Mony Securities Corp. v. Bornstein

• Decision Date: 18 November 2004
• Docket Number: No. 03-11646.,03-11646.
• Citation: 390 F.3d 1340
• Parties: MONY SECURITIES CORP., Plaintiff-Appellant, v. Leland BORNSTEIN, Judith A. Bornstein, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

390 F.3d 1340

MONY SECURITIES CORP., Plaintiff-Appellant, v. Leland BORNSTEIN, Judith A. Bornstein, Defendants-Appellees.

No. 03-11646.

United States Court of Appeals, Eleventh Circuit.

November 18, 2004.

Kathy M. Klock, Steel Hector & Davis, LLP, West Palm Beach, FL, for Plaintiff-Appellant.

Stephen Craig Krosschell, Joel A. Goodman, Goodman & Nekvasil, P.A., Clearwater, FL, for Defendants-Appellees.

Appeal from the United States District Court Middle District of Florida.

Before TJOFLAT and MARCUS, Circuit Judges, and MUSGRAVE^*, Judge.

TJOFLAT, Circuit Judge:

This case concerns Rules 10101 and 10301 of the National Association of Securities Dealers (NASD) Code of Arbitration Procedure. The district court granted summary judgment, concluding that these Rules coalesce to create two requirements, and that there was no question of fact on either requirement. We agree, and thus affirm.

This opinion proceeds in four parts. Part I lays out the factual and procedural background. Part II states and applies the applicable law, concluding that the district court did not err because the law is settled and the material facts are undisputed. Part III addresses counterarguments. Part IV concludes.

I.

The events began in November 1997. Leland and Judith Bornstein contacted Lawrence Keller in response to an advertisement that Keller placed in local newspapers. Keller worked in the financial-planning business, and he had affiliations with several businesses. One such business was MONY Securities Corp., a broker-dealer who sold securities. MONY is a member of the NASD.

Keller came to the Bornsteins' home and described several investment opportunities. The Bornsteins selected viatical settlement contracts, which are contracts in which an insured sells her life insurance policy to an investor for a payment approximating the discounted present value of the policy. The Bornsteins invested in five viatical contracts through a company unrelated to MONY.

The Bornsteins' investments went bad. Beginning in October 1998 and continuing through June 2001, the Bornsteins received letters from — and sent letters to — the Florida Department of Insurance and the unrelated company that offered the viatical contracts. In June 2001, the Bornsteins complained to MONY. In November 2001, the Bornsteins filed an arbitration claim with the NASD against MONY alleging that MONY breached several duties. We need not discuss these allegations because the Bornsteins' underlying claims are irrelevant to this appeal; rather, we focus solely on the district court's summary judgment decision regarding arbitration.

MONY responded by filing a complaint in the District Court for the Middle District of Florida seeking declaratory and injunctive relief. MONY argued that arbitration was inappropriate. After extensive procedural wrangling, including the reassignment of the case to another judge, the district court granted the Bornsteins' motion for summary judgment. The district court's opinion, MONY Securities Corp. v. Bornstein, 250 F.Supp.2d 1352, 1353-54 (M.D.Fla.2003), and the record are replete with facts, some of which are disputed. We need not discuss these facts because our summary provides those undisputed facts that are necessary for our judgment.

On appeal, MONY argues that the district court erred in entering summary judgement. Specifically, MONY argues the district court erred by, among other things, using the wrong presumption, overlooking disputed issues of material fact, denying MONY its right to a trial under Section 4 of the Federal Arbitration Act, misapplying the law-of-the-case doctrine, and misconstruing the NASD Code.

II.

"This Court reviews de novo questions of law, such as a district court's interpretation of an agreement to arbitrate (and whether it binds the parties to arbitrate)...." Multi-Financial Sec. Corp. v. King, 386 F.3d 1364, 1366 (11th Cir.2004).

Before we review the district court's decision, we must address two preliminary questions: (1) Is there an agreement to arbitrate? (2) What law governs? These questions are preliminary because they — like the de novo standard of review — frame our review of the district court's decision.

