Opinion ID: 1702553
Heading Depth: 1
Heading Rank: 7

Heading: Can the Dispute Lewis Asserts Be Said to Arise Out of the Form U-4 or the Transaction Evidenced by It?

Text: As noted earlier, the contract at issue in this case consists only of the materials the parties placed of record, which, as far as the NYSE materials are concerned, were article XI, section 1 of its constitution and Rule 347. However, from our reading of cases from other jurisdictions and our review of materials available on the NYSE's Internet Web site, we find that there exists, and did at all times pertinent to this case, an additional set of rules of the NYSE dedicated to arbitration. See, e.g., Spear, Leeds & Kellogg v. Central Life Assurance Co., 85 F.3d 21 (2d Cir. 1996), and Lehman Bros. v. Certified Reporting Co., 939 F.Supp. 1333 (N.D.Ill. 1996); and the 600 series of NYSE Rules of Arbitration. [7] Because Rules 600 through 639 of the NYSE Arbitration Rules were never called to the attention of the trial court and were discovered by us by a means completely outside of the record, they can play no part in our further analysis of the contract in this case. That contract, as represented to the trial court, provided in its entirety as follows: pursuant to the Form U-4, Lewis agreed to arbitrate any dispute, claim or controversy that might arise between him and his firm, Merrill Lynch, or any other person, insofar as the same was required to be arbitrated under the rules, constitutions, or bylaws of the NYSE. Article XI, section 1 of the NYSE constitution, required to be arbitrated, as pertinent to this case, any controversy between a member, allied member or member organization and any other person arising out of the business of such member, allied member or member organization. NYSE Rule 347 required to be arbitrated any controversy between a registered representative and any member or member organization arising out of the employment or termination of employment of such registered representative by and with such member or member organization. Merrill Lynch and Morgan Stanley represented to the trial court that they were both, as stated in Merrill Lynch's motion to compel arbitration, member firms of the NASD and NYSE. In its order of June 14, 2001, the trial court expressly declared that Morgan Stanley Dean Witter and Merrill Lynch are Registered Broker-Dealers and member firms of the National Association of Security Dealers and the New York Stock Exchange. Lewis does not challenge that finding on appeal. Turning to the contract constituted by the Form U-4 and NYSE constitution, art. XI, sec. 1, we determine that Lewis agreed to arbitrate any dispute that might arise between him and Merrill Lynch, and/or him and any other person arising out of the business of Merrill Lynch and/or Morgan Stanley. [8] An important aspect of our analysis of the scope and reach of this contract is the meaning we ascribe to the phrase arising out of the business of a NYSE member organization. Instructive is the treatment we accorded the phrase arising out of ... employment in SouthTrust Securities, Inc. v. McClellan, 730 So.2d 620 (Ala.1999). That phrase was at issue in that case as a part of the NASD Code of Arbitration Procedure Section 10201, which requires to be arbitrated disputes arising out of the employment or termination of employment of a stockbroker. (The entire NASD Code of Arbitration Procedure was placed in the record by the parties in that case, including both Rule 10101 and Rule 10201.) This Court stated: The key to this case is the interpretation of the phrase `arising out of ... employment.' The United States Supreme Court has stated that courts must construe arbitration agreements broadly, resolving all doubts in favor of arbitration. Moses H. Cone Mem'l Hosp. [ v. Mercury Constr. Corp. ], 460 U.S. [1] at 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 [(1983)]. A broad construction of the term `employment' is particularly appropriate in this case, given the precedents of the Supreme Court of the United States strongly advancing arbitration of all disputes related to the securities industry.  730 So.2d at 622 (emphasis added). A similar sentiment was expressed in Pearce v. E.F. Hutton Group, Inc., 828 F.2d 826, 829 (D.C.Cir.1987): The rationale for this policy [of broadly resolving all doubts in favor of arbitration] is at its strongest where the arbitration will be governed by procedures specifically tailored to the context from which the agreement to arbitrate arises, and will be conducted by arbitrators who are expert in the norms and practices of the relevant industry. Labor arbitration is one such context. The arbitration system of the New York Stock Exchange is another. The parties have not directed us to any cases construing the phrase arising out the business of a member organization. That is easily understandable on Lewis's part; he takes the position that the contract formed by combining Form U-4 and NYSE article XI, section 1, is irrelevant and undeserving