Multi-Financial Securities Corp. v. King, No. 03-15078.

Citation386 F.3d 1364
Decision Date06 October 2004
Docket NumberNo. 03-15078.
PartiesMULTI-FINANCIAL SECURITIES CORP. (f.k.a. IFG Network Securities, Inc.), Plaintiff-Appellant, v. Rua L. KING, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)

Hala A. Sandridge, Burton W. Wiand, Elaine M. Rice, Ceci Culpepper Berman, Fowler, White, Boggs, Banker, P.A., Tampa, FL, for Plaintiff-Appellant.

Joel A. Goodman, Stephen Craig Krosschell, Goodman & Nekvasil, P.A., Clearwater, FL, for Defendant-Appellee.

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

Before BLACK and MARCUS, Circuit Judges, and SMITH*, District Judge.

SMITH, District Judge:

IFG Network Securities, Inc. ("IFG") appeals the district court's September 3, 2003, order compelling arbitration of its dispute with Rex King, now deceased, and Rua King ("King"). On appeal, IFG argues that the district court erred by finding King entitled to arbitration under the National Association of Securities Dealers ("NASD") Code of Arbitration Procedure ("Code") and by refusing to conduct an evidentiary hearing to resolve alleged fact issues. We hold, generally, that the Code is a written agreement binding IFG to arbitrate and, specifically, that the instant dispute is between a member (IFG) and a customer (King) and arises in connection with that member's business, thereby satisfying the Code's enumerated requirements.1 We, consequently, affirm the district court's order compelling arbitration.


At the time IFG filed its complaint, it was a member of the NASD. Following the advice of Anthony Micciche ("Micciche"), a registered representative of IFG, King and her late husband entered into a trust agreement with Intrados, S.A. ("Intrados"), a Panamanian company. On May 2, 1999, King tendered two checks totaling $45,800.00 to Intrados. Intrados, in turn, invested that money in Evergreen Securities, Ltd. ("Evergreen"). Evergreen now is bankrupt and King has lost her entire investment. In connection with his association with Evergreen, Micciche pled guilty to the crime of selling unregistered securities.

According to King, she relied, at least in part, on Micciche's affiliation with IFG in making the investments at issue. In support of that reliance, King submitted to the district court a copy of an IFG business card which Micciche allegedly provided her in the course of their business dealings. On its face, the business card indicates that Micciche is affiliated with IFG. Micciche countered: "I did not provide [King] with a business card or correspond with [King] on letterhead referring to IFG.... I did not provide [King] with any documents referring to IFG ... or indicating that IFG ... was involved with [her] offshore trust, its trustee ... or the Evergreen Security Ltd. investment the trustee made in their trust." Micciche never reported his activities involving King, Intrados, or Evergreen to IFG, IFG did not approve of the sale of Evergreen by its representatives, IFG does not have any record of the purchase of this investment by or for King, King never opened an account with IFG, King does not have any written contract with IFG, and IFG did not receive or disburse funds for this transaction.

On September 4, 2002, King initiated an arbitration proceeding against IFG, claiming that it violated federal and state securities laws, breached a contract, engaged in fraud, negligence, and gross negligence, and breached a fiduciary duty. King's substantive claim, in essence, is that IFG failed to supervise Micciche, contrary to its obligations, resulting in her losses through the failed Evergreen investment. Although King did not have a contract with IFG, she demanded arbitration under Rules 10101(c) and 10301(a) of the Code. In response, on January 27, 2003, IFG filed this action against King demanding a declaratory judgment that arbitrability is an issue for judicial determination, that the parties have no valid agreement to arbitrate, that Micciche had no authority to act on IFG's behalf with respect to Evergreen, and that "IFG [] did not violate the federal securities laws." IFG's complaint also seeks an injunction against the then-pending arbitration proceedings. King, in response, filed a motion to compel arbitration under the FAA.

A magistrate judge recommended that the district court deny both IFG's injunction request and King's motion to compel arbitration because "there is disputed evidence on the question of whether Micciche told [King] that he was affiliated with IFG, or gave her other indicia of his affiliation with IFG...." Both parties objected. On September 3, 2003, the district court refused to hold an evidentiary hearing or trial and compelled arbitration, holding that "a customer's direct dealings with an associated person of a[n] NASD member are sufficient to compel a[n] NASD member into arbitration" and that King's "claim has a `sufficient nexus' to IFG['s][] business activities so as to entitle [King] to arbitration in conformance with the NASD Code of Arbitration Procedure." The arbitration panel held a hearing and found in favor of King.

IFG appealed to this Court the district court's September 3, 2003 order compelling arbitration.


IFG's appeal is timely, this Court has appellate jurisdiction, 28 U.S.C. § 1291, and the federal courts have subject matter jurisdiction. 28 U.S.C. § 1331; see also Household Bank v. JFS Group, 320 F.3d 1249, 1259 (11th Cir.2003) ("[A] federal district court has subject-matter jurisdiction over a declaratory judgment action if, as here, a plaintiff's well-pleaded complaint alleges facts demonstrating the defendant could file a coercive action arising under federal law.").


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), but accepts the district court's findings of fact that are not clearly erroneous. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-948, 115 S.Ct. 1920, 1926, 131 L.Ed.2d 985 (1995).


The Federal Arbitration Act, preliminarily, only applies if the parties agreed "to arbitrate under a written agreement for arbitration." 9 U.S.C. §§ 2, 4. "[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. This axiom recognizes the fact that arbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration." AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648-49, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986) (citations and quotation marks omitted). Although there is no direct written agreement to arbitrate between IFG and King, the Code serves as a sufficient written agreement to arbitrate, binding its members to arbitrate a variety of claims with third-party claimants. See Kidder, Peabody & Co. v. Zinsmeyer Trusts P'ship, 41 F.3d 861, 863-64 (2d Cir.1994).

To determine whether IFG's written agreement to arbitrate governs its dispute with King, the Court must interpret the Code as it would a contract under the applicable state law, Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 2527 n. 9, 96 L.Ed.2d 426 (1987), giving effect (as it does when interpreting any contract) to the parties' intent expressed by the ordinary meaning of the language they used. Beans v. Chohonis, 740 So.2d 65, 67 (Fla.Dist.Ct.App.1999); Interfirst Fed. Sav. Bank v. Burke, 672 So.2d 90, 92 (Fla.Dist.Ct.App.1996). But, unlike other contracts, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983).

Rule 10101(c) provides:

This Code of Arbitration Procedure is prescribed and adopted pursuant to Article VII, Section 1(a)(iv) of the By-Laws of the Association 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....

NASD Code of Arbitration Procedure Rule 10101(c). And, Rule 10301(a) provides:

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....

NASD Code of Arbitration Procedure Rule 10301(a). To compel arbitration, therefore, 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.

A. Customer Disputes

King's dispute with IFG is one between a customer and a member. Rule 10101(c) only applies to "disputes ... between or among members or associated persons and public customers, or others" and Rule 10301(a) only applies to "disputes ... between a customer and a member and/or associated person." Preliminarily, whether King is an IFG customer, as defined by the Code, is a legal question of contract interpretation for the Court, see Aetna Cas. & Sur. Co. v. Warren Bros. Co., Div. of Ashland Oil, Inc., 355 So.2d 785, 787 (Fla.1978), and, under the circumstance at bar, the Court does not require an evidentiary hearing because the underlying factual circumstances are undisputed (the parties agree that King was a customer of Micciche and that Micciche was a person associated with IFG). The instant matter is distinguishable from Bensadoun v. Jobe-Riat, 316 F.3d...

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