Saturday, December 22, 2007
Fifth Circuit Holds that Customer of Non-NASD Brokerage Firm Did Not Have to Arbitrate Claim
The Fifth Circuit, in Galey v. World Marketing Alliance, 2007 WL 4323610 (Dec. 12, 2007), agreed with a securities customer that he did not have to arbitrate his dispute before NASD pursuant to an arbitration clause in his customer agreement, since the brokerage firm had allowed its membership in NASD to lapse. NASD Rule 10301 provides that a claim involving a member whose membership has been terminated is ineligible for arbitration. The Fifth Circuit found that the Rule meant what it says and it was incorporated by reference into the customer's arbitration agreement. Moreover, since the Rule was to protect the customer, it was not severable from the rest of the agreement. As a result, the customer was free to bring his claim in court.