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GREGORY J. SCHWARTZ & COMPANY, INC., and Gregory J. Schwartz, Plaintiffs-Appellants, v. Barry S. FAGAN, Marcia C. Fagan, DIB & Fagan Profit Sharing Plan & Trust, DIB & Fagan P.C. Profit Sharing Plan, Allan J. DIB, Salma DIB, National Association Dealers, Inc., and NASD Regulation, Inc., Defendants-Appellees.
Gregory J. Schwartz and Gregory J. Schwartz & Company, Inc., Plaintiffs-Appellants, v. Richard Krygiell, National Association of Security Dealers, Inc., and NASD Regulation, Inc., Defendants-Appellees.
Gregory J. Schwartz & Company, Inc., Plaintiff-Appellant, v. Andrew Polinsky, Jr., Andrew Polinsky Living Trust, and NASD Regulation, Inc., Defendants-Appellees.
In these consolidated appeals, defendants 1 obtained participation certificates in the Mortgage Corporation of America (MCA) through the brokerage services of plaintiff Gregory J. Schwartz & Co., Inc. (Schwartz & Co.), a member of the National Association of Securities Dealers (NASD). After defendants lost money because of the failure of the MCA, they filed arbitration claims with the NASD against Schwartz & Co. and certain of its employees. Schwartz & Co., along with one of its employees, Gregory J. Schwartz, then commenced the instant actions to enjoin the arbitration. The trial court granted summary disposition to defendants and dismissed the complaints. Plaintiffs now appeal as of right, and we affirm.
The main issue raised by plaintiffs in these consolidated appeals is whether the trial court erred in failing to determine the eligibility of defendants' arbitration claims under Rule 10304 of the NASD Code of Arbitration Procedure (NASD code), which states, in part, that “[n]o dispute, claim or controversy shall be eligible for submission to arbitration under the Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim or controversy.” The trial court concluded that the arbitrator, and not the court, should decide whether defendants' claims fell within the six-year limitation period of Rule 10304. Therefore, the court referred the matters to arbitration.
Whether the arbitrator or the court should apply Rule 10304 to NASD arbitration claims is a question of law, and we review questions of law de novo. Wills v. State Farm Ins. Co., 222 Mich.App. 110, 114, 564 N.W.2d 488 (1997). Similarly, we review de novo a trial court's ruling with respect to a summary disposition motion. Id.
The United States Supreme Court, in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002), recently addressed the very issue raised by plaintiffs. The Court addressed “whether a court or an NASD arbitrator should apply [Rule 10304] to the underlying controversy.” Howsam, supra, 537 U.S. at ----, 123 S.Ct. at 590, 154 L.Ed.2d at 495. The Court noted that the federal circuit courts had reached different conclusions on the issue, with some holding that the court should apply Rule 10304 because an application of the rule essentially presents a question of the underlying dispute's “arbitrability”-i.e., it involves whether the parties intended to submit a particular dispute to arbitration. Howsam, supra, 537 U.S. 79, 123 S.Ct. at 591, 154 L.Ed.2d at 496-497.
The Court agreed that a “question of arbitrability” is an issue for judicial determination unless the parties unequivocally indicate otherwise. Id. It then noted, however, that procedural questions relating to time limits, laches, notice, and other doctrines are generally not considered “questions of arbitrability.” 2 Id., 537 U.S. at ----, 123 S.Ct. at 592, 154 L.Ed.2d at 497-498. The Court indicated that these procedural doctrines are more akin to characteristics of the underlying controversy itself and thus should be decided by the arbitrator. Id., 537 U.S. at ----, 123 S.Ct. at 593, 154 L.Ed.2d at 498-499. The Court therefore ruled that the application of Rule 10304 is a question for the arbitrator, stating:
[T]he NASD arbitrators, comparatively more expert about the meaning of their own rule, are comparatively better able to interpret and to apply it. In the absence of any statement to the contrary in the arbitration agreement, it is reasonable to infer that the parties intended the agreement to reflect that understanding․ And for the law to assume an expectation that aligns (1) decisionmaker with (2) comparative expertise will help better to secure a fair and expeditious resolution of the underlying controversy-a goal of arbitration systems and judicial systems alike. [Howsam, supra, 537 U.S. at ----, 123 S.Ct. at 593, 154 L.Ed.2d at 498.]
