JOHN GAFFNEY VS. ALAN LEVINE (L-8124-18, BERGEN COUNTY AND STATEWIDE) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3464-18T2
JOHN GAFFNEY,
Plaintiff-Appellant,
v.
ALAN LEVINE, DIVERSIFIED
FINANCIAL CONSULTANTS,
LLC, LPL FINANCIAL HOLDINGS,
INC., PATRICK SULLIVAN, and
PRIVATE ADVISOR GROUP, LLC,
Defendants-Respondents,
and
MORRISTOWN FINANCIAL GROUP,
Defendant.
__________________________________
Argued December 10, 2019 – Decided January 29, 2020
Before Judges Gilson and Rose.
On appeal from the Superior Court of New Jersey, Law
Division, Bergen County, Docket No. L-8124-18.
Lawrence N. Lavigne argued the cause for appellant
(Lawrence N. Lavigne, of counsel and on the briefs;
Jignesh Shah, on the briefs).
Rosaria A. Suriano argued the cause for respondents
Alan Levine and Diversified Financial Consultants,
LLC (Brach Eichler LLC, attorneys; Rosaria A.
Suriano, of counsel and on the brief; Mark E. Critchley,
on the brief).
Robyn L. Silvermintz argued the cause for respondents
LPL Financial Holdings, Inc., Patrick Sullivan and
Private Advisor Group, LLC (Winget, Spadafora &
Schwartzberg, LLC, attorneys; Robyn L. Silvermintz,
on the brief).
PER CURIAM
Plaintiff John Gaffney appeals from orders dismissing his complaint
against defendants and compelling him to arbitrate all of his claims. We affirm
the portions of the orders that compelled arbitration, but remand with direction
that new orders be entered staying the action pending the arbitration.
I.
Plaintiff is an accredited investment fiduciary and certified fund
specialist. He is also licensed as a registered investment advisor. In connection
with those positions, plaintiff is subject to the rules and regulations of the
Financial Industry Regulatory Authority (FINRA), formerly known as the
National Association of Securities Dealers (NASD). FINRA is a self-regulatory
A-3464-18T2
2
organization created under the federal Securities Exchange Act of 1934, 15
U.S.C. §§ 78a to 78qq, and is under the supervision of the Securities and
Exchange Commission.
The FINRA regulations include a Code of Arbitration Procedure for
Industry Disputes (FINRA Arb. Code). Under that Code, FINRA members and
associated persons must arbitrate disputes arising "out of the business activities
of a member or an associated person." FINRA Rule 13200. The FINRA Arb.
Code does not cover statutory-based claims of employment discrimination but
does allow parties to agree to arbitrate such claims. Id. at 13201(a). In that
regard, the FINRA Arb. Code states:
A claim alleging employment discrimination, including
sexual harassment, in violation of a statute, is not
required to be arbitrated under the Code. Such a claim
may be arbitrated only if the parties have agreed to
arbitrate it, either before or after the dispute arose. If
the parties agree to arbitrate such a claim, the claim will
be administered under Rule 13802.
[Ibid.]
In 2007, plaintiff became a registered representative of LPL Financial
Holdings, Inc. (LPL). As a representative of LPL, plaintiff managed his own
office and business. When he joined LPL, plaintiff signed a Branch Office
Manager Agreement (BOMA) and a Representative Agreement (RA). Both
A-3464-18T2
3
agreements contained substantively identical arbitration provisions, which
stated:
Branch Office Manager [and Representative] hereby
expressly agrees to submit to final and binding
arbitration before the NASD any and all disputes,
claims or controversies relating to Branch Office
Manager's [and Representative's] association with or
termination from LPL. Branch Office Manager [and
Representative] expressly gives up [the] right to sue in
a court of law or equity, including the right to a trial by
jury. Specific examples of disputes, claims or
controversies that are required to be arbitrated include,
but are not limited to, allegations of unlawful
termination, sexual or racial harassment or
discrimination on the job, gender discrimination, and
claims of age or handicap discrimination.
