Court Opinion

ID: 9482212
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:43:27.839946+00
Date Added: 2024-06-11T17:48:50.198192
License: Public Domain

*608WALKER, Circuit Judge,
dissenting:
Because I believe that NYSE Rule 600(a) and our decisions in Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047 (2d Cir.1989), and Paine, Webber, Jackson & Curtis, Inc. v. Chase Manhattan Bank, N.A., 728 F.2d 577 (2d Cir.1984), require the arbitration of Haviland’s claim against J. Aron, I would reverse the district court’s decision.
Haviland, a registered representative of the New York Stock Exchange and a Goldman vice-president in charge of the Energy Futures and Options Group, alleges that Goldman and J. Aron, an entity with ownership identical to Goldman but without NYSE membership, conspired to interfere with Haviland’s execution of his responsibilities to Goldman clients. According to Haviland, Goldman misrepresented that confidential information Haviland acquired from clients relating to their energy futures and options trading plans would be screened from J. Aron, which trades as a principal in various markets, including the energy futures and options markets. The complaint also alleges that both J. Aron and Goldman attempted to coerce Haviland to divulge confidential client information, and when he did not comply, Goldman reduced his compensation and then fired him.
The majority does not deny that Havi-land’s dispute with Goldman is arbitrable under NYSE Rule 347, which governs disputes between members of the NYSE and associated persons including disputes arising out of employment relations, but maintains that Haviland’s dispute with J. Aron, virtually identical to his claim against Goldman, is not arbitrable under Rule 600(a). In my view, the majority opinion misreads both Rule 600(a) and our previous decisions construing that rule.
Taken alone, the language of Rule 600(a) plainly covers this dispute. Rule 600(a) makes arbitrable any dispute between a non-member and “a member ... and/or associated person arising in connection with the business of such member ... and/or associated person in connection with his activities as an associated person.” The use of the term “associated person” in the NYSE Rules is “clearly meant to draw on the definition found in the Securities Exchange Act of 1934,” including a partner, officer, director, or branch manager of an NYSE member. See Pearce v. E.F. Hutton Group, Inc., 828 F.2d 826, 830 (D.C.Cir.1987); 15 U.S.C. § 78c(a)(21); see also 15 U.S.C. § 78c(a)(18) (excluding clerical and ministerial employees of broker dealers from definition of associated persons).
As a vice-president of Goldman, a NYSE member, Haviland is an “associated person” under Rule 600(a). Haviland’s claims against J. Aron place at issue, among other things, “significant aspects” of his employment as an “associated person,” including Haviland’s performance of his responsibilities as Goldman’s employee and Goldman’s decision to reduce Haviland’s compensation and ultimately terminate his employment. Fleck, 891 F.2d at 1053. Because such issues are inseparable from resolution of Haviland’s dispute against J. Aron, Havi-land’s claims are connected with his activities as an associated person and hence arbi-trable under Rule 600(a).
This court so reasoned in Fleck, decided in 1989, where we held Rule 600(a) to cover post-termination defamation claims by a former employee of E.F. Hutton, an NYSE member, against E.F. Hutton Group, an E.F. Hutton affiliate which was not a member of the NYSE. Fleck’s claims against E.F. Hutton Group were identical to his claims against E.F. Hutton. We reasoned that because resolution of the claims against E.F. Hutton required evaluation of Fleck’s performance in his employment as an E.F. Hutton broker, they involved “significant aspects of the employment relationship” and were therefore arbitrable under Rule 347. 891 F.2d at 1053. We then found Fleck’s claims against E.F. Hutton Group arbitrable under Rule 600(a) “to the same extent” that Fleck’s claims against E.F. Hutton were arbitrable under Rule 347. 891 F.2d at 1054. “[MJatters that arose in connection with Fleck’s activities as an associated person would also arise in connection with his employment under Rule 347.” Id.
*609Fleck did not turn on the fact that Fleck himself worked as a stockbroker, despite the majority’s attempt to distinguish it on this basis. Rather, the ruling was motivated by the fact that Fleck’s conduct as an “associated person,” E.F. Hutton’s employee, was squarely at issue. Because E.F. Hutton Group’s defense against defamation was that the statements made were true, a decision maker would have to examine Fleck’s performance as E.F. Hutton’s employee.
