Smith Barney Shearson, Inc. v. Finstad

• Decision Date: 13 October 1994
• Docket Number: No. 01-94-00575-CV,01-94-00575-CV
• Citation: 888 S.W.2d 111
• Parties: SMITH BARNEY SHEARSON, INC., Successor to Shearson Lehman Brothers, Inc., Debbie Haines, Arthur Kieval, Andrew Shea, and David Standridge, Appellants v. Harold FINSTAD, Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 111

888 S.W.2d 111

SMITH BARNEY SHEARSON, INC., Successor to Shearson Lehman Brothers, Inc., Debbie Haines, Arthur Kieval Andrew Shea, and David Standridge, Appellants v. Harold FINSTAD, Appellee.

No. 01-94-00575-CV.

Court of Appeals of Texas Houston (1st Dist.).

Oct. 13, 1994.

Order Overruling Motion for Rehearing

Nov. 23, 1994.

Jack D. Ballard, A. Ross Rommel, and Maria D. Dickson, Houston, for appellants.

Barry L. Racusin and Jon M. Wagner, Houston, for appellee.

Before HUTSON-DUNN, ANDELL and PRICE ¹, JJ.

OPINION

HUTSON-DUNN, Justice.

Appellants (collectively, "Shearson") ² bring this accelerated appeal from an interlocutory order denying their motion to compel arbitration. We affirm in part, and reverse and remand in part.

Before reaching the merits of this case, we must dispose of two preliminary issues: 1) our jurisdiction to consider this interlocutory appeal; and 2) whether the trial court was required to make findings of fact and conclusions of law in this case.

JURISDICTION

The first issue this Court must resolve is whether we have jurisdiction to consider this interlocutory appeal. Interlocutory orders may be appealed only if permitted by statute. Cherokee Water Co. v. Ross, 698 S.W.2d 363, 365 (Tex.1985). The Texas Arbitration Act specifically permits an interlocutory appeal from an order denying a motion to compel arbitration under that act. TEX.REV.CIV.STAT.ANN. art. 238-2(A)(1) (Vernon 1973). However, claims brought under the Federal Arbitration Act may not be appealed under article 238-2; a writ of mandamus is required to allow a Texas court to review an order refusing to compel arbitration under the Federal act. Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex.1992).

Appellee (Finstad) argues that we may not hear this case because Shearson's claims are under the Federal Arbitration Act. However, Shearson's motion to compel was filed pursuant to both the federal and the state arbitration acts. There is no indication which act the trial court applied in reaching its decision.

In Anglin, the court recognized that a party alleging entitlement to arbitration under both acts is burdened with the need to pursue parallel proceedings--an interlocutory appeal under the state act and a mandamus under the federal act. Id. at 272. By choosing to pursue only an interlocutory appeal, we presume that appellants have elected to seek arbitration only under the Texas Arbitration Act. Neither party has seriously contended that the Texas Arbitration Act is inapplicable to this case. We have jurisdiction to consider interlocutory appeals from orders denying arbitration under the state act.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Appellants ask that we abate this proceeding and remand it to the trial court for entry of findings of fact and conclusions of law. Shearson argues that an evidentiary hearing was held before the trial court on the motion to compel arbitration, that they timely requested findings of fact and conclusions of law, and that the trial court denied their request.

The trial court is not required to enter findings of fact and conclusions of law in an accelerated appeal. Wetzel v. Sullivan, King & Sabom, P.C., 745 S.W.2d 78, 79 (Tex.App.--Houston [1st Dist.] 1988, no writ); TEX.R.APP.P. 42(a)(1). Therefore, the trial court did not err by refusing to enter findings of fact and conclusions of law. Appellant's request that we abate and remand this case is denied.

BACKGROUND

Finstad was employed as a stockbroker by Shearson from June 1, 1987, until April 14, 1992, when he was terminated. Shearson claims that Finstad was fired because the branch manager discovered that Finstad had recommended numerous investments that were unsuitable for his clients, and had failed to cooperate with Shearson's auditors during a branch examination. Finstad contends that he was fired because Shearson discovered that he was seeking other employment, and Shearson intended to prevent his pension rights from vesting.

As a result of this dispute, Finstad filed the present action alleging slander, civil conspiracy, and intentional infliction of emotional distress. Shearson filed a general denial, and a motion to compel arbitration and stay the pending litigation. The trial court denied Shearson's motion, and Shearson filed this appeal.