Plaintiff signed the BOMA in March 2007, and that agreement states that it is
governed by California law. The RA was signed in May 2007, and states that it
is governed by Massachusetts law.
In April 2007, plaintiff also signed a Uniform Application for Securities
Industry Registration or Transfer (Form U-4). FINRA requires that form to be
completed before entry into a registered representative agreement with a broker
or dealer. Form U-4 also contains an arbitration clause. 1
1
At oral argument before us, LPL conceded that it did not send certain notices
in connection with Form U-4 and, therefore, it was not relying on the arbitration
provision in Form U-4.
A-3464-18T2
4
In 2016, plaintiff began to suffer from certain health problems. He alleges
that Patrick Sullivan, who was his "contact" with LPL, encouraged him to sell
his business to another LPL representative, Alan Levine. Sullivan was the
managing director of Private Advisor Group, LLC (PAG). Levine operated his
business under a limited liability company, known as Diversified Financial
Consultants, LLC (DFC). Plaintiff further alleges that he agreed to sell his
business to Levine, but Levine later reneged on the agreement and effectiv ely
stole and damaged his business. After plaintiff reported Levine's activities, LPL
terminated the RA and its relationship with plaintiff.
In November 2018, plaintiff filed a complaint alleging twelve causes of
action against Levine, DFC, LPL, Sullivan, and PAG.2 Against Levine and DFC
(collectively, the Levine defendants), plaintiff alleged breach of contract, fraud,
and theft related to the aborted sale of, and damage to, his business. Against
LPL, PAG, and Sullivan (collectively, the LPL defendants) plaintiff alleged
complicity in Levine's alleged illegal actions, such as negligence, aiding and
abetting, and tortious interference with prospective economic advantage. In
addition, plaintiff asserted claims against LPL for violations of the New Jers ey
2
Plaintiff also named Morristown Financial Group (MF) as a defendant, but
later voluntarily dismissed his claims against MF.
A-3464-18T2
5
Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -49, and the
Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -14.
Defendants moved to stay or dismiss plaintiff's complaint and compel
arbitration. The LPL defendants sought to compel arbitration under the BOMA,
the RA, and the FINRA Arb. Code. The Levine defendants sought to compel
arbitration under the FINRA Arb. Code.
After hearing oral argument, on March 29, 2018, the trial court entered
two orders (1) dismissing with prejudice the claims against PAG and MF; (2)
compelling all other claims to arbitration; and (3) dismissing plaintiff's
complaint without prejudice. On the record, the trial court reasoned that there
was a "comprehensive body of law" that compelled arbitration of disputes
among brokers and brokerage firms and that under the BOMA, the RA, and the
FINRA Arb. Code, all of plaintiff's claims were subject to mandatory arbitration.
II.
On appeal, plaintiff challenges both orders compelling arbitration. He
makes six arguments, contending (1) neither the BOMA nor the RA are valid
because he agreed to arbitrate before NASD and that organization no longer
exists; (2) the arbitration provisions in the BOMA and the RA are
unconscionable because they are not mutual in that only his claims are subject
A-3464-18T2
6
to arbitration; (3) the arbitration provision in the BOMA is unenforceable under
California law; (4) the arbitration provision in the RA is unenforceable under
Massachusetts law; (5) the arbitration provisions in the BOMA and RA are in
conflict and are not sufficiently clear to be enforceable; and (6) the FINRA Arb.
Code does not cover his LAD or CEPA claims.
We are not persuaded by any of plaintiff's arguments and we affirm the
portions of the orders compelling arbitration. We start by identifying our
standard of review. Next, we review the three arbitration provisions. Finally,
we address plaintiff's arguments.
A.
We use a de novo standard of review when determining the enforceability
of arbitration agreements. Goffe v. Foulke Mgmt. Corp., 238 N.J. 191, 207
(2019) (citing Hirsch v. Amper Fin. Servs., LLC, 215 N.J. 174, 186 (2013)).
