GREGORY J SCHWARTZ & CO V BARRY S FAGAN
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STATE OF MICHIGAN
COURT OF APPEALS
GREGORY J. SCHWARTZ & COMPANY, INC.,
and GREGORY J. SCHWARTZ,
FOR PUBLICATION
January 31, 2003
9:05 a.m.
Plaintiffs-Appellants,
v
BARRY S. FAGAN, MARCIA C. FAGAN, DIB
& FAGAN PROFIT SHARING PLAN & TRUST,
DIB & FAGAN P.C. PROFIT SHARING PLAN,
ALLAN J. DIB, SALMA DIB, NATIONAL
ASSOCIATION DEALERS, INC., and NASD
REGULATION, INC.,
No. 229389
Oakland Circuit Court
LC No. 99-018638-CZ
Defendants-Appellees.
GREGORY J. SCHWARTZ and GREGORY J.
SCHWARTZ & COMPANY, INC.,
Plaintiffs-Appellants,
v
No. 229401
Oakland Circuit Court
LC No. 99-018639-CZ
RICHARD KRYGIELL, NATIONAL
ASSOCIATION OF SECURITY DEALERS,
INC., and NASD REGULATION, INC.,
Defendants-Appellees.
GREGORY J. SCHWARTZ & COMPANY, INC.,
Plaintiff-Appellant,
No. 234076
-1-
Oakland Circuit Court
LC No. 00-027782-CZ
v
ANDREW POLINSKY, JR., ANDREW
POLINSKY LIVING TRUST, and NASD
REGULATION, INC.,
Defendants-Appellees.
Updated Copy
April 11, 2003
Before: Whitbeck, C.J., and O'Connell and Meter, JJ.
METER, J.
In these consolidated appeals, defendants1 obtained participation certificates in the
Mortgage Corporation of America (MCA) through the brokerage services of plaintiff Gregory J.
Schwartz & Co., Inc. (Schwartz & Co.), a member of the National Association of Securities
Dealers (NASD). After defendants lost money because of the failure of the MCA, they filed
arbitration claims with the NASD against Schwartz & Co. and certain of its employees.
Schwartz & Co., along with one of its employees, Gregory J. Schwartz, then commenced the
instant actions to enjoin the arbitration. The trial court granted summary disposition to
defendants and dismissed the complaints. Plaintiffs now appeal as of right, and we affirm.
The main issue raised by plaintiffs in these consolidated appeals is whether the trial court
erred in failing to determine the eligibility of defendants' arbitration claims under Rule 10304 of
the NASD Code of Arbitration Procedure (NASD code), which states, in part, that "[n]o dispute,
claim or controversy shall be eligible for submission to arbitration under the Code where six (6)
years have elapsed from the occurrence or event giving rise to the act or dispute, claim or
controversy." The trial court concluded that the arbitrator, and not the court, should decide
whether defendants' claims fell within the six-year limitation period of Rule 10304. Therefore,
the court referred the matters to arbitration.
Whether the arbitrator or the court should apply Rule 10304 to NASD arbitration claims
is a question of law, and we review questions of law de novo. Wills v State Farm Ins Co, 222
Mich App 110, 114; 564 NW2d 488 (1997). Similarly, we review de novo a trial court's ruling
with respect to a summary disposition motion. Id.
1
"Defendants" in this opinion refers to the investors and not to the National Association of
Securities Dealers and related entities.
-2-
The United States Supreme Court, in Howsam v Dean Witter Reynolds, Inc, 537 US ___;
123 S Ct 588; 154 L Ed 2d 491 (2002), recently addressed the very issue raised by plaintiffs.
The Court addressed "whether a court or an NASD arbitrator should apply [Rule 10304] to the
underlying controversy." Howsam, supra, 123 S Ct 590; 154 L Ed 2d 495. The Court noted that
the federal circuit courts had reached different conclusions on the issue, with some holding that
the court should apply Rule 10304 because an application of the rule essentially presents a
question of the underlying dispute's "arbitrability"—i.e., it involves whether the parties intended
to submit a particular dispute to arbitration. Howsam, supra, 123 S Ct 591; 154 L Ed 2d 496497.
The Court agreed that a "question of arbitrability" is an issue for judicial determination
unless the parties unequivocally indicate otherwise. Id. It then noted, however, that procedural
questions relating to time limits, laches, notice, and other doctrines are generally not considered
"questions of arbitrability."2 Id., 123 S Ct 592; 154 L Ed 2d 497-498. The Court indicated that
these procedural doctrines are more akin to characteristics of the underlying controversy itself
and thus should be decided by the arbitrator. Id., 123 S Ct 593; 154 L Ed 2d 498-499. The
Court therefore ruled that the application of Rule 10304 is a question for the arbitrator, stating:
[T]he NASD arbitrators, comparatively more expert about the meaning of
their own rule, are comparatively better able to interpret and to apply it. In the
absence of any statement to the contrary in the arbitration agreement, it is
reasonable to infer that the parties intended the agreement to reflect that
understanding. . . . And for the law to assume an expectation that aligns (1)
decisionmaker with (2) comparative expertise will help better to secure a fair and
expeditious resolution of the underlying controversy—a goal of arbitration
systems and judicial systems alike. [Howsam, supra, 123 S Ct 593; 154 L Ed 2d
498.]
