Medina v. Holguin

• Decision Date: 31 October 2008
• Docket Number: No. 27,314.,27,314.
• Citation: 197 P.3d 1085,2008 NMCA 161
• Parties: David J. MEDINA, Plaintiff-Appellant, v. Ray A. HOLGUIN, and WMA Securities, Inc., Defendants-Appellees.
• Court: Court of Appeals of New Mexico

197 P.3d 1085

2008 NMCA 161

David J. MEDINA, Plaintiff-Appellant, v. Ray A. HOLGUIN, and WMA Securities, Inc., Defendants-Appellees.

No. 27,314.

Court of Appeals of New Mexico.

October 31, 2008.

Martin, Lutz, Roggow, Hosford & Eubanks, P.C., William L. Lutz, Las Cruces, NM, for Appellant.

Yarbro & Associates, P.A., Roger E. Yarbro, Cloudcroft, NM, for Appellee Ray A. Holguin.

Windle, Hood, Alley, Norton, Brittain & Jay, LLP, Eric Brittain, El Paso, TX, for Appellee WMA Securities, Inc.

OPINION

KENNEDY, Judge.

{1} Plaintiff David Medina (Medina) appeals from an order of the district court granting a motion filed by Defendants Ray Holguin (Holguin) and WMA Securities, Inc. (WMAS) to compel arbitration. At issue in this appeal is the applicability of an arbitration provision in the rules of the National Association of Securities Dealers (NASD). The parties do not dispute their respective roles under this provision. See NASD Rule 10301(a) (effective through April 16, 2007), available at http://finra.complinet.com/en/ display/display_viewall.html?rbid=2403 & element—id=6014 & record_id=8050. On appeal, Medina argues that because the NASD memberships of both Holguin and WMAS had terminated by the time of his suit, neither may enforce the arbitration agreement against him. We agree and hold that Defendants fail to meet the requirements of Rule 10301(a). We can locate no language in the rule to indicate that an associated person enjoys any rights independent from those of its parent member. We therefore hold that such an associated person may not compel arbitration with a customer after the lapse of the member's NASD membership. We reverse and remand to the district court for proceedings in accordance with this opinion.

BACKGROUND

{2} Medina suffered an injury that caused damage to his brain. He received a monetary settlement for his injury, which he invested to provide himself a safe, reliable income. Holguin acted as Medina's tax preparer and, as such, was intimate with Medina's financial circumstances. Holguin also worked as a representative for the investment firm, WMAS. He sought to have Medina invest his settlement money with WMAS and allegedly promised Medina that the move would produce substantially more income. Medina consented and moved his money to an account established by Holguin with WMAS. Medina asserts that he subsequently lost a substantial sum.

{3} Upon transferring his account, Medina signed an agreement with WMAS in October 1999 that contained an arbitration clause. The agreement provided that any controversy arising during the conduct of business between Medina and WMAS or its employees would be submitted to arbitration "in accordance with the rules then in effect of [NASD]." The agreement further stated that "[s]uch arbitration shall follow the procedures as set forth by a national arbitration committee of the NASD." Holguin, who was employed by WMAS, did not sign this agreement.

{4} WMAS no longer enjoyed NASD membership by 2002. As a consequence, NASD suspended Holguin's membership as an associated person of WMAS, and though he was eligible to do so, Holguin did not renew his license until joining another firm after the initiation of this litigation.

{5} Medina applied to NASD for arbitration in 2005, asserting his claims against WMAS and Holguin. NASD responded by informing Medina that nonmembers of NASD are not automatically subject to arbitration. The organization stated that neither WMAS nor Holguin was a current member and that WMAS, as a nonmember, could not invoke the arbitration clause against Medina. NASD explained that "[t]he exemption from required arbitration in Rule 10301(a) does not apply to claims against associated persons, regardless of their registration status[,]" and that NASD "has limited disciplinary authority over former associated persons." Medina afterwards filed his complaint in district court, claiming breach of fiduciary duty, negligence, fraud, and negligent misrepresentation.

{6} Because its NASD membership had lapsed by the time of Medina's lawsuit, WMAS concedes that it has no independent right to compel arbitration in this matter. Holguin echoes the argument of WMAS and has provided additional information pertaining to his membership. He seeks enforcement of the arbitration agreement under Rule 10301(a) because of his claimed right to compel arbitration because of his status as an associated person of WMAS. Holguin filed an affidavit stating that he was a member at all material times pertaining to Medina's lawsuit, an assertion in conflict with information furnished by NASD. He argues that despite the suspension of his membership as a result of WMAS's membership lapse in 2002, he remained eligible to re-apply during a two-year time period without re-testing. He claims that such eligibility rendered his suspended membership valid "for a period of two years." After the filing of Medina's claim, Holguin's membership was reinstated when he became an associated person with a different securities firm. Ultimately, the district court granted the motion to compel arbitration, and Medina appeals from that order.