In Pearce, decided in 1987, the D.C. Circuit took a similar position. The Pearce court found that the claims for defamation and invasion of privacy brought by a branch office manager of E.F. Hutton against E.F. Hutton Group were arbitrable under Rule 600(a). The statements concerned Pearce’s supervision of E.F. Hutton’s cash management system. Because “cash management — or mismanagement, as the case may be — is squarely within the scope of a [bjranch [ojffice [mjanager’s activities,” 828 F.2d at 831, the court found the claims “connected” to Pearce’s duties as an associated person. The Pearce court, like the Fleck court, thus found the claims arbitrable under Rule 600(a) because the claims and defenses put in issue the activities of the “associated person.” 828 F.2d at 832. Notably, the Pearce court reached this conclusion notwithstanding the fact that Pearce’s duties did not involve trading on the New York Stock Exchange.
The majority tries to distinguish this case from Fleck and Pearce by arguing that the “issue of the truth of the defamation [in those cases] turned upon the asserted misconduct of the employee, not the nonmember.” At 607. The distinction, however, is baseless. Although the majority appears to be suggesting otherwise, in neither Fleck nor Pearce was the misconduct of the employee the central issue. Rather, the claims in both cases concerned allegations of nonmember misbehavior. The claims were nonetheless arbitrable because the resolution of the dispute, including claims and defenses, placed in issue the associated person’s occupational duties and performance.
Here, the essence of Haviland’s claims, like those of Fleck and Pearce, is that the defendants J. Aron and Goldman engaged in misconduct that affected Haviland’s employment. Resolution of his dispute with J. Aron will involve evaluating Goldman’s treatment of Haviland, including reduction in salary and termination, as well as an evaluation of Haviland’s performance for Goldman (and Goldman affiliates) as a Goldman employee. It is undisputed that the issue of Haviland’s responsibility to protect his Goldman clients falls squarely within the scope of his duties as an “associated person.” In my view, then, Fleck and Pearce, properly read, require us to hold that Haviland’s claims against J. Aron are connected to Haviland’s activities as an associated person and thus arbitrable.
The majority’s position that Haviland’s dispute with J. Aron is not arbitrable rests on two basic arguments. First, the majority says that because the language of Rule 600(a) indicates that the associated person has a lesser duty to arbitrate than a member, the “exchange-related” requirement of our 1984 ruling in Paine Webber is applicable. Second, the majority contends that Haviland’s claim against J. Aron is not “exchange-related,” and therefore not arbi-trable, because it relates to options trading, not equity trading. I take issue with both arguments.
First, I disagree with the majority’s reading of Rule 600(a) to place a narrower duty to arbitrate upon an associated person than on a member. The interpretation is not only irrelevant to the majority’s decision to transpose the “exchange-related” requirement to this case, it is also, in my view, incorrect. The majority omits an “or” in abridging Rule 600(a). The proper reading, as we held in Fleck, is that an associated person’s claims are arbitrable if they arise “ ‘in connection with [his] business [and/or] in connection with his activities as an associated person.’ Rule 600(a).” 891 F.2d at 1054. Thus read, the associated person’s duty to arbitrate is not narrower than that of a member.
If anything, Rule 600(a) may be read to require an associated person to arbitrate a *610broader, not narrower, range of claims than a member under Rule 600(a). Rule 600(a) makes arbitrable any dispute between a non-member and "an associated person arising in connection with the business of such member ... and/or associated person in connection with his activities as an associated person.” An associated person, is, by definition, an individual employed by a member. Therefore, Rule 600(a) could be read to require an associated person to arbitrate a claim arising either in connection with the business of the member with whom the person is associated or in connection with the associated person’s activities as an associated person. The member’s obligation, by contrast, extends only to claims arising in connection with its business.
I also disagree with the majority’s decision that Haviland’s claims are not “exchange-related” under Paine Webber and therefore not arbitrable. In so finding, the majority is not only forced to distort later holdings in Fleck and Pearce, but it also chooses a cramped view of “exchange-related.” In Paine Webber, we found nonarbi-trable plaintiff NYSE member’s suit against a non-member bank, Chase Manhattan, and a former Chase employee for fraudulent representations which misled plaintiff into extending credit to a third party. We stated that the NYSE arbitration provisions governing member-nonmember controversies, at least when “the alleged wrongdoer is a non-member,” 728 F.2d at 581, should be limited to “controversies arising out of the member’s exchange-related business.” 728 F.2d at 580.