The validity of an arbitration agreement is a question of law, and we conduct a
plenary review of such legal questions. Atalese v. U.S. Legal Servs. Grp., L.P.,
219 N.J. 430, 446 (2014) (citing Hirsch, 215 N.J. at 186); Barr v. Bishop Rosen
& Co., Inc., 442 N.J. Super. 599, 605 (App. Div. 2015) (citation omitted) (citing
Hirsch, 215 N.J. at 186).
A-3464-18T2
7
B.
Under both federal and state law, arbitration is a creature of contract. 9
U.S.C. § 2; Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67 (2010); Pinnacle
Museum Tower Ass'n v. Pinnacle Mkt. Dev. (U.S.), LLC, 282 P.3d 1217, 1224
(Cal. 2012) (citation omitted) (quoting Craig v. Brown & Root, Inc., 100 Cal.
Rptr. 2d 818, 820 (Ct. App. 2000)); McInnes v. LPL Fin., LLC, 994 N.E.2d 790,
794 (Mass. 2013) (citations omitted); Hirsch, 215 N.J. at 187 (citations omitted).
The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 to 16, was enacted "to
abrogate the then-existing common law rule disfavoring arbitration agreements
'and to place arbitration agreements upon the same footing as other contracts.'"
Martindale v. Sandvik, Inc., 173 N.J. 76, 84 (2002) (quoting Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)). Section 2 of the FAA
provides:
A written provision in any . . . contract evidencing a
transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contract or
transaction, or the refusal to perform the whole or any
part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such a
contract, transaction, or refusal, shall be valid,
irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any
contract.
[9 U.S.C. § 2.]
A-3464-18T2
8
The California Arbitration Act (CAA), the Massachusetts Arbitration Act
(MAA), and the New Jersey Arbitration Act are similar to the FAA in enforcing
arbitration provisions. Tiri v. Lucky Chances, Inc., 171 Cal. Rptr. 3d 621, 627-
28 (Ct. App. 2014) (citations omitted); McInnes, 994 N.E.2d at 794 (citation
omitted); Hirsch, 215 N.J. at 187. In determining whether a matter should be
submitted to arbitration, a court must evaluate (1) whether a valid agreement to
arbitrate exists, and (2) whether the dispute falls within the scope of the
agreement. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 626 (1985); Bruni v. Didion, 73 Cal. Rptr. 3d 395, 405 (Ct. App. 2008)
(citations omitted); Carpenter v. Pomerantz, 634 N.E.2d 587, 588 (Mass. App.
Ct. 1994); Martindale, 173 N.J. at 92.
Plaintiff agreed to arbitrate disputes under three arbitration provisions: (1)
the FINRA Arb. Code; (2) the BOMA; and (3) the RA. The FINRA Arb. Code
involves business and transactions affecting interstate commerce and is,
therefore, governed by the FAA. 9 U.S.C. §§ 1 to 2; see also Valentine Capital
Asset Mgmt., Inc. v. Agahi, 94 Cal. Rptr. 3d 526, 531 (Ct. App. 2009) (citations
omitted); McInnes, 994 N.E.2d at 794 (citation omitted); State Farm Gaur. Ins.
Co. v. Hereford Ins. Co., 454 N.J. Super. 1, 5 (App. Div. 2018) (citations
omitted). The FINRA Arb. Code states that "a dispute must be arbitrated under
A-3464-18T2
9
the Code if the dispute arises out of the business activities of a member or an
associated person and is between or among: [m]embers; [m]embers and
[a]ssociated [p]ersons; or [a]ssociated [p]ersons." FINRA Rule 13200(a). LPL
is a member of FINRA. Id. at 13100(q) (defining a member to include "any
broker or dealer admitted to membership in FINRA"). Plaintiff, Levine, and
Sullivan are all associated persons because they were associated with LPL. Id.
at 13100(b) (defining "associated person" to include "a person associated with a
member"). Accordingly, the FINRA Arb. Code covers plaintiff's claims against
the Levine defendants because those claims arise out of the business activities
of associated persons. The FINRA Arb. Code also covers all of plaintiff's claims
against the LPL defendants, with the exception of the LAD and CEPA claims.