In response to the respondent's allegation that the use of the phrase "eligible for
submission to arbitration" in Rule 10304 mandates that a court decide the time limit issue, the
Howsam Court stated:
We do not see how that is so. For the reasons stated . . . supra, parties to
an arbitration contract would normally expect a forum-based decisionmaker to
decide forum-specific procedural gateway matters. And any temptation here to
2
As examples of true "questions of arbitrability" that a court is obligated to decide, the Howsam
Court mentioned disagreements about whether "an arbitration clause in a concededly binding
contract applies to a particular type of controversy" or whether "an arbitration agreement
survived a corporate merger and bound the resulting corporation." Howsam, supra, 123 S Ct
592; 154 L Ed 2d 497.
-3-
place special antiarbitration weight on the appearance of the word "eligible" in the
NASD Code rule is counterbalanced by a different NASD rule; that rule states
that "arbitrators shall be empowered to interpret and determine the applicability of
all provisions under this Code." NASD Code § 10324. [Howsam, supra, 123 S
Ct 593; 154 L Ed 2d 499.]
Accordingly, the Court ruled, "without the help of a special arbitration-disfavoring presumption,
we cannot conclude that the parties intended to have a court, rather than an arbitrator, interpret
and apply the NASD time limit rule." Id.
Here, like in Howsam, the parties did not include a provision in their arbitration
agreement specifically indicating that a court would apply Rule 10304. Accordingly, for the
persuasive reasons discussed in Howsam, we conclude that whether defendants' claims are
eligible for arbitration under Rule 10304 is a question for the arbitrator, not for the court.
We note that in Chubb Securities Corp v Manning, 224 Mich App 702, 705; 569 NW2d
886 (1997), this Court analyzed the substantively-identical predecessor to Rule 103043 in
concluding that the period of limitation of the provision was not subject to tolling for fraudulent
concealment. In Chubb, as well as in Todorov v Alexander, 236 Mich App 464, 468-469; 600
NW2d 418 (1999), this Court essentially assumed that the application of the rule was a question
for the court and worded the opinions accordingly. See also First of Michigan Corp v Trudeau,
237 Mich App 445, 454; 603 NW2d 116 (1999) (involving Rule 603 of the New York Stock
Exchange arbitration code [NYSE code], which is identical in substance to Rule 10304 of the
NASD code). However, none of these cases involved the specific question raised in the instant
appeal—i.e., whether the court or the arbitrator should apply Rule 10304 and analogous rules.
Therefore, we do not consider Chubb, Todorov, or First of Michigan to be binding precedent for
purposes of MCR 7.215(I)(1). Moreover, Chubb, in particular, relied on cases whose rationales
have effectively been superceded by the recent Howsam case. Accordingly, we remain
convinced that the persuasive holding set forth in Howsam should be applied to the instant case.4
3
Rule 10304 had previously been identified as § 15 of the NASD code. No substantive changes
occurred with the renumbering. See Chubb, supra at 705, n 1.
4
We also note that in Amtower v William C Roney & Co (On Remand), 232 Mich App 226, 237239; 590 NW2d 580 (1998), this Court mentioned former § 15 of the NASD code and Rule 603
of the NYSE code in analyzing a limitation period contained in the parties' arbitration agreement.
Any statements regarding former § 15 or Rule 603 contained in Amtower, however, clearly
constitute nonbinding obiter dictum, because the Court explicitly pointed out that those
provisions differed from the arbitration language at issue in Amtower and that cases interpreting
former § 15 and Rule 603 were thus inapplicable to its analysis. See Amtower, supra at 238-239.
Moreover, the Amtower Court specifically noted the split in federal circuits regarding whether
(continued…)
-4-
The trial court correctly denied plaintiffs' request to enjoin arbitration and their
accompanying request for a preliminary injunction.5
Affirmed.
/s/ Patrick M. Meter
/s/ William C. Whitbeck
/s/ Peter D. O'Connell
(…continued)
the court or the arbitrator should apply former § 15. Amtower, supra at 238, n 7.
5
We note that the trial court decided issues below other than the issue resolved in this appeal.
However, because plaintiffs did not brief these additional issues on appeal, we deem them
abandoned. See People v Kent, 194 Mich App 206, 210; 486 NW2d 110 (1992). We similarly
deem abandoned defendants' requests for costs and attorney fees, given that defendants have
cited no supporting authority for the requests. See, generally, Community Nat'l Bank of Pontiac
v Michigan Basic Prop Ins Ass'n, 159 Mich App 510, 520-521; 407 NW2d 31 (1987).
-5-
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