Opposition Brief — Spear, Leeds & Kellogg v. Central Life Assurance Co.

Supreme Court, U.S.

- se . ae ae

In The

Supreme Court of the U

October Term, 1996

7

SPEAR, LEEDS & KELLOGG,

Petitioner,

CENTRAL LIFE ASSURANCE COMPANY,

ALEXANDER HAMILTON LIFE INSURANCE

COMPANY OF AMERICA, INC., AND

CANADA LIFE ASSURANCE CO.,

Respondents.

S

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Second Circuit

7

RESPONDENTS’ BRIEF IN OPPOSITION

°

JouN J. PHevan, Il

JouNn J. Puevan, IIL, P.C.

1414 Sixth Avenue

New York, NY 10019

Telephone: (212) 688-8088

Telecopier: (212) 838-9534

]. Micuast VAUGHAN*

Heri R. Younes

Rosert R. BARTON

Weisenrets & VAUGHAN, P.C.

1111 Main Street

Tenth Floor - Harzfelds Building

P.O. Box 13585

Kansas City, MO 64199-3585

Telephone: (816) 421-5000

Telecopier: (816) 474-5500

Attorneys for Respondents

* Counsel of Record

wena yg A hy le ge Sine

OR CALL COLLBCT (402) 342-283

QUESTION PRESENTED

Whether under provisions of the New York Stock

Exchange, Inc. (“NYSE”) Constitution and Rules, NYSE

members are compelled to arbitrate claims of any other

person, including non-members of the NYSE, where the

dispute arises out of or in connection with the business of

the member.

ii

RULE 29.6 STATEMENT

Respondents Central Life Assurance Company (now

known as AmerUs Life Insurance Company), Alexander

Hamilton Life Insurance Company of America, Inc. and

Canada Life Assurance Company hereby state the follow-

ing:

1. Central Life Assurance Company (now known as

AmerUs Life Insurance Company) states that Ameri-

can Mutual Holding Company owns AmerUs Group

Company which in turn owns AmerUs Life Insurance

Company, which has no nonwholly owned subsid-

iaries.

2. Canada Life Assurance Company states that it has no

parent company and no nonwholly owned subsid-

iaries.

3. Alexander Hamilton Life Insurance Company of

America, Inc., states that it is a wholly-owned subsid-

iary of Jefferson-Pilot Corporation. It has no non- |

wholly owned subsidiaries. |

ili

TABLE OF CONTENTS

Page

So gy 8 Oy a oe ree ree i

RIA OVD UPREGUMEMEE 65 ce chee sasiecccrvbsneececs ii

pe Ge ely «oy. Bes aera ern iv

STATUTES AND REGULATIONS INVOLVED ...... 1

ee CM MEO CME sn iessnscckesserisvaces 1

REASONS FOR DENYING THE WRIT............. 7

I. THE QUESTION PRESENTED INVOLVES

WELL-SETTLED PRINCIPLES OF ARBITRA-

TION LAW AND DOES NOT INVOLVE A

QUESTION NEEDING REVIEW BY THIS

SU CEC 45S Oa haw Fond SAN Re 5% Sreseensas 7

Il. THE SECOND CIRCUIT’S DECISION DID

NOT EXPAND THE ARBITRATION DUTIES

ogee 2 RES ee eo ene re 9

Il. THE SECOND CIRCUIT’S DECISION DOES

NOT EXTEND THE INTENT OF THE PARTIES

IN CONTRAVENTION OF THE LIMITS ON

ARBITRABILITY UNDER THIS COURT'S

i A te EE er er errr 12

IV. THE SECOND CIRCUIT’S DECISION IS NOT

CONTRARY TO ANY OTHER CIRCUIT ..... 13

Seka che haku 56 ia se4s 5 000s dan sea 15

iv

TABLE OF AUTHORITIES

Page(s)

CASEs:

AT&T Technologies, Inc. v. Communications Workers

of America, 473 U.S. G43. (1906). 0. ons sees snescss 10

Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213

CREE Sc bckwk bh 090s dy a 6 ke RRA ARON Cae Rha oe 8

First Options of Chicago, Inc. v. Kaplan, ___ U.S. __,

SSD TK Be SR OOE ine n cc kaewalises 66a ea cee a. 33

Gordon v. New York Stock Exchange Inc., 422 U.S.

