The opinion of the court was delivered by: CONSTANCE BAKER MOTLEY
In 1991, plaintiff O. Beirne Chisolm filed a lawsuit against defendants Kidder, Peabody Asset Management, Inc. ("KPAM") and Kidder, Peabody & Co., Inc. ("KP") in New York Supreme Court. See Chisolm v. Kidder, Peabody Asset Management, No. 33022/91 (N.Y. Sup. Ct.). In that action plaintiff alleged four New York state law claims. The first three, to wit, violation of Labor Law § 190 et seq., breach of contract and breach of implied contract, are based upon defendants' alleged wilful withholding of plaintiff's bonus for 1990 and the first two months of 1991. The fourth cause of action, to wit, age discrimination in violation of New York Executive Law § 296, is based upon various acts committed by defendants allegedly for the purpose of constructively discharging plaintiff which led to plaintiff's resignation and early retirement on February 27, 1991. On December 31, 1991, defendants in the state court action moved to stay that action and compel arbitration.
On January 31, 1992, plaintiff filed this action against the same two defendants, KPAM and KP, based on the same facts and issues. The only obvious difference in the suits is that plaintiff raises a federal claim here, alleging that defendants wilfully discriminated against plaintiff on the basis of age in violation the Age Discrimination in Employment Act, 29 U.S.C. §§ 623(a)(1) and 626(b) (1992). Plaintiff's federal complaint alleges that defendants engaged in a pattern and practice of forcing out older employees, including plaintiff, by engaging in harassing and demeaning acts with respect to plaintiff, including the refusal to pay plaintiff bonuses which he had earned for the years 1989, 1990 and 1991. Plaintiff also claims that defendants transferred most of plaintiff's responsibilities to younger employees.
Defendants filed a motion to stay and compel arbitration in this action on March 3, 1992. Plaintiff answered on April 17, 1992 and defendants replied on April 23, 1992. Argument on the motion was heard on May 13, 1992.
On May 14, 1992, this court learned that New York Supreme Court Justice Burton S. Sherman had issued an opinion in the parallel state case granting defendants' motion to stay and compel arbitration. See Chisolm v. Kidder, Peabody Asset Management, No. 33022/91 (N.Y. Sup. Ct., May 7, 1992) (attached hereto as an Appendix). Justice Sherman held that: (1) in November, 1989, when plaintiff filled out and signed a Uniform Application for Securities Industry Registration (the "U-4 Form"), plaintiff became subject to New York Stock Exchange (NYSE) Rules 347 and 600(a); (2) plaintiff was employed by both KP and KPAM and, consequently, is bound to arbitrate under NYSE Rule 347, since plaintiff's claims arise out of his employment or termination of employment; (3) arbitration of this dispute with KPAM is further mandated by NYSE Rule 600(a); and (4) plaintiff's U-4 Form was a contract with securities exchanges,
not a contract for employment; therefore, the Federal Arbitration Act's § 1 exemption for contracts for employment does not prohibit arbitration of plaintiff's claims. Finally, Justice Sherman ordered that plaintiff's claim for punitive damages was separable and would be handled after the arbitration.
Motion to Stay and Compel Arbitration
Therefore, for the reasons explained by Justice Sherman in the attached opinion, this court holds that: (1) in November, 1989, when plaintiff filled out and signed a Uniform Application for Securities Industry Registration (the "U-4 Form"), plaintiff became subject to New York Stock Exchange (NYSE) Rules 347 and 600(a); (2) plaintiff was employed by both KP and KPAM and, consequently, is bound to arbitrate under NYSE Rule 347, since plaintiff's claims arise out of his employment or termination of employment; (3) arbitration of this dispute with KPAM is further mandated by NYSE Rule 600(a); and (4) plaintiff's U-4 Form was a contract with securities exchanges, not a contract for employment; therefore, the Federal Arbitration Act's § 1 exemption for contracts for employment does not prohibit arbitration of plaintiff's claims.
