Flanagan v. Prudential-Bache Securities, Inc.

• Decision Date: 10 June 1986
• Docket Number: PRUDENTIAL-BACHE
• Citation: 67 N.Y.2d 500,504 N.Y.S.2d 82,495 N.E.2d 345
• Parties: , 495 N.E.2d 345 Stephen P. FLANAGAN et al., Respondents, v.SECURITIES, INC., Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 82

504 N.Y.S.2d 82

67 N.Y.2d 500, 495 N.E.2d 345

Stephen P. FLANAGAN et al., Respondents, v. PRUDENTIAL-BACHE SECURITIES, INC., Appellant.

Court of Appeals of New York.

June 10, 1986.

Joel M. Miller and Martin D. Edel, New York City, for appellant.

Richard L. Abramson and Anthony J. Belkowski, New York City, for respondents.

OPINION OF THE COURT

MEYER, Judge.

The Federal Arbitration Act (9 U.S.C. §§ 1-14) requires an account executive whose contract of employment by a stock brokerage company provides for arbitration under the then prevailing constitution and rules of the New York Stock Exchange to arbitrate a claim for defamation, notwithstanding that the alleged defamatory statements were made after termination of the account executive's employment. The order of the Appellate Division should, therefore, be reversed, with costs, and defendant's motion to compel arbitration granted.

I

Plaintiffs are registered representatives with the New York Stock Exchange. Their employment by defendant Prudential-Bache began in February 1983 and was terminated on August 6, 1984 when they resigned their positions with defendant and together joined Rooney Pace Inc., another brokerage house. Prior to their employment by defendant they had been with Shearson American Express from May 1981 until January 1983, with Merrill Lynch from June 1980 until May 1981 and with Paine Webber for varying periods ending in June 1980. On the day of their resignations from Prudential-Bache, its resident manager addressed a letter to clients that had been serviced by plaintiffs reading in pertinent part, "Messrs. Bill Flanagan, Mitch Drucker and Steve Flanagan are on the road again. We regret if their frequent moves have caused you inconvenience," and stated Prudential-Bache's desire to continue to service the customer's account. On August 8, 1984, defendant's resident manager responded to the request of Rooney Pace's manager for information about plaintiffs' conduct while employed by defendant by stating, so plaintiffs' complaint alleges, that there were three lawsuits pending against them with respect to their professional conduct while employed at Shearson and two additional lawsuits pending with respect to their conduct while employed by defendant. The complaint alleges further that the latter statements were false and that the letter was intended "to portray and characterize plaintiffs as being drifters who were unreliable in the conduct of their business activities."

Plaintiffs having begun an action for defamation against Prudential-Bache, it moved by order to show cause for an order compelling arbitration and staying the action. Annexed to the moving affidavits were the employment agreements and uniform applications for securities industry registration executed by plaintiffs, as well as copies of provisions of the constitution and rules of the New York Stock Exchange referred to below. The employment agreements each provided that "[a]ny claim or controversy arising out of or respecting any matter contained in this Agreement * * * shall be settled by arbitration in New York City under the then prevailing Constitution and Rules of the New York Stock Exchange, Inc." and in the uniform application each of the plaintiffs agreed as a condition of consideration of his application (NYSE rule 345.16) to abide by the constitution and rules of the Exchange as from time to time amended. The applications also included plaintiffs' specific agreements "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 [New York Stock Exchange]." The constitution of the Exchange provides in article VIII, § 1 that "[a]ny controversy between parties who are members, allied members, member firms or member corporations and any controversy between a non-member and a member or allied member or member firm or member corporation arising out of the business of such member * * * shall at the instance of any such party, be submitted for arbitration, in accordance with the provisions of the Constitution and the Rules of the Board of Directors." Rule 347 of the Exchange rules requires that "[a]ny 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 instance of any such party, in accordance with the arbitration procedure prescribed elsewhere in these rules."

Notwithstanding plaintiffs' numerous agreements to arbitrate, Special Term, noting the division among the Federal Courts of Appeals on the question and deeming it inappropriate to bypass the dispositive Second Circuit opinion in Coudert v. Paine, Webber, Jackson & Curtis, 705 F.2d 78, denied the motion because "[p]laintiffs' connection with defendant had terminated when the alleged libels were published." On appeal to the Appellate Division, that court affirmed, without opinion (111 A.D.2d 601, 489 N.Y.S.2d 969).

The appeal is before us by our leave (66 N.Y.2d 604, 489 N.Y.S.2d 769). Plaintiffs argue that it should be dismissed for nonfinality ^* and on the merits that this court is bound to follow the Second Circuit opinion and that, in any event, the claimed defamatory statements did not come within the scope of plaintiffs' agreements to arbitrate. We disagree and, therefore, reverse and grant defendant's motion.

