Fleet Boston Robertson Stephens, Inc. v. Innovex, Inc.

Fleet Boston Robertson Stephens, Inc. (FBRS) (plaintiff) was a brokerage firm and member of the National Association of Securities Dealers (NASD). FBRS contracted with AdFlex Solutions Inc. (AdFlex) (defendant) to provide banking and financial advice in connection with AdFlex’s merger with Innovex, Inc. (defendant). The contract did not require FBRS to act as a broker for AdFlex securities or contain an arbitration provision. FBRS sued AdFlex for breach of contract. AdFlex moved to stay litigation and compel arbitration under the Federal Arbitration Act. AdFlex argued that it was an FBRS customer under the NASD arbitration code, which required NASD members to arbitrate disputes that arose out of or in connection with any NASD member’s business and were between or among members or associated persons and public customers. AdFlex argued that because the NASD manual provided that a “customer” did not include a broker or dealer, everyone who was not a broker or dealer was a customer. The district court denied the motion, relying on the NASD rules of conduct’s definition of “customer” as a person who had cash or securities in an NASD member’s possession in the regular course of the member’s business. According to the NASD manual, the arbitration forum existed for resolving monetary and business disputes between investors and their securities firms. AdFlex appealed.