Weston Securities Corp. v. Aykanian

Decision Date30 December 1998
Docket NumberNo. 97-P-398,97-P-398
Citation46 Mass.App.Ct. 72,703 N.E.2d 1185
PartiesWESTON SECURITIES CORPORATION & others 1 v. Ara AYKANIAN & others. 2
CourtAppeals Court of Massachusetts

Richard A. Goren, Framingham, for plaintiffs.

Joseph C. Long, for defendants.

Before WARNER, C.J., and GREENBERG and GILLERMAN, JJ.

GILLERMAN, Justice.

On March 15, 1996, the plaintiffs (collectively, Weston) commenced an action in Superior Court seeking to enjoin the defendants from proceeding with arbitration before the National Association of Securities Dealers (NASD). The plaintiffs have appealed an order of the Superior Court ordering the arbitration to proceed and the entry of summary judgment in favor of the defendants. The availability of that appeal is the central issue in this case.

The material facts are not in dispute. The plaintiff Weston Securities Corporation is a member of the NASD. The plaintiffs Biggar and Horowitz are registered principals, and Robbat a registered representative, of Weston Securities Corporation. Each plaintiff is signatory to a Uniform Application for Securities Industry Registration or Transfer (U-4 form), under the terms of which each plaintiff agreed to arbitrate all disputes required to be arbitrated under the NASD Code of Arbitration Procedure (NASD code). Section 12(a) of the NASD code requires Weston to arbitrate any "dispute, claim or controversy ... 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 ... upon the demand of the customer."

In June, 1994, the defendants, claiming to be customers of Weston, each filed a Uniform Submission Agreement (agreement) for arbitration with the NASD. The agreements bound the defendants to arbitrate all their claims against Weston. 3

Weston refused to execute the agreements, claiming that the defendants' claims either were not arbitrable under the NASD code or, to the extent that they fell within the scope of the NASD code, were barred by the six-year rule. 4 On April 5, 1995, Weston applied to the Director of Arbitration of NASD (director) to dismiss the defendants' claim to arbitration. On October 30, 1995, the director ruled that the defendants were public customers of Weston, and therefore had standing to compel arbitration against each of the plaintiffs. The director referred all the defendants' claims to a panel of arbitrators, other than claims prior to June 16, 1988. Weston brought this action following the director's decision.

In June, 1996, a judge of the Superior Court issued a preliminary injunction enjoining the defendants from proceeding with arbitration at the NASD, and ordered the parties to submit cross motions for summary judgment. In response to the submissions of the parties, the same judge denied Weston's motion for summary judgment, allowed the defendants' motion for summary judgment, and entered an order compelling Weston to proceed with arbitration before the NASD. 5 Weston filed a notice of appeal from that order. Weston then filed a motion before a single justice of this court to stay arbitration pending appeal, which was denied. Weston's appeal from the single justice's denial was consolidated with its appeal from the Superior Court judge's order compelling arbitration.

Weston argues, inter alia, that the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16 (1994), which, in cases involving interstate commerce, permits an appeal from an order compelling arbitration, 6 preempts the Massachusetts Uniform Arbitration Act, G.L. c. 251, § 18. Section 18 does not permit such an appeal. See Old Rochester Regional Teacher's Club v. Old Rochester Regional Sch. Dist., 18 Mass.App.Ct. 117, 118, 463 N.E.2d 581 (1984) (section 18, by failing to enumerate orders compelling arbitration as occasions for the exercise of the right of appeal, precludes an appeal from such an order); Coughlan Constr. Co. v. Rockport, 23 Mass.App.Ct. 994, 995, 505 N.E.2d 203 (1987). Whether the § 18 denial of an immediate appeal from an order compelling arbitration is preempted by the FAA appears not to have been the subject of any decision by our appellate courts.

