Cedar Brook Fin. Partners Holdings, L.L.C. v. Schlang

[Cite as Cedar Brook Fin. Partners Holdings, L.L.C. v. Schlang, 2022-Ohio-3325.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
CEDAR BROOK FINANCIAL :
PARTNERS HOLDINGS, LLC, ET AL.,
Plaintiffs-Appellants, :
No. 111072
v. :
BRADLEY J. SCHLANG, :
Defendant-Appellee. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: September 22, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-20-939703
Appearances:
Ciano & Goldwasser, L.L.P., and Phillip A. Ciano; Flowers
& Grube, Paul W. Flowers, and Melissa A. Ghrist, for
appellants.
Meyers, Roman, Friedberg & Lewis, Peter Turner, and
David M. Smith, for appellee.
EMANUELLA D. GROVES, J.:
Plaintiffs-appellants Cedar Brook Financial Partners Holdings, LLC
(“CBFP”), Cedar Brook Financial Partners, LLC, and counterclaim defendant,
William Glubiak, (collectively, “Appellants”) appeal from the trial court’s decision
granting defendant-appellee Bradley J. Schlang’s (“Schlang”) motion to compel
arbitration and stay the case pending arbitration. For the reasons that follow, we
affirm the trial court’s decision.
Factual and Procedural History
Both Appellants and Schlang are members or associated persons of
the Financial Industry Regulatory Authority (“FINRA”). FINRA is a nonprofit
corporation that functions as a self-regulatory organization for securities firms and
securities dealers and is ‘“responsible for regulatory oversight of all securities firms
that do business with the public.”’ Fiero v. Fin. Indus. Regulatory Auth., Inc., 660
F.3d 569 (2d Cir.2011), quoting 15 U.S.C. 78c(a)(26), 78s(b). FINRA Rule 13200
mandates arbitration for “any dispute that arises out of the business activities of a
member or an associated person and is between or among members, members and
associated persons; or associated person.” Typically, an analysis of whether FINRA
Rule 13200 applies starts with determining whether the parties are FINRA members
or associated persons. However, here, the parties agree that they are members or
associated persons under FINRA rules and are therefore bound by FINRA rules to
arbitrate when required. They disagree about whether some of the claims are
arbitrable under FINRA rules. The underlying facts are as follows.
Appellants operate a full-service investment planning and
management firm that provides financial advisory services to individuals in and
outside of Ohio. Schlang was an equity member of CBFP. In May 2016, CBFP
bought Schlang’s membership interest in the company and the parties executed an
agreement (the “Redemption Agreement”) and promissory note regarding the sale.
The Redemption Agreement called for CBFP to pay Schlang $348,410 plus interest
in quarterly payments over the course of ten years. It also had a provision in case of
a windfall (the “Windfall Events Provision”). In the event CBFP received any
amounts up to but not exceeding $250,000 as the result of a recapitalization event,
sale, acquisition, or merger, such funds would be paid to Schlang. The Redemption
Agreement also allowed CBFP to suspend payments to Schlang if CBFP’s gross
dealer concession (“GDC”) fell below $10.8 million during the repayment period. If
CBFP suspended payments, they were required to provide Schlang with a sworn and
signed copy of the statement of GDC.
After the parties signed the Redemption Agreement, Schlang
remained as a nonemployee financial advisor affiliated with CBFP. In 2018, Schlang
signed a Uniform Application for Securities Industry Registration or Transfer
(commonly, “Form U4”) relative to his association with Appellants. Section 15A(5)
of that form provided:
I agree to arbitrate any dispute, claim or controversy that may arise
between me and my firm, or a customer, or any other person, that is
required to be arbitrated under the rules, constitutions, or by-laws of
the SROs [self-regulatory organization] indicated in Section 4 (SRO
REGISTRATION) as may be amended from time to time and that any
arbitration award rendered against me may be entered as a judgment
in any court of competent jurisdiction.
(Emphasis sic.)
The form identified FINRA as the SRO.
In March 2020, CBFP alleged that due to COVID-19, the GDC
dropped below the threshold amount, and therefore, CBFP would suspend
payments to Schlang until further notice. Schlang requested CBFP’s financials in
order to verify the company’s findings. Thereafter, the parties attempted to
negotiate an agreement regarding Schlang’s payments. Appellants alleged that
Schlang agreed to suspend the payments as of June 29, 2020, in what they term the
6/29/20 Suspension Agreement. Schlang denied agreeing to the suspension.
