Skewes v. Shearson Lehman Bros.

• Decision Date: 10 April 1992
• Docket Number: No. 65845,65845
• Citation: 829 P.2d 874,250 Kan. 574
• Parties: Blaine SKEWES, Appellee, v. SHEARSON LEHMAN BROTHERS, Appellant.
• Court: Kansas Supreme Court

Page 874

829 P.2d 874

250 Kan. 574

Blaine SKEWES, Appellee, v. SHEARSON LEHMAN BROTHERS, Appellant.

No. 65845.

Supreme Court of Kansas.

April 10, 1992.

Syllabus by the Court

1. The Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1988), preempts conflicting state laws which exempt enforcement of arbitration agreements involving interstate commerce. Under the facts of this case, K.S.A. 5-401, which prohibits the arbitration of tort claims, is preempted by the Federal Arbitration Act.

2. The Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1988), creates a body of federal substantive law applicable in state and federal courts. In creating a substantive rule applicable in state as well as federal courts, Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements.

3. The Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1988), establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.

4. Under the facts of this case, a stockbroker employee's claim for retaliatory discharge arose out of or in connection with his employer's business. Thus, the claim fell within the arbitration agreement, and the retaliatory discharge action must be stayed and the claim submitted to arbitration.

Daniel M. Dibble, of Lathrop & Norquist, Kansas City, Mo., argued the cause, and W. Joseph Hatley, of the same firm, Overland Park, was with him, on the briefs, for appellant.

Jim Lawing, Wichita, argued the cause and was on the briefs, for appellee.

SIX, Justice.

This is an arbitration case arising from the effect of the Code of Arbitration of the National Association of Securities Dealers, Inc., (NASD) on a tort claim of retaliatory discharge asserted by a stockbroker against his employer.

The two controlling issues are: (1) whether the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. (1988), preempts K.S.A. 5-401, which prohibits the arbitration of tort claims; and (2) whether plaintiff Blaine Skewes' retaliatory discharge claim arose out of or in connection with his employer's "business" and, consequently, is subject to arbitration under the Uniform Application for Securities Industry Registration form (Form U-4).

Shearson Lehman Brothers, formerly known as Shearson Lehman Hutton, Inc., (Shearson) appealed the trial court's order denying its motion to stay proceedings and compel arbitration of Skewes' retaliatory discharge claim. In an unpublished opinion filed June 28, 1991, 812 P.2d 1240, the Court of Appeals reversed and remanded for an order staying the judicial proceeding and compelling arbitration.

We granted Skewes' petition for review.

We affirm the Court of Appeals, reverse the trial court, and hold that the FAA preempts the Kansas Uniform Arbitration Act. We also hold that under the facts of this case, Skewes' retaliatory discharge claim arose out of or in connection with his employer's "business" and is within the scope of the arbitration provision contained in the Form U-4.

Facts

Skewes was working for Shearson as a stockbroker. Shearson, terminated his employment. Skewes filed suit against Shearson, alleging that Shearson: (1) breached the employment contract; (2) wrongfully refused to allow his pension rights to vest and to pay him under the pension plan; and (3) discharged him in retaliation for filing a wage claim with the Kansas Department of Human Resources.

Shortly after Skewes began his employment, Skewes and Shearson (by its agent, the Wichita office manager) executed a "Form U-4." The Form U-4 contained the following provisions:

"I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organizations with which I register, as indicated in Question 8."

In Question 8, Skewes indicated that he was to be registered with the NASD.

Section 8(a) of the NASD Code of Arbitration Procedures (NASD Code) states in part:

"Any dispute, claim or controversy eligible for submission under Part I of this Code 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), shall be arbitrated under this Code, at the instance of:

(1) a member against another member; [and]

(2) a member against a person associated with a member or person associated with a member against a member...."

Section 1, Part I of the NASD Code provides:

"This Code of Arbitration Procedure is prescribed and adopted pursuant to Article VII, Section 1(a)(3) of the By-Laws of the National Association of Securities Dealers, Inc. (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, with the exception of disputes involving the insurance business of any member which is also an insurance company:

(1) between or among members; [and]

(2) between or among members and public customers, or others."

Shearson filed a motion to stay proceedings and to compel arbitration. In support of its motion, Shearson contended that Skewes' claims arose out of his employment as a Shearson stockbroker and that he had agreed to arbitrate such claims under the rules of the New York Stock Exchange (NYSE) and NASD. Shearson asserted that the FAA requires that the action be stayed and Skewes be compelled to arbitrate his claims. Shearson acknowledged that K.S.A. 5-401 excludes from arbitration contracts between employer and employees and tort claims; however, Shearson asserted that the FAA preempts the Kansas statute.

Skewes conceded that his pension benefits and breach of employment contract claims were subject to arbitration under the Form U-4 and that his employment involved interstate commerce.

Skewes contended that his retaliatory discharge claim was not subject to arbitration because K.S.A. 5-401 prohibits arbitration of tort claims. He asserts we have ruled that federal law does not preempt the Kansas arbitration statute.

Rulings of the Trial Court

The trial court granted Shearson's motion to stay and compel arbitration as to all of Skewes' claims except the retaliatory discharge claim. The trial court reasoned: (1) The claim of retaliatory discharge did not arise out of or in connection with Shearson's business of selling securities and is not required to be arbitrated under the NASD Code, and (2) federal law does not preclude a retaliatory discharge state court action because the agreement between Shearson and Skewes is not intrinsically related to the tort. The trial court relied on Coleman v. Safeway Stores, Inc., 242 Kan. 804, 752 P.2d 645 (1988).

The Court of Appeals Opinion

The Kansas Court of Appeals reversed and remanded. It held first that the FAA preempted Kansas law restricting arbitration of tort claims and then reasoned that the retaliatory discharge claim was within the scope of the arbitration agreement, finding that the claim arose out of or in connection with Shearson's business.

FAA Preemption--K.S.A. 5-401

--The Arbitration of Tort Claims

K.S.A. 5-401 provides:

"(a) A written agreement to submit any existing controversy to arbitration is valid, enforceable and irrevocable except upon such grounds as exist at law or in equity for the revocation of any contract.

"(b) Except as provided in subsection (c), a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable except upon such grounds as exist at law or in equity for the revocation of any contract.

"(c) The provisions of subsection (b) shall not apply to: (1) Contracts of insurance; (2) contracts between an employer and employees, or their respective representatives; or (3) any provision of a contract providing for arbitration of a claim in tort."

K.S.A. 5-401 invalidates arbitration clauses contained in employment contracts and clauses providing for arbitration of tort claims.

Shearson argues that the FAA preempts Kansas law and mandates that Skewes' retaliatory discharge action be stayed and the claim submitted to arbitration. Thus, Shearson contends the trial court erred in relying on Coleman. We agree.

The FAA provides:

"A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exists at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (1988).

9 U.S.C. § 1 (1988) defines "commerce," in part, as "commerce among the several States." Section 1 also contains the following exceptions: "[B]ut nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Skewes argues that the arbitration clause in question is contained in a contract of employment involving interstate commerce, and, therefore, exempt from the FAA.

In Gilmer v. Interstate/Johnson Lane, 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), the Supreme Court considered the argument that 9 U.S.C. § 1 excludes all employment contracts from the FAA in the context of an arbitration agreement contained in a Form U-4.

In affirming the Fourth Circuit, Justice White, speaking for a seven-member majority, stated the issue: "The question...