New York Stock Exchange Rule 347, requiring arbitration of disputes between a registered representative and her brokerage firm, does not apply to representative's claims of tortious conduct by the firm occurring after the termination of representative's employment.
Oakes, Pratt, and Weis,*fn* Circuit Judges. Weis, Circuit Judge, dissenting.
This case involves the question whether a stock exchange rule requiring arbitration of disputes between a registered representative and her brokerage firm applies to her claims of tortious conduct on the part of the broker occurring after the termination of employment. The United States District Court, 543 F. Supp. 122, for the District of Connecticut, Robert C. Zampano, Judge, held that the rule applied and arbitration was required, as a matter of law, thereby dismissing Cheryl Coudert's complaint stating three claims against the defendant -- defamation, invasion of privacy by placing plaintiff in a false light, and intentional infliction of emotional distress -- for allegedly false statements made after she resigned from the firm. We reverse.
According to the plaintiff's complaint, she was employed by Paine Webber Jackson & Curtis (Paine Webber) as an account executive for eleven years, during which she established a clientele and good reputation as an investment advisor in the Fairfield, Connecticut, area. But in July 1981, after advising her office manager that she was unhappy with the lack of support given to representatives in her office, and, receiving no satisfaction or assurances, she sought and received an offer from Bache, Halsey, Stuart, Shields, Inc. to become a vice president at its Darien, Connecticut, office. On August 24, 1981, a Monday, she went to Paine Webber's Fairfield office to resign and discovered that the office manager had removed certain things from her desk during the preceding weekend. He asked her if she intended to change firms and upon her affirmative response, in which she stated that her resignation was to be effective immediately, he replied, "No, I am going to terminate you as of [the preceding] Friday" (August 21, 1981). The plaintiff's complaint goes on to allege that the office manager later told her former co-workers that she had been fired and had not resigned, told brokers at Paine Webber's Stamford office the same thing, suggested to her clients who called Paine Webber that "he had to do it," and intimated that she had left Paine Webber under clouded circumstances. Coudert further alleged that despite assurances by a senior vice president of Paine Webber that her permanent record would accurately reflect her voluntary resignation, the office manager nevertheless filed or caused to be filed termination forms with the Securities and Exchange Commission, the New York Stock Exchange and other exchanges, the National Association of Securities Dealers and various state securities departments that falsely stated that she was fired for cause.*fn1 The fact that these statements are alleged to be false and malicious and to have been made with reckless disregard of the truth gave rise to her defamation action. The statements are also said to have placed her in a false light before her customers and her professional colleagues by falsely portraying her as unfit to continue as an investment adviser, giving rise to the second cause of action. And making the same communications to the investment community, including Coudert's professional colleagues and clients, is said to have been "extreme" and "outrageous" and to have been intended to cause and in fact did cause her severe emotional distress.
In response to the complaint Paine Webber filed a motion to stay the action pending arbitration under Rules 345, 347 and 481 of the New York Stock Exchange (NYSE), as well as a copy of the exchange letter approving Coudert for employment. The letter incorporates the rules of the exchange by reference and, perhaps, constitutes an employment contract. Principally, Paine Webber argues that NYSE Rule 347 is applicable to Coudert's claims. It states that:
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 shall be settled by arbitration. . . .
Plainly a controversy between a registered representative and a member organization exists here. The district court held that even though this suit is based on a series of acts allegedly committed by Paine Webber subsequent to Coudert's resignation, the controversy nevertheless arose "out of the employment or termination of employment" of Coudert. The court took the view that the underlying factual issues concern the plaintiff's professional competence and the reasons for her disassociation from Paine Webber, and treated this as falling under the arbitration clause, citing O'Neel v. National Association of Securities Dealers, Inc., 667 F.2d 804, 806 (9th Cir. 1982); Muh v. Newburger, Loeb & Co., 540 F.2d 970, 972-73 (9th Cir. 1976); Isaacson v. Hayden, Stone Inc., 319 F. Supp. 929, 930 (S.D.N.Y. 1970).