II

Although enforcement of the Federal Arbitration Act "is left in large part to the state courts," it "creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate" (Cone Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25, n. 32, 103 S.Ct. 927, 942, n. 32, 74 L.Ed.2d 765; Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth 473 U.S. ----, ----, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444) which is not dependent upon the forum in which the right to arbitration is asserted (Southland Corp. v. Keating, 465 U.S. 1, 12, 13, 104 S.Ct. 852, 859, 79 L.Ed.2d 1; GAF Corp. v. Werner, 66 N.Y.2d 97, 102, 495 N.Y.S.2d 312, 485 N.E.2d 977). In such a case we are bound to apply the statute as interpreted by Supreme Court decision or, absent such, in accordance with the rule established by lower Federal courts if they are in agreement (Alvez v. American Export Lines, 46 N.Y.2d 634, 639, 415 N.Y.S.2d 979, 389 N.E.2d 461, affd. 446 U.S. 274, 100 S.Ct. 1673, 64 L.Ed.2d 284).

When there is neither decision of the Supreme Court nor uniformity in the decisions of the lower Federal courts, however, a State court required to interpret the Federal statute has the same responsibility as the lower Federal courts and is not precluded from exercising its own judgment or bound to follow the decision of the Federal Circuit Court of Appeals within the territorial boundaries of which it sits (Alvez v. American Export Lines, supra; People ex rel. Ray v. Martin, 294 N.Y. 61, 73, 60 N.E.2d 541, affd 326 U.S. 496, 66 S.Ct. 307, 90 L.Ed. 261; New York R.T. Corp. v. City of New York, 275 N.Y. 258, 265, 9 N.E.2d 858, affd 303 U.S. 573, 58 S.Ct. 721, 82 L.Ed. 1024, reh. denied 304 U.S. 588, 58 S.Ct. 939, 82 L.Ed. 1548; Iowa Natl. Bank v. Stewart, 214 Iowa 1229, 232 N.W. 445; State v. Coleman, 46 N.J. 16, 214 A.2d 393; Merrill Lynch, Pierce, Fenner & Smith v. McCullum, 666 S.W.2d 604 [Tex.], writ refd. n.r.e., cert. denied 469 U.S. 1127, 105 S.Ct. 811, 83 L.Ed.2d 804, reh. denied 470 U.S. 1024, 105 S.Ct. 1384, 84 L.Ed.2d 403; United States ex rel. Lawrence v. Woods, 432 F.2d 1072, cert. denied 402 U.S. 983, 91 S.Ct. 1658, 29 L.Ed.2d 148; see, Note, 48 Colum.L.Rev. 943; Ann., 147 A.L.R. 857). Thus in the Alvez, Martin and New York R.T. cases while giving due respect to decisions of the Second Circuit we disagreed with its interpretation, in Alvez as to the rights accorded by maritime law; in Martin as to a Federal statute; and in New York R.T. as to a question of Federal constitutional law.

III

The Supreme Court has been emphatic concerning the "liberal federal policy favoring arbitration agreements" (Cone Hosp. v. Mercury Constr. Corp., 460 U.S., at p. 24, 103 S.Ct. at 941, supra) applicable in State as well as Federal courts (Southland Corp. v. Keating, 465 U.S., at pp. 12, 15, 104 S.Ct. at 859, 860, supra) and requiring that they "rigorously enforce agreements to arbitrate even if the result is 'piecemeal' litigation" (Dean Witter Reynolds v. Byrd, 470 U.S. ----, ----, 105 S.Ct. 1238, 1243, 84 L.Ed.2d 158). Questions of arbitrability are, therefore, to "be addressed with a healthy regard for the federal policy favoring arbitration" and "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration" (Cone Hosp. v. Mercury Constr. Corp., 460 U.S., at pp. 24-25, 103 S.Ct. at 941). "Thus, as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability" (Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S., at p. ----, 105 S.Ct., at p. 3354,supra).

It is against the background of those cases, all except the Cone Hosp. case decided since the Second Circuit's decision in Coudert, that we must evaluate the present case. The Coudert holding was that a defamation claim based upon alleged false statements about a registered representative made after her resignation by an officer of the brokerage firm that had employed her did not "arise out of" termination of employment within the meaning of rule 347 (supra), and, therefore, was not arbitrable. In so holding the court recognized that as to disputes relating to employment or a claim of wrongful termination of employment the arbitration provisions...