Fifth Third Bank v. Rowlette , 2013 Ohio 5777 ( 2013 )

[Cite as Fifth Third Bank v. Rowlette, 2013-Ohio-5777.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Fifth Third Bank et al., :
Plaintiffs-Appellees, :
No. 13AP-337
v. : (C.P.C. No. 08CVH-05-007631)
James Rowlette et al., : (REGULAR CALENDAR)
Defendants-Appellants. :
D E C I S I O N
Rendered on December 30, 2013
Zeiger, Tigges & Little LLP, Marion H. Little, Jr., and
Christopher J. Hogan, for appellees.
J. Hollingsworth & Associates, LLC, and Jonathan
Hollingsworth.
APPEAL from the Franklin County Court of Common Pleas
DORRIAN, J.
{¶ 1} Defendants-appellants, James Rowlette ("Rowlette"), Rowlette Asset
Management, L.L.C., and Wachovia Securities Financial Network, L.L.C. ("Wachovia
Securities") (collectively "appellants"), appeal from a judgment of the Franklin County
Court of Common Pleas denying appellants' motions to dismiss or stay the action and
compel arbitration on claims brought by plaintiffs-appellees, Fifth Third Bank and Fifth
Third Bancorp (collectively "appellees"). Because we conclude that appellees are not
required to submit their claims to arbitration, we affirm.
{¶ 2} Rowlette was an employee of Fifth Third Bank and Fifth Third Securities
under a dual employment agreement, which provided that Rowlette was a registered
representative for the sale of securities on behalf of Fifth Third Securities to the general
public and Fifth Third Bank customers. Appellees assert that, under this arrangement,
No. 13AP-337 2
Rowlette received customer referrals from Fifth Third Bank. During his employment,
Rowlette signed two agreements with Fifth Third Bancorp, awarding him stock or stock
option grants. These agreements included non-competition clauses extending one year
after the termination of Rowlette's employment. In February 2008, Rowlette resigned his
employment and became associated with Wachovia Securities through Rowlette Asset
Management. In May 2008, appellees filed suit against appellants, asserting that Rowlette
removed confidential customer information for the purpose of soliciting those customers
to enter into a new business relationship with Rowlette Asset Management and Wachovia
Securities. Appellees asserted claims against Rowlette for breach of contract and against
all appellants for tortious interference with contract and unfair competition.
{¶ 3} Appellants filed a motion to dismiss or, in the alternative, stay the
proceedings and compel arbitration, asserting that appellees were required to arbitrate
their claims under the rules of the Financial Industry Regulatory Authority ("FINRA").
The trial court denied appellants' motion, concluding that there was no arbitration
agreement requiring appellees to arbitrate their claims.
{¶ 4} Appellants appeal from the trial court's judgment, assigning a single error
for this court's review:
The Trial Court erred by ruling that Appellees can avoid
mandatory arbitration before the Financial Industry
Regulatory Authority ("FINRA"), a securities industry self-
regulatory organization, when the dispute exclusively
concerns the voluntary resignation of defendant-appellant
James Rowlette (a FINRA Registered Representative) from
Fifth Third Securities, Inc. (Appellees' broker-dealer arm and
a FINRA Member) and his subsequent affiliation with
defendant-appellant Wachovia Securities Financial Network,
LLC (a FINRA Member), and by maintaining jurisdiction over
an arbitrable dispute.
{¶ 5} When an appeal of a trial court's decision on a motion to stay proceedings
pending arbitration presents a question of law, we review that appeal de novo. White v.
Equity, Inc., 191 Ohio App.3d 141, 2010-Ohio-4743, ¶ 16 (10th Dist.); Hudson v. John
Hancock Fin. Servs., 10th Dist. No. 06AP-1284, 2007-Ohio-6997, ¶ 8. "The question of
whether a controversy is arbitrable under a contractual arbitration agreement is a
question of law for the court to determine upon an examination of the contract." Morris v.
No. 13AP-337 3
Morris, 189 Ohio App.3d 608, 2010-Ohio-4750, ¶ 38 (10th Dist.). As explained herein,
this appeal turns on the question of whether appellees can be compelled to arbitrate their
claims under the rules of FINRA. We conclude that this presents a question of law, and,
therefore, we apply the de novo standard of review.
{¶ 6} Appellants argue that appellees are required to submit their claims to
arbitration under the rules of FINRA. FINRA is a non-profit corporation that functions as
a self-regulatory organization for securities firms and securities dealers. Fiero v. Fin.
