On Appeal From the United States District Court For the Eastern District of Pennsylvania
Before: Stapleton and Alito, Circuit Judges, and Shadur, District Judge*
The opinion of the court was delivered by: Shadur, Senior District Judge:
(D.C. Civil Action No. 97-cv-00452)
Opinion Filed June 9, 1998
Eric Scott Nicholsberg ("Nicholsberg") appeals a district court's denial of his motion, brought under the Federal Arbitration Act (the "Act," 9 U.S.C. SS 3-4), to stay a breach of contract action and to compel arbitration of the claim brought against him in that action by First Liberty Investment Group ("First Liberty"). First Liberty had initiated its lawsuit to recover money damages stemming from Nicholsberg's alleged breach of an employment agreement. For the reasons stated below, we reverse the district court's order and remand to that court so that it may stay the action and order the parties to proceed to arbitration.
We briefly summarize the uncontroverted essential facts. Other relevant facts that fit better into the substantive legal discussion will be set out later in this opinion.
In February 1996 Nicholsberg began his association with First Liberty, a broker-dealer registered with the National Association of Securities Dealers, Inc. ("NASD"). As a condition of his employment in the securities industry, Nicholsberg executed a "Uniform Application for Securities Industry Registration or Transfer" (universally referred to as "Form U-4"), which both he and an agent for First Liberty signed. Among other things, Form U-4 required Nicholsberg to "arbitrate any dispute, claim or controversy" that might arise between him and First Liberty "that is required to be arbitrated under the rules, constitutions or by-laws" of NASD. Form U-4 thus incorporates by reference the NASD Code of Arbitration Procedures (the "NASD Code").
On March 11, 1996 the parties entered into the OSJ Principal Agreement (the "Agreement"), under which First Liberty agreed to provide Nicholsberg with facilities to execute various types of securities transactions. Two aspects of the Agreement are at the core of the current dispute:
1. It characterized Nicholsberg as an independent contractor rather than as an employee of First Liberty.
2. Its provisions, looked at alone, were silent as to the arbitrability of disputes between the parties.
As we have stated at the outset, on January 21, 1997 First Liberty filed a breach of contract action against Nicholsberg to recover monies assertedly owed it under the Agreement. Shortly thereafter Nicholsberg moved to stay the proceeding and to compel arbitration of the claim. This appeal stems from the district court's denial of Nicholsberg's motion. We review that denial de novo (In re Prudential Ins. Co. of Am. Sales Practice Litig. All Agent Actions ["Prudential Agents"], 133 F.3d 225, 227 n.1 (3d Cir. 1998)).
Arbitrability of the Parties' Dispute
Arbitration is a creature of contract (see AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (1986)). "As a matter of contract, no party can be forced to arbitrate unless that party has entered into an agreement to do so" (PaineWebber Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir. 1990)). And as we recently observed in Prudential Agents, 133 F.3d at 228:
A threshold inquiry under the Federal Arbitration Act is to determine, under recognized principles of contract law, the validity of, and the parties bound by, the arbitration agreement.
Here Nicholsberg's Form U-4 supplies such a potentially applicable agreement (at least on his part):
I agree to arbitrate any dispute, claim or controversy 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 ...