Tullis v. Vose
| Decision Date | 01 August 1977 |
| Docket Number | No. 7346,7346 |
| Citation | 348 So.2d 1277 |
| Parties | Eli W. TULLIS, Edward F. Creekmore, Jr. and William Perry Brown, Sr. v. Alden H. VOSE, Jr., Individually and as Executor of the Estate of Charles B. Vose, and the New York Stock Exchange, Inc. |
| Court | Court of Appeal of Louisiana — District of US |
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Herschel L. Abbott, Jr., Edward B. Poitevent, II and Harry S. Hardin, III, New Orleans, for plaintiffs-appellants.
Deutsch, Kerrigan & Stiles, Robert G. Stassi, New Orleans, for defendant-appellee.
Before SAMUEL, REDMANN and LEMMON, JJ.
Plaintiffs, former general partners in the brokerage firm of Kohlmeyer & Company, filed suit against defendants, Alden H. Vose, Jr., individually and as executor of the estate of Charles B. Vose, and the New York Stock Exchange, Inc., seeking to enjoin arbitration before the Board of Arbitration of the New York Stock Exchange regarding the capital accounts of Kohlmeyer & Company in Liquidation. Defendants answered, denying plaintiffs' right to injunctive relief.
Following trial, there was judgment denying plaintiffs' prayer for injunctive relief. Plaintiffs have appealed from that judgment.
Kohlmeyer & Company was a Louisiana partnership in commendam. It did business primarily as a stock brokerage and underwriting firm. Its principal place of business was in New Orleans, and it was a member of the New York Stock Exchange, Inc. On October 5, 1973, the general partners voted to liquidate the partnership. Among the liquidators appointed to wind up the partnership affairs were Alden H. Vose, Jr., a defendant, and his brother, Charles B. Vose. On April 22, 1974, Charles B. Vose died and in due course Alden H. Vose, Jr. was appointed executor of his estate.
On April 29, 1974, two of the plaintiffs in this suit, Eli W. Tullis and Edward F. Creekmore, Jr., filed suit against the partnership in liquidation and its liquidators under the Louisiana Blue Sky Law seeking rescission of certain Secured Demand Notes and Secured Demand Note Collateral Agreements given by them to the partnership. These notes and agreements will be mentioned later in this opinion.
On May 24, 1974, the same plaintiffs filed suit against the partnership in liquidation and its liquidators seeking, among other things, an audit of the books of the partnership, homologation of the auditors' report, and a mandate that the liquidators sue all deficit partners to collect the sums by which they were in deficit.
Finally, on April 25, 1975, the partnership in liquidation filed a petition to arbitrate a dispute between it and defendant Vose with the Board of Arbitration of the New York Stock Exchange to determine whether memberships of Alden H. Vose and the estate of C. Baldwin Vose in the New York Stock Exchange and New York Cotton Exchange were assets of the partnership in liquidation. Vose answered the petition for arbitration and asserted various counterclaims against numerous persons including the three plaintiffs in this suit. These counterclaims, also to be determined by arbitration, sought (a) dismissal of the partnership's claim or determination of the proper amounts due by Vose and his late brother to be charged to their respective capital accounts in the partnership, (b) adjustment of the partnership books to eliminate any charges to the account of Charles B. Vose after his death and treatment of amounts owed Charles B. Vose as a partnership debt, and (c) establishment of the deficit of each partner and payment by each partner to the partnership in liquidation to satisfy claims of subordinated lenders and creditors.
Plaintiffs herein objected to arbitration of the subject matter of the counterclaims in New York, and consequently filed this suit to enjoin the arbitration proceedings.
The central issue for our determination is whether plaintiffs agreed to arbitrate the issues stated in the above-enumerated counterclaims before the Board of Arbitration of the New York Stock Exchange or whether they are entitled to have the subject matter of the arbitration determined by the courts of Louisiana.
Revised Statute 9:4201 1 provides arbitration agreements are valid as follows:
"A provision in any written contract to settle by arbitration a controversy thereafter arising out of the contract, or out of the refusal to perform the whole or any part thereof, . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (Emphasis added).
In the process of becoming a general partner of Kohlmeyer & Company, each of the plaintiffs executed an application for membership status in the New York Stock Exchange. All three applications were approved by the Exchange, and each of the plaintiffs was recognized as an allied member of the Exchange. Each application contained the following provision:
The constitution of the New York Stock Exchange 2 provides "Any controversy between parties who are members, allied members, member firms or member corporations shall, at the instance of any such party . . . be submitted for arbitration, in accordance with the provisions of the constitution and rules of the Board of Directors" of the New York Stock Exchange. At all pertinent times Kohlmeyer & Company was a member of the New York Stock Exchange.
On June 2, 1972, the Exchange revised certain rules dealing with capital contributions by partners of member firms. In order to document the amount of capital contributed to the partnership by each partner, the Exchange ruled that partners' capital contributions could no longer be represented directly by securities after June 1, 1973, but would have to be in the form of a Secured Demand Note, secured by pledge of securities of a specified market value accompanied by a Secured Demand Note Collateral Agreement on forms prescribed by the New York Stock Exchange. Such documents were executed by plaintiffs, Tullis and Creekmore, on April 6, 1973.
Paragraph XII(e) of the Secured Demand Note Collateral Agreements executed by them specifically provides that "any controversy arising out of or relating to this Agreement or the breach thereof, shall be submitted and settled by arbitration pursuant to the Constitution and Rules of the Exchange." This provision further contained language that the "parties hereto and all who make claim under them shall be conclusively bound by such arbitration."
Of particular importance is Article XVI(b) of the partnership agreement of Kohlmeyer & Company, which requires all partners to abide by the rules and regulations of any exchange of which the partnership or any partner may be a member. The partnership agreement provided a partner could be required to withdraw involuntarily from the partnership if he violates any such rule or regulation of a member...
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