SIDE BAR:FINRA Code of Arbitration for Customer Disputes Rule 12200. Arbitration Under an Arbitration Agreement or the Rules of FINRAParties must arbitrate a dispute under the Code if:
(1) Required by a written agreement, or(2) Requested by the customer;
FINRA Code of Arbitration for Industry Disputes Rule 13200. Required Arbitration
(a) GenerallyExcept as otherwise provided in the Code, 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:
(b) Insurance ActivitiesDisputes arising out of the insurance business activities of a member that is also an insurance company are not required to be arbitrated under the Code.
The Investors' claim is based on the language in the FINRA rules and the Uniform Submission Agreement. Neither includes language "clearly and unmistakably" expressing the parties' intent to have arbitrators instead of the court decide the question of arbitrability. Like the agreement in Chesapeake Appalachia, the agreement here does not delegate arbitrability and thus the question of arbitrability is for us. In line with Next Financial Group, the Investors' filings in the FINRA proceedings are not sufficiently clear and unmistakable evidence of the Investors' intent to delegate the gateway question of arbitrability to the arbitrator.The parties did not delegate the question of arbitrability to FINRA. We have jurisdiction to decide the arbitrability of the Investors' claims.
FINRA Rules of arbitration only apply to customers.FINRA Rule 12200 requires parties to arbitrate only under circumstances related to customers of FINRA members. The United States Court of Appeals for the Second Circuit defines a customer for purposes of FINRA Rule 12200 as one who either (1) purchases a good or service from a FINRA member; or (2) has an account with a FINRA member. The United States Court of Appeals for the Fourth Circuit defined a customer as one "who purchases commodities or services from a FINRA member in the course of the member's business activities insofar as those activities are regulated by FINRA- namely investment banking and securities business activities."The Investors' counsel concedes Ms. Currie did not have an account with ONESCO. ONESCO's President swore, "Cynthia Currie was not a customer of ONESCO and ONESCO did not enter into any agreement whatsoever with Cynthia Currie." Ms. Currie did not purchase a good or service from ONESCO and did not open an account with ONESCO.The FINRA Rules do not require arbitration of claims of a non-customer. Cynthia Currie is not a customer under FINRA Rule 12200. Ms. Currie's claims are not subject to FINRA arbitration.
Investors Joseph Cordone, Blythe Stagliano, and Susan Stagliano are customers of ONESCO. They requested arbitration of a dispute arising in connection with ONESCO's business activities through its registered agent Mr. Wesselt. Under Rule 12200, ONESCO is bound to arbitrate. ONESCO signed the Uniform Submission Agreement agreeing to arbitrate according to the FINRA Rules. The Uniform Submission Agreement is a separate valid and enforceable arbitration agreement.
FINRA Rule 12200 does not require arbitration of "disputes involving the insurance business activities of a member that is also an insurance company." Furthering this principal, Rule 13200 of the FINRA code provides, "disputes arising out of the insurance business activities of a member that is also an insurance company are not required to be arbitrated under the Code." In re Prudential Ins. Co. of Am. Sales Practice Litig. All Agent Actions, our Court of Appeals interpreted similar insurance language regarding arbitration agreements in relation to an employment dispute. The Court examined a National Association of Securities Dealers rule which excluded "disputes involving the insurance business of any members of any member which is also an insurance company" and noted in these situations "there is a clear intent not to arbitrate but rather to leave the matter with in the province of the courts." Our Court of Appeals concluded the rule is ambiguous as to employment claims and did not define insurance business. FINRA Rule 13200 contains similar language to the National Association of Securities Dealers rule.
SIDE BAR: I would note that the posture of the disputed arbitration before EDPA would seem to fall under the ambit of an alleged "customer" of a FINRA member firm, and, as such, should be adjudicated under FINRA's 12000 series rules, which are part of the "FINRA Code of Arbitration for Customer Disputes." In contrast, the 13000 series rules are part of the "FINRA Code of Arbitration for Industry Disputes."Given the above distinction between customer and industry dispute, and given the separate 12000 and 13000 series of FINRA rules, I'm not quite sure why or how EDPA is citing Rule 13200 in support of its rationale for denying FINRA's arbitration forum to "customers," whose disputes would seem to be subject to the 12000 series of rules. Similarly, I'm not quite following the Court's point when it references Rule 13200 as "furthering" a principal enunciated in Rule 12200.