Marcus v. Masucci

• Decision Date: 31 October 2000
• Docket Number: No. 00 Civ. 3519(RWS).,00 Civ. 3519(RWS).
• Citation: 118 F.Supp.2d 453
• Parties: Steven MARCUS, Plaintiff, v. Samuel MASUCCI and Bear, Stearns & Co., Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

118 F.Supp.2d 453

Steven MARCUS, Plaintiff, v. Samuel MASUCCI and Bear, Stearns & Co., Inc., Defendants.

No. 00 Civ. 3519(RWS).

United States District Court, S.D. New York.

October 31, 2000.

Kelly Murray & Balber, New York City, by Scott S. Balber, Michael T. Murray, of counsel, for plaintiff.

Smith Campbell, New York City, by David S. Smith, of counsel, for defendant Samuel Masucci.

Andrews & Kurth, New York City, by Arthur D. Felsenfeld, Melissa Baal, of counsel, for defendant Bear, Stearns & Co., Inc.

OPINION

SWEET, District Judge.

Defendants Samuel Masucci ("Masucci") and Bear Stearns & Co., Inc. ("Bear Stearns") (collectively, the "Defendants") have moved to compel plaintiff Steven Marcus ("Marcus") to arbitrate this dispute and dismissing or, alternatively, staying this action pending arbitration pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., and the By-laws of the National Association of Securities Dealers Inc. ("NASD"). For the reasons set forth below, the motion will be granted, arbitration is compelled, and this action is dismissed with leave granted to reopen if necessary upon completion of the arbitration.

The Parties

Marcus is employed by Chase Securities, Inc. ("Chase Securities").

Bear Stearns is a registered broker-dealer of securities.

Masucci is employed by Bear Stearns as a Managing Director.

Prior Proceedings

This action was commenced on May 8, 2000 by Marcus by the filing of a complaint alleging fifteen causes of action against the Defendants arising out of their use of an investment product called Shared Application Mortgage Securities ("SAMS"), including misappropriation of trade secrets, unfair competition, and unjust enrichment. Marcus seeks damages, the imposition of a construction trust and an accounting.

The instant motion was filed on July 10, 2000, and submissions were received through August 12, 2000, at which time the matter was deemed fully submitted.

Facts

For the purposes of a motion to dismiss, the factual allegations of the complaint are taken as true, though it is appropriate when considering jurisdictional issues to consider matters outside the parameters of the pleadings. See Cargill Intern. S.A. v. M/T PAVEL DYBENKO, 991 F.2d 1012, 1019 (2d Cir.1993); Kamen v. A.T. & T. Co., 791 F.2d 1006, 1011 (2d Cir.1986); Exchange Nat. Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1130-31 (2d Cir.1976), modified on other grounds by Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930 (2d Cir.1984).

According to the complaint, Marcus and Masucci were previously employed at SBC Warburg Pincus Dillon Read ("Warbury Pincus") where they worked on the development of SAMS. Warburg Pincus abandoned the project in October 1998, terminated Marcus and Masucci, and granted them a release concerning the SAMS materials. According to Marcus, he and Masucci then formed a joint venture to develop and promote SAMS.

The complaint further alleges that from November 1998 until March 1999, Marcus and Masucci sought to interest investment firms in the project. Bear Stearns was one of these firms. Bear Stearns negotiated with both Masucci and Marcus. In April 1999, Bear Stearns hired Masucci as a managing director. Marcus was not hired and remained unemployed until April 10, 2000, when he was hired by Chase Securities.

The complaint further alleges that Masucci, in collaboration with Bear Stearns, has inter alia misappropriated SAMS and is currently exploiting this product, that Bear Stearns is on the verge of bringing SAMS to the marketplace, that Masucci is currently assisting Bear Stearns in the development and marketing of SAMS, that the Defendants are using misappropriated trade secrets to develops SAMS products in violation of fiduciary and contractual duties to Marcus, and that the Defendants have engaged in unfair competition.

Chase Securities is a member of the NASD and Marcus is a NASD-registered employee of Chase Securities. The Defendants allege without contradiction by Marcus that in order to become a registered employee of Chase Securities, Marcus would have been required to sign a "Form U-4 Uniform Application For Securities Industry Registration or Transfer" ("Form U-4"). Form U-4 provides that the registered employee agrees:

to arbitrate any dispute, claim or controversy that may arise between [the employee and his] firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organizations indicated in item 10.

