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A South Carolina appellate court has interpreted language requiring arbitration under rules "then in effect" as invoking the rules in effect at the time of demand, not at the time of contracting.
In Buice v. WMA Securities, Inc., 668 S.E.2d 430 (S.C. Ct. App. Oct 14, 2008), a group of investors individually bought variable life insurance policies from WMA. Each policy contained an arbitration agreement requiring arbitration of disputes "in accordance with the rules then in effect of the National Association of Securities Dealers, Inc." (NASD).
The investors accused WMA and associated parties of misrepresentation and filed a demand for arbitration with NASD. NASD responded by stating that WMA's membership had been terminated, making NASD arbitration permissive instead of mandatory under NASD Rule 10301. The investors instead sued WMA and associated parties in the trial court. The court then denied WMA motion to compel arbitration.
On appeal, WMA argued that the language in the arbitration agreement "then in effect" indicated that the arbitration should have been governed by the NASD rules in effect at the time of contracting. Under that interpretation, arbitration would be mandatory, because Rule 10301 had not been enacted at the time of contracting.
Instead, the Court found the words "'then in effect' clearly and unambiguously refer[red] to the NASD rules existing at the time the matter is sent to arbitration," citing several concurring opinions from other jurisdictions. See, e.g., In re Sands Bros. & Co., Ltd., 206 S.W.3d 127 (Tex. App. 2006); Galey v. World Marketing Alliance, 2006 WL 1716871 (N.D. Miss. 2006); Provencio v. WMA Sec., Inc., 125 Cal.App.4th 1028 (Cal. Ct. App. 2005); Elston v. Toma, 2004 WL 1048132 (D. Or. 2004).
Also, the Court noted the NASD's stated rationale for adopting Rule 10301 was "to prevent fraudulent and manipulative acts and practices" in light of the "significantly higher incidence of non-payment of arbitration awards" by terminated NASD members.
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