Industry Regulatory Auth., Inc., 660 F.3d 569, 571-72 (2d Cir.2011). FINRA Rule 13200
provides that a dispute must be arbitrated under the FINRA Code of Arbitration
Procedure for Industry Disputes ("FINRA 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.1 Under FINRA Rule 13100(o),
"member" is defined as any broker or dealer admitted to membership in FINRA, and
under FINRA Rule 13100(a), "associated person" is defined as a person associated with a
member. Rowlette also signed a Uniform Application for Securities Industry Regulation
or Transfer form ("Form U4") while employed with Fifth Third Securities, which contains
a clause requiring arbitration of claims. Appellants claim that Form U4 also compels
arbitration of the claims in this case.
{¶ 7} Arbitration is a favored form of dispute settlement under Ohio law and
federal law.2 See ABM Farms, Inc. v. Woods, 81 Ohio St.3d 498, 500 (1998) ("Ohio and
federal courts encourage arbitration to settle disputes."); Preston v. Ferrer, 552 U.S. 346,
353 (2008) (declaring that the national policy favoring arbitration established under
Section 2 of the Federal Arbitration Act applies in both state and federal courts). Despite
1 FINRA is the successor to the National Association of Securities Dealers ("NASD") and was created in July
2007 when NASD and the New York Stock Exchange consolidated their member regulation operations into
one organization. Karsner v. Lothian, 532 RF.3d 876, 879, fn.1 (D.C. Cir.2008). At the time that appellants
filed their motion to stay and compel arbitration, FINRA operated under a version of its manual that still
contained references to the NASD. (See Exhibits to Hollingsworth Declaration in support of Wachovia
Securities' Motion to Stay Action and Compel Arbitration.) We conclude that the relevant portions of the
current FINRA manual are effectively the same as the provisions that were in effect in July 2008 when the
motions to stay were filed. Therefore, we will cite to the current version of the FINRA manual, which is
available online at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=1
(accessed Dec. 11, 2013).
2 Appellees assert that federal law applies in this case because the dispute relates to and involves interstate
commerce. However, because the relevant general presumptions regarding arbitration under Ohio law and
federal law are the same, we need not decide that issue.
No. 13AP-337 4
this general policy favoring arbitration, however, the courts have recognized that
arbitration is a matter of contract, and a party cannot be compelled to submit a dispute to
arbitration unless he has agreed to do so. Benjamin v. Pipoly, 155 Ohio App.3d 171, 2003-
Ohio-5666, ¶ 32 (10th Dist.) ("In Ohio, a party to an action generally cannot be required
to arbitrate a dispute between itself and a second party unless the parties have previously
agreed in writing to arbitration of those disputes."). See also Council of Smaller Ents. v.
Gates, McDonald & Co., 80 Ohio St.3d 661, 665 (1998); AT&T Technologies, Inc. v.
Communications Workers of Am., 475 U.S. 643, 648-49 (1986). Accordingly, "there is a
counterweighing presumption against arbitration when a party seeks to invoke an
arbitration provision against a nonsignatory." (Emphasis added.) Taylor v. Ernst &
Young, L.L.P., 130 Ohio St.3d 411, 2011-Ohio-5262, ¶ 21. "[B]efore a court can order
litigants to submit to an arbitration proceeding, the court must first determine (1)
whether the parties before them are the same parties named in the agreement to arbitrate
and, if so, (2) whether they agreed to arbitrate the dispute in question." West v.
Household Life Ins. Co., 170 Ohio App.3d 463, 2007-Ohio-845, ¶ 12 (10th Dist.).
{¶ 8} Wachovia Securities is a FINRA member and Rowlette is a FINRA
registered representative. However, Fifth Third Bank and Fifth Third Bancorp are not
FINRA members. Likewise, under the FINRA rules, neither Fifth Third Bank nor Fifth
Third Bancorp can be considered an "associated person" because the rules limit
associated persons to natural persons.3 A "natural person" is a human being, not a
corporation or other business entity. See Black's Law Dictionary 1257 (9th Ed.2009)
(defining "person" as "[a] human being – also termed natural person"); Semco, Inc. v.
