1998 Conn. Super. Ct. 875 | Conn. Super. Ct. | 1998
With one exception relating to defendants' preemption claim, discussed below, the precise issues presented in these two cases were raised in an earlier case, Sentra Securities Corporation,Westcott Planning and John W. Westcott III v. Sherry J. McKeever, Hartford Superior Court, Docket No. CV-97-57112-S, decided by Judge Freed in a July 30, 1997 memorandum of decision [20 CONN. L. RPTR. 256]. In ruling as he did, Judge Freed cited and relied upon, inter alia, Judge Sheldon's detailed decision in the case of Cigna Financial Advisers, Inc. v. Rosen, CV-94-0705235, decided on January 9, 1995.
Judge Freed framed the issue as being whether Rule 10304 is a rule of subject matter jurisdiction or one of a statute of limitations defense to be asserted by a defendant.1 (1) As Judge Freed stated in his McKeever decision:
Three Connecticut Superior Court decisions have discussed the issues presented in this case. They are: Cigna Financial Advisors, Inc. v. Rosen, CV 94 070523S (J.D. of Hartford/New Britain at Hartford), (January 9 1995; Sheldon, J.); Merrill Lynch Co, Inc. v. Mathes, CV 0126054 (J.D. of Waterbury) (September 1, 1995; West. J.); and Smith Barney, Inc. v. Gillies, CV 94-0705356, (J.D. of Hartford New Britain at Hartford) (February 17, 1995. O'Neill, J.)
It would be tautological on the part of this court to repeat what has already been written. It would, however, be appropriate to quote from parts of these opinions to express what this court believes to be opinions based on the current state of CT Page 877 Connecticut law and what are well reasoned conclusions based on that law as applied to the facts in these cases.
As Judge Sheldon pointed out in Cigna Financial Advisors, Inc. v. Rosen, supra, arbitration is a matter of contract and a party cannot be required to submit to arbitration my dispute which he has not agreed to submit. (Citations omitted). It is illogical that Rule 10304 (then Section 15) [sic] to find that this rule is anything but a substantive limitation on the right to gain access to the arbitral forum. Nowhere does the Code establish new defenses to common law or statutory causes of action. This court must conclude that Rule 10304 is a jurisdictional threshold and not a procedural defense to the claim.
Having independently analyzed the issues presented in these cases, I fully concur with the reasoning employed by Judge Freed in McKeever and the result he reached, and also endorse the logic and result of Judge Sheldon in the Rosen case. As Judge Sheldon succinctly put it in Rosen following extensive analysis of this issue: "There is only one reasonable interpretation of Section 15 [the predecessor to Rule 10304]: namely, that the language of Section 15 unequivocally establishes a substantive limitation on the claims that may be submitted to arbitration."
Consequently, for the reasons set out by Judges Sheldon and Freed. I also conclude that Rule 10304 is a jurisdictional threshold and not a procedural defense.
I conclude also, for the reasons stated by Judge Freed inMcKeever, that in the instant cases the applicants have met the prerequisites for injunctive relief. Griffin Hospital v.Commission on Hospitals and Health Care,
With respect to the defendants' preemption claim, the defendants argue that federal law requires the plaintiffs to submit all issues of eligibility to the arbitrators for determination and that under the Federal Arbitration Act ("FAA"), any state law to the contrary is preempted. The defendants argue that the arbitrators must decide the issue of arbitrability in the present case because the National Association of Securities Dealers Code of Arbitration Procedure ("NASD Code") expresses a clear and unmistakable intent to arbitrate issues of arbitrability.2 The defendants further contend that the arbitrators should decide the validity of the time-bar defense. In support of this argument, the defendants cite opinions of the Second, Fifth, Eighth and Ninth Circuits holding that the six year time bar under NASD Code Section 15 is a procedural question for an arbitrator to decide and that because Section 15 is a statute of limitation, it is subject to tolling for claims of fraudulent concealment. Thus, the defendants argue that because the decisions of Judge Freed in McKeever and Judge Sheldon inRosen hold that Section 15 is a jurisdictional threshold and not a procedural defense, they directly conflict with federal law and are therefore preempted.
