGinnis v. E.F. Hutton & Co., 812 F.2d 1011 (6th Cir.1987). The critical question is whether the U-4 made Mr. Bradford a party to the membership agreement. Because the U-4 was never filed, Mr. Bradford remained a stranger to the member organizations. Thus, the uncompleted U-4 does not allow J.C. Bradford to compel arbitration.
Although the court has concluded that Mr. Bradford is not bound by the arbitration provisions of the U-4, J.C. Bradford also insists that arbitration may be compelled pursuant to the Trainee Agreement.
Decisions from other courts lead to the conclusion that the hiring of a broker or broker trainee by a brokerage firm that is a member of the NYSE is a transaction in interstate commerce. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. DeCaro, 577 F.Supp. 616 (W.D.Mo.1983); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Thomson, 574 F.Supp. 1472 (E.D.Mo.1983); Cullen v. Paine, Webber, Jackson & Curtis, Inc., 587 F.Supp. 1520 (N.D.Ga.1984); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104 (N.D.Ill.1980). The Federal Arbitration Act applies even if Mr. Bradford never did any work for J.C. Bradford.
The Act's exception for employment contracts does not apply to the Trainee Agreement. The exception has been treated as applying to the employment contracts of workers engaged in moving tangible property in interstate commerce and not to the employment contracts of brokers or trainees. 9 U.S.C. § 1; Dickstein v. duPont, 443 F.2d 783 (1st Cir.1971); Tenney Engineering, Inc. v. United Electrical Workers, 207 F.2d 450, 452 (3rd Cir.1953); DiCrisci v. Lyndon Guaranty Bank, 807 F.Supp. 947 (W.D.N.Y. 1992). The Sixth Circuit has not ruled directly on the issue, but decisions in similar cases indicate a consistent philosophy. Compare Bacashihua v. United States Postal Service, 859 F.2d 402 (6th Cir.1988) and Stokes v. Merrill...
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