Coenen v. RW Pressprich & Co.

• Citation: 453 F.2d 1209
• Decision Date: 12 January 1972
• Docket Number: Docket 71-1714.,No. 153,153
• Parties: Dale S. COENEN, Plaintiff-Appellant, v. R. W. PRESSPRICH & CO., Inc., Defendant-Appellee, and Stirling Homex Corporation, Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

453 F.2d 1209 (1972)

Dale S. COENEN, Plaintiff-Appellant, v. R. W. PRESSPRICH & CO., Inc., Defendant-Appellee, and Stirling Homex Corporation, Defendant.

No. 153, Docket 71-1714.

United States Court of Appeals, Second Circuit.

Submitted October 20, 1971.

Decided January 12, 1972.

Royall, Koegel & Wells, New York City (David F. Dobbins and Thomas W. Towell, Jr., New York City, on the brief), for plaintiff-appellant.

Winthrop, Stimson, Putnam & Roberts, New York City (Stephen A. Weiner and Arnold S. Anderson, New York City, on the brief), for defendant-appellee.

Before MEDINA, MANSFIELD and MULLIGAN, Circuit Judges.

MEDINA, Circuit Judge:

The question raised by this appeal is the applicability of the arbitration clause contained in the New York Stock Exchange Constitution to a claim which: (1) arose before the plaintiff joined the Stock Exchange; (2) alleges violation of the Securities Exchange Act of 1934; and (3) alleges violation of the Sherman and Clayton Acts. For the reasons that follow we hold that such a claim is subject to arbitration.

In 1968, while a director of Stirling Homex Corporation, Dale S. Coenen purchased 90,000 shares of Stirling Homex stock for investment purposes. The stock certificates bore the standard restriction against transfer unless the shares were registered, or unless Stirling was furnished with an opinion of counsel satisfactory to Stirling, to the effect that such registration was not required. In the Spring of 1970 Coenen, needing capital, desired to sell a substantial portion of the 90,000 shares. He contacted R. W. Pressprich & Co. and asked them to handle the sale of the shares. The sale took place on September 25, 1970.

In November, 1970, Coenen & Co., a brokerage house of which Coenen is an officer, applied for membership in the New York Stock Exchange. The application was approved and Coenen & Co. became a member of the Exchange on December 31, 1970. As an officer, Coenen automatically became an allied member.

On January 6, 1971 Coenen's counsel sent Pressprich a copy of a complaint that Coenen was going to file against Pressprich and Stirling, and asked if there was any chance of settlement. The complaint alleged that Pressprich and Stirling conspired to force Coenen into selling the Stirling stock at an unconscionably low price by refusing to allow the transfer of the shares free of the restrictive legend until the low price was agreed upon. Coenen's complaint asserted three causes of action: one arising under the common law and the Uniform Commercial Code; another arising under the Securities Exchange Act of 1934; and the third arising under the Sherman and Clayton Acts.

On February 16, 1971, Pressprich demanded, in writing, that the controversy be submitted to arbitration in accordance with the Constitution of the New York Stock Exchange. Coenen replied by commencing the present action, in the United States District Court for the Southern District of New York, on February 18, 1971. Pressprich moved to stay the action, pending arbitration, on March 19, 1971. The motion was granted by Judge Metzner, ruling that by agreeing to abide by the Rules and Constitution of the Stock Exchange, Coenen agreed to submit "any controversy" with a member firm to arbitration, and that this controversy is a proper one for arbitration. Reported in 329 F.Supp. 1296 (S.D.N.Y.1971). For the reasons that follow, we agree with this conclusion.

I

Coenen Agreed to Arbitrate

A

We turn our attention first to the question of whether Coenen agreed to arbitrate. This issue is governed by federal law by virtue of the Arbitration Act, Title 9 of the United States Code.

Section 2 of the Act, 9 U.S.C. Section 2 (1970), makes enforceable all arbitration agreements concerning transactions relating to commerce. Section 3 of the Act, 9 U.S.C. Section 3 (1970), authorizes a Federal District Court to stay proceedings pending arbitration when there is an arbitration agreement that is validated by Section 2. The sale of securities here constitutes a transaction relating to commerce for the purposes of the Arbitration Act. Once a dispute is covered by the Act, federal law applies to all questions of interpretation, construction, validity, revocability, and enforceability. Robert Lawrence Company v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir.1959), cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, dismissed under Rule 60, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960).