Bt sf RR RS ahr es aera oc Gk a, er er ee 12

Mastrobuono v. Shearson Lehman Hutton, Inc.,

ae 2 gn ees Be MEO 6 Gece cb Ceo Seres 8

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware,

COE Mes BA Cees ayn k Cte baer eras ae pawn cen 11

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Geor-

eramen, FOS Fide 809 (20 Git. BORG). ins scans evs enss 9

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

og Rte SS i. | Reem ye ers ree are G, toy ae

Moses H. Cone Memorial Hospital v. Mercury Con-

siemetion Caew, S60 U.S. & CEPR svc ik xc khene's devices 8

Nomura Securities International, Inc. v. Citibank, 81

N.Y.2d 614, 601 N.Y.S. 2d 448 (1993).............. 12

Pearce v. E.F. Hutton Group, Inc., 828 F.2d 826 (D.C.

Os Wy Tare ote Ot Op rr Oe, Gee ene yar PA 15

Perry v. Thomas, 482 U.S. 483 (1987)...............-. 12

Prima Paint Corp. v. Flood & Conklin Manufacturing

be, SEI GAs TS pas a as ea ae ia ceca 10

Shearson/American Exp., Inc. v. McMahon, 482 U.S.

vr Bag See Se OES Serres ees ees 8, 12

v

TABLE OF AUTHORITIES - Continued

Page(s)

Silver v. New York Stock Exchange, 373 U.S. 34i

CRIs 5.05 e's nana Sp aaisk no opens HOUWAESES Kite anaes 11

United States Steelworkers of America v. American

Manufacturing Company, 363 U.S. 564 (1960)....... 10

Volt Information Sciences, Inc. v. Board of Trustees of

Leland Stanford Junior Univ., 489 U.S. 468 (1989) .... 13

Wheat, First Securities, Inc. v. Green, 993 F.2d 814

CEU Soe Bea & hk bb er ew cewek ete etieeesioks 13, 14

STATUTES AND Court RUuLEs:

Rasa Se va bk ss hoe cbe ak oe eked ere eoe eis baa 6

Be Sees He APES B'S a's BERK ale Od ER t, ia

Supreme Court Rule 14(1)(g)...............ceccceeees 1

New York Stock ExCHANGE CONSTITUTION AND RULES:

PERE TEs SE Pele TE By sate ss ba ve we cueeeeee 8, 10

Oe es ME EA Fs Gas ok vo cic nacenbanes 5. 10, Ti, 14 3

MISCELLANEOUS:

National Association of Securities Dealers, Inc.

Code of Arbitration Procedure, Sections 1, 12(a).... 14

STATUTES AND REGULATIONS INVOLVED

In addition to those cited by Petitioner this respon-

sive brief also cites 15 U.S.C. § 78s(c), which reads as

follows:

(c) Amendment by Commission of rules of

self-regulatory organizations

The Commission, by rule, may abrogate,

add to, and delete from (hereinafter in this

subsection collectively referred to as

“amend”) the rules of a self-regulatory

organization (other than a registered clear-

ing agency) as the Commission deems nec-

essary Or appropriate to insure the fair

administration of the self-regulatory orga-

nization, to conform its rules to require-

ments of this chapter and the rules and

regulations thereunder applicable to such

organization, or otherwise in furtherance of

the purposes of this chapter, in the pur-

poses of this chapter, in the following man-

ner: (Subparagraphs (1)-(4) omitted)

S

STATEMENT OF THE CASE

The Statement presented by Petitioner Spear, Leeds &

Kellogg (“SLK”) is argumentative, incomplete and fails to

adhere to the requirements of Rule 14(1)(g). For those

reasons respondents submit the following Statement of

the Case, including the procedural history and the deci-

sions of the courts below.