MONY dwells on the first question, arguing that the Bornsteins are not eligible for arbitration because there was never an agreement to arbitrate. This argument fails because the NASD Code itself constitutes the agreement. MONY concedes, as it must, that it is a member of the NASD. And as this court has recently held, even if "there is no direct written agreement to arbitrate ..., the [NASD] Code serves as a sufficient agreement to arbitrate, binding its members to arbitrate a variety of claims with third-party claimants." King, 386 F.3d at 1367; see also Washington Square Sec. Inc. v. Aune, 385 F.3d 432, 435 (4th Cir.2004) ("The NASD Code constitutes an `agreement in writing' under the Federal Arbitration Act, 9 U.S.C. § 2, which binds ... [an] NASD member, to submit an eligible dispute to arbitration upon a customer's demand.").

The second question — what law governs? — is easy to answer. Both the Supreme Court and the Eleventh Circuit hold that courts "must interpret the [NASD] Code as it would a contract under the applicable state law." King, 386 F.3d at 1367 (citing Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 2527 n. 9, 96 L.Ed.2d 426 (1987)). Here, that law is Florida's.

Combining our answers to these preliminary questions, we are left with the following: the parties have a written agreement to arbitrate, and to determine how the agreement applies to the current dispute, we apply Florida law.¹

With these questions answered, we now review the district court's decision. If we were dealing with a case of first impression, we would scour the record and our precedent to explicate the applicable laws, balance competing interests, and detail our analysis. But this is not a case of first impression. Instead, most of MONY's arguments were settled by King, which is a legally and factually similar case.

In both King and here, the applicable law centers around Rules 10101 and 10301 of the NASD Code. These rules contain similar — though not identical — language. Rule 10101, entitled "Matters Eligible for Submission," provides "for the arbitration of any dispute, claim, or controversy arising out of or in connection with the business of any member of the Association... between or among members or associated persons and public customers, or others." Rule 10301(a), entitled "Required Submission," states:

Any dispute, claim, or controversy eligible for submission under the Rule 10100 Series 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.

The King court interpreted these Rules as providing for a two-part test to compel arbitration: "an investor must show that his or her claim[] involves a dispute between a member and a customer or an associated person of the member and a customer; and, arises in connection with the business activities of the member or in connection with the activities of the associated person." King, 386 F.3d at 1367. King thus focused on the interplay between the two applicable Rules.² In other words, instead of parsing the Rules, King interpreted their combined requirements as creating a two-part test.

The King court then applied its two-part test to the facts. To provide context, the material facts follow. Rua King was an investor. Anthony Micciche was a representative of IFG Network Securities, Inc., a member of the NASD. Following Micciche's advice, King invested in a trust agreement with an unrelated company. King, 386 F.3d at 1365. Applying the first part of its two-part test, the King court began by clarifying that "whether King is an IFG customer, as defined by the Code, is a legal question of contract interpretation for the Court." King, 386 F.3d at 1367-68 (citing Aetna Cas. & Sur. Co. v. Warren Bros. Co., Div. of Ashland Oil, Inc., 355 So.2d 785, 787 (Fla.1978)). The court then rejected the argument that Rules 10101(c) and 10301(a) require the investor to be a customer of the member, as opposed to merely being a customer of an associated person. The court rejected this argument based on "the Code's unambiguous language," and based on "support in almost every other decision on this issue." King, 386 F.3d at 1368 (collecting cases). The court thus concluded that King was IFG's customer. Applying the second part of its two-part test, the King court "conclude[d] that King's claim of negligent supervision" arose in connection with IFG's business. Id. at 1370.

Here, our conclusion follows King's: the district court did not err because there is no dispute that the Bornsteins were customers of Keller and that Keller was an associated person with MONY. To elaborate, we will briefly discuss each part of the two-part test.

Under the first part, the question of whether the Bornsteins were customers is "a legal question of contract interpretation for the Court." King, 386 F.3d 1364 at 1368. Interpreting the contract in this case (i.e., the NASD Code), we are bound by the plain language of the Code, which defines "customer" to include anyone who is not a broker or a dealer. See NASD Rule 0120(g) ("The term `customer' shall not include a broker or dealer."); see also John Hancock Life Ins. v. Wilson, 254 F.3d 48, 58 (2d Cir.2001) ("look [ing] no further than the plain language of Rule 10301"). We are also bound by the clear mandate from King detailed above. See King, 386 F.3d at 1370 ("The parties agree that King dealt with Micciche, so King, in turn, dealt with IFG. The Court, therefore, holds that King has satisfied the first requirement of Rules 10101(c) and 10301(a) by demonstrating that she...