JONATHAN D AHLBRAND V KENNETH A KEELEY
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STATE OF MICHIGAN
COURT OF APPEALS
JONATHAN D. AHLBRAND, CRAIG A.
JANUTOL and EAST WEST CAPITAL
CORPORATION,
UNPUBLISHED
September 3, 1999
Plaintiffs-Appellants,
v
No. 203646
Bay Circuit Court
LC No. 96-003910 CK
KENNETH A. KEELEY,
Defendant-Appellee.
Before: Gage, P.J., and White and Markey, JJ.
PER CURIAM.
Plaintiffs appeal from the circuit court’s grant of summary disposition in favor of defendant in this
declaratory judgment action in which plaintiff sought a declaration that defendant, in his individual
capacity, is not entitled to join in the arbitration of a dispute between plaintiffs and the Kenneth A.
Keeley Trust (Trust), of which defendant is the trustee, for damages defendant personally sustained
when he used his own funds to pay a tax liability incurred by the Trust as a result of the Trust’s purchase
of approximately $2,000,000 in unregistered securities through plaintiffs. Plaintiffs contend that §
10301 of the Uniform Code of Arbitration of the National Association of Security Dealers [NASD]
limits arbitration to “[a]ny dispute, claim, or controversy . . . between a customer and a [NASD]
member and/or associated person arising in connection with the business of such member or in
conjunction with the activities of such associated person,” and does not authorize the arbitration of
defendant’s individual claim against plaintiff. The circuit court determined that, although defendant was
not a customer within the meaning of § 10301, defendant was entitled to join the arbitration and assert
his individual claims because his claims were derivative of the Trust’s claims against plaintiffs. We
agree, and affirm.
Defendant’s claim against plaintiffs is derivative of the customer/Trust’s claim against plaintiffs, in
that the financial injury suffered by defendant is the consequence of the financial injury suffered by the
customer/Trust as a result of purchasing the Towers notes,1 and in that any right of recovery of
defendant is dependent on the Trust’s right to recover from plaintiffs. See e.g., Jones v Slaughter, 54
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Mich App 120, 124; 220 NW2d 63 (1974); Kinsella v Farmers Ins Exchange, 826 P2d 433, 435
(Colo App, 1992). A court may compel a nonsignatory to an arbitration agreement to arbitrate that
party’s claims that are derivative of, inseparable from, and essentially identical to the related and
underlying claims of a signatory of the arbitration agreement if the signatory is contractually bound to
submit the related and underlying claims to arbitration. Jozwiak v Northern Michigan Hospitals, Inc,
207 Mich App 161, 167-168; 524 NW2d 250 (1994); Harte v Sinai Hospital of Detroit, 144 Mich
App 659, 664; 375 NW2d 782 (1985); Eckel v Equitable Life Assurance Society of the United
States, 1 F Supp 2d 687 (ED Mich, 1998); Blount v Smith Barney Shearson, Inc, 695 So 2d 1001,
1004 (La App 4 Cir 1997); Brown v KFC National Management Co, 82 Hawaii 226; 921 P2d 146,
161 (1996); Prudential Ins Co of America v Shammas, 865 F Supp 429, 432 (WD Mich, 1993);
Bird v Shearson Lehman/American Express Inc, 926 F2d 116, 121 (CA 2, 1991). Here, plaintiff
agreed to arbitrate the customer’s/Trust’s claim, and defendant’s claim is derivative of, inseparable
from, and essentially identical to the customer/Trust’s primary underlying claim. The circuit court
correctly determined that under these circumstances, defendant properly sought arbitration of his claim.
Affirmed.
/s/ Hilda R. Gage
/s/ Helene N. White
/s/ Jane E. Markey
1
According to defendant, plaintiff East West Capital Corporation is a registered broker-dealer and a
member of the NASD. Plaintiff Craig Janutol is registered with the NASD as the sole owner of East
West. Plaintiff Jonathan Ahlbrand was at all relevant times a registered stockbroker and representative
of East West. Ahlbrand “was also responsible for East West’s due diligence obligation into the bona
fides of Towers Financial Corporation Notes . . . sold by Ahlbrand and East West . . . .”
The Trust purchased two Towers notes through Ahlbrand and East West, and claims that at the
time of the purchase, Ahlbrand knew that numerous financial institutions had refused to loan money to
Towers Financial due to, among other factors, ongoing investigations of Towers Financial by the United
States Securities and Exchange Commission. Plaintiffs failed to impart this information to the Trust
before it purchased the two notes. Towers Financial ceased to honor its obligations under the notes in
February 1993 and filed for bankruptcy in March 1993.
As a result of the Trust’s losses due to Tower Financial’s dishonoring of the notes, the Trust
sustained adverse tax consequences. Defendant, acting in his individual capacity and using his own
private funds, paid these tax obligations.
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