Fleck v. E.F. Hutton Group, Inc., 1373

• Decision Date: 14 December 1989
• Docket Number: D,No. 1373,1373
• Citation: 891 F.2d 1047
• Parties: Aaron FLECK, Plaintiff-Appellee, v. E.F. HUTTON GROUP, INC., and E.F. Hutton & Co., Inc., Defendants-Appellants. ocket 89-7435.
• Court: U.S. Court of Appeals — Second Circuit

Page 1047

891 F.2d 1047

58 USLW 2388

Aaron FLECK, Plaintiff-Appellee, v. E.F. HUTTON GROUP, INC., and E.F. Hutton & Co., Inc. Defendants-Appellants.

No. 1373, Docket 89-7435.

United States Court of Appeals Second Circuit.

Argued June 12, 1989.

Decided Dec. 14, 1989.

Jeffrey L. Friedman, Shearson Lehman Hutton Inc., New York City (Theodore A. Krebsbach, of counsel), for appellants.

David F. Dobbins, Patterson, Belknap, Webb & Tyler, New York City (Harman A. Grossman, of counsel), for appellee.

William J. Fitzpatrick & Gerard J. Quinn submitted a brief for amicus Securities Industry Assn.

Before OAKES, Chief Judge, and VAN GRAAFEILAND and PRATT, Circuit Judges.

OAKES, Chief Judge:

The defendants here, whom we will collectively call "Hutton," are both subsidiaries of Shearson Lehman Hutton, Inc. They appeal an order of the United States District Court for the Southern District of New York, Vincent L. Broderick, Judge, denying a motion to compel arbitration of the claims made in this suit. Plaintiff Aaron Fleck, who was employed by Hutton for twelve years, resigned or was discharged from his position in January of 1987. His suit claims that Hutton committed various torts against him after he left his job. He alleges libel, slander, portrayal in a false light, and conspiracy to commit tortious interference with prospective business relationships.

On September 11, 1987, Hutton moved to compel arbitration and to stay the litigation pending arbitration. ¹ Hutton cited Rule 347 of the New York Stock Exchange ("NYSE"), which requires arbitration of disputes "arising out of the employment or termination of employment," and several other provisions of the NYSE rules and the National Association of Securities Dealers ("NASD") Code. On January 19, 1988, after receiving briefs and hearing argument, Judge Broderick denied the motion because he found our decision in Coudert v. Paine Webber Jackson & Curtis, 705 F.2d 78 (2d Cir.1983), to be controlling, its facts indistinguishable. In Coudert, we held that an employee's claims of post-employment tortious conduct did not have to be arbitrated because Rule 347 did not apply to false statements that the employer made after the termination to describe the employee.

Hutton now appeals as of right under 9 U.S.C. § 15 (1988), which permits an appeal from an order refusing a stay requested under the United States Arbitration Act, 9 U.S.C. § 3 (1988). See Fleck v. E.F. Hutton Group, Inc., 873 F.2d 649 (2d Cir.1989) (per curiam) (denying, in view of applicability of 9 U.S.C. § 15, motion for appeal under certification procedures, and deeming appeal timely).

We reverse. Because we reconsider Coudert, we have circulated this opinion to all of the active judges in the circuit before releasing it. See Newman, In Banc Practice in the Second Circuit: The Virtues of Restraint, 50 Brooklyn L.Rev. 365, 370 & n. 30 (1984) (citing Trapnell v. United States, 725 F.2d 149, 155 (2d Cir.1983)).

BACKGROUND

Fleck, according to his complaint, worked for Hutton in Florida for twelve years. His earnings averaged $600,000 to $700,000 per year, and he was one of the company's top twenty account executives nationwide for the years 1977 through 1986. He left the job in January of 1987. The complaint refers to his "termination" without saying whether he was fired, but a defense affidavit says that he was discharged.