of discussion as to its meaning, because, he says, his claims arise exclusively out of the Purchase Agreement. Through our independent research we have found a few cases from other jurisdictions that have considered the scope of arising out of the business of as informed by the interaction of art. XI, section 1, and NYSE arbitration Rule 600(a), e.g., Paine, Webber, Jackson & Curtis, Inc. v. Chase Manhattan Bank, N.A., 728 F.2d 577 (2d Cir.1984), but no cases have attempted to interpret the phrase as it might exist in a contract involving only art. XI, section 1. Accordingly, again given the peculiar structuring of the contract in the record, we chart our own course. Under general Alabama rules of contract interpretation, the intent of the contracting parties is discerned from the whole of the contract. Where there is no indication that the terms of the contract are used in a special or technical sense, they will be given their ordinary, plain, and natural meaning. Homes of Legend, Inc. v. McCollough, 776 So.2d 741, 746 (Ala.2000) (citations omitted). Here, the whole of the contract (ignoring for the time being Rule 347) is formed by the combination of Form U-4 and art. XI, section 1. There is no suggestion in the record or in the parties' briefs to this Court that the term any other person, as used respectively in Form U-4 and art. XI, section 1, or the term business, as used in art. XI, section 1, are used in a special or technical sense. Using the ordinary, plain meanings of those terms and being mindful of the special rules of construction that must guide our analysis of an arbitration clause, we conclude that the dispute, claim, or controversy in this case can fairly be said to exist between Lewis and Merrill Lynch (my firm), and also between him and Oakley and Morgan Stanley (any other person per the Form U-4), and represents a controversy between a member organization (Merrill Lynch and Morgan Stanley, respectively) and any other person, i.e., in this instance, Lewis. The dispute, as framed by the complaint, arises in several substantial respects out of the business of Merrill Lynch and Morgan Stanley, respectively. It was Lewis's $182,000,000 book of accounts with Merrill Lynch that was being taken over by Oakley. It was the alleged decline in the value of that book of accounts, while maintained as a part of the business of Merrill Lynch and traded in by its then stockbroker employee Oakley, that was the genesis of the dispute between Lewis, on the one hand, and Oakley and Merrill Lynch, on the other. When Oakley thereafter jumped ship to Morgan Stanley, he began soliciting Defendant Merrill Lynch's clients, most of whom were customers developed by Plaintiff Lewis, according to Lewis's complaint. Lewis asserts in his brief to this Court that [n]ow, Lawrence Oakley works for Morgan Stanley and he has transferred about $15,000,000 of the book of business to Morgan Stanley, citing the trial court's statement in its November 2, 2000, order that Defendant Oakley provided only a single page with notes [pursuant to court-ordered production] indicating that $15,000,000 of the accounts had been transferred to Morgan Stanley. The trial court further noted in that order that Lewis's counsel had written a letter to it on September 6, 2000, reporting his suspicion that Merrill Lynch reassigned Milton Lewis'[s] accounts after changing account numbers, further frustrating discovery. Lewis queried in his Opposition, after remarking on the $82,000,000 depreciation in the book of accounts: Did Oakley convert some of that business to [Morgan Stanley]? If so, did [Morgan Stanley] benefit from that transfer and, if so, to what degree? Two pivotal issues in the resolution of this whole controversy will be whether the decline in the value of the book of accounts was legitimate, so as to entitle Oakley under the express terms of the Purchase Agreement to reduce his payments, and whether Oakley involuntarily separate[d] from service with Merrill Lynch, so that, again under the express terms of the Purchase Agreement, he would have no obligation to continue to make payments to [Lewis]. The Purchase Agreement itself was a part of the business of Merrill Lynch, given Lewis's characterization of Merrill Lynch's involvement in the structuring and execution of the Purchase Agreement and the implementation of its terms. Lewis asserted in his complaint that all three defendants breached the Purchase Agreement by virtue of their various roles in the way it was carried out, and he sought monetary damages from all three; furthermore, as described earlier, Lewis sought an accounting separately from each defendant for their business relating to the book of accounts, starting with January 1, 1998. Thus, the dispute as presented by Lewis, arises out of the business of Merrill Lynch and the business of Morgan Stanley. Given our disposition of the Form U-4/article XI, section 1, contract issue, we pretermit any separate analysis vis-à-vis the combined effect of Form U-4/Rule 347.