We start with some propositions that are so basic as to amount to truisms in the present state of the law. They are mentioned in this opinion only to demonstrate that they have not been overlooked. First, arbitration agreements are favored in the law and are to be broadly construed. An order to arbitrate should not be denied unless it can be said that the arbitration clause is not susceptible of a reasonable interpretation covering the asserted dispute. In short, doubts should be resolved in favor of coverage. United Steelworkers of America v. Warrior & Gulf Navigation, 363 U.S. 574, 582-83, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960). Second, the securities industry is to some extent unique because self-regulation by registered exchanges is based upon statute. 15 U.S.C. §§ 78f, 78s. Compare Silver v. New York Stock Exchange, 373 U.S. 341, 349-57, 10 L. Ed. 2d 389, 83 S. Ct. 1246 (1963) (exchange self-regulation designed to curb securities abuses), with Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 135-36, 38 L. Ed. 2d 348, 94 S. Ct. 383 (1973) (state law not preempted when Rule 347(b) arbitration does not promote self-policing of securities abuses by exchanges). As we held in Coenen v. R.W. Pressprich & Co., 453 F.2d 1209, 1211 (2d Cir.), cert. denied, 406 U.S. 949, 32 L. Ed. 2d 337, 92 S. Ct. 2045 (1972), since the constitution and rules of the stock exchange constitute a contract between the members of the exchange with each other and with the exchange, the arbitration provisions included in those rules have "contractual validity," constituting an agreement to arbitrate binding at least on the attorning parties. Compare Laupheimer v. McDonnell & Co., 500 F.2d 21, 25 (2d Cir. 1974) (distinguishing Coenen where dispute with employer a result of employer's fraud). Here there is no question but that Coudert, in applying to the exchange to become a registered representative, was familiar with the rules requiring arbitration and assented to them. The cases are clear that as to disputes relating to employment, the arbitration provisions survive employment termination even by way of resignation. O'Neel v. National Association of Securities Dealers, Inc., 667 F.2d at 806-07; Muh v. Newburger, Loeb & Co., 540 F.2d at 973. Moreover, they survive a claim of wrongful termination, so that arbitration of a claim of wrongful termination must be had. See, e.g., Drayer v. Krasner, 572 F.2d 348 (2d Cir.) cert. denied, 436 U.S. 948, 56 L. Ed. 2d 791, 98 S. Ct. 2855 (1978).
On the other hand, a party cannot be required to submit to arbitration any disputes which he has not agreed to submit. United Steelworkers, 363 U.S. at 582. NYSE Rule 347 was "primarily designed" to cover disputes regarding the rights and duties of registered representatives and exchange members as employers and employees. Ayres v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 538 F.2d 532, 535 (3d Cir.), cert. denied, 429 U.S. 1010, 50 L. Ed. 2d 619, 97 S. Ct. 542 (1976). Thus NYSE Rule 347 does not apply to require arbitration of a dispute arising out of the sale of the broker's own common stock to the employee. Id. Similarly, following voluntary termination of employment an issue whether the registered representative forfeited profit sharing benefits under the broker's profit sharing plan, turning on a California statute giving wage earners a right of action, was held not arbitrable. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. at 134-136. And it is the general law of this circuit that there is no duty to arbitrate a grievance arising after the termination of the agreement between the parties, even if the expired agreement included an arbitration clause. Korody Marine Corp. v. Minerals & Chemicals Philipp Corp., 300 F.2d 124, 125 (2d Cir. 1962) (per curiam). Thus only grievances based on conditions arising " during the term of the agreement to arbitrate " are arbitrable after the term has ended. Procter & Gamble Independent Union of Port Ivory v. Procter & Gamble Manufacturing Co., 312 F.2d 181, 186 (2d Cir. 1962) (emphasis in original), cert. denied, 374 U.S. 830, 83 S. Ct. 1872, 10 L. Ed. 2d 1053 (1963).
In the present state of the record we must look to the complaint to determine whether this dispute pertains either to employment or termination, or whether it simply alleges tortious conduct arising after termination. The complaint plainly alleges that Coudert had voluntarily resigned before the alleged false statements were made to co-workers, customers, and various securities exchanges and organizations, and it is a short road from here to the conclusion that this controversy is not controlled by an arbitration clause that governs only employment or termination. Paine Webber would have us hold that as a matter of law the present claims "aris[e] out of" the termination of employment of the plaintiff. Certainly they concern such termination in the limited sense that each of the three grounds for relief stated by Coudert in her complaint rests on statements suggesting that she was discharged for cause rather than that she resigned.
But this is not what NYSE Rule 347 addresses either under the case law we have above cited or under its precise language, "arising out of termination." She is not claiming that she was wrongfully terminated as the plaintiff did in Drayer v. Krasner, supra. She is not seeking employment benefits accruing because of her employment, which are arbitrable even after resignation. E.g., Muh v. Newburger, Loeb & Co., supra; O'Neel v. National Association of Security Dealers, Inc., supra. Rather, the dispute itself does not pertain to employment or termination of employment; the tortious acts are all claimed to have occurred after such termination. The claim here made is similar in principle to that in Old Dutch Farms, Inc. v. Milk Drivers & Dairy Employees Local Union No. 584, 359 F.2d 598 (2d Cir. 1966), where the court held that an employer was not precluded by the arbitration clause of a collective bargaining agreement from asserting claims against a union for tort damages based on alleged unlawful secondary activity of the union. It is also similar to the ...