Chris Lazarini Discusses Factors Involved in Motions to Compel Arbitration

May 18, 2020
Securities Online Litigation Alert

Bass, Berry & Sims attorney Chris Lazarini discussed a case in which the defendants moved to compel arbitration and for a stay pending arbitration following allegations that the defendant violated duties to an investment plan by selecting advisors with whom he had personal and/or business relationships and enriched himself at the plan’s expense. In considering the motion to compel arbitration, the court must determine whether (1) the non-moving party signed an enforceable arbitration agreement and (2) the claims fall within the scope of the agreement.

Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.

Retina Consultants P.C. Defined Benefit Pension Plan vs. Benjamin, No. CV 119-037 (S.D. Ga., 3/19/20)

*On a motion to compel arbitration, the court must determine whether (a) the non-moving party signed an enforceable arbitration agreement and (b) the claims fall within the scope of the agreement.

**Under Georgia law, a non-party to an arbitration agreement can compel arbitration when (a) a signatory to the arbitration agreement must rely on the terms of the agreement to assert its claims against the non-signatory or (b) the claims against the non-signatory are inextricably intertwined with claims against a party to the agreement.

Benjamin, an employee of co-defendant South State Bank (the “Bank”) and an associated person of non-party LPL Financial (“LPL”), served as Plaintiff’s investment advisor and administrative fiduciary for over 16 years. Throughout that time, Plaintiff maintained an investment account at LPL. Plaintiff sued Benjamin and the Bank (“Defendants”) alleging Benjamin violated his duties to the Plan by selecting advisors with whom he had personal and/or business relationships and enriched himself at the Plan’s expense. Plaintiff also alleged the Bank failed to properly supervise and control Benjamin. Relying on the arbitration agreement in LPL’s Master Account Agreement (“MAA”), Defendants moved to compel arbitration and for a stay pending arbitration.

Preliminarily, the Court considers whether state or federal law governs and whether the Court or the arbitrators should decide arbitrability. On governing law, the Court finds because the matter relates to the management of securities and investments, it concerns interstate commerce and is governed by the Federal Arbitration Act. On arbitrability, the Court determines it must decide, finding no “clear and unmistakable” evidence the parties intended for the arbitrators to decide. The Court specifically notes the adoption of FINRA Rules in the arbitration agreement does not, standing alone, evidence a clear intent by the parties for the arbitrators to decide arbitrability. Turning to the substance of the motion, the Court considers whether Plaintiff signed a valid arbitration agreement and, if so, whether the dispute falls within the scope of the agreement. The Court finds LPL’s MAA valid because it was signed by Plaintiff’s representative. In this part of the analysis, the Court is not troubled that the MAA is between Plaintiff and LPL, and the Bank is not a party to it. The Court also rejects Plaintiff’s argument that it did not receive a copy of the MAA, referencing the Agreement’s certification that one was provided to Plaintiff.

The Court next finds the dispute falls within the scope of the arbitration agreement. The arbitration agreement applies to “any controversy” between Plaintiff and LPL and/or Plaintiff’s representative (i.e., Benjamin), “arising out of or relating to” Plaintiff’s account or transactions for Plaintiff. The Court finds the language should be interpreted broadly and as “all-encompassing” and concludes arbitration is the proper forum for this dispute.

Finally, the Court looks to Georgia law to determine whether the Bank, a non-party to the MAA, can compel arbitration. The Court finds Plaintiff is estopped from avoiding arbitration against the Bank, because Plaintiff’s claims against the Bank are inextricably intertwined with its claims against Benjamin and the federal policy favoring arbitration would be thwarted if the entire dispute were not decided in arbitration.

(C. Lazarini) (EIC: The “intertwining” doctrine, as used by this Court, aids in assuring that disputes that are “inextricably intertwined” will be heard in the same forum — the arbitration forum. It was early on used by courts hostile to arbitration to keep such “intertwined” claims in court, along with those deemed non-arbitrable. SCOTUS put an end to that with its decision in Dean Witter Reynolds v. Byrd (1985).)