Virtually all customers of a FINRA regulated securities brokerage firm have entered into a contract with the firm to arbitrate any disputes arising from the customers' accounts.
In the event of a dispute, and if the customer nevertheless files a lawsuit in court seeking to resolve it, the firm will respond by filing with the court a motion to compel arbitration pursuant to its contract with the customer. If the dispute involves only the customer and the brokerage firm and one or more of the firm's registered representatives (i.e., the customer's account executive or "broker," the broker's assistants, the branch manager, etc.), the firm will prevail on its motion, and the court will issue an order compelling the parties to arbitrate their dispute, and staying the lawsuit filed by the customer.
In the above scenario, all parties to the dispute are deemed to be signatories to the contract to arbitrate, and each of the parties is both bound by the terms of the contract and has the right to compel arbitration pursuant to its terms.
But what happens where some but not all of the parties to a dispute are signatories to the contract to arbitrate? Well, California law is to the effect that (1) the signatory parties themselves cannot compel any non-signatory parties to arbitrate, even if those non-signatory parties acted as the agents or aiders and abettors of a signatory party; but (2) non-signatory agents of the parties can compel the signatory parties to arbitrate if they so choose.
This anomaly is illustrated in the real estate context in disputes involving buyers and sellers of real property and their real estate agents and/or brokers. In this context, if the real estate agents will not voluntarily agree to participate in arbitration, the buyer or seller seeking to compel arbitration, even as against the other signatory party, will probably lose. The court wil likely find that there is a possibility of conflicting rulings if the claims between the buyer and seller were ordered to arbitration and the claims against the agents remained in court and proceeded to be tried. See, e.g., Lindemann v. Richard Hume et al. (2012) 204 Cal.App.4th 556. But if the agents themselves prefer arbitration, the agents will likely prevail. See, e.g., Nyugen v. Tran (2012) 157 Cal.App.4th 1032.
In the securities context, this anomaly is discussed and amply illustrated in the court decision in Thomas v. Westlake (2012) 204 Cal.App4th 605. This was a lawsuit brought by the son and successor in interest of a deceased elderly customer/investor. Mr. Thomas sued the brokerage firm, its affiliates and its registered representatives, and also two insurance companies which allegedly sold the customer/investor insurance policies and annunities. All defendants, including the non-signatory insurance companies, who were also not members of or regulated by FINRA, filed a motion to compel arbitration with FINRA pursuant to the decedent's contract with the brokerage firm. The Thomas court engaged in a thorough review of FINRA's dispute resolution rules; and found that: (1) all defendants could arbitrate their claims before FINRA; (2) all defendants were entitled to enforce the arbitration agreement either as parties or as alleged agents of the parties thereto; (3) all of the claims alleged were arbitrable; and (4) the trial court was required to order arbitration and to stay the pending court proceedings.