Plaintiff's LAD and CEPA claims must be arbitrated under either the
BOMA or the RA. Both those agreements expressly include discrimination
claims. Under the FAA, CAA, and MAA statutory discrimination claims can be
arbitrated so long as the claimant can pursue the statutory cause of action in the
arbitration forum and is accorded certain procedural rights. See Gilmer, 500
U.S. at 26-27 (citations omitted); Pearson Dental Supplies, Inc. v. Superior
Court, 229 P.3d 83, 91 (Cal. 2010) (citations omitted); Joule, Inc. v. Simmons,
944 N.E.2d 143, 148 (Mass. 2011) (citations omitted).
A-3464-18T2
10
The arbitration provisions in the BOMA and the RA are valid and
enforceable against plaintiff. Plaintiff signed both agreements. The agreements,
moreover, were the product of mutual assent and they state that plaintiff was
giving up the right to pursue in court "any and all disputes" relating to his
employment, including employment-related discrimination claims, and instead,
agreed to arbitrate those claims through the procedures provided by the FINRA
Arb. Code. See Atalese, 219 N.J. at 442 ("An agreement to arbitrate, like any
other contract, 'must be the product of mutual assent, as determined under
customary principles of contract law.'" (quoting NAACP of Camden Cty. E. v.
Foulke Mgmt. Corp., 421 N.J. Super. 404, 424 (App. Div. 2011))).
C.
Plaintiff first argues that there was no meeting of the minds because the
BOMA and the RA identify NASD as the arbitration forum and NASD no longer
exits. We reject this argument.
In July 2007, NASD was renamed FINRA. See Program for Allocation
of Regulatory Responsibilities, 72 Fed. Reg. 42146, 42147 (Aug. 1, 2007).
Accordingly, because FINRA is the successor entity to NASD, courts have
consistently compelled arbitration before FINRA, where, as here, the arbitration
agreement specified that arbitration will occur under the rules of NASD. See,
A-3464-18T2
11
e.g., Lewis v. UBS Fin. Servs., 818 F. Supp. 2d 1161, 1166 (N.D. Cal. 2011)
(citations omitted); see also Hirsch, 215 N.J. at 182-83 (recognizing FINRA as
the successor to NASD and that contracts calling for arbitration under NASD
are to be arbitrated under FINRA); Ronay Family Ltd. P'ship v. Tweed, 157 Cal.
Rptr. 3d 680, 688 (Ct. App. 2013) (citations omitted) (finding that agreement to
arbitrate in accordance with the rules of NASD required abiding by parallel rules
established subsequently by FINRA); McInnes, 994 N.E.2d at 799 n.10
(equating the obligation to abide by NASD rules with an obligation to abide by
FINRA rules).
Next, plaintiff contends that the arbitration provisions in the BOMA and
the RA are unconscionable because they are not mutual. We disagree with this
argument for several reasons.
First, under the FINRA Arb. Code, all parties to this dispute are required
to arbitrate all of their claims, except for the CEPA and LAD claims. Second,
we construe the language in the arbitration provisions in the BOMA and the RA
as mutual. That is, both plaintiff and LPL are required to arbitrate "any and all"
disputes with each other. See Serpa v. Cal. Surety Investigations, Inc., 155 Cal.
Rptr. 3d 506, 513 (Ct. App. 2013) (citations omitted) (finding that an agreement
to arbitrate is mutual when the agreement includes language that subjects "all"
A-3464-18T2
12
or "any" disputes to arbitration). Finally, since only plaintiff can bring a LAD
or CEPA claim, there is nothing unconscionable about enforcing the arbitration
provisions in the BOMA and the RA against plaintiff.