I. Statement of Facts

Marvin Goodman, reputedly a successful commodi-

ties trader for himself and a number of other persons in

his unregistered commodity pool, perpetrated a fraud of

massive proportions on his commodity pool members

and a number of life insurance companies, including the

respondents. Like so many of the notorious financial

frauds of our time, Goodman was able to perpetrate this

fraud through the use of false and secret accounts sanc-

tioned by SLK who played a vital and necessary role in

Goodman’s fraud. SLK held accounts for Goodman’s pool

members and prepared and mailed monthly account

statements that substantially overstated the value of the

pool members’ “segregated funds” in and cash additions

to those accounts. Goodman used these same fraudulent

SLK monthly account statements to justify his need for

additional life insurance issued by the respondents.

SLK —- as a registered futures commission merchant

and a member of the New York Stock Exchange (“NYSE”)

-— agreed upon joining the NYSE to act in accordance with

its Constitution and Arbitration Rules. Respondents,

three life insurance companies, are not members of the

Exchange, but have demanded arbitration pursuant to the

Exchange’s Constitution and Rules.

In November 1990 Goodman’s fraudulent scheme

faced a potentially fatal dilemma when he moved his

commodity accounts from Balfour Maclain Futures, Inc.

(a registered futures commission merchant). Without

another broker, legitimately appearing accounts and

account statements for his commodity pool members

would have ceased. The fraudulent scheme continued

ee

and expanded because Goodman was allowed to open, at

SLK, accounts (approximately 86) for Goodman and his

commodity pool members.

Goodman’s clients’ accounts were listed on SLK

records as “sub-accounts” of Goodman’s account. As

such, the accounts were allegedly charged a lower com-

mission rate. Professing concern that should he die sud-

denly, delays in the probate of his estate might create

certain risks in his sub-account arrangement, Goodman

purchased life insurance and put it in irrevocable trusts

so that upon his death his clients would immediately be

paid the equity balances in their accounts. At the end of

1990 the trusts held $20 million of life insurance on

Goodman's life.

Because of his expanding commodity trading busi-

ness, Goodman set out in 1991 to augment this life insur-

ance plan. The three respondent insurance companies

were persuaded to issue additional life insurance policies

totalling $3 million. To obtain this additional insurance

Goodman provided respondents with detailed financial

information regarding his accounts at SLK. Respondents

were shown the broker’s account statements that were

sent to Goodman’s commodity pool members, with sig-

nificant positive account balances held in “segregated

funds” of between $17.5 and $20.5 million. The true

account values, it is now conceded, were actually closer

to $2 million.

Goodman’s plans for the protection of his clients’

financial security did protect them on his untimely death,

but for the respondent insurance companies, Goodman’s

plans proved to be fraudulent. According to the respon-

dents’ statement of claim filed in arbitration before the

NYSE, SLK’s fraudulent account statements empowered

Goodman's fraud to continue, not only upon his pool

members, but also on respondents. These account state-

ments provided a basis and justification for the additional

insurance issued by respondents to Goodman.

According to the respondents, the monthly profits

noted in the sub-account statements were illegitimate, a

reflection of “arbitrary and concocted directions” from

Goodman that bore no relation to his actual trading. The

insurance companies further allege that the broker made

numerous errors in maintaining its account records. It did

not segregate the balances of Goodman’s sub-accounts, as

shown on the face of the statements, but instead inter-

nally listed the accounts on a “net basis,” deducting from

the aggregate sub-account values a secret account that

carried a substantial debit balance. Hence, SLK is charged

by respondents with preparing and mailing misleading

and false monthly statements that misrepresented Good-

man’s trading activities and the reality of his financial

condition.

In August 1991 the NYSE, while conducting a routine

investigation, discovered Goodman's fraud. Jeffrey Zinn,

an Exchange investigator, was alerted by the unusual

number of sub-accounts (approximately 86) that Good-

man had with SLK. The broker stated it knew only of

Goodman's interest in the accounts, but it acknowledged

mailing statements concerning the many sub-accounts to

others. Although SLK had the names and addresses for

mailing purposes, it maintained no opening account doc-

uments establishing these sub-accounts.

