Fox v. Merrill Lynch & Co., Inc., No. 77 Civ. 5769 (MP).

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Citation453 F. Supp. 561
Docket NumberNo. 77 Civ. 5769 (MP).
PartiesJames E. FOX, Plaintiff, v. MERRILL LYNCH & CO., INC. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Defendants.
Decision Date28 June 1978

453 F. Supp. 561

James E. FOX, Plaintiff,
v.
MERRILL LYNCH & CO., INC. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Defendants.

No. 77 Civ. 5769 (MP).

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

June 28, 1978.


453 F. Supp. 562

Avrom S. Fischer, Brooklyn, N.Y., for plaintiff.

Brown, Wood, Ivey, Mitchell & Petty, New York City, by Roger J. Hawke, Thomas J. Mullaney, New York City, for defendants.

DECISION

POLLACK, District Judge.

This is a motion by defendants for a stay of this lawsuit pending an arbitration which has been demanded by defendants.

453 F. Supp. 563

In this action, plaintiff James E. Fox seeks damages on account of the determination by defendant Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) that Fox has forfeited his right to a pension from Merrill Lynch. Defendants' application for a stay is made pursuant to 9 U.S.C. § 3. Arbitration of the dispute is sought under an agreement that disputes of the parties should be settled in accordance with Rule 347 of the New York Stock Exchange (NYSE). Plaintiff opposes the motion on the grounds, inter alia, that he is not bound by any agreement to arbitrate and that law and public policy forbid compelling him to arbitrate certain of the claims asserted herein.

For the reasons hereafter set forth, the aspects of this controversy which are appropriate for arbitration are severable from and predominate over the non-arbitrable claims. Accordingly, in the interests of economy and justice, a stay will be granted to permit arbitration of the arbitrable claims before consideration of the remainder.

Defendant Merrill Lynch is a broker-dealer and a member of the NYSE.1 It employed Fox for 18 years approximately from 1955 until 1973, primarily as an institutional salesman. The company instituted an employee pension plan in 1959. As amended through 1973, this provided that employees who remained with Merrill Lynch until after the age of forty and had participated in the plan for at least ten years were entitled to a pension upon reaching the age of forty-five. Fox participated in the plan from 1959 onward and when he reached forty years of age in 1972 he had met the minimum ten year employment requirement and would have been entitled upon his forty-fifth birthday in 1977 to a pension under the plan.

The plan also provided, however:

A participant who enters employment or engages directly or indirectly in any business deemed by the Administrative Committee to be competitive with the business of any Employer or any Subsidiary shall forfeit all rights to any benefits due or to become due from the Trust Fund, other than those attributable to Voluntary Contributions.

Fox left Merrill Lynch voluntarily in 1973 to take employment as a branch manager with two other stockbrokerage firms, first Clark Dodge & Co. and then Dean Witter & Co. In 1975, the Administrative Committee advised him that his prospective benefits under the Pension Plan had been forfeited on account of his employment with competing firms.

Fox instituted this suit on November 29, 1977. His complaint alleges that the forfeiture of his pension benefits was inconsistent with the terms of the plan. He complains further that Merrill Lynch failed to warn him of the possibility of such a forfeiture when, before leaving the company in 1973, he discussed the possibility of accepting employment with Clark Dodge & Co., or in 1974 when he inquired concerning his pension shortly before accepting the position at Dean Witter & Co.

The first two counts of Fox's amended complaint allege that defendants breached their contractual obligations under the pension plan. In Count One the claimed contractual breach is posited on the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (ERISA). In counts three and four, by way of anticipation Fox alleges that defendants have waived and are estopped from relying on the plan's forfeiture provision. The several remaining counts of the complaint set forth noncontractual theories opposing arbitration, primarily that the forfeiture constitutes a restraint of trade in violation of state and federal antitrust laws.

The Court's jurisdiction is alleged to rest on the grounds that the action arises under ERISA, as well as diversity of citizenship and requisite amount in controversy.

Fox's alleged agreement to arbitrate disputes arises from his employment agreement with Merrill Lynch which incorporates

453 F. Supp. 564
therein the Rules of the NYSE. That constitutes a provision in "a contract evidencing a transaction involving commerce," 9 U.S.C. § 2. Dickstein v. DuPont, 443 F.2d 783, 784-85 (1st Cir. 1971). Accordingly, federal law governs all questions regarding the interpretation, validity and enforceability of the arbitration agreement. Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1211 (2d Cir.), cert. denied, 406 U.S. 949, 92 S.Ct. 2045, 32 L.Ed.2d 337 (1972). Issues concerning the validity and enforceability of an asserted arbitration agreement properly are determined upon a motion to stay pursuant to 9 U.S.C. § 3. See American Safety Equipment Corp. v. J. P. Maguire & Co., 391 F.2d 821, 826 (2d Cir. 1968)

Fox agreed to arbitrate the contractual dispute he asserts. In 1957, Fox and Merrill Lynch applied for and obtained the NYSE's approval for the company to employ Fox as a registered representative. In the application, Fox agreed

to abide by the Constitution and Rules of the Board of Governors of the New York Stock Exchange as the same have been or shall be from time to time amended, and by all the rules and regulations adopted pursuant to the Constitution, and by all the practices of the Exchange. (Emphasis added).

In 1958, (prior to adoption of the pension plan here involved) the NYSE adopted Rule 347(b), providing:

Any controversy between a registered representative and any member or member organization arising out of the employment or termination of employment of 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 the rules.

