Brown v. Delfre
2012 IL App (2d) 111086
| Ill. App. Ct. | 2012Background
- Plaintiff Alex Brown sues Delfre, Wealth Capital Management Group, LLC, and Players Group for investment malfeasance, seeking damages and an accounting.
- Defendants moved to dismiss and compel arbitration or stay proceedings pending arbitration under the wealth management services agreement.
- The agreement states Ohio law and that WCMG is not NASD member, but requires arbitration under NASD rules in Cleveland, Ohio.
- FINRA advised it would arbitrate only if at least one party was a FINRA member, otherwise it lacked jurisdiction.
- Trial court held arbitration would be conducted under NASD/FINRA rules and denied arbitration; it found FINRA unavailability rendered the clause unenforceable.
- On appeal, the Seventh Circuit reversed, holding the designation of NASD/FINRA as arbitrator was not established and the agreement was not rendered unenforceable; remanded to allow arbitration or appoint an arbitrator.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the arbitration clause name NASD/FINRA as arbitrator? | Brown argues NASD/FINRA was designated as arbitrator. | Delfre/WCMG contend the clause only invokes NASD rules, not NASD/FINRA as the forum. | No designation of NASD/FINRA as arbitrator. |
| Is any forum designation integral to the agreement so that it cannot be replaced if unavailable? | If NASD/FINRA is integral, unavailability voids arbitration. | Forum designation is not integral; substitute arbitrator may be appointed. | Forum designation not integral; substitute arbitrator permissible. |
| May the court appoint a substitute arbitrator under the FAA §5 if the chosen forum is unavailable? | Unavailability of NASD/FINRA should halt arbitration and void the clause. | Court can appoint a substitute arbitrator under §5 unless integral designation exists. | Court may appoint substitute arbitrator; remand for arbitration. |
Key Cases Cited
- Carr v. Gateway, Inc., 241 Ill. 2d 15 (2011) (arbitration contract interpretation and integral forum analysis; de novo review)
- LRN Holding, Inc. v. Windlake Capital Advisors, LLC, 409 Ill. App. 3d 1025 (2011) (de novo review of arbitration order; contract interpretation governs)
- Sabo v. Dennis, 408 Ill. App. 3d 619 (2011) (arbitration agreement interpretation; related to waiver/consent standards)
- QuickClick Loans, LLC v. Russell, 407 Ill. App. 3d 46 (2011) (forum designations and administrator exclusivity; effect on §5)
- Reddam v. KPMG LLP, 457 F.3d 1054 (2006) (NASD rules vs. NASD forum; not necessarily integral to arbitration)