Merrill Lynch, Pierce, Fenner & Smith, Inc. v. District Court In and For City and County of Denver

• Decision Date: 05 December 1983
• Docket Number: No. 83SA343,83SA343
• Citation: 672 P.2d 1015
• Parties: MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., a Delaware corporation, Petitioner, v. The DISTRICT COURT In and For the CITY AND COUNTY OF DENVER, State of Colorado, and the Honorable Clifton A. Flowers, One of the Judges Thereof, Respondents.
• Court: Colorado Supreme Court

Page 1015

672 P.2d 1015

MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., a Delaware corporation, Petitioner, v. The DISTRICT COURT In and For the CITY AND COUNTY OF DENVER State of Colorado, and the Honorable Clifton A Flowers, One of the Judges Thereof, Respondents.

No. 83SA343.

Supreme Court of Colorado En Banc.

Dec. 5, 1983.

Weinshienk, Miller, Borus & Permut, James L. Kurtz-Phelan, H. Michael Miller, Denver, for petitioner.

Roath & Brega, P.C., Charles F. Brega, Stuart N. Bennett, Denver, for respondents.

ERICKSON, Chief Justice.

This original proceeding seeks relief in the nature of mandamus. C.A.R. 21. The issue presented is whether the district court has the authority to grant preliminary injunctive relief to maintain the status quo in order to preserve the underlying dispute for arbitration. We issued a rule to show cause and now make the rule absolute.

I.

On May 4, 1981, defendant, Douglas M. Reilly (Reilly), in consideration of his being employed and trained by Merrill Lynch, Pierce, Fenner and Smith, Inc. (Merrill Lynch) as a securities broker, signed an Account Executive Training Agreement (Agreement). The Agreement provided that all records of Merrill Lynch were confidential information and were not to be transmitted verbally or in writing by Reilly except in the ordinary course of conducting business for Merrill Lynch. ¹ The Agreement included in addition a clause which provided that if Reilly's services were terminated, Reilly would not, for any reason, solicit the clients of Merrill Lynch for a period of one year. ²

On Friday, July 29, 1983, Reilly terminated his employment with Merrill Lynch and demanded arbitration of the dispute pursuant to the rules of the New York Stock Exchange. ³ On the following Monday, Reilly accepted employment as an account executive with Prudential-Bache Securities, Inc. (Prudential).

Merrill Lynch filed its complaint on Monday, August 9, 1983, in Denver District Court seeking a temporary restraining order, preliminary injunction, permanent injunction, and damages. At the August 9, 1983 hearing, the district court found that the dispute between Merrill Lynch and Reilly arose out of the termination of Reilly's employment with Merrill Lynch and was subject to arbitration under New York Stock Exchange Rule 347. ⁴ The court further found that it lacked jurisdiction over the parties because the issue was not submitted to arbitration, and stayed all further proceedings in the action pending resolution of the underlying dispute by arbitration.

II.

A.

Merrill Lynch characterizes the issue in this proceeding as "whether the district court has the power to grant preliminary injunctive relief in order to maintain the status quo between the parties and to preserve the arbitration process to resolve the dispute." (Emphasis added.) (Petitioner's Brief in Support of Writ Pursuant to C.A.R. 21.) The respondent district court, on the other hand, contends that Merrill Lynch did not seek a temporary restraining order or preliminary injunction to maintain the status quo pending arbitration, but instead sought preliminary injunctive relief as "part and parcel to a full determination on the merits of Merrill Lynch's claim for equitable relief and money damages." In respondent's view, as set forth in the response to the rule to show cause, the issue is "[d]id the district court have jurisdiction over a lawsuit seeking equitable relief and money damages where the substance of the dispute between the parties was subject to binding arbitration pursuant to Rule 347 and the Constitution of the New York Stock Exchange." (Emphasis added.) We conclude that the issue before the district court and in this original proceeding is whether the district court had the authority to grant preliminary injunctive relief to preserve the status quo pending the outcome of arbitration.

At the district court hearing, Merrill Lynch argued that the arbitration agreement under the New York Stock Exchange Rule 347 did not apply, ⁵ and that even if the dispute were subject to arbitration, Merrill Lynch was entitled to a temporary restraining order pending resolution of the underlying dispute by arbitration. The record indicates that Merrill Lynch's counsel stated: "Even if this matter were an issue that could be arbitrated, this court does have jurisdiction to issue injunctive relief to maintain the status quo until the arbitration can be convened and the matter resolved." In a memorandum to the court, Merrill Lynch stated in part III: "Plaintiff is, nonetheless, entitled to injunctive relief to maintain the status quo pending arbitration." In our view, the issue whether the district court has the authority to grant preliminary injunctive relief to preserve the status quo pending resolution of the underlying controversy by arbitration was properly presented to the district court and is now before us in this original proceeding.

B.

In support of its argument that the district court lacks jurisdiction to grant preliminary injunctive relief where there is a binding and enforceable agreement to arbitrate, respondent cites a number of Colorado cases which it considers dispositive of the issue in this case. ⁶ However, these cases are inapposite to the issue in this case as we have characterized it and are not controlling.

In Merrill Lynch v. District Court, 190 Colo. 239, 545 P.2d 1035 (1976), this court addressed an issue similar, in some respects, to the issue in this case. There, plaintiff brought an action in district court to recover $5,500 in compensation from defendant, Merrill Lynch, for services rendered by plaintiff as an account executive. Merrill Lynch filed a motion to dismiss for lack of jurisdiction and, in the alternative, a motion to stay the proceedings, asserting that an agreement between the parties required that all controversies arising out of the employment of plaintiff be resolved by arbitration. In that case, we held in favor of Merrill Lynch, and stated:

"As contended by petitioner [Merrill Lynch], we hold that adjudication of the controversy between the parties must be resolved by arbitration, and that the district court is without jurisdiction in the case."

190 Colo. at 241, 545 P.2d at 1036 (emphasis added).

Our holding in Merrill Lynch, supra, did not address, however, the situation where, as here, plaintiff seeks preliminary injunctive relief to maintain the status quo pending arbitration of the substantive elements of his claim for relief. In Merrill Lynch, supra, plaintiff sought, in effect, a judicial resolution of the matter on the merits.

C.

The issue is one of first impression for this court. Merrill Lynch is not asking this court to fashion a rule granting district courts authority to resolve the merits of a dispute otherwise subject by agreement of the parties to arbitration. Merrill Lynch asks only that this court recognize, as other courts have recognized, the authority of district courts to grant preliminary injunctive relief to maintain the status quo between the parties pending arbitration of the dispute on the merits.

Respondent is incorrect in its view that district courts have no jurisdiction whatsoever with respect to matters which are subject to arbitration. We have recognized previously that courts have certain limited jurisdiction with respect to disputes that are subject by agreement of the parties to arbitration. For example, in Guthrie v. Barda, 188 Colo. 124, 533 P.2d 487 (1975), we recognized that district courts have jurisdiction to ascertain whether an arbitration clause is valid. See also Cordillera Corp. v. Heard, 200 Colo. 72, 612 P.2d 92 (1980) (the court can determine whether the right to arbitrate a dispute has been waived).

The fact that an action will be stayed pending the outcome of arbitration does not deprive a court of the power in the interim to preserve the status quo. Janmort Leasing, Inc. v. Econo-Car International, Inc., 475 F.Supp. 1282 (E.D.N.Y.1979). Indeed,...