The provision is still in effect, presently as Rule 347.

Whether a party has agreed to arbitration is determined on the basis of ordinary contract principles. A valid arbitration provision must be in writing, but a party may be bound by that provision without having signed an exemplar. A/S Custodia v. Lessin International, Inc., 503 F.2d 318, 320 (2d Cir. 1974); Fisser v. International Bank, 282 F.2d 231, 233 (2d Cir. 1960).

Fox is bound by Rule 347 for two reasons. First, he agreed in 1957 to abide by the NYSE Rules as thereafter amended. A party who agrees to abide by the rules of an organization is bound by its subsequently adopted rule calling for arbitration. See M. Domke, The Law and Practice of Commercial Arbitration § 7.02 (1968). The Minnesota Supreme Court reached the same conclusion on an indistinguishable set of facts in Moritz v. Francis I. DuPont & Co., 291 Minn. 523, 180 N.W.2d 487 (1971) (per curiam).

Second, even if Rule 347 as such was not binding on Fox upon adoption, it was tacitly adopted by Fox as a modification of his employment agreement with Merrill Lynch. Parties may modify their...

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41 practice notes
  • Barrowclough v. Kidder, Peabody & Co., Inc., No. 83-5777
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • January 18, 1985
    ...(3d Cir.1984); Air Line Pilots Ass'n v. Northwest Airlines, Inc., 627 F.2d 272, 275-76 (D.C.Cir.1980); Fox v. Merrill Lynch & Co., Inc., 453 F.Supp. 561, 565-66 (S.D.N.Y.1978), while claims of statutory violations can be brought in a federal court notwithstanding an agreement to arbitrate. ......
  • Burke County Public Schools Bd. of Ed. v. Shaver Partnership, No. 94
    • United States
    • North Carolina United States State Supreme Court of North Carolina
    • July 8, 1981
    ...493 F.Supp. 104 (N.D.Ill.1980) (contract between New York Stock Exchange brokerage firm and employee); Fox v. Merrill Lynch & Co., Inc., 453 F.Supp. 561 (S.D.N.Y.1978) (pension contract between New York Stock Exchange brokerage firm and employee); Romnes v. Bache & Co., Inc., 439 F.Supp. 83......
  • Morgan v. Nikko Securities Co. Intern., Inc., No. 87 CIV. 4868 (KC).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • July 29, 1988
    ...(same principle applicable to employment contract between NYSE member firm and account executive trainee); Fox v. Merrill Lynch & Co., 453 F.Supp. 561, 563-64 (S.D.N.Y.1978) (same principle applicable to employment contract between NYSE member firm and salesman); cf. Smiga v. Dean Witter Re......
  • United Paperworkers v. International Paper Co., Civ. No. 90-0003-B.
    • United States
    • United States District Courts. 1st Circuit. United States District Court (Maine)
    • November 12, 1991
    ...Cir.1981); Lewis v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 431 F.Supp. 271, 275-78 (E.D.Pa.1977). Cf. Fox v. Merrill Lynch & Co., 453 F.Supp. 561, 565-66 (S.D.N.Y.1978) ("Plaintiff does not allege that either of the defendants are fiduciaries or that they breached fiduciary duties imp......
  • Request a trial to view additional results
41 cases
  • Barrowclough v. Kidder, Peabody & Co., Inc., No. 83-5777
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • January 18, 1985
    ...(3d Cir.1984); Air Line Pilots Ass'n v. Northwest Airlines, Inc., 627 F.2d 272, 275-76 (D.C.Cir.1980); Fox v. Merrill Lynch & Co., Inc., 453 F.Supp. 561, 565-66 (S.D.N.Y.1978), while claims of statutory violations can be brought in a federal court notwithstanding an agreement to arbitrate. ......
  • Burke County Public Schools Bd. of Ed. v. Shaver Partnership, No. 94
    • United States
    • North Carolina United States State Supreme Court of North Carolina
    • July 8, 1981
    ...493 F.Supp. 104 (N.D.Ill.1980) (contract between New York Stock Exchange brokerage firm and employee); Fox v. Merrill Lynch & Co., Inc., 453 F.Supp. 561 (S.D.N.Y.1978) (pension contract between New York Stock Exchange brokerage firm and employee); Romnes v. Bache & Co., Inc., 439 F.Supp. 83......
  • Morgan v. Nikko Securities Co. Intern., Inc., No. 87 CIV. 4868 (KC).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • July 29, 1988
    ...(same principle applicable to employment contract between NYSE member firm and account executive trainee); Fox v. Merrill Lynch & Co., 453 F.Supp. 561, 563-64 (S.D.N.Y.1978) (same principle applicable to employment contract between NYSE member firm and salesman); cf. Smiga v. Dean Witter Re......
  • United Paperworkers v. International Paper Co., Civ. No. 90-0003-B.
    • United States
    • United States District Courts. 1st Circuit. United States District Court (Maine)
    • November 12, 1991
    ...Cir.1981); Lewis v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 431 F.Supp. 271, 275-78 (E.D.Pa.1977). Cf. Fox v. Merrill Lynch & Co., 453 F.Supp. 561, 565-66 (S.D.N.Y.1978) ("Plaintiff does not allege that either of the defendants are fiduciaries or that they breached fiduciary duties imp......
  • Request a trial to view additional results

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