E.D. Pa. Notes Split Re Application of McMahan Test

Per Marciano v. MONY Life Ins. Co., --- F.Supp.2d ----, 2007 WL 152163 (E.D. Pa. Jan. 22, 2007):

The crux of the motion to compel arbitration is whether MONY Life is a "certain other" under the NASD [National Association of Securities Dealers] Code. Unfortunately, unlike "associated person," the NASD nowhere defines "certain other." Courts are left to fill in the gaps as to what the NASD meant when it enacted a rule that required arbitration between, inter alia, "associated persons" and "certain others." See NASD Code ยง 10201(a).

The Court concludes that the proper focus in determining whether a party is a "certain other" is the sufficiency of a party's immersion in the underlying dispute. This conclusion is reached by examining the Second Circuit's decision in McMahan Securities Co. L.P. v. Forum Capital Markets L.P., 35 F.3d 82 (2d Cir.1994) and the cases interpreting McMahan. . . .

(i) The proper McMahan "test"

. . .

[T]he Court must decide whether the three factors listed in the second sentence of McMahan inform the "sufficient immersion" test from the first sentence, or, rather, whether the three factors constitute the test in and of themselves. The authorities are split and the Third Circuit has not addressed the issue. Some courts look solely to the three factors. See, e.g., Variable Annuity Life Ins. Co. v. Joiner, 2006 WL 1737443, at *3 (S.D.Ga. June 23, 2006); Pruco Sec. Corp. v. Montgomery, 2003 WL 22383034, at *4 (D.N.D. Oct.15, 2003); Basil Inv. Corp. v. Hampshire Funding, Inc., 1998 WL 88399, at *4 (E.D.Pa. Feb.19, 1998) (Reed, J.) (finding "the reasoning of McMahan to be persuasive," adopting McMahan's three-part "test," and holding that the entity in question was a "certain other" under the Code). Other courts look solely to the "sufficient immersion" language. See, e.g., Parrott v. Pasadena Capital Corp., 1998 WL 91076, at *4 (S.D.N.Y. Mar.3, 1998). Still other courts look to both. See, e.g., Gates v. Veravest Invs., Inc., 2004 WL 1173145, at *7-8 (D.Or. May 25, 2004); Heller v. MC Fin. Servs. Ltd., 1998 WL 190288, at *3 (S.D.N.Y. Apr.21, 1998). However, Plaintiffs have not pointed to any case in which a court has explicitly treated McMahan as a conjunctive three-part test.

Defendants' construction supplies a reasonable explanation that gives full play to the entire thrust of the McMahan court's opinion. On the other hand, Plaintiffs' construction, by focusing exclusively on the three factors from McMahan, would read out of McMahan's definition of "certain other" the requirement that a party be "sufficient immersed" in the underlying dispute. Therefore, the Court will treat McMahan's "sufficient immersion" language as the operative "test," and the three factors listed by the McMahan court will serve to inform the "sufficient immersion" test.


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