Sims Bros., Inc., 3d Dist. No. 9-12-62, 2013-Ohio-4109, ¶ 43 ("A business entity, such as a
corporation, is not a 'natural person.' "). Neither Fifth Third Bank nor Fifth Third Bancorp
is obliged to arbitrate its claims by virtue of membership in FINRA because neither entity
is a FINRA member. Similarly, neither Fifth Third Bank nor Fifth Third Bancorp executed
3 FINRA Rule 13100(a) defines "associated person" as a "person associated with a member, as that term is
defined in paragraph (r)." FINRA Rule 13100(r) defines "person associated with a member" as (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."
No. 13AP-337 5
Rowlette's Form U4, and, therefore, neither entity is bound by the terms of that
document. See West at ¶ 16-17 (holding that insurance company could not compel
arbitration of claims under arbitration rider document because there was no evidence that
the insurance company was a party to the document). Therefore, appellants have failed to
demonstrate that appellees are party to any agreement that would require arbitration of
their claims.
{¶ 9} Although appellants do not dispute that neither Fifth Third Bank nor Fifth
Third Bancorp is a FINRA member or signatory of Rowlette's Form U4, they assert that
appellees are required to submit to arbitration because Fifth Third Securities is a FINRA
member and a signatory to Rowlette's Form U4. Appellants also claim that, if this case
proceeds in the court below, Fifth Third Bank will be unable to prove any damages. They
assert that Rowlette only did work involving securities for Fifth Third Securities and did
not perform any banking transactions for Fifth Third Bank. Appellants argue that Fifth
Third Securities is the real party in interest in this case and that any damages arising from
Rowlette's change of employment would accrue to Fifth Third Securities, not Fifth Third
Bank. However, Fifth Third Bank and Fifth Third Bancorp are distinct entities from Fifth
Third Securities. The claims in appellees' complaint rely solely on the stock agreements
Rowlette signed with Fifth Third Bank and Fifth Third Bancorp. Further, appellants
concede that Rowlette was a dual employee of both Fifth Third Bank and Fifth Third
Securities, although they argue that his employment with Fifth Third Bank was merely
pro forma. Thus, it appears that appellees are asserting their own independent claims, not
seeking to recover damages owing to Fifth Third Securities. Moreover, to the extent that
appellees asserted claims seeking to recover damages owing to another entity, such claims
could be addressed through a motion for summary judgment.
{¶ 10} Finally, appellants cite to a decision from the Franklin County Court of
Common Pleas in a similar case, Fifth Third Bank v. Welch, Franklin C.P. No. 09CVH-05-
7343, 2009 Ohio Misc. LEXIS 544 (June 12, 2009). We conclude, however, that the
reasoning in Welch supports the trial court's decision in this case. Welch presents a very
similar factual scenario to the present case. Fifth Third Bank and Fifth Third Bancorp
filed suit against a former employee who, like Rowlette, worked for Fifth Third Bank and
Fifth Third Securities as a dual employee. Welch at ¶ 1-2. In Welch, the defendant filed a
No. 13AP-337 6
motion seeking to have Fifth Third Securities joined as a party under Civ.R. 19. Id. at ¶ 3.
The trial court ordered Fifth Third Securities to join the lawsuit through an amended
complaint asserting its own claims or to proceed directly to arbitration under FINRA. Id.
By contrast, in the present case, appellants asserted in their answer the defense of failure
to join indispensible parties and claimed that appellees are not the real party in interest,
but they have failed to move for joinder of Fifth Third Securities or otherwise seek to have
Fifth Third Securities added as a plaintiff. Moreover, the trial court in Welch concluded
that Fifth Third Bank was asserting its own independent claims and that "[a]s a matter of
state law * * * FTS [Fifth Third Securities] is sufficiently distinct from [Fifth Third] Bank
that Mr. Welch cannot force the Bank to arbitrate its claims." Id. at ¶ 60. Similarly, in this
case, we conclude that Fifth Third Bank and Fifth Third Bancorp are asserting
independent claims and cannot be compelled to arbitrate those claims.
{¶ 11} Accordingly, we conclude that Fifth Third Bank and Fifth Third Bancorp are
not obliged to arbitrate the claims asserted in this case under the FINRA Code or the
provisions of Rowlette's Form U4. The trial court did not err by denying appellants'
motion to dismiss or stay the action and compel arbitration.
{¶ 12} For the foregoing reasons, we overrule appellants' sole assignment of error
and affirm the judgment of the Franklin County Court of Common Pleas.
Judgment affirmed.
TYACK and T. BRYANT, JJ., concur.
T. BRYANT, J., retired, of the Third Appellate District,
assigned to active duty under the authority of the Ohio
Constitution, Article IV, Section 6(C).
_______________