Plaintiff also claims that the arbitration provisions in the BOMA and the
RA are unenforceable under California and Massachusetts law. This argument
fails for two reasons.
First, as previously noted, the disputes between plaintiff and defendant s
arise out of business and transactions affecting interstate commerce.
Accordingly, the FAA controls. See 9 U.S.C. §§ 1 to 2; Valentine, 94 Cal. Rptr.
3d at 531 (citations omitted); McInnes, 994 N.E.2d at 794 (citation omitted); see
also Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 58-64 (1995)
(holding that a generic choice of law provision, which did not expressly state
that the FAA did not apply, did not displace the FAA); Dialysis Access Ctr.,
LLC v. RMS Lifeline, Inc., 932 F.3d 1, 8-10 (1st Cir. 2019) (same).
Second, even if we were to look to California or Massachusetts law, both
states would enforce the arbitration provisions. See Pearson Dental, 229 P.3d at
91 (citations omitted); Armendariz v. Found. Health Psychcare Servs., Inc., 6
P.3d 669, 681-89 (Cal. 2000) (citations omitted); McInnes, 994 N.E.2d at 798-
99 (citations omitted); Joule, 944 N.E.2d at 148 (citations omitted). We note,
A-3464-18T2
13
furthermore, that only one of the agreements needs to be enforceable to compel
plaintiff to arbitrate his claims against the LPL defendants.
We also note that FINRA arbitration procedures provide reasonable
procedures similar to those used in other institutional arbitrations, such as the
American Arbitration Association. See Hirsch, 215 N.J. at 182 n.3. FINRA
arbitration claims are initiated by the filing of a statement of claim, an answer,
and the appointment of arbitrators. FINRA Rules 13302 to 13303, 13400 to
13406. Discovery is provided and, typically, a hearing is held. Id. at 13500 to
13514, 13600. Following the hearing, the arbitrators render an award. Id. at
13904.
We also reject plaintiff's argument that the arbitration provisions in the
BOMA and the RA are in conflict and are not sufficiently clear. As we have
already discussed, the arbitration provision in the BOMA is enforceable under
both federal and California law. Similarly, the arbitration provision in the RA
is enforceable under both federal and Massachusetts law. Accordingly, there is
no conflict created by the reference to California law in the BOMA and
Massachusetts law in the RA. To the extent that plaintiff had a question about
the application of the laws of two different states, he should have inquired at the
time that he signed the agreements in 2007.
A-3464-18T2
14
Finally, we have already explained that although the FINRA Arb. Code
does not automatically apply to a statutory employment discrimination claim,
the Code does allow parties to agree to arbitrate such claims. Plaintiff twice
agreed to arbitrate the LAD and CEPA claims under the BOMA and the RA. 3
D.
We disagree with the trial court in one respect. The trial court should not
have dismissed the complaint. Instead, the FAA provides that a party may
request a stay if a court action has been commenced and that action involves
"any issue referable to arbitration under an agreement in writing for such
arbitration." 9 U.S.C. § 3; see also Alfano v. BDO Seidman, LLP, 393 N.J.
Super. 560, 566, 577 (App. Div. 2007) (finding that "[u]nder [9 U.S.C. § 3] the
court must stay an arbitrable action pending its arbitration" after one of the
parties applied for a stay). Accordingly, we remand with direction that the trial
court enter new orders. Those orders will provide that plaintiff's claims are
stayed pending arbitration, and the parties are to proceed to arbitration in
accordance with the FINRA Arb. Code.
3
LAD was amended effective March 18, 2019, to prohibit the waiver of any
substantive or procedural right or remedy related to a claim of discrimination.
That amendment, however, does not apply to the BOMA or the RA because they
were signed in 2007, and the amendment to LAD applies prospectively. N.J.S.A.
10:5-12.7 (codifying L. 2019, c. 39, § 1); L. 2019, c. 39, § 6.
A-3464-18T2
15
Affirmed in part and remanded for further proceedings consistent with this
opinion. We do not retain jurisdiction.
A-3464-18T2
16