McLaughlin, Piven, Vogel, Inc. v. W.J. Nolan & Co., Inc.

Decision Date03 February 1986
Citation114 A.D.2d 165,498 N.Y.S.2d 146
CourtNew York Supreme Court — Appellate Division
PartiesMcLAUGHLIN, PIVEN, VOGEL, INC., Respondent, v. W.J. NOLAN & COMPANY, INC., et al., Appellants.

Windels, Marx, Davies & Ives, New York City (Raymond T. Munsell and Clayton A. Prugh, of counsel), for appellants.

Suozzi, English & Klein, P.C., Mineola and Rubin & Associates, Paoli, Pa. (Gregory S. Rubin, Robert N. Zausmer and James H. Decker, of counsel), for respondent.



The plaintiff McLaughlin, Piven, Vogel, Inc., is a New York corporation engaged as a broker-dealer of general securities and is a member of both the New York Stock Exchange (NYSE) and the National Association of Security Dealers (NASD). The plaintiff, whose principal offices are in the counties of New York and Nassau, specializes in the sale of government and municipal bonds.

The defendant W.J. Nolan & Company, Inc. (Nolan, Inc.) was incorporated in New York in December 1984, with a principal place of business in New York County. It transacts business in, among other places, Nassau County. The individual defendants are all presently shareholders, officers and employees of Nolan, Inc. Prior to October 9, 1985, they were each employed by the plaintiff. The individual defendants Nolan, Monahan, Shalley and Keenan were employed in the plaintiff's Jericho, New York, office, at which Nolan was the manager. Defendant Chironis was employed at the plaintiff's Manhattan office. With the exception of Keenan, each individual defendant had been registered with the NYSE as a representative of the plaintiff.

On October 9, 1985, J.C. McLaughlin, the plaintiff's chairman and chief executive officer, questioned William J. Nolan as to whether the individual defendants planned to work for Nolan in a new brokerage business. Nolan conceded that he intended to start his own business. While the facts are unclear whether, following this conversation, the individual defendants decided to voluntarily leave the plaintiff's employ, or were told by McLaughlin to immediately leave the premises, there is no dispute that the defendants did not work for the plaintiff after that date.

The plaintiff thereafter commenced the instant action against the defendants, claiming that each individual defendant had access, during his or her employment, to the plaintiff's client lists and confidential records. According to the complaint, prior to termination of their employment, each or all the defendants "stole, photocopied, reproduced or converted, without the plaintiff's knowledge and consent, various records * * * of the plaintiff concerning its customers and related consumer information". The records allegedly contained information concerning client names, addresses, telephone numbers, investment activity, employment data, annual income, net worth and assets. These records were purportedly compiled and developed solely by the plaintiff, at great expense, for its exclusive use, and they were characterized as trade secrets, not readily available to anyone outside of the plaintiff's business operation nor to anyone not employed by, or an officer of, the plaintiff. The plaintiff contended that the individual defendants had access to the records solely by reason of their former status as employees and that they also had knowledge, actual or constructive, of the plaintiff's intent to keep the records confidential. The complaint alleged that since leaving the plaintiff's employ, the individual defendants converted the records to their own use and to that of Nolan, Inc., and had also used the same to identify or accept business orders from established customers of the plaintiff. The complaint further stated that defendants Monahan and Shalley had, as a condition of their employment, signed employment agreements in which they recognized the value of the plaintiff's customer lists and agreed to deliver to the plaintiff any such lists in their possession upon termination of employment or at any time the plaintiff requested.

The plaintiff sought a judgment permanently enjoining the individual defendants from: (1) disclosing any customer information on the lists, (2) soliciting or accepting orders or other business from any client of the plaintiff whose name or identity the individual defendants obtained while in plaintiff's employ or from leads obtained while so employed, (3) soliciting or inducing any of the plaintiff's other employees to terminate their employment, and (4) in any way aiding Nolan, Inc., and any of its employees or officers from engaging in any of the foregoing conduct. The plaintiff also sought similar restrictions as to Nolan, Inc., and an order directing all the defendants to deliver to it all originals and copies of any of the plaintiff's records which the defendants had in their control and which had allegedly been taken from the plaintiff's offices or reproduced there.

