Stokes v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 74-2076

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Writing for the CourtBefore WEICK, CELEBREZZE and ENGEL; ENGEL
Citation523 F.2d 433
Docket NumberNo. 74-2076
Decision Date30 September 1975
PartiesJohn L. STOKES and L. Jack Powell, Plaintiffs-Appellants, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant-Appellee.

Page 433

523 F.2d 433
John L. STOKES and L. Jack Powell, Plaintiffs-Appellants,
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant-Appellee.
No. 74-2076.
United States Court of Appeals,
Sixth Circuit.
Argued April 10, 1975.
Decided Sept. 30, 1975.

Page 434

Hal Gerber, Gerber & Gerber, Memphis, Tenn., for plaintiffs-appellants.

Jesse E. Johnson, Jr., Burch, Porter & Johnson, Memphis, Tenn., for defendant-appellee.

Before WEICK, CELEBREZZE and ENGEL, Circuit Judges.

ENGEL, Circuit Judge.

At issue in this appeal is whether the district court correctly applied the United States Arbitration Act of 1925 1 to stay proceedings pending arbitration in an action for amounts allegedly owed plaintiffs under a profit sharing plan initiated by plaintiffs' former employer, and for declaratory judgment that a portion of that profit sharing plan is void under Tennessee law. We conclude that the Arbitration Act was correctly applied, and thus affirm the order of the district court.

Plaintiffs-appellants Stokes and Powell were "account executives" formerly employed with defendant-appellee Merrill Lynch, Pierce, Fenner and Smith, Inc. Stokes was employed with that firm from 1961 to 1970 and Powell from 1965 to 1968. Plaintiffs' joint complaint filed in the Chancery Court of Shelby County, Tennessee, alleged those facts and further alleged that each had voluntarily resigned his employment with Merrill Lynch and had obtained "other employment with competing stock brokerage firms in the City of Memphis, Tennessee". Plaintiffs' complaint further alleged full performance of all the conditions of their employment and their participation in the "Merrill Lynch Profit Sharing Plan for Employees", Article 11 of which provides:

ARTICLE 11

Forfeiture of Benefits

11.1 A Participant who, in the determination of the Committee, voluntarily terminates his employment with the Corporation or provokes his termination and engages in an occupation which is, in the determination of the Committee, competitive with the Corporation, or any affiliate or subsidiary thereof, shall forfeit all rights to any benefits otherwise due or to become due from the Trust Fund with respect to units credited for fiscal years subsequent to the fiscal year ended December 30, 1960.

Plaintiffs alleged that during their employment certain amounts were credited to their respective accounts and that, pursuant to Articles 5 and 8 of the Plan, such profit sharing "units" became vested and payable upon severance of employment. Plaintiffs averred that Stokes had accumulated approximately $40,000 and Powell, approximately $3,000 in such units. Plaintiffs claimed that a controversy existed between the parties concerning their legal rights under the profit sharing plan; they further claimed that Article 11.1 is unlawful and void under Tennessee law for several reasons. 2

Plaintiffs prayed for a declaratory judgment "declaring the right, duties and obligations of the defendant toward plaintiffs arising out of their employment relationship and the profit sharing plan and adjudicating their participation in the plan as part of their employment relationship; that Article 11.1 of the plan is unlawful and void under Tennessee

Page 435

law and that plaintiffs are entitled to receive all vested profit sharing units credited to their respective accounts for the entire period of their employment. And for all other general and special relief to which they may be entitled."

Without answering the complaint, Merrill Lynch removed the action to the United States District Court for the Western District of Tennessee based upon the undisputed diversity of citizenship existing between the parties. The removal was timely and no motion to remand was made by either plaintiff. Thereupon Merrill Lynch filed in the district court a motion pursuant to § 3 of the Arbitration Act, 9 U.S.C. § 3, 3 to refer the issues in the law suit to arbitration. The motion for stay alleged the plaintiffs had agreed in writing in connection with their employment to abide by the rules of the Board of Governors of the New York Stock Exchange, Rule 347(b) of which 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."

In their response to the motion to stay proceedings, the plaintiffs acknowledged that they had each submitted an application to the Exchange for approval of employment as a registered representative with Merrill Lynch and had agreed to submit themselves to the jurisdiction of the Exchange and to abide by all existing rules and amendments thereto including Rule 347(b). They denied, however, that their dispute was an arbitrable dispute within the meaning of § 347(b) and denied that their institution of legal proceedings in the Tennessee court violated their agreement.

In a concise memorandum decision, District Judge Bailey Brown granted the stay pending arbitration, ruling that the present case was squarely controlled by the Supreme Court decision in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). Plaintiffs have appealed from this order.

Three issues are presented on this appeal. Plaintiffs first contend that the case was improperly removed from the state court. They cite § 22 of the Securities Act of 1933, 15 U.S.C. § 77v, which provides in part:

"No case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States."

Plaintiffs claim that their interest in the defendant's profit sharing plan is a "security" within the meaning of the 1933 Act, cf. Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967), and that therefore the case was improperly removed to federal court.

