Haviland v. Goldman, Sachs & Co.
| Decision Date | 16 October 1991 |
| Docket Number | D,No. 285,285 |
| Citation | 947 F.2d 601 |
| Court | U.S. Court of Appeals — Second Circuit |
| Parties | , RICO Bus.Disp.Guide 7861 Leo HAVILAND, Plaintiff-Appellee, v. GOLDMAN, SACHS & CO., Defendant, J. Aron & Company, Defendant-Appellant. ocket 90-7460. |
Gandolfo V. DiBlasi, New York City (Theodore O. Rogers, Jr., Thomas J. Witt, Sullivan & Cromwell, of counsel), for defendant-appellant.
Judd Burstein, New York City (Jay Goldberg, P.C., of counsel), for plaintiff-appellee.
Before MAHONEY and WALKER, Circuit Judges, and McKENNA, * District Judge.
Plaintiff-appellee Leo Haviland commenced this action in the United States District Court for the Southern District of New York, Leonard B. Sand, Judge, against his former employer, defendant Goldman, Sachs & Co. ("Goldman"), and its affiliate, defendant-appellant J. Aron & Company ("Aron"), alleging injury caused by a pattern of racketeering activity and common law fraud.
Defendants countered with a motion, pursuant to Section 3 of the Arbitration Act (title 9 of the United States Code), 9 U.S.C. § 3 (1988), to stay all proceedings pending arbitration before the New York Stock Exchange (the "Exchange"). They based their motion upon an application for securities industry registration executed by Haviland on September 28, 1981 in which he agreed to arbitrate certain disputes under the "rules, constitutions, or by-laws" of, inter alia, the Exchange, and upon Exchange Rules 347 and 600.
In an opinion and order entered May 8, 1990, the district court granted the motion to stay the claims asserted against Goldman, but denied the motion to stay the identical claims asserted against Aron. The court granted the motion as to Goldman pursuant to Exchange Rule 347, which governs the arbitrability of disputes between Exchange registered representatives and Exchange members arising out of a registered representative's employment or termination of employment. See Haviland v. Goldman, Sachs & Co., 736 F.Supp. 507, 509-10. The court denied the motion as to Aron pursuant to Exchange Rule 600(a), which governs the arbitrability of disputes between persons associated with Exchange members and nonmembers. See id. at 510-11.
On appeal, Aron contends that the district court misconstrued the law of this circuit to require that disputes falling within Rule 600(a) arise out of exchange-related activity. According to Aron, our case law establishes that where employment claims by an associated person must be arbitrated under Rule 347, the same claims against the member firm's affiliate must be arbitrated under Rule 600(a).
We affirm the order of the district court.
Leo Haviland was employed by Goldman on May 22, 1979, and remained an employee until Goldman terminated his employment on January 31, 1989. Goldman is an investment banking firm, a registered broker-dealer, and a member organization of numerous securities exchanges, including the Exchange.
Haviland became head of Goldman's Energy Futures and Options Group in 1982, and a Goldman vice president in 1984. Thereafter until the termination of his employment, Haviland was a vice president in charge of energy futures. In that role, Haviland traded energy futures (contracts to buy or sell a quantity of a form of energy), and options on energy futures on behalf of refining and marketing firms, trading companies, and energy producers. Haviland never executed this trading on the Exchange, but rather on various commodities exchanges, including the International Petroleum Exchange in London.
In 1984, the Goldman partners entered the energy market as principals through their proprietary investment vehicle, Aron. Aron, a partnership, is an affiliate of Goldman with the same ownership (i.e., the general partners of Aron and Goldman are identical). Through Aron, the Goldman partners invest their own capital in various commodities and foreign exchange.
Haviland's claims are based upon Aron's entry into the energy market. Haviland asserts that upon that entry, the confidential information he acquired regarding the trading, purchase, and sale plans of his clients became of great value to Aron. According to Haviland, in response to the concern he expressed regarding the continued confidentiality of this information, defendants falsely assured him, from April 1984 to the spring of 1987, that it would be zealously safeguarded against disclosure, particularly to Aron. Haviland alleges that these representations defrauded him into continuing in the employ of Goldman, and that various innocent repetitions of these representations by Haviland, as well as representations made directly by Goldman to clients, amounted to mail fraud in violation of 18 U.S.C. § 1341 (1988), wire fraud in violation of 18 U.S.C. § 1343 (1988), and common law fraud.