APPLICABLE PRINCIPLES OF LAW

We begin by noting that arbitration proceedings are favored by Texas law. Brazoria County v. Knutson, 176 S.W.2d 740, 743 (Tex.1943). Doubts as to the scope of the arbitration agreement should be resolved in favor of arbitration. Merrill Lynch, Pierce Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex.App.--Waco 1992, writ denied). A court deciding a motion to compel arbitration must determine whether the parties agreed to arbitrate, and, if so, the scope of the arbitration agreement. Merrill Lynch, Pierce, Fenner & Smith v. Longoria, 783 S.W.2d 229, 230 (Tex.App.--Corpus Christi 1989, no writ). Therefore, two questions must be decided: (1) Was there an agreement to arbitrate?; (2) Does the agreement encompass the claims asserted? Eddings, 838 S.W.2d at 878. If the court answers these two questions affirmatively, it must compel arbitration. Id.

Both Shearson and Finstad agree that a valid arbitration agreement exists. The only issue remaining is whether Finstad's claims are covered by the arbitration agreement.

APPELLEE'S CLAIMS

In his original petition, Finstad has a nine-page section entitled "Factual History." In this section, Finstad details the alleged actions of appellants giving rise to this lawsuit. He then alleges that these actions give rise to causes of action for slander, civil conspiracy, and intentional infliction of emotional distress. The actions complained of are as follows:

(1) Shearson pressured Finstad to recommend to his clients certain securities sponsored by Shearson;

(2) Appellant Haines, an administrative assistant at Shearson, told a recently transferred Shearson stockbroker that Finstad was a "disgusting loser," who was "running a chain of black hookers out of his office." These statements were allegedly repeated to brokers at other Shearson offices, outside stockbrokers, and to the general public. Haines also allegedly repeated the "black hooker" story at a party attended by Shearson stockbrokers, and added that Finstad "was unethical", and "probably got weekly shots for every disease known to man;"

(3) Shearson fired Finstad, gave him only one hour to move out of his office, and refused to allow him to make copies of his personal and business records, and lists of clients;

(4) After Finstad's termination, Shearson filed two Form U-5s with the NASD which allegedly contained incorrect descriptions of the terms upon which several client complaints against Finstad had been resolved;

(5) Shearson told its stockbrokers that Finstad had been fired for "cause," and instructed them to tell Finstad's clients such;

(6) When one of Finstad's clients asked whether he had done something illegal, a Shearson representative replied, "You might say that." Shearson also told the client that Finstad had been fired for cause and for assigning stock to the wrong client accounts; and

(7) Shearson filed a false 1099-OID form with the IRS which indicated that Finstad had earned in excess of $36,000 of original issue discount income in 1990. By filing this form Shearson cause Finstad to be audited by the IRS.

THE ARBITRATION AGREEMENTS

We must now decide whether the claims listed above are encompassed by the arbitration agreement. When Finstad began working at Shearson, he signed a Form U-4 arbitration agreement that provides:

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, constitution, or by-laws of the organizations indicated in item 10 as may be amended from time to time.

Item 10, referred to in the clause above, indicates that Finstad is registered with the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE). Therefore, the rules of those two organizations govern which disputes must be resolved by arbitration. The NASD Code of Arbitration Procedure provides:

Any dispute, claim or controversy eligible for submission under Part 1 of this Code between or among members and/or associated persons and/or certain others, arising in connection with the business of such member(s) or in connection with the activities of such associated person(s), shall be arbitrated under this Code....

NASD Code 8(a) (emphasis added). The NASD Code also provides for the arbitration of "any dispute, claim or controversy arising out of or in connection with the business of any member of the association" between certain categories of companies of individuals. NASD Code § 1 (emphasis added).

The NYSE Constitution provides for arbitration of disputes "arising out of the business of [a] member." NYSE Constitution, art. XI, § 1 (emphasis added). The Rules of the NYSE also provide:

Any controversy between a registered representative and any member or member organization arising out of the employment or termination of employment of a registered representative by and with such member or member organization shall be settled by arbitration....

NYSE Rule 347 (emphasis added).

Both parties admit that they are bound by these arbitration clauses. Therefore, the only issue before this Court is whether Finstad's claims arise out of the business of Shearson, or the employment or termination of Finstad.

ANALYSIS

The above referenced arbitration clauses are quite common in the securities industry, and have often been interpreted by the federal courts, which have held that claims involving "significant aspects of the employment relationship" are arbitrable. Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047, 1053 (2nd Cir.1989); Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d 1163, 1167 (...