In response, the plaintiffs essentially argue the following. First, the plaintiffs argue that there is no preemption of Connecticut law by the FAA. According to the plaintiffs, because there is no pre-dispute arbitration agreement and because the NASD Code is silent on this issue, there is no clear and unmistakable indication that the parties agreed to arbitrate the issue of arbitrability.3 Plaintiffs therefore contend that the issue of arbitrability must be decided by the court. The plaintiffs rely on the holdings of the Third, Sixth, Seventh, Tenth and Eleventh Circuits that Section 15 of the NASD Code is not a statute of limitation but that it goes to the arbitrator's subject matter jurisdiction, and that it is for a court to decide whether an action is time-barred under that provision. Therefore, because the decisions of Judge Freed in McKeever and Judge Sheldon in Rosen are consistent with those of the above mentioned circuits, there is no conflict with federal law and state law is not preempted. Plaintiffs also note that defendants are free to pursue their claims in court if arbitration of them is enjoined.
Section 2 of the FAA "is a congressional declaration of a liberal federal policy favoring arbitration agreements, CT Page 879 not-withstanding any state substantive or procedural policies to the contrary. The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H.Cone Memorial Hospital v. Mercury Construction Corp.,
In Volt Information Sciences, Inc. v. Board of Trustees ofthe Leland Stanford Junior University,
"When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally . . . should apply ordinary state-law principles that govern the formation of contracts." First Options of Chicago, Inc. v.Kaplan,
In the present case, therefore, the issues before the court are whether the time-bar provision of the NASD Code section 10304 (previously Section 15) is to be construed and applied by the arbitrators or by the court and whether Connecticut law on this issue is preempted by the FAA.
With regard to the first issue, as noted, the circuits are split.
A number of circuits, including the Third, Sixth, Seventh, Tenth and Eleventh, hold that Section 15 is a substantive limitation on the claims that may be submitted to arbitration and therefore, because it is an issue of arbitrability, it is for the court to decide. See Cogswell v. Merrill Lynch, Pierce, Fenner Smith, Inc.,
In contrast, a number of circuits, including the First, Second, Fifth, Eighth and Ninth hold that Section 15 presents am issue of procedural arbitrability and that therefore, the validity of time-bar defenses to the enforcement of arbitration agreements should be decided by the arbitrator and not the court. See Painewebber, Inc. v. Elahi,
Having considered this matter, the court concludes that both sides have presented viable arguments as to this issue. I conclude, however, that the reasoning of the Third, Sixth, Seventh, Tenth and Eleventh Circuits is more persuasive.
The United States Supreme Court has held that a court may not presume that the patties agreed to arbitrate the issue of arbitrability and that unless the court finds "clear and unmistakable evidence" to the contrary the issue is for the court to decide. First Options of Chicago, Inc. v. Kaplan, supra,
This court, however, agrees with the reasoning of the Tenth Circuit in Merrill Lynch, Pierce, Fenner Smith v. Cohen, supra,
Unfortunately, there is apparently no guiding case law from our Appellate Court or Supreme Court on this issue. Because the federal case law is itself the subject of disagreement among the: circuits, this court is unable to conclude that the law of this state is clearly in direct conflict with, federal law or that it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Volt InformationSciences, Inc. v. Board of Trustees of the Leland Stanford JuniorUniversity, supra,
Finally, the defendants also argue that NASD Code Section 10106 precludes the plaintiffs from commencing the present action. NASD Code section 10106 provides that "[n]o party, shall, during the arbitration of any matter, prosecute or commence any suit, action or proceeding against any other party touching upon and of the matters referred to arbitration pursuant to this Code."
This argument is not persuasive. NASD Code section 10106 prevents parties from commencing legal proceedings that concern the same issues referred to arbitration. The instant cases involve the issue of whether the plaintiffs are obligated to arbitrate in the first instance, and do not concern any substantive issues referred to arbitration. Accordingly, this court rejects the defendants' contention that Section 10106 alters the result of this case. The present actions were commenced to determine the issue of the eligibility of certain claims for arbitration, and therefore the court finds no violation of NASD Code Section 10106. CT Page 883
CONCLUSION
Defendants' objections are overruled. The applications for injunctive relief in these cases are granted for the reasons stated.
LAVINE, J.