Haviland further alleges that from July 1987 through January 1989, defendants attempted to extort him into divulging confidential client information in violation of 18 U.S.C. § 1951 (1988). Haviland claims that because he refused to divulge this information, he was denied appropriate salary increases and eventually summarily dismissed. Premised upon these allegations, Haviland brought identical claims against Goldman and Aron for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) and (d) (1988), and common law fraud.
Haviland filed his complaint on December 20, 1989. Defendants moved on January 25, 1990, pursuant to 9 U.S.C. § 3 (1988), for an order staying all proceedings pending the outcome of arbitration. The defendants based their motion upon Haviland's execution, on September 28, 1981, of a "Uniform Application for Securities Industry Registration," known as a Form U-4. The signature page of the Form U-4 contains the following provision:
I agree 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 organizations with which I register, as indicated in Question 8.
In response to question 8 of the U-4, Haviland applied for registration with the Exchange, the American Stock Exchange and the National Association of Securities Dealers, and became a registered representative of Goldman for the Exchange on October 23, 1981. He continued in this position throughout his employment at Goldman. The quoted agreement in Haviland's U-4 application thus incorporates by reference the arbitration provisions of the Exchange's rules, constitution, and by-laws.
As an Exchange member, Goldman invoked Exchange Rule 347, which is entitled "Controversies As to Employment or Termination of Employment," and provides:
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.
N.Y.S.E. Rule 347 (revised to Feb. 1, 1990) (emphasis added).
Aron, a non-member, relied upon Exchange Rule 600(a), which is entitled "Arbitration," and 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 [Exchange] as provided by any duly executed and enforceable written agreement or upon the demand of the customer or non-member.
N.Y.S.E. Rule 600(a) (revised to Feb. 1, 1990) (emphasis added).
It is undisputed that Haviland is a "registered representative" within the meaning of Rule 347, an "associated person" within the meaning of Rule 600(a), that Goldman is a "member" or "member organization" within the meaning of both rules, and that Aron is a "non-member" within the meaning of Rule 600(a). See Haviland, 736 F.Supp. at 508.
The district court ruled that Haviland's dispute with Goldman fell within the terms of Rule 347, concluding that his claims against Goldman arose out of his employment or termination of employment. See id. at 509-10. Applying the broad interpretation of Rule 347 that we adopted in Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047 (2d Cir.1989), the court determined that because Haviland's dispute " ' "involve[s] significant aspects of the employment relationship," ' " the dispute is subject to compulsory arbitration. Haviland, 736 F.Supp. at 509 (quoting Fleck, 891 F.2d at 1053 (quoting Morgan v. Smith, Barney, Harris, Upham & Co., 729 F.2d 1163, 1167 (8th Cir.1984))).
The district court denied Aron's arbitration claim, on the other hand, relying upon our ruling in Paine, Webber, Jackson & Curtis, Inc. v. Chase Manhattan Bank, N.A., 728 F.2d 577 (2d Cir.1984), that the scope of Rule 600(a) " 'should be limited, at least in cases ... in which the alleged improper conduct is on the part of the non-member, to controversies arising out of the member's exchange-related business.' " Haviland, 736 F.Supp. at 510 (quoting Paine, 728 F.2d at 580). The court concluded that Haviland's claims against Aron do not arise out of exchange-related business and hence are not subject to compulsory arbitration. Id. at 510-11. In reaching that result, the court rejected Aron's contention that our decision in Fleck, 891 F.2d at 1054, established that the scope of Rule 600(a) is identical to that of Rule 347. Id. The court noted the prior representation of Haviland's counsel that Haviland would discontinue his claims against Goldman in the event of a ruling (as subsequently occurred) that those claims were arbitrable, but the claims...
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