Additionally, Schlang alleged that there had been a windfall event that Appellants
failed to disclose to him. Such a windfall would have required Appellants to pay up
to $250,000 to Schlang. Subsequently, the parties agreed to a settlement of the
amounts owed to Schlang. Appellants alleged that that agreement was finalized on
September 18, 2020, which they term the 9/18/20 Settlement Agreement. Schlang,
however, claimed that the agreement was to be finalized upon execution of a mutual
release.
On September 28, 2020, Appellants sent a mutual release to Schlang.
Schlang objected to the release, arguing that it included new and objectionable
terms. The following month, Schlang formally notified Appellants that they had
failed to make the last three quarterly payments to him pursuant to the Redemption
Agreement and that if he did not receive payment within 15 days they would be in
default of that agreement. On or about October 15, 2020, Appellants severed their
relationship with Schlang and asked him to vacate the premises. Prior to leaving,
Schlang downloaded information regarding his clients from Appellants’ computers.
On October 29, 2020, Appellants filed a complaint that alleged Schlang’s demand
for payment was a breach of the 6/29/20 Suspension and the 9/18/20 Settlement
Agreements.
The parties vigorously litigated the case with multiple complaints and
answers. Ultimately, Appellants filed a second amended complaint on June 3, 2021,
that alleged the following: breach of contract alleging Schlang breached the 6/29/20
Suspension Agreement (Count 1); anticipatory repudiation, arguing Schlang refused
to proceed with the 9/18/20 Settlement Agreement (Count 2); specific performance,
asking the court to enforce the 9/18/20 Settlement agreement (Count 3); conversion
(Count 4); violation of the Uniform Trade Secrets Act (Count 5); tortious
interference with business relations (Count 6); and declaratory judgment asking the
court to find both the 6/29/20 and 9/18/20 agreements binding and enforceable
(Count 7).
Schlang counterclaimed against Appellants and William Glubiak,
CBFP’s managing member. His claims included breach of contract on the
promissory note (Count 1); breach of contract for failure to make the windfall
payment according to the Redemption Agreement (Count 2); breach of contract, for
failure to pay compensation for client fees (Count 3); fraudulent concealment, for
concealing information regarding a windfall event (Count 4); fraudulent
misrepresentation, for lying about the GDC dropping below the threshold amount
(Count 5); and declaratory judgment, asking the court to determine the rights and
obligations in his favor (Count 6).
Schlang discovered after litigation commenced that Appellants had
filed a Uniform Termination Notice for Securities Industry Registration (commonly,
“Form U5”) that he claimed was defamatory. A Form U5 is a document that must
be filed whenever there is a termination of employment. Schlang moved to amend
his counterclaim to add a claim relative to the alleged defamatory action. Appellants
objected arguing that that claim was subject to FINRA arbitration. The trial court
denied the motion, finding that Schlang’s defamation counterclaim was subject to
binding arbitration under FINRA Rule 13200 and the express arbitration agreement
in Schlang’s Form U4. The court further noted, “[O]n the other hand, the claims
and counterclaims asserted by the parties thus far are outside the scope of the
mandatory arbitration provisions of FINRA Rule 13200.”
On June 17, 2021, Schlang filed a motion to compel arbitration and
stay proceedings on Appellants’ tortious interference with business relations claim.
He also asked the court to reconsider its ruling finding that the remaining claims
were not subject to arbitration. Appellants objected, arguing in part, that none of
the claims arose out of the parties’ “business activities” under FINRA Rule 13200.
The trial court granted the motion, noting that the phrase “arise out
of” has been broadly defined and, finding that each of the claims arose out of the
business activities between the parties as FINRA members or associated persons.
Appellants now appeal. Preliminarily, the parties have agreed that
Counts 4-6 of the complaint are subject to FINRA arbitration. However, they
dispute whether the remaining issues that involve the Redemption Agreement, i.e.,
Counts 1-3, and 7, and counterclaim Counts 1-6, “arise out of business activities”
pursuant to FINRA Rule 13200. Appellants assign the following error for our
review:
Assignment of Error
The trial court erred, as a matter of law, and otherwise committed an
abuse of discretion by reversing its prior decision and staying the
original claims based upon contract theories, fraud, and declaratory
relief pending arbitration before the Financial Industry Regulatory
Authority.
