Paul Revere Variable Annuity Ins. Co. v. Kirschhofer

• Court: U.S. Court of Appeals — First Circuit
• Writing for the Court: Selya
• Citation: Paul Revere Variable Annuity Ins. Co. v. Kirschhofer, 226 F.3d 15 (1st Cir. 2000)
• Decision Date: 01 August 2000
• Docket Number: No. 00-1030,No. 99-2248,No. 99-2246,No. 00-1028,N,No. 00-1020,No. 00-1022,No. 00-1024,No. 00-1026,No. 00-1201,99-2246,99-2248,00-1020,00-1022,00-1024,00-1026,00-1028,00-1030,00-1201
• Parties: (1st Cir. 2000) THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. MAUREEN A. KIRSCHHOFER, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. WILLIAM E. HUDSON, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. A. BRUCE KUNKEL, JR., RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. DENNIS R. LINDHOLM, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. CHRISTOPHER R. HERCHOLD, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. ROBERT A. HANSON,RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. DOUGLAS W. RODWELL, JR., RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. DAVID S. NELSON, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. DOMINIC W. DINUNZIO, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. H.C. TIDWELL, JR., RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. DOUGLAS THOMAS, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. W. RONALD ANDERSON, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. KEVIN J. CARR, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. PAUL R. ZIETLOW, RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS, V. JAMES E. SAMUEL,RESPONDENT, APPELLEE. THE PAUL REVERE VARIABLE ANNUITY INSURANC

Page 15

226 F.3d 15 (1st Cir. 2000)

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

MAUREEN A. KIRSCHHOFER, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL PETITIONERS, APPELLANTS,

V.

WILLIAM E. HUDSON, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL PETITIONERS, APPELLANTS,

V.

A. BRUCE KUNKEL, JR., RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL PETITIONERS, APPELLANTS,

V.

DENNIS R. LINDHOLM, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL PETITIONERS, APPELLANTS,

V.

CHRISTOPHER R. HERCHOLD, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

ROBERT A. HANSON,RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

DOUGLAS W. RODWELL, JR., RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

DAVID S. NELSON, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

DOMINIC W. DINUNZIO, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

H.C. TIDWELL, JR., RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

DOUGLAS THOMAS, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

W. RONALD ANDERSON, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

KEVIN J. CARR, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

PAUL R. ZIETLOW, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

JAMES E. SAMUEL,RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

STANLEY L. COMPTON, RESPONDENT, APPELLEE.

THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY, ET AL., PETITIONERS, APPELLANTS,

V.

MICHAEL J. KELLEY, RESPONDENT, APPELLEE.

No. 99-2246, No. 99-2247, No. 99-2248, No. 00-1019, No. 00-1020, No. 00-1021, No. 00-1022, No. 00-1023, No. 00-1024, No. 00-1025, No. 00-1026, No. 00-1027, No. 00-1028, No. 00-1029, No. 00-1030, No. 00-1200, No. 00-1201

United States Court of Appeals For the First Circuit

Heard August 1, 2000

Decided September 13, 2000

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. Nathaniel M. Gorton, U.S. District Judge.

Patrick W. Shea, with whom Adam S. Bozek, Paul, Hastings, Janofsky & Walker Llp, Joseph M. Hamilton, and Mirick, O'Connell, DeMallie & Lougee were on brief, for appellants.

Glen DeValerio, with whom James R. Hubbard, Ricci, Hubbard, Leopold, Frankel & Farmer, PC, Michael G. Lange, Alicia Duff, and Berman, DeValerio & Pease Llp were on brief, for appellees.

Before Selya and Lipez, Circuit Judges, and Casellas,^* District Judge.

Selya, Circuit Judge.

These appeals emanate from the district court's denial of seventeen petitions to compel arbitration. The petitioners contend, as they did below, that the rules and regulations of the National Association of Securities Dealers (NASD) grant them a right to arbitrate the claims that the respondents have asserted against them in parallel state court litigation. Discerning no error in the district court's contrary conclusion, we affirm the denial of arbitration.

I. BACKGROUND

The petitioners, defendants in the underlying state court actions and appellants here, comprise an intricate corporate hierarchy. The Paul Revere Variable Annuity Insurance Company (Variable) and The Paul Revere Protective Life Insurance Company (Protective) are wholly-owned subsidiaries of The Paul Revere Life Insurance Company (Revere Life). Revere Life is, in turn, a wholly-owned subsidiary of The Paul Revere Corporation (PR Corp.). These four Massachusetts corporations share a principal place of business in Worcester. For many years, they competed with Provident Life & Accident Insurance Company (PL&A), a Tennessee corporation. PL&A is a wholly-owned subsidiary of a Delaware corporation, Provident Companies, Inc., and both are headquartered in Tennessee. ¹ On March 27, 1997, Provident acquired PR Corp. (and, thus, gained effective control of all the other Paul Revere companies).

