Believing that the IRA proceeds should have been more than what was distributed, Plaintiffs filed this action against T. Rowe Price alleging securities fraud under the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., and Rule 10b-5, 17 C.F.R. § 240.10b-5, and the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Cons. Stat. §§ 201-1 et seq. Plaintiffs also assert claims against Dosik for his alleged mismanagement of the IRA. In their amended complaint, Plaintiffs also seek an order to stay this matter and compel T. Rowe Price to arbitrate their claims pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 3, 4. [ECF 23].
at Page 4 of the EDPA OpinionIn its motion, T. Rowe Price argues, inter alia, that it is likely to succeed on the merits of its defense to Plaintiffs' claim to compel arbitration because there is no arbitration agreement between them or a statute that requires T. Rowe Price to arbitrate Plaintiffs' claims. Specifically, T. Rowe Price argues (1) that Plaintiffs were not and are not T. Rowe Price's "customers" with respect to Rhea Needle's IRA under FINRA Rule 12200, and (2) that no written arbitration agreement exists between Plaintiffs and T. Rowe Price that would compel arbitration. In their opposition, Plaintiffs posit two arguments: that they may enforce arbitration under FINRA Rule 12200 because they are T. Rowe Price's "customers" or, alternatively, that they may enforce to the Arbitration Clause of the New Account Form as the assignees of Rhea Needle's rights and as third-party beneficiaries of the contract. . . .
FINRA Code of Arbitration Procedure for Customer Disputes Rule 12200: Arbitration Under an Arbitration Agreement or the Rules of FINRAParties must arbitrate a dispute under the Code if:
- Arbitration under the Code is either:
(1) Required by a written agreement, or
(2) Requested by the customer;
- The dispute is between a customer and a member or associated person of a member; and
- The dispute arises in connection with the business activities of the member or the associated person, except disputes involving the insurance business activities of a member that is also an insurance company.
at Pages 5 - 6 of the EDPA OpinionImportantly, Rule 12200 requires arbitration only where the dispute arises "in connection with the business activities of the member." Courts have interpreted this third requirement of Rule 12200 as only requiring arbitration of disputes "arising from the account" of the customer. See, e.g., Citigroup Glob. Mkts., 761 F.3d at 275. Regardless of whether Plaintiffs would be considered customers for another purpose, the dispute Plaintiffs presently seek to arbitrate against T. Rowe Price does not concern their own personal or beneficiary accounts, through which they arguably could be considered T. Rowe Price's "customers." Rather, Plaintiffs seek to compel the arbitration of disputes that allegedly arose from the management of their mother's IRA account. As T. Rowe argues, allowing a perceived customer to invoke Rule 12200 to arbitrate disputes arising from any customer's account would have "no apparent limiting principle." (Defs.' Br., ECF 31, at p. 14). This Court agrees and finds that, at this preliminary stage, T. Rowe Price has shown a likelihood of success on the merits of its defense to Plaintiffs' arbitration claim.
at Page 2 of the EDPA OpinionPredispute Arbitration Clause. I agree to settle by arbitration any controversy between myself and Price [T. Rowe Price Investment Services, Inc.], its parent, or affiliates, and/or any such officers, directors, employees, agents or Price's clearing broker, relating to the Account Agreements, my account, or account transactions, or in any way arising from my brokerage relationship with Price . . . .
[T]the Arbitration Clause relied on only provides that Rhea Needle agreed to arbitrate "any controversy between myself and [T. Rowe] Price." (New Account Form, ECF 31, at p. 64 (emphasis added)). Thus, the Arbitration Clause provides no expression of intent to arbitrate that could extend to claims between Plaintiffs and T. Rowe Price. Absent any such expression of intent to arbitrate, Plaintiffs' reliance on the Arbitration Clause is unfounded.Plaintiffs also argue that they can invoke the Arbitration Clause as the assignees of Rhea Needle's rights under her contract with T. Rowe Price. Specifically, Plaintiffs contend that upon Rhea Needle's death, her rights under the New Account Form passed to her named beneficiaries of the IRA-Plaintiffs and their sister-pursuant to the Uniform Transfer on Death Security Registration Act ("UTDSRA"), a statute adopted in Pennsylvania. 20 Pa. Cons. Stat. §§ 6401-13. Plaintiffs are again mistaken.The UTDSRA provides, in relevant part: "On death of a sole owner or the last to die of all multiple owners, ownership of securities registered in beneficiary form passes to the beneficiary or beneficiaries who survive all owners." 20 Pa. Cons. Stat. § 6407. It is clear from the plain language of the UTDSRA that the statute concerns the transfer of the actual securities from an original owner to a named beneficiary upon the owner's death, not the transfer of rights under the underlying contract. See id. § 6407 ("On death of a sole owner . . . , ownership of securities registered in beneficiary form passes to the beneficiary or beneficiaries who survive all owners." (emphasis added)). As such, under the UTDSRA, upon Rhea Needle's death, Plaintiffs, as the named beneficiaries, became the owners of the securities held in Rhea Needle's account; they did not become owners of, or the "assignees" to, any rights and obligations associated with Rhea Needle's IRA.For the foregoing reasons, T. Rowe Price has demonstrated a likelihood of success on the merits of its defense to Plaintiffs' claim to compel arbitration.