The first count of Fleck's complaint alleges defamation. He claims that on April 27, 1987, Corey Steadman, the branch manager of Hutton's Tampa office, told one of Fleck's clients that Fleck was a disbarred lawyer, that he had lost his license in the securities business and could never get another job as a broker, and that many of Fleck's customers had complained about him to Steadman. Fleck also claims that on April 29, 1987, Steadman told another client that Fleck had been fired, that his broker's license had been permanently revoked, and that Fleck was a disbarred lawyer. Likewise, Fleck claims that on April 21 and April 28, Steadman told two other clients, among other things, that Fleck had been banned from the securities industry for cause, and that Steadman told one of them that Fleck was "basically a criminal." The complaint says that all these statements were false.

The second count of the complaint alleges that the Form U-5 that Hutton filed with the NASD in March of 1987 defamed him by falsely stating that he had been discharged for cause, that he had failed to follow firm policy, that he violated NASD rules by guaranteeing an investment, and that he was discharged because several of his clients had brought lawsuits against Hutton.

The third, fourth, and fifth counts allege that after Fleck left Hutton, Hutton induced three brokerage houses with which Fleck had negotiated, respectively, to break an employment contract, rescind an offer of employment, and terminate negotiations. The sixth count claims that in February of 1987 Hutton's branch manager in Longboat Key, Florida circulated to brokers in that office a document purporting to list fifteen lawsuits brought against Hutton by Fleck's clients. Finally, the seventh count alleges that, as a result of the conduct described above, Hutton presented Fleck in a false light as a criminal, a disbarred lawyer, a broker with a revoked license who had been banned from the securities industry, and a defendant in many lawsuits.

In 1975 and 1980, Fleck had executed a Form U-4, a Uniform Application for Securities and Commodities Industry Representative and/or Agent. In the Form U-4 he filed in 1980, he applied for registration with the NYSE, the NASD, the American Stock Exchange, the Chicago Board of Trade, and the Chicago Board of Options Trading, and he agreed to abide by the rules of those entities.

Hutton argues that several rules require arbitration of Fleck's claims, and we set out those rules here. Application of the provisions is somewhat complicated by the fact that defendant E.F. Hutton Group, Inc. ("the Group") is not a member of the NYSE, while E.F. Hutton & Company, Inc. ("the Company") is a member.

NYSE Arbitration Rule 347, the rule we considered in Coudert, is entitled "Controversies as to Employment or Termination of Employment." It states, in its entirety:

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

2 N.Y.S.E. Guide (CCH) p 2347 (Sept.1988) (emphasis added). Rule 347 applies to the controversy with the Company--a NYSE member--but not to the dispute with the Group. Article XI of the NYSE Constitution also applies to the Company but not to the Group. It states:

Any controversy between parties who are members, allied members or member organizations and any controversy between a member, allied member or member organization and any other person arising out of the business of such member, allied member or member organization or the dissolution of a member organization, shall at the instance of any such party be submitted for arbitration in accordance with the provisions of this Constitution and such rules as the Board may from time to time adopt.

Constitution of the New York Stock Exchange, Inc., Art. XI, Sec. 1, 2 N.Y.S.E. Guide (CCH) p 1501 (June 1986) (emphasis added).

There are two other rules that might apply to Fleck's claim against the Group. First, NYSE Rule 600(a) 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) p 2600 (May 1988) (emphasis added). Finally, Section 8(a) of the NASD Code of Arbitration Procedure provides:

Any dispute, claim or controversy eligible for submission under Part I of the Code 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), shall be arbitrated under this Code, at the instance of:

(1) a member against another member;

(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.

National Association of Securities Dealers, Inc., Reprint of the Manual p 3708 (March 1989) (emphasis added).

DISCUSSION

We began our analysis in Coudert by reciting a "truism" that is no less true today:

[A]rbitration agreements are favored in the law and are to be broadly construed. An order to arbitrate should not be denied unless it can be said that the arbitration clause is not susceptible of a reasonable interpretation covering the asserted dispute. In short, doubts should be resolved in favor of coverage.

Coudert, 705 F.2d at 81 (citing United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)). The United States Arbitration Act, codified at 9 U.S.C. §§ 1-15 (1988), requires that agreements to arbitrate disputes be enforced. Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir.1987). A court considering a motion for a stay pending arbitration must determine whether the parties agreed to arbitrate and the scope of their agreement. Id. (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985...