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Phoenix Life Insurance Company v. Narduzzi

A-0528-02T2 (N.J. Super. App. Div. 2003) (Unpublished)

EMPLOYER-EMPLOYEE; ARBITRATION—Where an employer requires its employees to sign a quasi-employment agreement with an affiliated, but unrelated company, and that agreement contains a mandatory arbitration provision, the employer will be bound to arbitrate disputes arising out of its own employment agreement with those same employees.

An insurance company sued five of its former agents, each of whom were independent contractors. The company contended that after those agents were terminated, they “breached a clause of their contract ... by inducing some ... policyholders to cancel a policy and to purchase new ones from the agents.” In particular, they accused the former agents of soliciting the company’s producers to leave the insurance company and join another insurance company. The agents never filed an answer. Instead, they moved to compel binding arbitration before the National Association of Securities Dealers (NASD). The company responded that its producer contracts not only contained a two year restriction about contacting policyholders for the purpose of switching them to another company, but also contained the following specific language: “Violation of this provision may be enjoined by any remedies, legal or equitable, available to the Company, including an injunction.”

In response, the former agents argued that the old insurance company required each of them to register with NASD and to become affiliated with a particular registered broker-dealer. They further alleged that the broker-dealer was affiliated with, but not owned by, their former employer. In connection with the NASD’s requirements, each of the agents had agreed to arbitrate any disputes, claims or controversies “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 organizations indicated in item 10 [the NASD, among others]... .”

The lower court found that the insurance company had required each of the agents to sign the NASD agreement that obligated the individuals to arbitrate. The insurance company responded that even if the agents did sign the NASD agreements, they were only contracts between the agents and the broker-dealer, not agreements with the insurance company. In response, the Appellate Division pointed out that “[c]ourts uniformly hold that a non-signatory to a [NASD] arbitration agreement can, on grounds of agency, estoppel, or third-party beneficiary, fairly be required to arbitrate any resulting employment dispute.” In support of this proposition, the Appellate Division, pointed to both federal and out-of-state cases holding to that effect. It also pointed to a 1996 Appellate Division case where an employer was obligated to arbitrate even though its employee had only signed an NASD agreement with a subsidiary of his employer. Here, even though it wasn’t clear to the Court exactly how the insurance company was affiliated with the broker-dealer, it was clear that the insurance company “derived the benefit” from its arrangement with the broker-dealer “in the form of its share of [the agent’s] sales as NASD registered brokers.” In sum, just because the insurance company “was not a signatory of the [NASD agreements] did not excuse it from the arbitration.”


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