Webb v. Frawley
| Decision Date | 03 August 2016 |
| Docket Number | No. 15 C 6406,15 C 6406 |
| Parties | NICHOLAS WEBB and THAD BEVERSDORF, Plaintiffs, v. MICHAEL FRAWLEY, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
This matter is before the court on Defendant Michael Frawley's (Frawley) motion to compel arbitration. For the reasons stated below, the motion to compel arbitration is granted.
Plaintiff Nicholas Webb (Webb) and Plaintiff Thad Beversdorf (Beversdorf) were allegedly recruited by Defendant Michael Frawley (Frawley) to work for Jefferies LLC (Jefferies), an independent securities and investment banking firm. Plaintiffs claim that they left their former employer in the securities industry to work for Jefferies in June of 2012 and that Frawley was their supervisor. Plaintiffs contend that Frawley instructed Plaintiffs to conduct transactions which were not approved by Jefferies and that when Plaintiffs followed such instructions, their employment was terminated. On June 16, 2015, Plaintiffs filed the instant action against Frawley in the Circuit Court of Cook County, Illinois, including in their complaint claims against Frawley alleging tortious interference with contract and fraud. Frawley then removed the state action to federal court. Frawley now moves to compel arbitration.
The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., provides "that a written provision in any contract evidencing an intent to settle by arbitration any future controversy arising out of such contract shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." French v. Wachovia Bank, 574 F.3d 830, 834 (7th Cir. 2009)(internal quotations omitted)(quoting Livingston v. Assocs. Fin., Inc., 339 F.3d 553, 556 (7th Cir. 2003) and 9 U.S.C. § 2). A court "will compel arbitration unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steel, Paper and Forestry, Rubber, Mfg., Energy, Allied Indus. and Service Workers Intern. Union v. TriMas Corp., 531 F.3d 531, 536 (7th Cir. 2008)(internal quotations omitted)(quoting United Steelworkers of America v. Warrior & Gulf, 363 U.S. 574, 582-83 (1960)). When an arbitration agreement contains a broad arbitration provision, "there is a presumption in favor of arbitrability," and "[a]ny ambiguities as to the scope of thearbitration clause are resolved in favor of arbitration." Id. (internal quotations omitted)(quoting AT& T Techs., Inc. v. Communc'ns Workers of America, 475 U.S. 643, 650 (1986) and Volt Info. Sci., Inc. v. Board of Trs. of Leland Stanford, Jr. Univ., 489 U.S. 468, 475-76 (1989)); see also Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Intern., Ltd., 1 F.3d 639, 642 (7th Cir. 1993)( that the Court should "[b]ear[] in mind the Supreme Court's instruction that 'any doubt concerning the scope of arbitrable issues should be resolved in favor of arbitration'")(quoting in part Moses H. Cone Mem. Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1985)); Miller v. Flume, 139 F.3d 1130, 1136 (7th Cir. 1998)( that "once it is clear the parties have a contract that provides for arbitration of some issues between them, any doubts concerning the scope of the arbitration clause are resolved in favor of arbitration"); see also Gore v. Alltel Communications, LLC, 666 F.3d 1027, 1032 (7th Cir. 2012)( that "because arbitration is a matter of contract, 'a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit'")(quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)).
Frawley contends that the claims presented in this case are subject to mandatory arbitration under the rules of the Financial Industry Regulatory Authority (FINRA).
Frawley argues that the parties in this case are subject to FINRA arbitration provisions as Associated Persons under FINRA Rules and that he acted as an agent for Jefferies. Pursuant to FINRA Rule 13200 (Rule 13200), "a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among: Members; Members and Associated Persons; or Associated Persons." Id. Frawley contends, and Plaintiffs do not dispute that Jefferies was a member of FINRA. Frawley further argues that he and Plaintiffs are Associated Persons under Rule 13200. An Associated Person is defined as "a person associated with a member, as that term is defined in paragraph (r)." FINRA Rule 13100(a). The term "person associated with a member" is defined as the following:
FINRA Rule 13100(r)(emphasis added). The record reflects that all the parties, by virtue of their employment relationship with Jefferies, were controlled by Jefferies, a FINRA member, while they worked in a securities business. Frawley has also produced copies of Plaintiffs' employment agreements, referencing FINRA andJefferies' connection to FINRA and arbitration in accordance with FINRA. (D Ex. - 2). Thus, all three parties in this action all qualify as associated persons under Rule 13200. Rule 13200 also makes clear that such arbitration applies to disputes between associated person by including the phrase "or among . . . associated members." Id. Frawley has also pointed to evidence showing that Beversdorf was a FINRA Registered Representative and signed a FINRA Form U-4, which provided the following:
I agree to arbitrate any dispute, claim or controversies 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 SROs indicated in Section 4. . . as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.
Id. The record thus reflects that the parties are Associated Persons under FINRA Rules and a dispute between such persons is subject to mandatory arbitration.
The record also reflects that Plaintiffs signed employment agreements with arbitration clauses and that Frawley acted as the agent of Jefferies, when engaging in his role as Plaintiffs' supervisor at Jefferies. Even if as Plaintiffs contend, in retrospect that Jefferies may not have agreed with all of Frawley's decisions relating to Plaintiffs, Frawley would still have retained the agency authority to bind Jefferies and would have been Jefferies' agent. Midwest Trading Grp., Inc. v. GlobalTranz Enterprises, Inc., 59 F. Supp. 3d 887, 892 (N.D. Ill. 2014)( that "an agent may bind a principal to a contract while acting within the scope of its authority"). Thus,Frawley can also seek to enforce such employment agreements as an agent of Jefferies.
Plaintiffs also argue that FINRA does not provide a basis to compel arbitration because the employment relationship of all three parties in this action has already been terminated by Jefferies. Plaintiffs contend that they therefore are not bound by FINRA Rules. However, the FINRA Rules specifically provide that "a person formerly associated with a member is a person associated with a member." FINRA Rule 13100(r). Thus, the mere fact that the parties are not currently associated with Jefferies is not dispositive. Plaintiffs' assertion that FINRA can no longer provide jurisdiction in this matter is without merit. (Resp. 2). FINRA is merely a means by which contractual obligations are defined. It is not a basis for jurisdiction in this federal court and jurisdiction is not lost once the parties no longer...
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