Opinion
No. CV06-4023999S
November 21, 2006.
MEMORANDUM OF DECISION ON MOTION TO COMPEL ARBITRATION
The defendant, Royal Bank of Canada, has filed a motion to compel arbitration and stay the present judicial proceeding. This case arises from an alleged incident of defamation in which the plaintiff, Richard A. West a former employee of RBC Dain Rauseher ("RBC Dain"), claims injury from RBC Dain's disclosure of the reason for the plaintiff's termination. The plaintiff alleges that, subsequent to his discharge, RBC Dain filed a Uniform Termination Notice for Securities Industry Registration ("Form U-5") with the NASD and listed "violation of company harassment policy" as the reason for the plaintiff's termination. The plaintiff alleges that RBC Dain's statement in Form U-5 was libelous and has caused damage to the plaintiff's career.
RBC Dain is a wholly owned subsidiary of the defendant.
The defendant seeks an order to compel arbitration and stay the current judicial proceeding pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq, which requires enforcement of written arbitration agreements. The defendant bases its motion on the ground that the plaintiff is bound by an arbitration agreement that requires submission of the present claim to arbitration. The defendant provides in its motion that RBC Dain is a member firm of the NASD, that the NASD's arbitration policy applies to claims against a member firm that relate to an employee's employment or termination from employment and that the plaintiff agreed to arbitrate any such claims when the plaintiff signed a Uniform Application for Securities Industry Registration or Transfer ("Form U-4").
The motion is denied because the sole defendant, Royal Bank of Canada, is not entitled to compel plaintiff to submit their dispute to arbitration. In Burns v. New York Life Ins. Co., 202 F.3d 616 (2d Cir. 2000), the court determined that a non-member parent corporation of an NASD member firm was unable to compel arbitration. The court in Burns noted that the NASD's rule 10201 limits those who may compel arbitration to the following entities: "1) a member against another member; 2) a member against a person associated with a member or a person associated with a member against a member; and 3) a person associated with a member against a person associated with a member." Id. 619. The Burns court determined that a parent corporation is not a "person associated with a member" because "Article I of the NASD By-Laws defines `person associated with a member' to exclude corporate entities . . ." Id. 620.
NASD By-Laws, Article I defines "person associated with a member" as: "(1) a natural person who is registered or has applied for registration under the Rules of the Association; [or] (2) a sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member . . ."