Harriman Group, Inc. v. Napolitano
Decision Date | 02 March 1995 |
Citation | 623 N.Y.S.2d 224,213 A.D.2d 159 |
Parties | , Fed. Sec. L. Rep. P 98,737 The HARRIMAN GROUP, INC., et al., Petitioners-Appellants, v. Josephine Stockli NAPOLITANO, Respondent-Respondent. |
Court | New York Supreme Court — Appellate Division |
A.B. Schultz, for petitioners-appellants.
M.P. Gilmore, for respondent.
Before WALLACH, J.P., and RUBIN, ROSS, ASCH and MAZZARELLI, JJ.
Judgment, Supreme Court, New York County (Helen E. Freedman, J.), entered August 5, 1994, which denied petitioners' application to stay arbitration before the National Association of Securities Dealers ("NASD"), granted respondent's motion to compel arbitration, and denied respondent's motion to disqualify counsel, without prejudice to consideration of the matter by the arbitrator, unanimously reversed, on the law, to the extent appealed from, as limited by the brief, the petition granted and the motion to compel arbitration denied, with costs.
This matter arises out of an oral agreement purportedly made in November 1991 or February 1992 between respondent Josephine Napolitano and petitioners Mark A. Hanna and Brian Scanlon. Respondent alleges that, in exchange for services rendered by herself and her husband, she was to be given an ownership interest of 15% in petitioner The Harriman Group, Inc. Petitioners Hanna and Scanlon are officers, directors and shareholders of The Harriman Group, which was originally acquired by Hanna in March 1992 as Discount Investment Corp. and subsequently renamed. The Harriman Group was registered with the NASD on or about July 15, 1992. Respondent Napolitano worked with The Harriman Group and its predecessor from June 1992 to October 1992 as a revenue and expense controller. She claims that, in accordance with the oral agreement, she performed various services with respect to the organization and development of the company, including the location and selection of key personnel, office space, equipment and furnishings. She was not registered with the NASD during this period of time, having previously been employed by Citicorp as an assistant vice-president with no experience in the securities business.
In May 1993, Hanna filed suit in his individual capacity against Napolitano and her husband, together with their corporation, Prime Net Partners, asserting both contract and fraud claims in connection with their failure to repay $29,685.00 in loans. In March 1994, respondent Napolitano filed a statement of claim pursuant to sections 1, 8 and 12 of the NASD Code of Arbitration Procedure, seeking to establish a 15% ownership interest in The Harriman Group based upon her asserted agreement with petitioners. Petitioners filed a timely application to stay arbitration (CPLR 7503[b] by way of an order to show cause dated May 13, 1994. Respondent moved to compel arbitration (CPLR 7503[a] and to disqualify plaintiffs' attorney.
Respondent does not claim that she is a party to a written agreement to arbitrate her dispute with petitioners. Rather, she asserts the right to compel petitioners to proceed to arbitration under the provisions of the NASD Code of Arbitration Procedure. At issue on this appeal, therefore, is whether a contract allegedly made in late 1991 or early 1992 is subject to the general arbitration provisions governing the National Association of Securities Dealers, an organization with which respondent was not registered until 1993.
While it is the subject of intense dispute among the parties to this appeal, the subject matter of the dispute arguably falls within the ambit of the NASD Code of Arbitration Procedure. Section one of the Code incorporates a broad arbitration provision encompassing matters "arising out of or in connection with the business of any member of the Association" that originates: "1) between or among members; 2) between or among members and associated persons; 3) between or among members or associated persons and public customers, or others; and 4) between or among members, registered clearing agencies with which the Association has entered into an agreement to utilize the Association's arbitration facilities and procedures, and participants, pledges, or other persons using the facilities of a registered clearing agency, as these terms are defined under the rules of such a registered clearing agency." This dispute is one between a present member of the NASD, The Harriman Group, and "others" (however that term may be interpreted under NASD regulations), and the controversy may be said to arise "out of or in connection with the business of" The Harriman Group.
Section eight of the Code, governing "INDUSTRY AND CLEARING CONTROVERSIES", provides that an eligible dispute may be arbitrated "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." Respondent, as a person currently associated with a member, can presumably seek to arbitrate a claim against a current member. However, this does not end the analysis.
The alleged oral agreement from which this dispute arose was made at a time when petitioner The Harriman Group, Inc. was not yet in existence nor a member of the NASD. Likewise, in 1991 respondent was not yet a registered representative, and at no time was she employed by The Harriman Group as an "associated person", a designation that includes "every 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" (NASD By-Laws, Art I, p 1101[m]. Respondent's resort to the NASD Code of Arbitration Procedure is predicated on her status, beginning in July 1993, as a person associated with Camelot Investment and, subsequently, Joseph Roberts and Co. Similarly, she relies on the status of The Harriman Group's predecessor firm as a "member" of the NASD to bring it within the arbitration provision of the NASD rules.
As this Court stated in Schenkers Intl. Forwarders v. Meyer, 164 A.D.2d 541, 543, 564 N.Y.S.2d 323, lv. denied 78 N.Y.2d 852, 573 N.Y.S.2d 465, 577 N.E.2d 1057, "Upon a motion pursuant to CPLR 7503, the court...
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