The plaintiff concomitantly moved for a preliminary injunction, restraining the defendants from committing the same acts which were the subject of its demand for a permanent injunction. The defendants thereafter cross-moved for an order compelling arbitration.

Special Term granted the plaintiff's motion for a preliminary injunction, denied the cross motion to compel arbitration, and directed that trial of the action be expedited. With respect to the issue of arbitration, the court found that arbitration could only be compelled where there is an express agreement, and held that neither the constitution nor rules of the NYSE constituted such an agreement. We disagree.

Initially, we note, as did Special Term, that: "Arbitration will be compelled only where there is a clear, unequivocal agreement to arbitrate * * * Absent evidence of an express intention to resort to arbitration, no obligation to do so will be deemed to exist" (Just In-Material Designs v I.T.A.D. Assoc., 94 A.D.2d 103, 105-106, 463 N.Y.S.2d 202, affd. 61 N.Y.2d 882, 474 N.Y.S.2d 470, 462 N.E.2d 1188). However, a written agreement to arbitrate does in fact exist at bar, although that agreement is not between the plaintiff and the defendants, but rather, between the parties and the NYSE.

The NYSE Constitution, article VIII, § 1 provides:

"Sec. 1 Any 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, allied member, member firm or member corporation, or the dissolution of a member firm or member corporation, 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".

The plaintiff is admittedly a member of the NYSE and thereby subject to its rules. The NYSE Constitution, article IX, § 8 provides that "person admitted to membership shall be entitled to any privileges thereof until he shall have signed the Constitution of the Exchange, thereby pledging himself to abide by the Constitution. By such signature, he pledges himself to abide by the same as the same has been or shall be from time to time amended, and by all the rules adopted pursuant to the Constitution". Similarly, the defendants Nolan, Monahan, Shalley and Chironis, as registered representatives of the plaintiff, had to and did agree, in their applications to the NYSE, to also be bound by its constitution and rules. NYSE rule 345.16 provides that "prospective registered representative or officer, in consideration of the Exchange's consideration of the applicant's application, shall sign an agreement, on a form prescribed by the Exchange, which includes a pledge that the registered representative or officer will abide by the Constitution and Rules adopted pursuant thereto as these now exist and as from time to time amended".

The foregoing has been held to constitute a written agreement to arbitrate between a registered representative and a member of the NYSE (see, Crawford v. Merrill Lynch, Pierce, Fenner & Smith, 35 N.Y.2d 291, 300, 361 N.Y.S.2d 140, 319 N.E.2d 408). The Court of Appeals has clearly stated that the NYSE Constitution, article VIII, § 1 "constitutes a written agreement to submit to arbitration before the" NYSE (Matter of Dunay v. Weisglass, 54 N.Y.2d 25, 30-31, 444 N.Y.S.2d 573, 429 N.E.2d 92). As was well stated by the United States District Court for the Northern District of Georgia, "Constitution and Rules of the New York Stock Exchange constitute the agreement between the Exchange and plaintiff as well as the agreement between the Exchange and defendant; and, by their terms, they also constitute an agreement between plaintiff and defendant. It is not dispositive that there was no express agreement to arbitrate * * * by plaintiff and as each was no doubt aware of the binding effect of the Exchange's Constitution and Rules providing for arbitration on representatives and member firms" (Cullen v. Paine, Webber, Jackson & Curtis, Inc., 587 F.Supp. 1520, 1523; see also, Coenen v. R.W. Pressprich & Co., 2d Cir., 453 F.2d 1209, 1211, cert. denied 406 U.S. 949, 92 S.Ct. 2045, 32 L.Ed.2d 337; O'Neel v. National Assn. of Securities Dealers, 9th Cir., 667 F.2d 804, 806; Morgan, Olmstead, Kennedy & Gardner v. U.S. Trust, 608 F.Supp. 1561, 1563). Therefore, the absence of an express written agreement between the parties is not a bar to referring this matter to arbitration.

However, whether the subject controversies must be arbitrated is another matter. In resolving this question, our attention is directed to NYSE Rules 347 and 600.

Rule 347 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...

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