Seventeen individuals who labored deep within the corporate web learned of this transaction with considerable trepidation. Scattered throughout the country, each held the position of General Manager-Career pursuant to an employment agreement with Variable, Protective, and Revere Life. ² Alleging that the acquirer made it abundantly clear that they would be terminated after the acquisition was completed, the seventeen filed separate, but substantially similar, breach-of-contract actions in Worcester Superior Court against all six of the corporate entities identified above. ³

As a condition of his or her employment, each manager had been required to register with NASD and to promise to abide by NASD's rules and regulations (as from time to time amended). At the time the managers sued, the NASD Code mandated arbitration of certain disputes if requested by an NASD member or a person associated with a member. Invoking this mandate and citing the Federal Arbitration Act (FAA), 9 U.S.C. § 3, the petitioners asked the state court to stay its hand or to dismiss the managers' complaints pending arbitration. The managers objected to these motions and voluntarily dismissed their actions against Variable (the only petitioner that was an NASD member). ⁴

The petitioners attempted to parry this thrust by shifting venues. Because none of the respondents was a citizen of Massachusetts, Tennessee, or Delaware, diversity jurisdiction existed. See 28 U.S.C. § 1332(a). Seizing on this fortuity, the petitioners again invoked the FAA and asked the federal district court to compel arbitration. The district court denied these entreaties on the ground that the petitioners lacked standing under NASD's arbitration protocol. See Paul Revere Variable Annuity Ins. Co. v. Thomas, 66 F. Supp. 2d 217, 223-28 (D. Mass. 1999). The petitioners seek review of this ruling. See 9 U.S.C. § 16.

II. ANALYSIS

For organizational purposes, we divide our analysis into two segments, first discussing the rights of those petitioners who are not NASD members, and thereafter addressing the situation vis-aa-vis Variable. Because abstract questions as to whether particular disputes do (or do not) come within the four corners of an expressly limited arbitration provision are legal in nature, we afford de novo review. See KKW Enters. v. Gloria Jean's Gourmet Coffees Franchising Corp., 184 F.3d 42, 48 (1st Cir. 1999); PaineWebber, Inc. v. Elahi, 87 F.3d 589, 592 (1st Cir. 1996); cf. New Hampshire Right to Life Political Action Comm. v. Gardner, 99 F.3d 8, 12 (1st Cir. 1996) (applying de novo standard of review to decisions anent standing). Throughout the opinion, we remain cognizant that, as a matter of federal policy, "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 (1983).

A. The Non-Member Corporations.

An NASD registrant is obligated to comply with the rules of the organization that are in effect at the time she files suit. See Seus v. John Nuveen & Co., 146 F.3d 175, 187 (3d Cir. 1998), cert. denied, 525 U.S. 1139 (1999). Since fifteen of the seventeen managers sued on October 8, 1997, we refer, for purposes of this discussion, to the NASD rules as they existed on that date. ⁵

NASD Rule 10201 limns the types of matters eligible for arbitration under the NASD Code. Rule 10201(a) carves out the subset of eligible matters for which arbitration is required:

Any dispute, claim, or controversy eligible for submission . . . between or among members and/or associated persons, and/or certain others, arising in connection with the business of such member(s) or in connection with the activities of such associated person(s), or arising out of the employment or termination of employment of such associated person(s) with such member, shall be arbitrated under this Code, at the instance of:

(1) a member against another member

(2) a member against a person associated with a member or a person associated with a member against a member; and

(3) a person associated with a member against a person associated with a member.

The respondents do not dispute that their claims would be subject to this provision if one or more of the petitioners had a right to invoke it. Leaving Variable to one side, however, the other petitioners are not NASD members. Accordingly, subsections (a)(1) and (a)(2) do not pertain, and the non-members can insist upon arbitration only if one or more of them qualifies as "a person associated with a member."

This brings us to Article I of the NASD by-laws, which at the relevant time provided that:

When used in these By-Laws, and any rules of the [NASD], unless context otherwise requires, the term . . . (q) "person associated with a member" or "associated person of a member" means every sole proprietor, partner, officer, director, or branch manager of any member, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by such member, whether or not any such person is registered or exempt from registration with the [NASD] pursuant to these By-Laws. ⁶

We believe that the quoted definition, fairly read, signifies that only a natural person can be a "person associated with a member." Even though the first clause of the definition ...