We find plaintiffs' contention to be without merit. We note first that nowhere in the complaint have plaintiffs stated a claim "arising under" the 1933 Act. Thus it is difficult to see how § 77v is applicable. In any event, we hold that plaintiffs have waived any right to complain that the removal was improper by their failure to raise the issue by motion to remand in the district court.

No issue concerning the propriety of the removal of this action was raised

Page 436

until this appeal. By its terms, § 77v provides for concurrent original jurisdiction in actions brought under the 1933 Act in both the state and federal courts. Thus the district court would have had jurisdiction had the action been brought originally in federal court. In such a case, not involving the jurisdiction of the federal court, a failure to timely object to improper removal waives the objection. Baggs v. Martin,179 U.S. 206, 21 S.Ct. 109, 45 L.Ed. 155 (1900), Hackler v. Indianapolis and Southeastern...

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39 practice notes
  • Barrowclough v. Kidder, Peabody & Co., Inc., No. 83-5777
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • January 18, 1985
    ...employment" of the registered representative are subject to arbitration. See, e.g., Stokes v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 523 F.2d 433, 437 (6th Cir.1975) (profit sharing plan). 14 The dispute over Barrowclough's deferred compensation patently arises out of and relates to h......
  • Medlin v. Boeing Vertol Co., No. 79-1027
    • United States
    • U.S. Court of Appeals — Third Circuit
    • April 22, 1980
    ...and independent" claims for purposes of 28 U.S.C. § 1441(c) is not clear. Compare Stokes v. Merrill Lynch, Pierce, Fenner & Smith, 523 F.2d 433, 437-38 (6th Cir. 1975); Northside Iron & Metal Co. v. Dobson & Johnson, Inc., 480 F.2d 798, 801 (5th Cir. 1973); Lowenschuss v. Gulf & Western Ind......
  • Gilmer v. Interstate Johnson Lane Corporation, No. 90-18
    • United States
    • United States Supreme Court
    • May 13, 1991
    ...1972); Tonetti v. Shirley, 219 Cal.Rptr. 616, 618, 173 Cal.App.3d 1144 (1985); see also Stokes v. Merrill Lynch, Pierce, Fenner & Smith, 523 F.2d 433, 436 (CA6 1975). We implicitly assumed as much in Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), where we held that th......
  • Fletcher v. Kidder, Peabody & Co., Inc.
    • United States
    • New York Court of Appeals
    • July 9, 1993
    ...Tonetti v. Shirley, 219 Cal.Rptr. 616, 618, 173 Cal.App.3d 1144 (1985); see also Stokes v. Merrill Lynch, Pierce, Fenner & Smith, 523 F.2d 433, 436 (CA6 1975). We implicitly assumed as much in Perry v. Thomas, 482 U.S. 483 [107 S.Ct. 2520, 96 L.Ed.2d 426] (1987), where we held that the FAA ......
  • Request a trial to view additional results
39 cases
  • Barrowclough v. Kidder, Peabody & Co., Inc., No. 83-5777
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • January 18, 1985
    ...employment" of the registered representative are subject to arbitration. See, e.g., Stokes v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 523 F.2d 433, 437 (6th Cir.1975) (profit sharing plan). 14 The dispute over Barrowclough's deferred compensation patently arises out of and relates to h......
  • Medlin v. Boeing Vertol Co., No. 79-1027
    • United States
    • U.S. Court of Appeals — Third Circuit
    • April 22, 1980
    ...and independent" claims for purposes of 28 U.S.C. § 1441(c) is not clear. Compare Stokes v. Merrill Lynch, Pierce, Fenner & Smith, 523 F.2d 433, 437-38 (6th Cir. 1975); Northside Iron & Metal Co. v. Dobson & Johnson, Inc., 480 F.2d 798, 801 (5th Cir. 1973); Lowenschuss v. Gulf & Western Ind......
  • Gilmer v. Interstate Johnson Lane Corporation, No. 90-18
    • United States
    • United States Supreme Court
    • May 13, 1991
    ...1972); Tonetti v. Shirley, 219 Cal.Rptr. 616, 618, 173 Cal.App.3d 1144 (1985); see also Stokes v. Merrill Lynch, Pierce, Fenner & Smith, 523 F.2d 433, 436 (CA6 1975). We implicitly assumed as much in Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), where we held that th......
  • Fletcher v. Kidder, Peabody & Co., Inc.
    • United States
    • New York Court of Appeals
    • July 9, 1993
    ...Tonetti v. Shirley, 219 Cal.Rptr. 616, 618, 173 Cal.App.3d 1144 (1985); see also Stokes v. Merrill Lynch, Pierce, Fenner & Smith, 523 F.2d 433, 436 (CA6 1975). We implicitly assumed as much in Perry v. Thomas, 482 U.S. 483 [107 S.Ct. 2520, 96 L.Ed.2d 426] (1987), where we held that the FAA ......
  • Request a trial to view additional results

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