Law
“Both the Ohio General Assembly and Ohio courts have expressed a
strong public policy favoring arbitration.” Hayes v. Oakridge Home, 122 Ohio St.3d
63, 2009-Ohio-2054, 908 N.E.2d 408, ¶ 15, citing R.C. Chapter 2711; Taylor Bldg.
Corp. of Am. v. Benfield, 117 Ohio St.3d 352, 2008-Ohio-938, 884 N.E.2d 12, ¶ 27;
Williams v. Aetna Fin. Co., 83 Ohio St.3d 464, 700 N.E.2d 859 (1998). The benefits
of arbitration include being “‘relatively expeditious and [an] economical means of
resolving a dispute.’” Id., citing Schaefer v. Allstate Ins. Co., 63 Ohio St.3d 708, 590
N.E.2d 1242 (1992), quoting Mahoning Cty. Bd. of Mental Retardation & Dev.
Disabilities v. Mahoning Cty. TMR Edn. Assn., 22 Ohio St.3d 80, 488 N.E.2d 872(1986). Additionally, it frees up crowded court dockets. Id., citing Mahoning Cty.
Bd. of Mental Retardation, at ¶ 83. “In light of the strong presumption favoring
arbitration, all doubts should be resolved in its favor.” Id., citing Ignazio v. Clear
Channel Broadcasting, Inc., 113 Ohio St.3d 276, 2007-Ohio-1947, 865 N.E.2d 18.
This strong public policy in favor of arbitration is codified in
R.C. 2711.01(A), which states that an arbitration agreement “shall be valid,
irrevocable, and enforceable, except upon grounds that exist at law or in equity for
the revocation of any contract.” R.C. 2711.02(B) provides for a stay of litigation
pending arbitration stating:
If any action is brought upon any issue referable to arbitration under
an agreement in writing for arbitration, the court in which the action is
pending, upon being satisfied that the issue involved in the action is
referable to arbitration under an agreement in writing for arbitration,
shall on application of one of the parties stay the trial of the action until
the arbitration of the issue has been had in accordance with the
agreement, provided the applicant for the stay is not in default in
proceeding with arbitration.
Standard of Review
When, as in this case, a party appeals an order granting or denying a
stay pending arbitration under R.C. 2711.02(B), our standard of review depends on
the nature of the issues raised on appeal. McCaskey v. Sanford-Brown College, 8th
Dist. Cuyahoga No. 97261, 2012-Ohio-1543, ¶ 7. Determining whether parties are
bound by an arbitration provision requires an interpretation of the contract, which
is a question of law that appellate courts review de novo. Cercone v. Merrill Lynch,
Pierce, Fenner & Smith, 8th Dist. Cuyahoga No. 89561, 2008-Ohio-4229, ¶ 14. Here
the parties agree that they are bound by Schlang’s U4 and FINRA membership to
arbitrate some aspects of their dispute; however, they disagree about whether claims
related to the Redemption Agreement are required to be arbitrated under FINRA
Rule 13200. Therefore, we are tasked with interpreting the meaning of “business
activities” as used in FINRA Rule 13200.
Analysis
In this case, we are determining de novo whether the trial court
correctly granted a motion to compel FINRA arbitration. FINRA arbitration is
governed by specific rules and regulations and, in some instances, those rules and
regulations make arbitration of certain types of disputes mandatory. It is with
recognition of this specific area of law that we begin our analysis. Although we are
not bound by the trial court’s findings, it is a useful starting place to begin our review.
In its decision, the trial court noted:
[T]he court reconsiders its finding of 6/2/2021 that all claims
previously asserted were outside the scope of FINRA Rule 13200. The
Second Circuit Court of Appeals has broadly interpreted the, “arise out
of,” in arbitration clauses like that in FINA [sic] Rule 13200. “If the
allegations underlying the claims ‘touch matters’ covered by the parties’
* * * agreements, then those claims must be arbitrated.” Greenberg [v.
Ameriprise Fin. Servs., E.D.N.Y. No. 15-CV-3589 (ADS)(AYS), 2016
U.S. Dist. LEXIS 45250, 22 (Mar. 31, 2016)] * * *.
