Tara Lueddeke is a retail investor.
National Securities Corp. is a FINRA registered broker-dealer in New York. According to securities regulators, National Securities has more than 577 registered representatives operating from more than 84 geographically dispersed or branch offices across the United States. National has been subject to numerous regulatory actions for the failure to supervise its registered representatives, in addition to numerous customer initiated, investment related arbitrations, alleging misconduct or fraud in connection with the sale of securities. See, e.g., Department of Enforcement v. National Securities Corporation, No. 20099019068201 (May 11, 2011).
Vincent J. Mazza is, or at least until October 28, 2019, when he was barred by FINRA, was a registered representative or stockbroker registered with National Securities. Prior to his expulsion from FINRA, in addition to at least ten other disclosable events, and prior association with other questionable or expelled broker-dealers, Mazza has the subject of at least six disclosed customer initiated investment related complaints or arbitration proceedings.
In 2019, Ms. Lueddeke filed suit against defendants National Securities and Mazza in the Superior Court of New Jersey, for fraud, breach of fiduciary duty, breach of contract, violation of state and federal securities laws, violation of the Truth-in-Consumer Contract, Warranty and Notice Act , invasion of privacy, and emotional distress. Ms. Lueddeke transferred funds she received from an inheritance to National or investment. Mazza, as a stockbroker employed by National assisted Ms. Lueddeke with opening her NSC accounts and made investment trades on her behalf.
Of course, to open investment accounts with National, Ms. Lueddeke was required to sign an Arbitration Agreement. The document, entitled “Pre-Dispute Arbitration Agreement” in large font, is two pages in length.
The Arbitration Agreement also stated:
All controversies that may arise between me and my Broker/Dealer concerning any subject matter, issue or circumstance whatsoever (including, but not limited to, controversies concerning any account, order or transaction, or the continuation, performance, interpretation or breach of this or any other agreement between me and my Broker/Dealer whether entered into or arising before, on or after the date this investment is made[)], shall be determined by arbitration in accordance with the rules then prevailing of the Financial Industry Regulatory Authority (FINRA) or any United States securities self-regulatory organization or United States securities exchange of which the person, entity or entities against whom the claim is made is a member, as I may designate.
In a July 15, 2019 Memorandum of Decision, Judge Kimberly Espinales-Maloney dismissed plaintiff’s complaint without prejudice and compelled arbitration in accordance with the parties’ signed agreement. The judge concluded the Arbitration Agreement signed by plaintiff was unambiguous and clearly encompassed “all controversies” between plaintiff and NSC, involving “any subject” matter, would be submitted to arbitration. She further held that the parties were giving up the right to sue each other in court, including a right to a trial by jury.
On appeal, the New Jersey Appellate Division, conducted a de novo review of the Superior Court’s decision, and citing Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124 6 A-5017-18T3 (2001)). “[T]he clause, at least in some general and sufficiently broad way, must explain that the plaintiff is giving up her [or his] right to bring her [or his] claims in court or have a jury resolve the dispute.” Ibid. (quoting Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 447 (2014)), affirmed the dismissal of the plaintiff’s complaint without prejudice and compelled arbitration in accordance with the parties’ signed agreement.
In arguing against compelling arbitration, Ms. Lueddeke relied upon a decision of the U.S. Court of Appeals for the Third Circuit in Moon v. Breathless, 868 F.3d 209 (3rd Cir. 2017) where the Third Circuit, interpreting New Jersey law, set out a three-part test for arbitrability of claims arising out of statute.
In Moon, Alissa Moon began performing at the Breathless Men’s Club in Rahway, New Jersey. In January of 2015, Moon agreed to rent performance space in the Club and signed an Independent Dancer Rental Agreement with Moon which contained an employment provision and an arbitration clause.
The arbitration clause reads:
In a dispute between Dancer and Club under this Agreement, either may request to resolve the dispute by binding arbitration.
THIS MEANS THAT NEITHER PARTY SHALL HAVE THE RIGHT TO LITIGATE SUCH CLAIM IN COURT OR TO HAVE A JURY TRIAL—DISCOVERY AND APPEAL RIGHTS ARE LIMITED IN ARBITRATION. ARBITRATION MUST BE ON AN INDIVIDUAL BASIS. THIS MEANS NEITHER YOU NOR WE MAY JOIN OR CONSOLIDATE CLAIMS IN ARBITRATION, OR LITIGATE IN COURT OR ARBITRATE ANY CLAIMS AS A REPRESENTATIVE OR MEMBER OF A CLASS.
