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HAVILAND v. GOLDMAN

May 8, 1990

LEO HAVILAND, PLAINTIFF,
v.
GOLDMAN, SACHS & CO. AND J. ARON & CO., DEFENDANTS.



The opinion of the court was delivered by: Sand, District Judge.

OPINION

Plaintiff Leo Haviland brings suit against his former employer Goldman, Sachs & Co. ("Goldman") and its affiliate J. Aron & Co. ("Aron") alleging injury caused by a pattern of racketeering activity that included mail fraud, wire fraud and attempted extortion. The defendants now seek an order pursuant to section 3 of the Federal Arbitration Act, 9 U.S.C. § 3, staying these judicial proceedings pending the completion of arbitration. We grant the motion to stay the claims asserted against defendant Goldman and deny the motion to stay the claims asserted against defendant Aron.

BACKGROUND

Leo Haviland joined Goldman in 1979 and worked as a vice president in Goldman's Energy Futures and Options Group during the relevant time period and until his termination in February 1989. Haviland earned commissions for Goldman by trading energy futures and options on energy futures on behalf of large refining and marketing firms, energy producers, and oil trading companies. These trades were executed predominantly on the International Petroleum Exchange in London; none of these trades were executed on the New York Stock Exchange ("NYSE").

Haviland's claims involve the alleged conflicting interests of Goldman's Energy Futures and Options Group and defendant Aron, a partnership consisting of all Goldman partners. In 1984, Aron began trading as a principal in the energy futures, options, forwards and physical delivery markets. Haviland alleges that the confidential information he acquired from his clients about their future trading plans was tremendously valuable to Aron. For example, if Aron knew that one of Haviland's clients intended to purchase a substantial amount of oil, Aron could attempt to enter the market in advance of Haviland's client and profit from that information.

Haviland asserts that from April, 1984 to Spring, 1987, Goldman made explicit, but false, promises that it would erect a "Chinese Wall" so that Aron would not obtain any confidential customer information from Haviland's group. Then, from July, 1987 to January, 1989, both Goldman and Aron allegedly attempted to extort Haviland into divulging confidential client information to Aron. Haviland claims that he was denied appropriate salary increases and eventually summarily dismissed because he refused to divulge the requested information. In his complaint, Haviland asserts claims against both Goldman and Aron for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), (d), and common law fraud.

The parties do not dispute that in September 1981, Haviland executed a Form U-4, captioned "Uniform Application for Securities Industry Registration" ("U-4"). Paragraph 5 on page 4 of the U-4 states:

  I agree to arbitrate any dispute, claim or
  controversy that may arise between me and my
  firm, or a customer, or any other person, that is
  required to be arbitrated under the rules,
  constitutions, or by-laws of the organizations
  with which I register, as indicated in Question
  8.

Affidavit of Robert J. Katz, Exhibit A. In response to Question 8, Haviland applied for registration with the NYSE, the American Stock Exchange and the National Association of Securities Dealers.

The parties also do not dispute that Haviland is a registered representative of the NYSE, that defendant Goldman is a member organization of the NYSE and that defendant Aron is not a member. Different NYSE rules apply to controversies involving member organizations of the NYSE and to controversies involving non-members. NYSE Arbitration Rule 347, which might apply to Haviland's claims against Goldman, states:

  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, at the insistence of any such party,
  in accordance with the arbitration procedure
  prescribed elsewhere in these rules.

2 N.Y.S.E. Guide (CCH) ¶ 2347 (Sept. 1988) (emphasis added). NYSE Rule 600(a), which might apply to Haviland's claims against Aron, states:

  Any dispute, claim or controversy between a
  customer or non-member and a member, allied member,
  member organization and/or associated person
  arising in connection with the business of such
  member, allied member, member organization and/or
  associated person in connection with his activities
  as an associated person shall be arbitrated under
  the Constitution and Rules of the [NYSE] as
  provided by any duly executed and enforceable
  written agreement or upon the demand of the
  customer or non-member.

2 N.Y.S.E. Guide (CCH) ¶ 2600 (May 1988) (emphasis added). Haviland is clearly an associated person within the meaning of Rule 600(a). See Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047, 1054 (2d Cir. 1989) (citing the definition in the Securities Exchange Act of 1934); 15 U.S.C. ยง 78c(a)(18), 78c(a)(21) (1982) ...


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