The parties’ claims relating to the parties’ promissory note, suspension
agreement and settlement agreement arise out of the business activities
with each other as FINRA member and associated person. See Axos
Clearing, Ltd. Liab. Co. v. Reynolds, S.D.Fla. No. 19-CIV-20979-RAR,
2019 U.S. Dist. LEXIS 149622, at ¶ 10-17 (Aug. 30, 2019).
***
In light of the foregoing, this matter is stayed pending arbitration.
Appellants argue, however, that the trial court’s initial decision was
correct. They argue that the claims regarding the Redemption Agreement do not
“arise out of business activities” under FINRA Rule 13200. Appellants would
narrowly define “business activities” to mean activity related to investment banking
and securities transactions.
“Business activities” is not defined in the FINRA rules. When FINRA
Rules are incorporated into the parties’ contract, interpretation of FINRA Rules is a
question of contract interpretation. Piston v. Transamerica Capital, Inc., 823
Fed.Appx. 553, 556 (10th Cir.2020), citing FINRA Code, Rule 13101(b) (“When a
dispute is submitted to arbitration under the Code pursuant to an arbitration
agreement, the Code is incorporated by reference into the agreement.”). In
analyzing a contract, “common words appearing in a written agreement are to be
given their plain and ordinary meaning unless manifest absurdity results or unless
some other meaning is clearly intended from the face or overall contents of the
instrument.” Alexander v. Buckeye Pipeline Co., 53 Ohio St.2d 241, 246, 374 N.E.2d
146 (1978), citing First Natl. Bank v. Houtzer, 96 Ohio St. 404, 117 N.E.383 (1917),
Garlick v. McFarland, 159 Ohio St. 539, 113 N.E.2d 92, (1953), Olmstead v.
Lumbermens Mutl. Ins. Co., 22 Ohio St. 2d 212, 259 N.E.2d 123 (1970), Jolliff v.
Hardin Cable Television Co., 26 Ohio St. 2d 103, 269 N.E.2d 588 (1971).
A number of courts have looked at FINRA Rule 13200 and defined
what is meant by “arising out of business activities.” Preliminarily, courts recognize
that the phrase “business activities” is “quite broad.” See Griffis v. Wells Fargo
Advisors, LLC, N.D.Ill. No. 13 CV 8372, 2014 U.S. Dist. LEXIS 90688, 12 (July 3,
2014). In fact, the Merriam-Webster Dictionary defines “business” as “a usually
commercial or mercantile activity engaged in as a means of livelihood” and “activity”
as “the quality or state of being active: behavior or actions of a particular kind.”
Merriam-Webster. (n.d.) https://www.merriam-webster.com/dictionary/business
(accessed Sept. 15, 2022,); Merriam-Webster. (n.d.). https://www.merriam-
webster.com/dictionary/activity (accessed Sept. 15, 2022). These definitions
encompass a wide range of conduct.
In Griffis, an employee sued Wells Fargo and his supervisor asserting
claims of fraud in the inducement, intentional misrepresentation, tortious
interference with business relations, and deceptive business practices. When Griffis
accepted employment with Wells Fargo he was given a “transition bonus” of
$200,000 that was secured by a promissory note. When he quit, Wells Fargo
demanded he pay back the balance of the bonus; however, Griffis argued that he was
fraudulently induced into signing the promissory note. Wells Fargo moved to stay
the proceeding and compel arbitration. The court granted the motion finding that
the broad language of FINRA Rule 13200 clearly covers recruiting employees. Id. at
¶ 12-13.
Other courts have addressed the phrase “business activities” in
FINRA Rule 13200, finding it covers more than investment banking and securities
transactions.
In Wells Fargo Advisors, LLC v. Quantum Fin. Partners LLC, D.Kan.
No. 15-9145-JAR-JPO, 2015 U.S. Dist. LEXIS 113038 (Aug. 25, 2015), the court
found that a copyright infringement issue was subject to FINRA Rule 13200
arbitration. In that case, the employee, Jacobs, assigned to his employer, Wells
Fargo, the copyright to any intellectual property he created while under their
employ. During that time, he created a tool, which, when he left the company, he
provided to his new employer, Quantum Finance. Wells Fargo sued for copyright
infringement, and Jacobs filed a motion to compel arbitration. The court noted that
Jacobs signed a Form U4 and found that a) the copyright dispute arose out of the
business activities of the two parties, and b) Form U4 covers “any dispute” between
the employee and his or her firm and would include the copyright claim. Id. at ¶ 10.
