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Campbell v. Pamrapo Service Corp.

A-4946-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

ARBITRATION; AGENCY — An agent can bind its principal to the terms of arbitration agreement even if the principal never expressly agreed to be bound by it.

A bank manager, who was a licensed registered representative under the Financial Industry Regulatory Authority (FINRA), maintained a desk in the bank. The bank would refer its customers to the manager for investment advice. The manager contended that he was required by the bank to become associated with a FINRA member broker-dealer, thus allowing the bank and the manager to share commissions from the purchase of securities and life insurance products by the bank’s customers. In order to become licensed and registered with FINRA, the manager completed and executed a Uniform Application for Securities Industry Registration. The application required the manager to agree to arbitrate any dispute, claim or controversy arising with the securities firm, or a customer, or any other person, required to arbitrate under FINRA.

Disputes arose regarding commissions. The manager filed a statement of claim with the FINRA. The FINRA informed the bank that it was not required to arbitrate disputes in the FINRA forum. The manager sought an order to show cause to compel the bank to arbitrate the dispute. In his certification in opposition, a member of the bank’s board alleged that the manager was discharged when he failed to remit commissions to the bank. He further contended that he and the bank were not registered with the FINRA, nor had they consented to arbitration.

The manager disputed the bank’s claim about the commissions, and certified that he was directed by the bank to obtain his license, and that the bank benefitted as a result because it was able to share in the commissions earned. After oral argument, the lower court noted that arbitration is a matter of contract, and that there was no written agreement under which the bank agreed to arbitrate. The lower court also rejected the manager’s argument that he was acting as the bank’s agent when he executed the application, thus binding the bank to submit to arbitration.

On appeal, the Appellate Division agreed, generally, that an agent could bind the principal to the terms of an arbitration agreement even if the principal never expressly agreed; however, the facts here did not follow that doctrine. Under the plain language of the application, the dispute was not one requiring arbitration under the rules, constitutions or by-laws of the FINRA. Because the arbitration agreement in this case was not applicable to this dispute, the Court found that arbitration was not required even if the manager had been acting as the bank’s agent.


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