Broker-Dealer Litigation - Greenberg Traurig LLP

and ordering of all parties into arbitration. Plaintiffs’ claims arose out of alleged violations of
non-solicitation and confidentiality agreements that defendants signed while in plaintiffs’
employ. Defendants contended that the default judgment would result in manifest injustice given
the amount of damages sought, the minimal delay in filing their answer, and also that the parties
were involved in ongoing settlement discussions. Following a hearing on such arguments, the
court agreed to set aside the default, dismissed plaintiffs’ claims, and ordered the case into
arbitration. The appellate court addressed whether various parties, who the parties agreed were
not “members” or “associated persons,” were required to adjudicate the claims in FINRA
arbitration. Citing the Sixth Circuit, the court noted that five theories exist to bind
nonsignatories to arbitration agreements, those being incorporation by reference, assumption,
agency, viel-piercing/alter ego, and estoppel. The appellate court held that the trial court erred in
ordering the parties to arbitrate the claims because certain plaintiffs did not agree in writing or
otherwise to arbitrate the dispute, the agreements did not incorporate the FINRA membership
contract arbitration clauses, the claims were not inextricably intertwined with plaintiffs’ claims
under the agreements, there was no evidence that plaintiffs sought the benefit of the FINRA
membership agreements in any way related to the dispute, and the third-party beneficiary theory
did not apply.
Morgan Keegan & Co., Inc. v. Smythe, 2011 Tenn. App. LEXIS 613 (Tenn. Ct. App. Jan. 19,
2011).
Following an adverse award by a FINRA panel, the Firm filed a petition to vacate the
award alleging partiality and bias on the part of two members of the panel. The Firm argued that
the two panel members were no longer “independent and neutral” as those members participated
in prior arbitrations in which unfavorable awards were rendered against it. The trial court entered
an order vacating the award and remanded the matter to FINRA for rehearing before another
panel of arbitrators. On appeal, the parties addressed whether the trial court’s order was
appealable under the Tennessee Uniform Arbitration Act (“TUAA”) or the FAA. The appellate
court concluded that, although the FAA applies to the substantive issues in the case, the TUAA
governs the appealability of the trial court’s order. The appellate court reasoned that Section 29-
5-319(a)(3) of the TUAA did not authorize the appeal of the trial court’s order because there was
no motion to confirm and the trial court did not address confirmation of the arbitration award in
its order. Moreover, the appellate court added that Section 29-5-319(a)(5) was the applicable
provision, and that it was procedural in nature and not preempted by federal law. After declining
to exercise its discretion under Rule 2 to suspend the Rules of Appellate Procedure or otherwise
seek to avoid the effect of the plain language of Section 29-5-319(a), the appellate court
dismissed the appeal for lack of subject matter jurisdiction.
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