In Axos Clearing, LLC v. Reynolds, S.D.Fla. No. 19-CIV-20979-RAR,
2019 U.S. Dist. LEXIS 149622 (Aug. 30, 2019), the court found a settlement
agreement dispute was properly addressed in FINRA arbitration. Reynolds was
employed by Spartan Securities Group, Ltd. (“Spartan”). Spartan was authorized to
make certain securities transactions for Axos Clearing LLC (“Axos”). Reynolds
engaged in a series of unauthorized securities trades that resulted in an injury to
Axos of more than $16,000,000. Axos and the defendants entered into a settlement
agreement requiring repayment of Axos’s losses over time. Ultimately, the
defendants did not meet the terms of the settlement agreement. Axos sued, alleging
fraudulent inducement, fraudulent misrepresentation, negligent misrepresentation,
fraudulent failure of disclosure, tortious interference with contractual relations,
breach of pledge agreement, and unjust enrichment. The defendants filed a motion
to compel arbitration arguing that the grievances were subject to mandatory FINRA
arbitration. Axos argued that FINRA arbitration did not apply because its complaint
was “‘a simple breach of contract claim arising out of the parties’ Settlement
Agreement,’ not the business activities of an associated person.” Id. at ¶ 10. The
court looked at the underlying facts of the complaint and determined that the
signing and breach of the settlement agreement stemmed from Reynolds’s actions
during the course of his employment. Id. at ¶ 15. The court found that all of the
claims were subject to FINRA arbitration because there was “a clear nexus between
the alleged wrongdoing in all of these claims and the actions of Mr. Reynolds as an
associated person.” Id. at ¶ 16.
Both parties cite Valentine Capital Asset Mgt., Inc. v. Agahi, 174
Cal.App.4th 606, 94 Cal.Rptr.3d 526 (2009), because the court attempted to define
“business activities” more precisely. In that case, the court recognized that under
the broad language of FINRA Rule 13200, “business activities” could encompass a
situation where two FINRA-affiliated persons were engaged in a transaction
unrelated to their FINRA-based employment, for example, a residential real estate
transaction or an art sale. Id. at 616. However, the court determined that arbitration
is only mandatory under FINRA Rule 13200 if the dispute between the parties arises
out of their business activities as FINRA members and/or associated persons of a
FINRA member. Id. at 617. In Valentine, all the parties were FINRA members or
associated persons. However, their business dealings involved their respective roles
as employees and a principal, of a company that was not a FINRA member. The
court found that FINRA Rule 13200 did not apply in that situation. Id. at ¶ 627.
Based on the foregoing, we reject Appellants’ contention that
“business activities” under FINRA Rule 13200 is limited to conduct involving
investment banking and securities transactions. Rather, we follow the courts that
have interpreted the term based on the role of the parties as FINRA members and/or
associated persons and the business activities that arise out of that relationship.
Here, the parties’ dispute clearly arises from their business activities
as FINRA members or associated persons. The Redemption Agreement describes
the terms by which CBFP would buy Schlang’s interest in CBFP, and also addresses
his employment with the company:
WHEREAS, after careful consideration of all pertinent facts and
circumstances, as a condition to the execution and delivery of the
Redemption Agreement, the Parties desire to enter into this Agreement
to resolve amicably by a good faith settlement all matters and issues
actually or potentially in controversy between them related to Schlang’s
ownership of CBFP, and to settle any and all such disputes related to
the sale of the Schlang Interest and Schlang’s employment at CB on the
terms and conditions set forth in this Agreement.
(Emphasis added.)
The agreement also purports to release Schlang from
any and all claims, losses, damages, demands, rights, actions, causes of
action, liens, and alleged obligations or liabilities of any kind or nature,
as well as any and all requests for attorneys’ fees, treble damages,
punitive damages, penalties, and costs, of any nature whatsoever
arising from or related in any way to * * * Schlang’s prior employment
by CB * * *.