One issue raised in this case that was not raised in the state court action is defendants' request for sanctions against plaintiff's counsel pursuant to Rule 11 of the Federal Rules of Civil Procedure and 28 U.S.C. § 1927 (1992). Rule 11 provides in pertinent part:
The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper; that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law . . . . If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it . . . an appropriate sanction . . . .
Fed.R.Civ.P. 11. In its reply papers, defendants argue that plaintiff's counsel could not possibly believe that their arguments in opposition to defendants' motions are well grounded in fact or warranted by existing law. While it is true that Rule 11 sanctions "must be awarded when a competent attorney could not have formed a belief after reasonable inquiry" that the arguments were warranted, Norris v. Grosvenor Mktg., 803 F.2d 1281, 1288 (2d Cir. 1986) (emphasis in original), it is also true that "to constitute a frivolous legal position for purposes of Rule 11 sanction, it must be clear under existing precedents that there is no chance of success and no reasonable argument to extend, modify or reverse the law as it stands." Mareno v. Rowe, 910 F.2d 1043, 1047 (2d Cir. 1990), cert. denied, 498 U.S. 1028, 111 S. Ct. 681, 112 L. Ed. 2d 673 (1991). Furthermore, a showing of bad faith is not required; rather, the standard is objective, focusing on what a reasonably competent attorney would believe. Greenberg v. Hilton Int'l, 870 F.2d 926, 934 (2d Cir. 1989). Additionally, courts deciding whether to award Rule 11 sanctions should resolve all doubts in favor of the signer. Cross & Cross Properties v. Everett Allied Co., 886 F.2d 497, 504 (2d Cir. 1989).
In this case sanctions are not appropriate. While the court did not agree with plaintiff's argument on the merits of this case, the court cannot find that plaintiff's argument was groundless. Since defendant brought the motion, defendant had the burden of proving that plaintiff was employed by both KP and KPAM in order to invoke NYSE Rule 347. It was not improper for plaintiff to allege otherwise and force defendants to satisfy their burden. Additionally, plaintiff's argument that NYSE Rule 600(a)'s exchange-relatedness requirement was not satisfied in this case required the court to interpret the breadth of the requirement. The court accepted defendants' broader reading, but cannot find that plaintiff's narrower interpretation was objectively unreasonable. Finally, plaintiff had authority for asserting that his U-4 Form was a contract for employment. The court agreed with the holdings of the countervailing authority cited by defendant, but in doing so cannot find that plaintiff's argument was groundless. Therefore, the court denies defendants' request for the imposition of Rule 11 sanctions against plaintiff's counsel.
Defendants also argue that sanctions are appropriate under 28 U.S.C. § 1927 (1992). That statute provides that
Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.
28 U.S.C. § 1927 (1992). Unlike the "objectively unreasonable" test under Rule 11, sanctions under this statute "are properly imposed only upon a 'clear showing of bad faith' on the attorney's part." McMahon v. Shearson/American Express, 896 F.2d 17, 23 (2d Cir. 1990) (quoting Kamen v. American Tel. & Tel., 791 F.2d 1006, 1010 (2d Cir. 1986) (quoting State of West Virginia v. Chas. Pfizer & Co., 440 F.2d 1079, 1092 (2d Cir.), cert. denied, 404 U.S. 871, 92 S. Ct. 81, 30 L. Ed. 2d 115 (1971))). Since the court has already found that the actions of plaintiff's counsel do not warrant Rule 11 sanctions, the court finds no basis for imposing sanctions under the more burdensome bad faith standard required by this statute.
Finally, in a letter to this court dated April 24, 1992 in which plaintiff responds to defendants' request for sanctions, plaintiff submits that not only are sanctions inappropriate, but that plaintiff should not bear the expense of responding to such accusations. Plaintiff therefore requests "that the Court direct defendants' counsel to pay to the plaintiff a sum reflecting the value of the time spent in preparing this letter, based on our usual hourly rates." Plaintiff cites no authority for this request for costs and/or attorney's fees. ...