Keller v. ING Financial ( 2013 )

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE
CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING
EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR.
THE STATE OF SOUTH CAROLINA
In The Court of Appeals
David W. Keller, Respondent,
v.
ING Financial Partners, Inc., William C. Johnson,
Diversified Business Concepts, Inc., and Jackson
National Life Insurance Company, Defendants,
Of whom ING Financial Partners, Inc., William C.
Johnson, and Diversified Business Concepts, Inc., are,
Appellants.
Appellate Case No. 2011-193026
Appeal From Greenville County
D. Garrison Hill, Circuit Court Judge
Unpublished Opinion No. 2013-UP-014
Heard October 2, 2012 – Filed January 9, 2013
AFFIRMED
Thomas Chase Samples, of Jackson Lewis LLP, of
Greenville, for Appellants.
Robert DeWitt Thomas, of Andersen Tate & Carr PC;
and H. Donald Sellers and J. W. Matthews III, of
Haynsworth Sinkler Boyd PA, all of Greenville, for
Respondent.
PER CURIAM: ING Financial Partners, Inc., William C. Johnson, and
Diversified Business Concepts, Inc. (collectively, Appellants) appeal the circuit
court's denial of their motion to compel arbitration. The circuit court found the
arbitration agreement between the parties designated the National Association of
Securities Dealers (NASD) as an exclusive arbitral forum, the NASD was
unavailable to arbitrate because it no longer existed, and the court could not
substitute the Financial Industry Regulatory Authority (FINRA) for NASD. We
affirm.
Under Iowa law, the interpretation of an arbitration agreement involves two steps:
(1) "to determine whether there is a valid agreement to arbitrate" and (2) "to
determine whether the controversy alleged is embraced by that agreement." Gen.
Conference of Evangelical Methodist Church v. Faith Evangelical Methodist
Church, 809 N.W.2d 117, 120 (Iowa Ct. App. 2011). The court must use general
principles of contract law in determining the validity of an arbitration agreement.
Bullis v. Bear, Stearns & Co., 553 N.W.2d 599, 602 (Iowa 1996).
The Federal Arbitration Act (FAA) does not confer an absolute right to compel
arbitration, but only a right to obtain an order directing that "arbitration proceed in
the manner provided for in [the parties'] agreement." Volt Info. Scis., Inc. v. Bd. of
Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 469 (1989). Section 5 of the
FAA provides:
If in the agreement provision be made for a method of
naming or appointing an arbitrator or arbitrators or an
umpire, such method shall be followed; but if no method
be provided therein, or if a method be provided and any
party thereto shall fail to avail himself of such method, or
if for any other reason there shall be a lapse in the
naming of an arbitrator or arbitrators or umpire, or in
filling a vacancy, then upon the application of either
party to the controversy the court shall designate and
appoint an arbitrator or arbitrators or umpire, as the case
may require, who shall act under the said agreement with
the same force and effect as if he or they had been
specifically named therein; and unless otherwise
provided in the agreement the arbitration shall be by a
single arbitrator.
9 U.S.C.A. § 5 (2011).
The parties' arbitration agreement designates an exclusive arbitral forum that is no
longer available to arbitrate. First, Appellants' motion to compel arbitration and
initial brief on appeal admit FINRA is the "successor entity to the NASD."
Second, the agreement states "any dispute between you and me arising out of this
agreement shall be submitted to arbitration conducted under the then applicable
provisions of the code of arbitration procedure of NASD." NASD's rules indicate
that conducting arbitration "under the then applicable provisions of the code of
arbitration procedure of NASD" mandates arbitration before the NASD itself,1 and
most jurisdictions' interpretations of similar agreements support this construction.2
Further, this court cannot rewrite the parties' agreement to substitute FINRA for
NASD. Neither Iowa state nor the Eighth Circuit Court of Appeals have decided
whether a court may substitute an arbitral forum when a designated forum has
become unavailable to arbitrate. Among federal circuit courts, a split exists on the
issue. In the absence of any controlling law, therefore, we opt to follow Grant v.
Magnolia Manor-Greenwood, Inc., 383 S.C. 125, 678 S.E.2d 435 (2009). There,
our supreme court saw "great merit in the Second Circuit's view that Section 5 [of
the FAA] does not apply in cases where a specifically designated arbitrator
becomes unavailable" to arbitrate. Id. at 131, 678 S.E.2d at 438 (approving of In
re Salomon Inc., 68 F.3d 554 (2d Cir. 1995)). In Salomon, the Second Circuit held
1
See NASD Rule 10314(a)(1)-(2) (providing "an arbitration proceeding under this
Code shall be instituted" by a claimant filing "with the Director of Arbitration an
executed Submission Agreement, a Statement of Claim of the controversy in
dispute, together with the documents in support of the Claim, and the required
deposit").
2
PaineWebber, Inc. v. Rutherford, 903 F.2d 106, 107-08 (2d Cir. 1990); In re
Salomon Inc., 68 F.3d 554, 559 (2d Cir. 1995); Luckie v. Smith Barney, Harris
Upham & Co., Inc., 999 F.2d 509, 511 (11th Cir. 1993); see also Roney & Co. v.
Goren, 875 F.2d 1218, 1219-20, 1223 (6th Cir. 1989); Reddam v. KPMG LLP, 457
F.3d 1054, 1059-60 (9th Cir. 2006); Brown v. ITT Consumer Fin. Corp., 211 F.3d
1217, 1222 (11th Cir. 2000).
Section 5 of the FAA permits substitution only "when there is 'a lapse in time in
the naming of the' arbitrator or in the filling of a vacancy on a panel of arbitrators,
or some other mechanical breakdown in the arbitrator selection process." See
Salomon, 68 F.3d at 560 (emphasis added). This case does not present a
breakdown in the process of selecting an arbitrator because the arbitral forum does
not exist. Regardless of any similarities between NASD's and FINRA's procedural
rules, therefore, we cannot impose upon the parties the power of an arbitral forum
that they did not agree to submit to. As a result, the trial court properly denied
Appellants' motion to compel arbitration.
AFFIRMED.
HUFF, THOMAS, and GEATHERS, JJ., concur.