The Redemption Agreement, and the subsequent litigation arising
from it, stem from the business activities of Schlang and Appellants as FINRA
members or associated persons. As such, the trial court did not err in finding that
all the claims were subject to arbitration under the arbitration agreement in
Schlang’s U4 and FINRA Rule 13200.
Next, Appellants argue that even if the claims are subject to FINRA
arbitration, the Redemption Agreement had a forum-selection clause that controls
in this case. The clause states:
Governing Law/Forum Selection. * * * Any lawsuit arising out of this
Agreement and/or the redemption of the Schlang Interest shall be filed
in the Cuyahoga County, Ohio Court of Common Pleas.
In contrast, Schlang’s U4 provided that he and CBFP agreed to
arbitrate “any dispute, claim or controversy * * * that is required to be arbitrated
under the rules, constitutions, or by laws of [FINRA]” that arose between him and
his firm. Additionally, FINRA Rule 13200 indicates that any such dispute “must” be
arbitrated. See Fort Washington Invest. Advisors, Inc. v. Adkins, S.D.Ohio
No. 1:19-cv-685, 2021 U.S. Dist. LEXIS 70009, ¶ 12 (Apr. 12, 2021) (noting that a
signed Form U4 binds parties to arbitrate disputes.).
Appellants cite three cases for the proposition that a forum-selection
clause can override a FINRA arbitration. However, those cases are distinguishable.
In New York Bay Capital, LLC v. Cobalt Holdings, Inc., 456 F. Supp.
3d 564 (S.D.N.Y.2020), the court analyzed a forum-selection clause that stated the
parties agreed to “irrevocably submit[] to the exclusive jurisdiction of the United
States District Court for the Southern District of New York” for “any action, suit or
proceeding arising out of or relating to this Engagement or any of the transactions
contemplated hereby[.]” Id. at 570. Comparing that clause to FINRA rules, the
court found that the parties’ contract displaced FINRA’s arbitration requirements,
because, under New York law, the “‘fundamental, neutral precept of contract
interpretation is that agreements are construed in accord with the parties’ intent.’”
Id., quoting Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 780 N.E.2d 166, 750
N.Y.S.2d 565 (2002). By their contract, the parties explicitly agreed to forego
arbitration. Id. In the instant case, the forum-selection clause does not purport to
have the parties “irrevocably submit” to the jurisdiction of a court, nor does it cover
“any action, suit or proceeding.” Further, the Redemption Agreement is silent as to
arbitration.
In Goldman, Sachs & Co. v. Golden Empire Schools Financing Auth.,
764 F.3d 210 (2d Cir.2014), the court tackled two cases that utilized the following
forum-selection language:
The parties agree that all actions and proceedings arising out of this
Broker-Dealer Agreement or any of the transactions contemplated
hereby shall be brought in the United States District Court in the
County of New York and that, in connection with any such action or
proceeding, submit to the jurisdiction of, and venue in, such court.
The court first noted that there is disagreement among the federal
circuits as to whether similar forum-selection clauses supersede FINRA arbitration.1
Id. at 214 (noting that the Ninth Circuit has found that a forum-selection clause can
supersede FINRA arbitration Goldman, Sachs & Co. v. Reno, 747 F.3d 733, 743-747
(9th Cir. 2014), citing Goldman, Sachs & Co. v. N.C. Mun. Power Agency No. One,
S.D.N.Y. No. 13 CIV. 1319, 2013 U.S. Dist. LEXIS 172994 (Dec. 9, 2013); Goldman,
Sachs & Co. v. Golden Empire School Fin. Auth., 922 F.Supp.2d 435) (S.D.N.Y.
1 While this case addresses FINRA Rule 12200, customer arbitration, the language
is virtually identical to FINRA Rule 13200.
2013)); see also Citigroup Global Market Inc. v. All Children’s Hosp., Inc., 5
F.Supp.3d 537 (S.D.N.Y. 2014). But the Fourth Circuit, looking at a nearly identical
forum-selection clause, found that it did not supersede FINRA rules. UBS Fin.
Servs., Inc. v. Carilion Clinic, 706 F.3d 319 (4th Cir.2013); see also, UBS Secs. LLC
v. Allina Health Sys., D.Minn. No. 12-2090, 2013 U.S. Dist. LEXIS 17799 (Feb. 11,
2013). The court then went on to find that “a forum-selection clause requiring ‘all
actions and proceedings’ to be brought in federal court supersedes an earlier
agreement to arbitrate.” Id. at 215. Here, the language “any lawsuit” does not have
the same preclusive effect of waiving arbitration when compared to arbitration
language that covers “any dispute, claim or controversy.”