In August of 2015, Moon sued the Club pursuant to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq., the New Jersey Wage Payment Law, N.J. Stat. Ann. § 34:11-4.1, et seq., and the New Jersey Wage and Hour Law, N.J. Stat. Ann. § 34:11-56a, et seq.
In September, the Club moved to dismiss the Complaint on the ground that the contract’s arbitration clause foreclosed Moon from seeking relief in the District Court. In November, the District Court denied the Motion to Dismiss and ordered the parties to engage in limited discovery on the arbitration issue. After discovery, the Club filed a Motion for Summary Judgment in favor of arbitration and the District Court held a hearing. On July 29, 2016, the District Court granted the Club’s Motion for Summary Judgment concluding that, “[T]here [wa]s no genuine dispute as to whether Plaintiff’s claims fall within the scope of the arbitration provision.”
On appeal, the Third Circuit blasted the District Court’s decision, and reversed the District Court’s decision that the matter was subject to binding arbitration. The Third Circuit stated “in its decision, the District Court focused on Moon’s attempts to question the arbitration clause’s validity. It devoted the final two pages of its decision to the issue presented here. In those final pages, the District Court cited Atalese in passing but it did not cite Morgan, Garfinkel, Martindale, and the principles that those cases support. Insofar as those decisions control, the District Court erred in omitting any reference to them.”
“To pass muster, however, a waiver-of-rights provision should at least provide that the employee agrees to arbitrate all statutory claims arising out of the employment relationship or its termination.” Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124, 773 A.2d 665, 672 (2001); see also Atalese v. U.S. Legal Servs. Grp., 219 N.J. 430, 99 A.3d 306, 315-16 (2014) (“But the clause, at least in some general and sufficiently broad way, must explain that the plaintiff is giving up her right to bring her claims in court or have a jury resolve the dispute.”); Martindale v. Sandvik, Inc., 173 N.J. 76, 800 A.2d 872, 883 (2002) (“In the circumstances of this case, the language in the arbitration agreement not only was clear and unambiguous, it was also sufficiently broad to encompass reasonably plaintiff’s statutory causes of action.”).
In Garfinkel, a doctor employed by the Morristown Obstetrics and Gynecology Associates (“MOGA”) sued MOGA for breaching an employment contract, for perpetrating a tort, and for violating the New Jersey Law Against Discrimination. The Supreme Court of New Jersey found that the arbitration clause did not cover the doctor’s statutory claims for three reasons, including that the arbitration clause did not reference statutory claims.
In Atalese, a customer sued a debt-adjustment services company in New Jersey court for violating New Jersey’s Consumer Fraud Act and the Truth-in-Consumer Contract, Warranty and Notice Act. The Supreme Court of New Jersey found that the consumer had not waived her statutory rights by signing this arbitration provision because “the wording of the service agreement did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court.”
In Martindale, an employee sued her employer under New Jersey’s Family Leave Act and New Jersey’s Law Against Discrimination. In response to suit, her employer invoked an arbitration clause contained in an employment application. In Martindale, the court held that the arbitration provision was appropriately clear because it specifically referenced the type of claims covered: “Its wording provided plaintiff with sufficient notice at the time she signed the agreement that all claims relating to employment with and termination from [the Employer] would be resolved through arbitration.” (emphasis added).
However, in Moon v. Breathless, 868 F.3d 209 (3rd Cir. 2017), the Third Circuit specifically held that “because Moon’s claims arise under statutes rather than the Contract, we find that the arbitration clause does not cover Moon’s statutory wage-and-hour claims.
Applying this same reasoning in to Ms. Lueddeke’s statutory claims against National, or any investor claims arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 or The New Jersey Uniform Securities Act, N.J.S.A. 49:3-51, et seq., under the present arbitration clauses contained in all or most United States securities broker-dealers customer agreements, which are silent as to the waiver of statutory claims, these investor claims would not be subject to arbitration.
Ms. Lueddeke can certainly appeal the Appellate Divisions’ Order to the New Jersey Supreme Court, or simply file her claim before the Financial Industry Regulatory Authority (“FINRA”).
However, at least as of February 20, 2020, at least according to FINRA Public Disclosure, Ms. Lueddeke’s claims still appear to be pending in the Superior Court.
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