In response to the respondent's allegation that the use of the phrase “eligible for submission to arbitration” in Rule 10304 mandates that a court decide the time limit issue, the Howsam Court stated:
We do not see how that is so. For the reasons stated ․ supra, parties to an arbitration contract would normally expect a forum-based decisionmaker to decide forum-specific procedural gateway matters. And any temptation here to place special antiarbitration weight on the appearance of the word “eligible” in the NASD Code rule is counterbalanced by a different NASD rule; that rule states that “arbitrators shall be empowered to interpret and determine the applicability of all provisions under this Code.” NASD Code § 10324. [Howsam, supra, 537 U.S. at ----, 123 S.Ct. at 593, 154 L.Ed.2d at 499.]
Accordingly, the Court ruled, “without the help of a special arbitration-disfavoring presumption, we cannot conclude that the parties intended to have a court, rather than an arbitrator, interpret and apply the NASD time limit rule.” Id.
Here, like in Howsam, the parties did not include a provision in their arbitration agreement specifically indicating that a court would apply Rule 10304. Accordingly, for the persuasive reasons discussed in Howsam, we conclude that whether defendants' claims are eligible for arbitration under Rule 10304 is a question for the arbitrator, not for the court.
We note that in Chubb Securities Corp. v. Manning, 224 Mich.App. 702, 705, 569 N.W.2d 886 (1997), this Court analyzed the substantively-identical predecessor to Rule 10304 3 in concluding that the period of limitation of the provision was not subject to tolling for fraudulent concealment. In Chubb, as well as in Todorov v. Alexander, 236 Mich.App. 464, 468-469, 600 N.W.2d 418 (1999), this Court essentially assumed that the application of the rule was a question for the court and worded the opinions accordingly. See also First of Michigan Corp. v. Trudeau, 237 Mich.App. 445, 454, 603 N.W.2d 116 (1999) (involving Rule 603 of the New York Stock Exchange arbitration code [NYSE code], which is identical in substance to Rule 10304 of the NASD code). However, none of these cases involved the specific question raised in the instant appeal-i.e., whether the court or the arbitrator should apply Rule 10304 and analogous rules. Therefore, we do not consider Chubb, Todorov, or First of Michigan to be binding precedent for purposes of MCR 7.215(I)(1). Moreover, Chubb, in particular, relied on cases whose rationales have effectively been superceded by the recent Howsam case. Accordingly, we remain convinced that the persuasive holding set forth in Howsam should be applied to the instant case.4
The trial court correctly denied plaintiffs' request to enjoin arbitration and their accompanying request for a preliminary injunction.5
1. “Defendants” in this opinion refers to the investors and not to the National Association of Securities Dealers and related entities.
2. As examples of true “questions of arbitrability” that a court is obligated to decide, the Howsam Court mentioned disagreements about whether “an arbitration clause in a concededly binding contract applies to a particular type of controversy” or whether “an arbitration agreement survived a corporate merger and bound the resulting corporation.” Howsam, supra, 537 U.S. at ----, 123 S.Ct. at 592, 154 L.Ed.2d at 497.
3. Rule 10304 had previously been identified as § 15 of the NASD code. No substantive changes occurred with the renumbering. See Chubb, supra at 705, n. 1, 569 N.W.2d 886.
4. We also note that in Amtower v. William C. Roney & Co. (On Remand), 232 Mich.App. 226, 237-239, 590 N.W.2d 580 (1998), this Court mentioned former § 15 of the NASD code and Rule 603 of the NYSE code in analyzing a limitation period contained in the parties' arbitration agreement. Any statements regarding former § 15 or Rule 603 contained in Amtower, however, clearly constitute nonbinding obiter dictum, because the Court explicitly pointed out that those provisions differed from the arbitration language at issue in Amtower and that cases interpreting former § 15 and Rule 603 were thus inapplicable to its analysis. See Amtower, supra at 238-239, 590 N.W.2d 580. Moreover, the Amtower Court specifically noted the split in federal circuits regarding whether the court or the arbitrator should apply former § 15. Amtower, supra at 238, n. 7, 590 N.W.2d 580.
5. We note that the trial court decided issues below other than the issue resolved in this appeal. However, because plaintiffs did not brief these additional issues on appeal, we deem them abandoned. See People v. Kent, 194 Mich.App. 206, 210, 486 N.W.2d 110 (1992). We similarly deem abandoned defendants' requests for costs and attorney fees, given that defendants have cited no supporting authority for the requests. See, generally, Community Nat'l Bank of Pontiac v. Michigan Basic Prop. Ins. Ass'n, 159 Mich.App. 510, 520-521, 407 N.W.2d 31 (1987).
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Docket No: Docket Nos. 229389, 229401, 234076.
Decided: January 31, 2003
Court: Court of Appeals of Michigan.
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