Item 10 of Form U-4 lists the NASD among the covered organizations.

Discussion

I. The Standard Governing A Motion To Compel Arbitration

A valid arbitration agreement is governed by the FAA, 9 U.S.C. § 1 et seq., which establishes a "federal policy favoring arbitration." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). This policy requires that courts "rigorously enforce agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); see also Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987); McDonnell Douglas Fin. Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 830 (2d Cir.1988); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). The question of arbitrability is two-fold: (1) whether there is an enforceable agreement to arbitrate and, if so, (2) whether the scope of that agreement encompasses the claims. See David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 249 (2d Cir.1991) (citations omitted).

In making such determinations, a court is to employ ordinary contract principles, see Conway v. Icahn & Co., 787 F.Supp. 340, 344 (S.D.N.Y.1990); Kyung Sup Ahn v. Rooney, Pace Inc., 624 F.Supp. 368, 369 (S.D.N.Y.1985), and "as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability," Mitsubishi Motors, 473 U.S. at 626, 105 S.Ct. 3346. There is a strong federal policy to construe arbitration clauses broadly. See Threlkeld, 923 F.2d at 250-51; S.A. Mineracao da Trindade-Samitri v. Utah International, Inc., 745 F.2d 190, 194 (2d Cir.1984); AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (citations omitted).

II. The Motion To Compel Arbitration Will Be Granted

A. There is an Enforceable Agreement to Arbitrate

The NASD By-laws provide the basis for an agreement binding Marcus to arbitrate before an NASD tribunal. Article VII, Section 1(a)(iv) of the By-laws states that "the Board shall have the authority to ... prescribe rules for the required or voluntary arbitration of controversies between members and between members and customers or others as it shall deem necessary or appropriate." Rule 10101 of the NASD Code of Arbitration Procedure ("NASD Code"), adopted pursuant to the foregoing By-laws provision, states:

Matters Eligible for Submission. This Code of Arbitration Procedure is prescribed and adopted pursuant to Article VII, Section 1(a)(iv) of the By-Laws of the Association for the arbitration of any dispute, claim, or controversy arising out of or in connection with the business of any member of the Association, or arising out of the employment or termination of employment of associated person(s) with any member, with the exception of disputes involving the insurance business of any member which is also an insurance company:

(a) between or among members;

(b) between or among members and associated persons;

(c) between or among members or associated persons and public customers, or others; and

(d) between or among members, registered clearing agencies with which the Association has entered in an agreement....

In addition, NASD Code Rule 10201(a) covering "Required Submissions" provides in relevant part that:

a dispute, claim, or controversy eligible for submission under the Rule 10100 Series between or among members and/or associated persons, and/or certain others, arising in connection with the business of such member(s) or in connection with the activities of such associated person(s), or arising out of the employment or termination or employment of such associated person(s) with such members, shall be arbitrated under this Code at the instance of:

(1) a member against another members;

(2) a member against a person associated with a member or a person associated with a member against a member; and

(3) a person associated with a member against a person associated with a member....

The NASD By-Laws define a "member" as "any broker or dealer admitted to membership in the NASD." NASD By-Laws, Art I(q). The By-Laws define a "person associated with a member" or an "associated person of a member" as:

(1) a natural person registered under the Rules of the Association; or (2) a sole proprietor, partner, officer, director, or branch manager of any member, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by such member whether or not any such person is registered or exempt from registration with the NASD under these By-Laws or the Rules of the Association.

NASD By-Laws, Art. I(ee).

Bear Stearns is a member of the NASD. Masucci, as a Managing Director and securities professional employed by Bear Stearns, is an "associated person." Cular v. Metropolitan Life Ins. Co., 961 F.Supp. 550, 556 (S.D.N.Y.1997) (employees of NASD-member firms are "associated persons" under NASD Rules); American Express Fin. Advisors, Inc. v. Zito, 45 F.Supp.2d 230, 233 (E.D.N.Y.1999) (former employee of NASD-member firm was associated person under NASD rules)....