|
A federal district court in New York refused to compel arbitration of a dispute where the arbitration agreement invoked NASD arbitration rules, and the NASD would not arbitrate without mutual consent because the party’s NASD membership had terminated.
In Dover Limited v. A.B. Watley, Inc., No. 04 Civ. 7366(FM), 2006 WL 2987054 (S.D.N.Y. Oct. 18, 2006), Dover invested $10 million through A.B. Watley (ABW), based on repeated assurances from ABW’s representative that the investment would not deplete or depreciate. After losing over $3 million, Dover sued ABW, alleging violations of the Securities Exchange Act and various common law claims.
The parties’ arbitration agreement stated that all disputes between the parties would be resolved through arbitration conducted by “any exchange or self-regulatory agency of which ABW is a member.” The agreement also stated that persons subject to the agreement who did not live in the United States agreed “that the rules of the organization administering the arbitration, namely the NASD, specifically provides for the designation of the place where the arbitration is to take place.”
Dover initially filed an arbitration claim with the NASD. However, the NASD terminated ABW’s membership, which meant that under NASD rules, arbitration before the NASD would only proceed with Dover’s consent. Dover refused consent, and after being sued, ABW filed a motion to compel arbitration.
In support of its motion, ABW argued that the arbitration agreement required the parties to arbitrate through an alternate forum. Unpersuaded, the Court held that the arbitration agreement required arbitration before the NASD since ABW was not a member of any other exchange or self-regulatory agencies. Accordingly, the Court denied the motion to compel arbitration.
As support for its holding, the Court cited case law holding that an arbitration agreement invoking the rules of a particular organization manifests intent not to use other organizations. See In re Salomon, 68 F.3d 554 (2nd Cir. 1995). The parties’ agreement invoked NASD rules, and NASD rules specifically state that once NASD membership is terminated, a former member can not initiate arbitration without the other party’s consent.
Subscribe to a free weekly update on ADR case law and
legislation
|