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Webb v. Frawley

United States District Court, N.D. Illinois, Eastern Division

August 3, 2016



          SAMUEL DER-YEGHIAYAN, District Judge

         This matter is before the court on Defendant Michael Frawley’s (Frawley) motion to compel arbitration. For the reasons stated below, the motion to compel arbitration is granted.


         Plaintiff Nicholas Webb (Webb) and Plaintiff Thad Beversdorf (Beversdorf) were allegedly recruited by Defendant Michael Frawley (Frawley) to work for Jefferies LLC (Jefferies), an independent securities and investment banking firm. Plaintiffs claim that they left their former employer in the securities industry to work for Jefferies in June of 2012 and that Frawley was their supervisor. Plaintiffs contend that Frawley instructed Plaintiffs to conduct transactions which were not approved by Jefferies and that when Plaintiffs followed such instructions, their employment was terminated. On June 16, 2015, Plaintiffs filed the instant action against Frawley in the Circuit Court of Cook County, Illinois, including in their complaint claims against Frawley alleging tortious interference with contract and fraud. Frawley then removed the state action to federal court. Frawley now moves to compel arbitration.


         The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., provides “that a written provision in any contract evidencing an intent to settle by arbitration any future controversy arising out of such contract shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” French v. Wachovia Bank, 574 F.3d 830, 834 (7th Cir. 2009)(internal quotations omitted)(quoting Livingston v. Assocs. Fin., Inc., 339 F.3d 553, 556 (7th Cir. 2003) and 9 U.S.C. § 2). A court “will compel arbitration unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” United Steel, Paper and Forestry, Rubber, Mfg., Energy, Allied Indus. and Service Workers Intern. Union v. TriMas Corp., 531 F.3d 531, 536 (7th Cir. 2008)(internal quotations omitted)(quoting United Steelworkers of America v. Warrior & Gulf, 363 U.S. 574, 582-83 (1960)). When an arbitration agreement contains a broad arbitration provision, “there is a presumption in favor of arbitrability, ” and “[a]ny ambiguities as to the scope of the arbitration clause are resolved in favor of arbitration.” Id. (internal quotations omitted)(quoting AT& T Techs., Inc. v. Communc’ns Workers of America, 475 U.S. 643, 650 (1986) and Volt Info. Sci., Inc. v. Board of Trs. of Leland Stanford, Jr. Univ., 489 U.S. 468, 475-76 (1989)); see also Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Intern., Ltd., 1 F.3d 639, 642 (7th Cir. 1993)(stating that the Court should “[b]ear[] in mind the Supreme Court’s instruction that ‘any doubt concerning the scope of arbitrable issues should be resolved in favor of arbitration’”)(quoting in part Moses H. Cone Mem. Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1985)); Miller v. Flume, 139 F.3d 1130, 1136 (7th Cir. 1998)(stating that “once it is clear the parties have a contract that provides for arbitration of some issues between them, any doubts concerning the scope of the arbitration clause are resolved in favor of arbitration”); see also Gore v. Alltel Communications, LLC, 666 F.3d 1027, 1032 (7th Cir. 2012)(stating that “because arbitration is a matter of contract, ‘a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit’”)(quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)).


         Frawley contends that the claims presented in this case are subject to mandatory arbitration under the rules of the Financial Industry Regulatory Authority (FINRA).

         I. Associated Persons and Agency

         Frawley argues that the parties in this case are subject to FINRA arbitration provisions as Associated Persons under FINRA Rules and that he acted as an agent for Jefferies. Pursuant to FINRA Rule 13200 (Rule 13200), “a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among: Members; Members and Associated Persons; or Associated Persons.” Id. Frawley contends, and Plaintiffs do not dispute that Jefferies was a member of FINRA. Frawley further argues that he and Plaintiffs are Associated Persons under Rule 13200. An Associated Person is defined as “a person associated with a member, as that term is defined in paragraph (r).” FINRA Rule 13100(a). The term “person associated with a member” is defined as the following:

(1) A natural person who is registered or has applied for registration under the Rules of FINRA; or
(2) A sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with FINRA under the By-Laws or the Rules of FINRA.

FINRA Rule 13100(r)(emphasis added). The record reflects that all the parties, by virtue of their employment relationship with Jefferies, were controlled by Jefferies, a FINRA member, while they worked in a securities business. Frawley has also produced copies of Plaintiffs’ employment agreements, referencing FINRA and Jefferies’ connection to FINRA and arbitration in accordance with FINRA. (D Ex. - 2). Thus, all three parties in this action all qualify as associated persons under Rule 13200. Rule 13200 also makes clear that such arbitration applies to disputes between associated person by including the phrase “or among . . . associated members.” Id. Frawley has also pointed to evidence showing that Beversdorf was a FINRA Registered Representative and signed a FINRA Form U-4, which provided the following:

I agree to arbitrate any dispute, claim 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 SROs indicated in Section 4. . . as may be amended from time to time and that any arbitration award rendered ...

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