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Granting a motion to compel arbitration of a securities fraud dispute between a broker/dealer and a registered representative, a Washington federal court held that NASD policies requiring members and representatives to arbitrate certain claims serves as a valid arbitration agreement because the signatory agrees to be bound by NASD policies.
In The O.N. Equity Sales Co. v. Venrick, No. CV07-0735RSL, 2007 WL 2705859 (W.D. Wash. Sept. 17, 2007), Venrick invested in the Lancorp fund owned by The O.N. Equity Sales Co. (ONESCO) in April, 2004. Venrick also began working for ONESCO shortly before investing in Lancorp, which made him an NASD registered representative. ONESCO terminated Venrick’s employment in January 2005.
In March 2007, Venrick sued ONESCO for fraud for losses from the Lancorp investment. ONESCO moved to compel arbitration, as NASD rules require members and representatives to arbitrate certain claims. Venrick opposed the motion arguing that there was no arbitration agreement between the parties.
The Court held that Venrick’s claims were subject to arbitration. Although the Federal Arbitration Act generally requires a written arbitration agreement, an explicit written agreement is not always required. Here, Vernick signed a written agreement binding him to the NASD’s rules. NASD Rules 10101 and 10301(a) can bind NASD-members to arbitrate certain claims with third parties. The Court found that Venrick was an NASD member at the time he made the investment, which bound him to the NASD’s arbitration policies.
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