The majority’s apparent conclusion that only a dispute arising out of trading activity on the NYSE can be considered “exchange-related” is overly narrow. As we recognized in Paine Webber, the regulation of employment relations at member firms is a core purpose of the NYSE system of self-regulation. The NYSE has a “substantial interest ... in the sound and proper management of its member firms.” Paine Webber, 728 F.2d at 181. See also Pearce, 828 F.2d at 830 (“the Exchange expresses each firm’s interest that every other member firm conduct its business in a manner that inspires and warrants public confidence in all members ... [,] surely extending] beyond [] handling of customer accounts”); McGinnis v. E.F. Hutton & Co., Inc., 812 F.2d 1011, 1014 (6th Cir.1987) (“We can imagine little which would be of greater concern to the Exchange than the claims by one of its registered members [not working as a broker] that a prestigious brokerage house was involved [in an alleged attempt to induce participation in unlawful activity].”) Therefore, disputes raising issues of the quality of internal management and control, including the conduct of employment relations, by NYSE members such as Goldman Sachs, must be considered “exchange-related.”
My view that “exchange-related” should include such claims is supported by reasoning in Paine Webber itself. The Paine Webber court considered to be “exchange-related” under Rule 600(a) a slander claim brought by a member firm against a former registered representative of the member, unrelated to any trading on the NYSE. See Ghiron v. Mayr, 19 A.D.2d 54, 241 N.Y.S.2d 144 (1st Dept.1963) (per curiam). The slander in Ghiron related only to the firm’s finances. The Paine Webber court nonetheless agreed with the New York court in Ghiron that the dispute had been properly subjected to arbitration, because the controversy “arose out of the plaintiff member firm’s exchange business and the former representative’s employment.” 728 F.2d at 581; see also id. at 581 n. 6.
Second, the majority finding that Havi-land’s dispute is not “exchange-related” is dependent upon an inappropriate analogy of Paine Webber and the instant case. Paine Webber’s holding that a dispute between a member and a non-member was not arbitrable under Rule 600(a) was a narrow one, easily distinguished from the situation here. In Paine Webber, the NYSE had no articulated interest in the dispute between the member and the non-member. The dispute over the nonmember bank’s credit reporting was in an area of activity far afield from those, like trading or employment relations, in which the NYSE evinces interest. The conduct of the NYSE member was not at issue, whether or not that conduct might have been “exchange-*611related;” it was in this context that the court observed that NYSE non-member Chase, accused of fraudulent misrepresentation, was the only alleged “wrongdoer.” Here, by contrast, Haviland’s dispute requires examination of both the employment practices of an Exchange member, in which the NYSE has a direct interest, and the responsibilities and performance of the “associated person,” Haviland, in his job.
Third, the majority’s concern with protecting the reasonable expectations of NYSE members and associated persons is misplaced. Haviland’s reasonable expectations would not be disturbed by submitting this claim to arbitration. Haviland signed a U-4 form authorizing the submission of his employment-related claims against Goldman to arbitration under NYSE Rule 347. Although J. Aron was not in existence at that time, Haviland reasonably should have expected that his virtually identical claims in a suit against a wholly-owned affiliate of Goldman might very well be subject to arbitration, as the plaintiff’s claims were in Fleck and Pearce.
Haviland’s conduct during this litigation suggests that he was aware that his claims against either Goldman or J. Aron or both might be submitted to arbitration. Although the allegations in the complaint principally concern Goldman, Haviland joined J. Aron as a “co-conspirator.” When the district court found the dispute with Goldman to be arbitrable, however, Havi-land promptly announced his intention to drop Goldman from the suit and pursue only J. Aron. As a forum shopper, Havi-land should not now be heard to claim unfair surprise at the attempt of Goldman’s affiliate to obtain arbitration.
Finally, I believe that the majority’s narrow view of Rule 600(a)’s coverage is out of step with the strong federal policy favoring arbitration. That policy requires that doubts concerning the scope of an arbitration clause be resolved in favor of arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985). I agree with the majority that whether a dispute is arbitrable is ultimately a matter of contract. However, courts are to “rigorously enforce” those agreements. Id. at 626, 105 S.Ct. at 3353 (quoting Dean Witter Reynolds v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985)). Courts are not to “distort the process of contract interpretation [ ] in order to ferret out the [controversies] inappropriate” for arbitration. Mitsubishi, 473 U.S. at 627, 105 S.Ct. at 3354.
This is particularly the case where, as here, “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.” Pearce, 828 F.2d at 829. Such arbitrators would be well-qualified to resolve Haviland’s dispute with J. Aron and the issues of responsibilities to clients, information exchanges in the energy futures and options markets, and the employment conditions imposed by J. Aron’s co-conspirator Goldman. I believe, therefore, that we should not strain, as the majority has done, to remove Haviland’s dispute from the purview of Rule 600(a).
For the reasons stated above, I respectfully dissent from the majority’s decision to affirm the district court.