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The Texas Court of Appeals held that revocation of a party’s NASD membership did not render an arbitration agreement unenforceable because the agreement provided for alternative forums.
In In re Sands Brothers & Co., No. 05-05-01667-CV, 2006 WL 2348951 (Tex. App. Aug. 15, 2006), Patten and several other investors sued Sands for securities fraud. Sands moved to compel arbitration and stay further proceedings. The trial court granted the motion, but when Sands’ NASD membership was revoked, the court lifted the stay because NASD rules prohibit a former member from enforcing a pre-dispute arbitration agreement.
On appeal, Sands argued that the trial court should have ordered the parties to arbitrate before one of the other forums specified in the parties’ arbitration agreement – namely, the NYSE or any other exchange of which Sands is a member. In fact, the agreement allowed Patten to choose the forum.
The Court held that revocation of Sands’ NASD membership did not render the arbitration agreement unenforceable because the agreement provided for alternative forums. Accordingly, the Court remanded the case with instructions to compel arbitration.
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