Merrill Lynch, Pierce, Fenner & Smith, Inc. v. District Court In and For El Paso County

• Decision Date: 02 February 1976
• Docket Number: No. 26953,26953
• Citation: 190 Colo. 239,545 P.2d 1035
• Parties: MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Petitioner, v. DISTRICT COURT IN AND FOR the COUNTY OF EL PASO, and the Honorable George M.Gibson, one of the Judges of said court, Respondents.
• Court: Colorado Supreme Court

Page 1035

545 P.2d 1035

190 Colo. 239

MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Petitioner, v. DISTRICT COURT IN AND FOR the COUNTY OF EL PASO, and the

Honorable George M.Gibson, one of the Judges of

said court, Respondents.

No. 26953.

Supreme Court of Colorado, En Banc.

Feb. 2, 1976.

Holme Roberts & Owen, James T. Flynn, Richard R. Young, Colo. Springs, for petitioner.

Cole, Hecox, Tolley, Edwards & Hero, John Sabo, III, Colorado Springs, for respondents.

GROVES, Justice.

This is an original proceeding in the nature of a writ of prohibition. A rule to show cause was issued by this court, and we now make the rule absolute.

James G. Bryant brought an action in the district court in and for the County of El Paso against petitioners Merrill Lynch, Pierce, Fenner & Smith, Inc. (hereinafter 'Merrill Lynch'), to recover $5,500 in compensation for services rendered as an account executive on behalf of Merrill Lynch. Bryant alleges a right to recover from Merrill Lynch based upon that company's practice of paying its account executives on a basis of approximately 25% Of the sales they produce, and on the theories of Quantum meruit and unjust enrichment.

In response to the complaint filed by Bryant, Merrill Lynch filed a motion to dismiss for lack of jurisdiction and, in the alternative, to stay the proceedings asserting that an agreement between the parties required that all controversies arising out of the employment of Bryant be resolved by arbitration.

Merrill Lynch was a member firm of the New York Stock Exchange (hereinafter 'the Exchange'), and Bryant was a registered representative but a non-member of the Exchange. Bryant and Merrill Lynch executed a document denominated 'Application (to the Exchange) for Approval of Employment.' The portion of this application which was signed by Bryant contained the following provision:

'I agree that any controversy between me and any member or member organization or affiliate or subsidiary thereof arising out of my employment or the termination of my employment shall be settled by arbitration At the instance of any such party in accordance with the arbitration procedure prescribed in the Constitution and rules then obtaining of the New York Stock Exchange, Inc.' (Emphasis added)

Section 1 of Article VIII of the constitution of the Exchange provides as follows:

'Any controversy between parties who are members, allied members, member firms or member corporations shall, at the instance of any such party, 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 * * * shall, At the instance of such non-member, be submitted for arbitration, In accordance with the provisions of the Constitution and the Rules of the Board of Directors.' (Emphasis added)

Furthermore, rule 347(b) of the Exchange states as follows:

'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.' (Emphasis added)

The court ruled that the above quoted constitutional provision was clear in stating that the arbitration could be invoked only by a non-member (Bryant), not by the member firm (Merrill Lynch), and that Merrill Lynch, therefore, could not require arbitration proceedings. The court's order did not mention rule 347(b). The court ruled in favor of Bryant; I.e., it required the case to proceed. As contended by petitioner, 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.

I

Respondents (acting through Bryant's attorneys) argue: that the document submitted to the Exchange does not require Bryant to institute arbitration proceedings, but merely requires that controversies arising out of his employment shall be settled in accordance with the procedures prescribed in the constitution and rules of the Exchange; that the agreement itself cannot amend or change the Exchange's constitution; that, since the constitution provides for arbitration of controversies only at the instance of non-members, a non-member cannot be forced to institute arbitration proceedings; and that the court did not, and could not consider rule 347(b) because Merrill Lynch failed to provide the court with it.

There was no evidentiary record. Both the Exchange's constitutional provision and rule 347((b) came from the briefs. The court had the rule before it in the same manner as it had the constitutional provision.

The fundamental proposition in this matter is that Bryant, in the document submitted to the Exchange, agreed to arbitrate any dispute arising out of the employment. The rules were to be as prescribed by the Exchange. The fact that the Exchange's constitution did not provide for arbitration at the behest of a non-member, does not defeat Bryant's agreement to arbitrate, particularly, in the light of rule 347(b).

Rule 347(b) provides for arbitration at the instance of either the member or the non-member. This...