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Zandford v. Prudential-Bache Securities

April 30, 1997






Appeal from the United States District Court for the District of Maryland, at Baltimore.

John R. Hargrove, Senior District Judge. (CA-90-2568-HAR)

Before WIDENER and HAMILTON, Circuit Judges, and PHILLIPS, Senior Circuit Judge.

PHILLIPS, Senior Circuit Judge

Argued: December 4, 1996

Affirmed by published opinion.

Senior Judge Phillips wrote the opinion, in which Judge Widener and Judge Hamilton joined.


Charles Zandford appeals an order of the district court confirming an arbitration award against him on claims he made against his former securities dealer employer, Prudential-Bache Securities, Inc. (PruBache). He claims that the court erroneously compelled arbitration of disputes that he was not contractually bound to arbitrate. We affirm.


Zandford began work as an account executive for Pru-Bache in May 1983. As a condition of his employment with Pru-Bache, Zandford filed a "Form U-4, Uniform Application for Securities Industry Registration," which both he and an agent for Pru-Bache signed. The U-4 contract was between Zandford and the National Association of Securities Dealers (NASD) and the securities exchanges, and not between Zandford and Pru-Bache. The U-4 form required Zandford to arbitrate "any dispute, claim or controversy" that might arise between him and his employer under the various rules and bylaws of the NASD and the New York Stock Exchange (NYSE). J.A. 31-34. Among those rules covered in the U-4 form was NYSE Rule 347, which provides, "Any controversy between a registered representative and any member . . . arising out of the employment or termination of employment of such registered representative by and with such . . . member organization shall be settled by arbitration, at the instance of either party . . . ." J.A. 87. Similarly, Zandford's separate employment contract with Pru-Bache required him to arbitrate"[a]ny claim or controversy arising out of or respecting any matter contained in this Agreement . . . ." J.A. 110.

On March 15, 1984, Pru-Bache terminated Zandford because of alleged irregularities in Zandford's customers' accounts and because of Zandford's alleged failure to comply with Pru-Bache's internal policies. At the heart of these allegations was Pru-Bache's claim that Zandford had placed his personal funds into his clients' accounts to cover margin calls, a practice Pru-Bache's rules did not permit. PruBache then initiated an arbitration proceeding against Zandford to recover the proceeds of a loan it had made to him. Zandford responded by filing counterclaims for wrongful termination, abusive discharge and libel. In late 1986, the parties settled their dispute and agreed to dismiss with prejudice all of their claims pursuant to a settlement agreement. In this agreement, Pru-Bache promised to amend its termination form to explain that Zandford had deposited the funds into his clients' accounts at the clients' direction, and that Zandford had acted with the "knowledge and assistance" of Pru-Bache's operations personnel. J.A. 39. Both parties also agreed not to "divulge or discuss . . . the facts or circumstances underlying this settlement except otherwise (sic) required by law." J.A. 40. Pru-Bache also agreed to pay Zandford $20,000 and to "release, discharge and acquit Zandford . . . from all claims, demands, sums of money, causes of action, obligations and liabilities of any kind or nature whatsoever which [Pru-Bache] may have had or hereafter[may] assert to have which arise out of or are in any manner whatsoever, directly or indirectly related to Zandford's employment . . . ." J.A. 39.

Pru-Bache amended the termination form that it filed with the NASD as it had promised to do in the settlement agreement. Later, however, the NASD commenced a disciplinary proceeding against Zandford alleging that he made unsuitable recommendations to his clients, engaged in excessive trading, and made improper deposits into clients' accounts while he was employed by Pru-Bache. Appellee John P. Graner, Pru-Bache's regional manager while Zandford was employed there, testified against Zandford at the NASD proceeding in October 1988.

Zandford then brought this action in the United States District Court for the District of Maryland against Pru-Bache and Graner alleging breach of the settlement agreement, intentional interference with business relationships, and intentional infliction of emotional distress. *fn1 Pru-Bache moved the district court to stay the proceeding and to compel arbitration before the NYSE based on the arbitration clause contained in the U-4 form. The district court granted the motion and denied Zandford's subsequent motion for reconsideration. Zandford noticed an appeal to this court, but the appeal was dismissed as interlocutory. Zandford then participated in the NYSE arbitration, presenting the same three claims as in his complaint. The arbitration panel dismissed Zandford's claims and required Zandford to pay one-half of the forum fees. Zandford then filed a motion to vacate the arbitration award in the district ...

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