Article VIII, Section 1 of the New York Stock Exchange Constitution provides:

Any controversy between parties who are members, allied members, member firms or member corporations shall, at the instance of any such party, and any controversy between a nonmember and a member or allied member or member firm or member corporation arising out of the business of such member, allied member, member firm or member corporation, * * * shall, at the instance of such nonmember, be submitted for arbitration, in accordance with the provisions of the Constitution and the rules of the Board of Governors.

An examination of the applicable federal law on the subject convinces us that Coenen is bound by these terms.

The constitution and rules of a stock exchange constitute a contract between all members of the exchange with each other and with the exchange itself * * *.

Since the rules of the Exchange "constitute a contract between the members, the arbitration provisions which they embody have contractual validity." * * * The Exchange provisions requiring arbitration constitute an agreement to arbitrate which is binding upon both parties.

Brown v. Gilligan, Will & Co., 287 F. Supp. 766, 769-770 (S.D.N.Y.1968). See also Axelrod & Co. v. Kordich, Victor & Neufeld, 451 F.2d 838 (2d Cir. 1971).

Coenen, moreover, signed a pledge, in his application for membership, that he would "abide by the Constitution of the Exchange as the same has been or shall be from time to time amended, and by all rules adopted pursuant to the Constitution * * *." Accordingly, we have no doubt that Coenen agreed to arbitrate.

In thus agreeing to arbitrate "any controversy between * * * members * * *," did Coenen agree to arbitrate the present dispute with Pressprich?

"The issue of arbitrability, i.e., whether a particular dispute is covered by an arbitration clause, being a question of `interpretation and construction,'" is governed by federal law. Metro Industrial Painting Corp. v. Terminal Construction Co., 287 F.2d 382, 385 (2d Cir.1961). In deciding the question of arbitrability, the "federal policy is to construe liberally arbitration clauses, to find that they cover disputes reasonably contemplated by this language, and to resolve doubts in favor of arbitration * * *." Metro Industrial Painting Corp. v. Terminal Construction Co., supra, 287 F.2d 382, 385 (2d Cir.1961). With this liberal federal policy in mind, we turn to an examination of the clause at issue in this case.

The drafters of the New York Stock Exchange arbitration clause intended it to be very broad. This is evident when it is compared to the Stock Exchange provision governing the arbitration of disputes between a member and a non-member, which must arise out of the business of the member. The purpose behind the drafting of such a broad arbitration clause was, as much as possible, to keep disputes between members out of the courts. This policy is entirely consistent with the congressional grant of power to Stock Exchanges to govern themselves, contained in the Securities Exchange Act of 1934. See Axelrod & Co. v. Kordich, Victor & Neufeld, supra, 451 F.2d at 840 (2d Cir. 1971); Brown v. Gilligan, Will & Co., supra, 287 F.Supp. 766, 773 (S.D. N.Y.1968). To hold that the present dispute is not arbitrable would frustrate this policy by making two Stock Exchange members settle their dispute in court. In fact, we see no substantial difference between this case and the countless others where parties have agreed to arbitrate an existing controversy. Coenen agreed to arbitrate "any controversy between * * * members * * *," with full knowledge that he had a claim against Pressprich and that Pressprich was a Stock Exchange member.

One desiring the benefits of membership in the New York Stock Exchange must be willing to live up to the responsibilities of such membership.

B

Coenen's argument that the New York Stock Exchange arbitration clause only applies to "future" disputes that arise after both parties have become members of the Exchange need not detain us long. As an implementation of the statutory policy of self-regulation, we think the clause is clear on its face. It reads "any controversy" between members. And that is precisely what it must mean if controversies between members are to be kept out of the courts. Had those who drafted the clause intended otherwise they doubtless would have used language plainly stating that "any future controversy" or any controversy between members "arising after both parties to the dispute have become" members. Moreover, the two clauses referring to disputes between members and disputes between members and non-members must be read together. In the one clause the reference is to "any controversy," and in the other the reference is to any controversy "arising out of the business of such member." The purpose of each clause is to keep "any controversy" between members and any controversy "between members and non-members * * * arising out of the business of such member" out of the courts. This purpose would be frustrated and in effect nullified if we were to construe such clause as applicable only to "future" disputes.

II The Section 10(b) Claim

Coenen also contends that because one of his claims for relief is based upon an alleged violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78j (b) (1970), the claim is not arbitrable. To support this assertion, he relies upon Section 29(a) of the 1934 Act, 15 U.S.C. Section 78cc(a) (19...