Before Judges Muir, Jr., Kestin and Cuff.
The opinion of the court was delivered by: Cuff, J.A.D.
In this case, we granted leave to appeal to review whether plaintiff's wrongful discharge and defamation claims against his former insurance company employer may proceed in a court of law or must be submitted to arbitration. We conclude that his claims do not fall within the "business of insurance" exception to the arbitration agreement executed by the parties and we reverse.
Plaintiff, David Fastenberg, began his employment with defendant, The Prudential Insurance Company of America (Prudential), in 1974, and he remained employed by Prudential until his termination in 1996. When terminated, plaintiff was Senior Vice President, Greater Southern Operations, reporting directly to the President of the Insurance and Financial Services Division. Immediately before his termination, his office was transferred from Jacksonville, Florida to South Plainfield, New Jersey as part of a management reorganization.
While plaintiff attended a Prudential conference outside of Florida, his secretary in Jacksonville packed the contents of his office for shipment to New Jersey. His files and other materials were shipped to New Jersey in May and June 1996. Plaintiff left Jacksonville on June 4, 1996, and reported to his new office in South Plainfield the next day. Soon after his move, plaintiff learned that some of the files from his office had been discarded by his secretary in Jacksonville. He contends that he never instructed his secretary to discard or destroy any files in his office.
On August 14, 1996, plaintiff was terminated by Prudential for failing to enforce Prudential's document retention policy. According to Prudential, this resulted in the destruction of documents during the course of plaintiff's move from Florida to New Jersey. Simultaneously, Arthur Ryan, Chairman of the Board and Chief Executive Officer of Prudential, distributed a written statement throughout Prudential which asserted that documents compiled "[i]n response to subpoenas issued by the Florida Attorney General and Florida Department of Insurance" had been "discarded in the course of a reorganization and relocation of staff in [the Jacksonville] office to New Jersey." Ryan further stated that plaintiff was fired "for failing to abide by and enforce company directives to preserve documents."
Plaintiff contends that this statement was also issued to the mass media including The Star-Ledger, The Wall Street Journal, and The New York Times. Each of these publications reported that plaintiff had been fired for destroying documents important to a multi-state investigation concerning marketing abuses in the insurance industry. In his complaint, plaintiff asserts that defendants Prudential, Ryan, and William Yelverton defamed him, conspired against him and wrongfully discharged him. Alternatively, plaintiff claims that defendants negligently misrepresented his responsibility for the destruction of company documents.
Defendants filed a motion to compel arbitration of plaintiff's claims. The motion judge denied this application reasoning that there was at least a factual dispute whether plaintiff's claims involve unlawful insurance practices. Implicit in this ruling was a Conclusion that plaintiff's claims, if proved, and the reasons for the termination of plaintiff's employment implicated the "business of insurance" exception of the arbitration agreement. The motion Judge stated, "[d]efendant's stated reason for Fastenberg's termination involves aspects of its insurance business which are undisputedly under investigation for illegal and fraudulent activities." We granted leave to appeal the order and stayed any further proceedings in the Law Division pending resolution of this appeal. In the late 1980's, holders of Prudential insurance policies and state insurance regulators filed suit and regulatory proceedings against Prudential, claiming it had engaged in deceptive sales practices. In particular, Prudential was accused of engaging in "churning," an illegal practice involving misrepresentations made by sales agents to induce policy holders to purchase additional and unnecessary insurance policies. As a result, the New Jersey Department of Insurance invited other states to join in a multi-state investigation of Prudential. At least thirty jurisdictions joined in the investigation. This multi-state life insurance task force undertook a "market conduct examination" of Prudential. Hundred of thousands of transactions were analyzed, and hundreds of individuals were interviewed. Pursuant to this investigation, a report was generated on July 9, 1996. In conjunction with the investigation of Prudential's sales practices, state regulators served Prudential with subpoenas requiring Prudential to produce pertinent records and documents. Fastenberg alleges that, in response to these subpoenas, all of his files were copied under the supervision of Prudential's Law Department or outside counsel. At the time Fastenberg filed suit, Prudential had entered into settlement agreements with most of the state regulators from the approximately thirty different jurisdictions, and was in the process of attempting to settle some of the pending suits brought on behalf of its policyholders. According to reports, Prudential was fined a record $35 million for its negligent supervision and training, and for failing to discipline perpetrators of fraudulent sales tactics. Prudential was also required to pay approximately $1 billion in compensation to buyers of life insurance. In 1987, while employed by Prudential, plaintiff signed a Uniform Application for Securities Industry Registration (Form U-4). Pursuant to the U-4, plaintiff agreed to arbitrate any dispute, claim or controversy that may arise between [him] and [his] firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organizations with which [he] register[ed], as indicated in item 10 as may be amended from time to time.
Under item 10, the application indicates registration with the National Association of Securities Dealers ("NASD"). The NASD Code of Arbitration Procedure provides for the arbitration of any dispute, claim, or controversy ... arising out of the employment or termination of employment of associated person(s) with any member, with the exception of disputes involving the insurance business of any member which is also an insurance company:
(2) between or among members and associated persons;
(3) between or among members or associated persons and public customers, or others;....
In general, arbitration is the preferred forum for resolving contract disputes. See Barcon Assocs. v. Tri-County Asphalt Corp., 86 N.J. 179, 186 (1981). Consistent with this principle, the Legislature has authorized the implementation of binding agreements to arbitrate. N.J.S.A. 2A:24-2. Moreover, an agreement to arbitrate should be read "liberally to find arbitrability if reasonably possible." J. Baranello & Sons, Inc. v. Davidson & Howard Plumbing & Heating, Inc., 168 N.J. Super. 502, 507 (App. Div.), certif. denied, 81 N.J. 340 (1979); Young v. Prudential Ins. Co. of Am., 297 N.J. Super. 605, 617 (App. Div.) ("Both federal and state arbitration statutes have been held to express a strong policy favoring arbitration as a means of dispute resolution and to require liberal construction of contracts in favor of arbitration."), certif. denied, 149 N.J. 408 (1997). Thus, "[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Singer v. Commodities Corp. (U.S.A.), 292 N.J. Super. 391, 405 (App. Div. 1996) (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S. Ct. 1347, 1352-53, 4 L. Ed. 2d 1409, 1417 (1960)). Our policy in favor of enforcement of agreements to arbitrate disputes is consonant with federal law, as articulated in federal case law and the Federal Arbitration Act, 9 U.S.C.A. §§ 1-307. The Supreme Court of the United States has articulated a two-step inquiry to be utilized when a court is asked to compel arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985). First, the court must "determine whether the parties agreed to arbitrate that dispute." Id. at 626, 105 S. Ct. at 3353, 87 L. Ed. 2d at 454; see also Singer, supra, 292 N.J. Super. at 402. Second, the court must "consider whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims." Mitsubishi Motors, supra, 473 U.S. at 628, 105 S. Ct. at 3355, 87 L. Ed. 2d at 456; Singer, supra. Interpretation and construction of a contract is a matter of law for the court subject to de novo review. See Bradford v. Kupper Assocs., 283 N.J. Super. 556, 583 (App. Div. 1995), certif. denied, 144 N.J. 586 (1996). The relevant provision in need of plenary interpretation is the portion of the NASD Code of Arbitration Procedure providing for the arbitration of any dispute, claim, or controversy ... arising out of the employment or termination of employment of associated person(s) with any member, with the exception of disputes involving the insurance business of any member which is also an insurance company:
NASD's rationale for excluding insurance-only claims from its arbitration system is articulated ...