William Cary Downing v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

MANSFIELD, Circuit Judge

(concurring):

I concur in Judge Winter’s carefully-considered discussion of Coudert v. Paine Web-ber Jackson & Curtis, 705 F.2d 78 (2d Cir. 1983), and in the result. However, I differ as to issues to be decided on remand.

I cannot agree that the issue on remand is whether to grant a declaratory judgment that New York Stock Exchange Form U-4 incorporates the Exchange’s rules into the broker’s employment agreement. In my view that would be an academic inquiry; it is settled that the Exchange’s rules constitute a binding contract among the signers, including registered representatives. See, e.g., Muh v. Newburger, Loeb & Co., 540 F.2d 970, 972-73 (9th Cir.1976); Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1211-12 (2d Cir.), cert. denied, 406 U.S. 949 , 92 S. Ct. 2045 , 32 L.Ed.2d 337 (1972); Axelrod *196 & Co. v. Kordich, Victor & Neufeld, 451 F.2d 838, 841 (2d Cir.1971); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367, 1369-70 (D.D.C.1972); Brown v. Gilligan, Will & Co., 287 F.Supp. 766, 769-70 (S.D.N.Y.1968). In each of these cases, the court held that the NYSE’s rules on arbitration are binding on all signatories. See also Case & Co. v. Board of Trade, 523 F.2d 355, 358 (7th Cir.1975) (rules of the Chicago Board of Trade are incorporated into every futures contract). After our ruling today on the scope of Coudert , any remand on this question can yield only one result — a finding that the parties have indeed agreed to submit this dispute to arbitration.

In my view the first question for the district court on remand is whether Merrill Lynch defaulted on its agreement to arbitrate; such a default would give the district court jurisdiction under 9 U.S.C. § 4 to compel arbitration, 1 as requested in paragraph 17 of the plaintiff’s complaint. I would note in this regard that the plaintiff’s failure to provide the five-day written notice required by § 4 would not prevent the district court from proceeding in this case, since Merrill Lynch quite clearly has received actual notice of the demand to arbitrate. See Merrill Lynch, Pierce, Fen-ner & Smith, Inc. v. Lecopulos, 553 F.2d 842, 845 (2d Cir.1977). Thus, I do not agree that “arbitration itself must await further steps by Merrill Lynch ...;” that is the very issue to be decided by the district court.

If the court does not compel arbitration on remand and the parties do not voluntarily submit to arbitration the court must address the plaintiff’s second claim for relief — contained in paragraph 20 of the complaint — which seeks a declaratory judgment that the non-competition clause of Downing’s agreement is void as against public policy. It is with respect to this issue that the “Fantacone letter,” which is set out in the margin, 2 establishes a concrete dispute. In “reminding” Downing of his noncompetition agreement, Merrill Lynch did not give any indication about where it would seek to enforce that agreement (i.e., in the courts or before the NYSE) and the letter can therefore have no bearing on the question of whether Merrill Lynch is in default on its *197 agreement to arbitrate. But the letter does establish Merrill Lynch’s intent to enforce that provision, and therefore gives the district court jurisdiction to consider Downing’s claim. Of course, the court might well find that it would be more appropriate to transfer the action under 28 U.S.C. § 1404 (a) to the district court in Savannah, Georgia, where all the events relevant to this litigation took place. Nevertheless, if arbitration should not be ordered or otherwise undertaken the enforceability of the non-competition agreement will be squarely before the district court on remand.

. Ҥ 4. Failure to arbitrate under agreement; petition to United States court having jurisdiction for order to compel arbitration; notice and service thereof; hearing and determination

“A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court ... for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days’ notice in writing of such application shall be served upon the party in default.... The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. ... If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. ...”

. “Dear Cary:

“I wish to remind you that, upon your entering our employ, you agreed that you would not disclose the names, addresses, or any other facts concerning the business of any of Merrill Lynch’s customers, and that you would not remove or copy any of Merrill Lynch’s records concerning its customers.

“We have no reason to believe that you have violated this trust, but we ask you to look through your papers and, if they contain any information concerning Merrill Lynch customers, that you return those papers to us so that we may have them for our files or destroy them if they are duplicates.

“At the same time and in the same agreement, you agreed that, should you leave Merrill’s employ, you would not for a period of twelve months solicit the securities business of any Merrill Lynch customer whom you served or whose name became known to you during your tenure at the Merrill Lynch office at which you were employed.

“Again, we have no information that suggests that you are not honoring this agreement, but we wish to call it to your attention so that you might not do so through inadvertence or oversight.

“We hope that you find your work with E.F. Hutton to be most rewarding.

Sincerely,

/S/ Louis T. Fantacone Louis T. Fantacone Resident Vice President”