Finally, Appellants cite Goldman, Sachs & Co. v. Reno, 747 F.3d 733(9th Cir.2014), which also dealt with a forum-selection clause that covered “all
actions and proceedings” and made similar findings.
The Sixth Circuit has looked at this issue as well. Although not
addressing FINRA arbitration specifically, that court found that
[w]hen a contract contains an arbitration clause, there is a general
presumption of arbitrability, and any doubts are to be resolved in favor
of arbitration “unless it may be said with positive assurance that the
arbitration clause is not susceptible of an interpretation that covers the
asserted dispute.” AT&T Techs., Inc. v. Communications Workers of
Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). Where
the arbitration clause is broad, only an express provision excluding a
specific dispute, or “the most forceful evidence of a purpose to exclude
the claim from arbitration,” will remove the dispute from consideration
by the arbitrators. Id.Highlands Wellmont Health Network v. John Deere Health Plan, 350 F.3d 568,
576-577 (6th Cir.2003).
In a subsequent case, the court addressed the following clause, or
“service of suit” clause that stated:
It is agreed that in the event of the failure of the Reinsurer hereon to
pay any amount claimed to be due hereunder, the Reinsurer hereon, at
the request of the Company, will submit to the jurisdiction of a court of
competent jurisdiction within the United States.
Child Dimensions Ins. Co. v. Lexington Ins. Co., N.D.Ohio No. 5:09CV670, 2009
U.S. Dist. LEXIS 147059, 3-4 (July 16, 2009)
This clause was compared to an arbitration clause in the same
contract that read,
“[A]ny and all disputes or differences arising out of this Certificate,
including its formation and validity, shall be submitted to binding
arbitration. Any arbitration shall be based upon the Procedures for the
Resolution of U.S. Insurance and Reinsurance Disputes dated
September 1999 (the “Procedures”)[.]”
Id. at 3.
The court found that only an express provision or forceful purpose to
exclude the dispute from arbitration would override the arbitration clause. Id. at 8,
citing Highlands Wellmont Health Network v. John Deere Health Plan, 350 F.3d
568 (6th Cir.2003). The court further noted that the Federal Arbitration Act
(“FAA”) establishes a ‘“liberal federal policy favoring arbitration agreements.”’ Id.,quoting Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624 (6th Cir.2004).
Consequently, there is a “‘general presumption of arbitrability and to resolve any
doubts in favor of arbitration[.]’” Id., quoting Watson Wyatt & Co. v. SBC Holdings,
Inc., 513 F.3d 646 (6th Cir.2008). Nevertheless, while ambiguities should be
resolved in favor of arbitration, the clear intent of the parties, as expressed in their
contract, governs. Id. at 8-9, citing EEOC v. Waffle House, Inc., 534 U.S. 279, 122
S.Ct. 754, 151 L.Ed.2d 755 (2002).
Given the foregoing, we find that the language in Schlang’s Form U4
is a broad arbitration clause, mandating arbitration of any dispute, claim, or
controversy that is required to be arbitrated under the rules, constitutions, or by-
laws of FINRA. Therefore, unless the forum-selection clause explicitly removes the
dispute from arbitration or forcefully excludes arbitration, the arbitration clause is
controlling. In this case, the forum-selection clause does not address arbitration at
all. It merely states that “any lawsuit” must be filed in the Cuyahoga County
Common Pleas Court. This language does not explicitly and/or forcefully exclude
the Redemption Agreement from arbitration. Here, given the preference for
arbitration, the term “any lawsuits” means any dispute unresolved in arbitration.
Consequently, FINRA arbitration prevails. Given the above considerations, we
agree with the trial court’s finding that the forum-selection clause does not
supersede the arbitration clause in the Form U4 or FINRA Rule 13200.
Accordingly, we overrule Appellants’ assignment of error.
Judgment affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment
into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
EMANUELLA D. GROVES, JUDGE
MICHELLE J. SHEEHAN, P.J., and
LISA B. FORBES, J., CONCUR