The defendants preliminarily argue that the FAA does not preempt § 18 because the arbitration agreement in this case does not involve interstate commerce. See Southland Corp. v. Keating, 465 U.S. 1, 14-15, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (the "involving commerce" requirement is a constitutionally " necessary qualification" on the FAA's reach, marking its permissible outer limit); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (the FAA "applies where there is 'a contract evidencing a transaction involving commerce' "). See also Loche v. Dean Witter Reynolds, Inc., 26 Mass.App.Ct. 296, 301-302, 526 N.E.2d 1296 (1988). We need not consider whether the arbitration agreement "involves interstate commerce," because we conclude that the FAA, assuming it is applicable, does not preempt § 18.

The FAA was designed "to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-220, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). To achieve that goal, the FAA created a body of Federal substantive law applicable in State and Federal courts, Southland Corp. v. Keating, 465 U.S. at 12, 104 S.Ct. 852; Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), which enforced "the duty to honor an agreement to arbitrate." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). There resulted a strong Federal policy favoring arbitration, and "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." Id. at 24-25, 103 S.Ct. 927.

Nevertheless, the FAA does not contain any express preemptive provision, "nor does it reflect a congressional intent to occupy the entire field of arbitration." Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 477, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). "[T]he federal courts' jurisdiction to enforce the Arbitration Act is concurrent with that of the [S]tate courts." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. at 25, 103 S.Ct. 927. The FAA does preempt State law, however, but only "to the extent that it 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.' Hines v. Davidowitz, 312 U.S. 52, 67 [61 S.Ct. 399, 85 L.Ed. 581] (1941)." Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. at 477, 109 S.Ct. 1248.

Thus, States may ordinarily establish their own procedural rules for the arbitration process, see Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., supra at 476, 109 S.Ct. 1248 ("[t]here is no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the enforceability according to their terms, of private agreements to arbitrate"); see also Felder v. Casey, 487 U.S. 131, 138, 108 S.Ct. 2302, 101 L.Ed.2d 123 (1988) (it is a "general and unassailable proposition ... that States may establish the rules of procedure governing litigation in their own courts"), but those procedural rules are preempted by the FAA if the effect of the State rule "would undermine the goals and policies of the FAA." Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., supra at 477-478, 109 S.Ct. 1248.

The narrow question on this appeal, then, is whether the Massachusetts procedural rule depriving Weston of an immediate appeal from the judge's order compelling it to arbitrate the defendants' claims before the NASD undermines the Federal goal of enforcing agreements to arbitrate in State and Federal courts. We think not.

There is no reason to suppose that the timing of the exercise of the right of appeal from an order compelling arbitration is other than a procedural matter which does not alter the substantive rights of either party--the right of Weston not to be bound by an illegal award, and the right of the defendants to enforce a binding agreement to arbitrate. Federal decisional authorities under § 16 of the FAA suggest strongly that this is so. See, e.g., Pacific Reinsurance Mgmt. Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1022 (9th Cir.1991) (section 16 of the FAA, which identifies both the events from which an immediate appeal may be taken and those interlocutory orders which postpone the time for an appeal, merely "addresses remedies and procedures"); Nichols v. Stapleton, 877 F.2d 1401, 1403 (9th Cir.1989) (section 16 of the FAA "addresses remedies and procedures"); Campbell v. Dominick & Dominick, Inc., 872 F.2d 358, 361 (11th Cir.1989) ("[section 16] does not affect substantive rights; only the timing of appeals is at issue").

As to the Massachusetts procedural scheme regarding arbitration, it may be said that Weston's right to challenge the legality of any arbitration award continues to be available and may be asserted in opposition to the application of the defendants to confirm any award in the defendants' favor, see G.L. c. 251, §§ 11, 7 12, 8 and 13, and Weston may, under G.L. c. 251, § 18(a )(3), appeal an order of the Superior Court confirming any unfavorable award of the arbitrator. Weston's rights being fully preserved, the order compelling arbitration may be seen as being a procedural point which is not in derogation of the Federal goal of enforcing agreements to arbitrate.

A persuasive decision directly on point is Marr v. Smith Barney, Harris Upham & Co., 116...

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