DISCUSSION

{7} We review an order to compel arbitration de novo when it appears that the district court determined as a matter of law that an agreement to arbitrate existed, in the same fashion as we review orders for summary judgment. DeArmond v. Halliburton Energy Servs., Inc., 2003-NMCA-148, ¶ 4, 134 N.M. 630, 81 P.3d 573. An arbitration agreement entered pursuant to the NASD Code of Arbitration Procedure is likewise reviewed de novo. See MONY Sec. Corp. v. Bornstein, 390 F.3d 1340, 1342 (11th Cir. 2004). The Federal Arbitration Act provides that a written agreement to arbitrate "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 (2006).

{8} As contracts, "[w]e consider [arbitration agreements] as a whole to determine how they should be interpreted." Campbell v. Millennium Ventures, LLC, 2002-NMCA-101, ¶¶ 1, 15, 132 N.M. 733, 55 P.3d 429. "When discerning the purpose, meaning, and intent of the parties to a contract, the court's duty is confined to interpreting the contract that the parties made for themselves[.]" Ponder v. State Farm Mut. Auto. Ins. Co., 2000-NMSC-033, ¶ 11, 129 N.M. 698, 12 P.3d 960 (internal quotation marks and citation omitted).

{9} Medina's arbitration agreement with WMAS incorporates the NASD Rules and provides that they control all arbitration between the parties. We therefore view the NASD rules concerning the arbitration agreement through the lens of New Mexico law. See Fiser v. Dell Computer Corp., 2007-NMCA-087, ¶ 5, 142 N.M. 331, 165 P.3d 328, rev'd on other grounds, 2008-NMSC-046, ¶ 25, 144 N.M. 464, 188 P.3d 1215; DeArmond, 2003-NMCA-148, ¶ 9, 134 N.M. 630, 81 P.3d 573. We interpret the NASD Code as we would a contract under New Mexico law. See MONY Sec. Corp., 390 F.3d at 1342.

{10} Rule 10301(a) defines the parties that may pursue arbitration and provides the conditions upon which arbitration may be sought as follows:

Any dispute, claim, or controversy ... between a customer and a member and/or associated person arising in connection with the business of such member or in connection with the activities of such associated persons shall be arbitrated under this Code, as provided by any duly executed and enforceable written agreement or upon the demand of the customer. A claim involving a member in the following categories shall be ineligible for submission to arbitration under the Code unless the customer agrees in writing to arbitrate the claim after it has arisen:

1. A member whose membership is terminated, suspended, canceled, or revoked[.]

{11} Both WMAS and Holguin argue that Holguin may enforce the arbitration agreement as an associated person. But a close reading of Rule 10301(a) and NASD's interpretations of that rule reveals the inadequacy of this contention. Rule 10301(a) sets two conditions for arbitration. First, the dispute must occur between a customer and an NASD member or an associated person of an NASD member. In this respect, the dispute must have arisen in connection with the business of the member or in connection with the activities of the associated person. Id.; O.N. Equity Sales Co. v. Gibson, 553 F.Supp.2d 652, 656 (S.D.W.Va.2008); see Multi-Fin. Sec. Corp. v. King, 386 F.3d 1364, 1370 (11th Cir.2004) (concluding that because a customer dealt with a representative of a member, Rule 10301(a) was satisfied); Wash. Square Sec., Inc. v. Sowers, 218 F.Supp.2d 1108, 1117 (D.Minn.2002) (holding that a customer who deals with an associated person also deals with the member). Second, a claim may not be submitted to arbitration when it involves a member whose membership is no longer valid. Rule 10301(a)(1). Such claims may be submitted to arbitration only if the customer agrees in writing. Id.

{12} No party disputes that Medina signed a contract requiring him to arbitrate any claim arising out of transactions with WMAS or Holguin, in accordance with NASD rules. Indeed, the parties concede that Medina's claims involved both an NASD member (WMAS) and an associated person (Holguin). Medina's agreement to abide by NASD rules constitutes an agreement to arbitrate. See MONY Sec. Corp., 390 F.3d at 1342 (holding that the NASD Code itself constituted an agreement to arbitrate). Because of its status as a nonmember, WMAS concedes that it is not entitled to enforce arbitration but attempts to bootstrap its arbitration right from Holguin's asserted status. We turn now to defining the contours of Holguin's rights to enforce arbitration as a nonmember associated person under Rule 10301(a).

{13} The language of Rule 10301(a) provides no clear answer to whether its exception applies equally to both NASD members and their associated persons. The rule provides for arbitration between a customer and an active...