The Commodity Futures Trading Commission (Com-

mission) also instituted an enforcement action and froze

Goodman's assets. On December 17, 1991, before the

conclusion of the Commission’s proceedings, Goodman

died. Accordingly, under the terms of the insurance

trusts, Goodman’s investment clients received payments

from the insurance companies equal to the reported

equity the clients thought they had in the SLK sub-

accounts. Respondents argue that these insurance monies

saved Goodman’s clients, the individual victims of the

fraud, from any loss, and in fact provided SLK with a

windfall because, but for the insurance proceeds that

satisfied payment of SLK’s false account values, SLK

would have been responsible for those reported “segre-

gated funds” with an ending aggregate balance in excess

of $20 million.

For its role in this tale of financial fraud, SLK was

charged with violations of NYSE rules and the rules and

regulations of the Commodity Futures Trading Commis-

sion. SLK consented to the imposition of a $75,000 fine

and censure by the NYSE. The Commission also reached

am agreement with SLK in which the broker consented to

a $325,000 penalty and its managers were fined and sus-

pended for their activities in connection with Goodman's

accounts.

Il. Procedural History

These developments led to three actions by the par-

ties. On December 15, 1993, respondents filed an arbitra-

tion proceeding against petitioner SLK by filing a

Statement of Claim before the NYSE alleging negligent

misrepresentation, fraud and conspiracy, negligence,

equitable subrogation and RICO violations, all arising out

of the business of SLK. Thereafter, on or about February

8, 1994, SLK filed its complaint in the United States

District Court for the Southern District of New York,

seeking in part a preliminary injunction enjoining respon-

dents from compelling SLK to arbitrate before the NYSE,

on the grounds that the dispute among SLK and respon-

dents was not arbitrable before the NYSE.

The following week respondents filed a petition to

compel SLK to arbitrate pursuant to 9 U.S.C. § 4 in the

United States District Court for the District of Nebraska.

Thereafter, respondents agreed to a voluntary stay of that

action pending the outcome in New York. (Respondents

did not seek a stay of the New York action under the

Federal Arbitration Act because that court did not have

the authority to compel arbitration in Omaha, Nebraska,

the situs of the hearing in the NYSE proceeding, i.e. the

city where the NYSE holds hearings closest to Central

Life’s home office). As a result, the parties stipulated that

the issue of arbitrability would be decided in the New

York federal district court.

On March 30, 1995, the New York district court

entered an order granting SLK’s motion for preliminary

injunction enjoining respondents ‘rom compelling SLK to

arbitrate finding, inter alia, that there was an insufficient

relationship between the parties to render the matter

arbitrable before the NYSE.

On appeal the Second Circuit reversed. It held that

the controversy fell within the scope of a valid arbitration

agreement between the parties and therefore the district

court had erred in granting a preliminary injunction bar-

ring arbitration.

REASONS FOR DENYING THE WRIT

Introduction

The Second Circuit's decision requiring arbitration of

the dispute between SLK and respondents involved only

application of this Court’s well-settled arbitration law;

did not enlarge upon any of those well-settled principles;

did not establish any new law; and followed precedent

that has no decisions in conflict. As in the courts below,

SLK has misconstrued the issues and raised arguments

not involved in this court proceeding. There is no reason

and certainly no compelling reason for this Court to grant

certiorari in this case and allow SLK to further delay an

arbitration that was filed almost three years ago.

I. THE QUESTION PRESENTED INVOLVES WELL-

SETTLED PRINCIPLES OF ARBITRATION LAW

AND DOES NOT INVOLVE A QUESTION NEED-

ING REVIEW BY THIS COURT.

SLK misconstrues the narrow and simple issue pre-

sented in this case, namely, does the dispute between

respondents and SLK arise out of or in connection with

SLK’s business within the meaning of the NYSE Constitu-

tion and Rules? The Second Circuit correctly concluded

that the dispute did and that under the Federal Arbitra-

tion Act (“FAA”) the matter was therefore arbitrable. In

so holding the Second Circuit applied the well-settled

rules of arbitration law enunciated by this Court. In Mas-

trobuono v. Shearson Lehman Hutton, Inc., __ U.S. __, 115

S.Ct. 1212 (1995) this Court held that the pro-arbitration

policy of the FAA is to be given effect by ensuring that

agreements to arbitrate are enforced, and further held

that such policy cannot be frustrated by attempts to have

an arbitrable dispute resolved outside the arbitration pro-

cess. This Court had previously held that the FAA “estab-

lishes a federal policy favoring arbitration requiring that

[this Court] rigorously enforce agreements to arbitrate.”

Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 226

(1987) (internal quotes omitted). Those arbitration princi-

ples are also noted and followed in Moses H. Cone Memo-

rial Hospital v. Mercury Construction Corp, 460 U.S. 1, 24

(1983), Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221

(1985), and Mitsubishi Motors Corp. v. Soler Chrysler-Plym-

outh, 473 U.S. 614, 625-26 (1985). Furthermore, because of

this policy, the presumption is that disputes fall within an

agreement to arbitrate. First Options of Chicago, Inc. v.

Kaplan, ___ U.S. ___, 115 S.Ct. 1920, 1924 (1995); Moses H.

Cone, 460 U.S. at 24-25.

The decision of the Second Circuit simply applied

those principles. Applying the proper two stage analysis,

the Second Circuit first held that SLK entered into an

agreement to arbitrate because of its membership in the

NYSE and the NYSE Constitution and Rules providing

for arbitration.' It then concluded that because the dis-

pute arose in connection with the NYSE business of SLK,

' NYSE Const. art. XI, § 1 provides: “[A]ny con-

troversy ... between a member .. . and any other person arising

out of the business of such member . . . shall at the instance of

any such party be submitted for arbitration in accordance with

the dispute was arbitrable. These concepts and applica-

tions are well established and no new law was created

regarding the sole and simple issue here of whether this

dispute is arbitrable.

The Second Circuit’s holding is consistent with the

pro-arbitration holdings of this Court and the federal

policy favoring arbitration. None of SLK’s arguments for

certiorari presents issues that have not already been

decided by this Court, and accordingly this Court’s

review should not be granted. Each of SLK’s arguments

will now be addressed.

Il. THE SECOND CIRCUIT’S DECISION DID NOT

EXPAND THE ARBITRATION DUTIES OF THE

NYSE.

SLK’s contention (Petition, pp. 7-9) that the Court of

Appeals’ decision “expanded the NYSE’s role as arbiter

far beyond that given to it by the Exchange Act - the

the provisions of this Constitution and such Rules as the [NYSE]

Board [of Directors] may . . . adopt.

NYSE Rule 600(a) provides: Any dispute, claim or

controversy between a . .. nonmember and member, . . . arising

in connection with the business of such member, . . . shall be

arbitrated under the Constitution and Rules of the New York

Stock Exchange, Inc. . . . upon the demand of the

. . » nonmember.

“(T]he rules of a securities exchange are contractual in

nature” and the NYSE Constitution and Rules “are sufficient to

compel arbitration of [certain disputes] in the absence of a

specific written arbitration agreement.” Merrill Lynch, Pierce,

Fenner & Smith, Inc. v. Georgiadis, 903 F.2d 109, 113 (2d Cir. 1990).

10

policing of members’ relationships with investors, cus-

tomers or employees, or others with whom Exchange

members have a business relationship” is not supported

by any case authority. None of the cases SLK cites con-

cerns the sole issue in this case, i.e., whether the dispute

between SLK and respondents is subject to arbitration.

Rather, SLK argues that certiorari should be granted by

impermissibly delving into the legal merits of this action

(raising issues of privity and the need for a transaction

between the parties).?

A NYSE member, through its membership in the

NYSE, agrees to arbitrate “any controversy between a

member . . . and any other person arising out of the

business of such member...” (NYSE Const. art. XI, § 1)

and “[ajny dispute, claim or controversy between

a...non-member and member . . . arising in connection

with the business of such member ... ” (NYSE Rule

600(a)). The Second Circuit held that these arbitration

provisions are themselves contractual in nature and

therefore can serve as the basis for compelling arbitration

of exchange related disputes. The Second Circuit found

such provision created a contractual basis for arbitration

and SLK does not directly dispute the correctness of that

holding. The Second Circuit also held that the express

2 This Court has long held that in considering the issue of

whether a dispute was arbitrable, the court should not consider

or weigh the underlying merits of the dispute. AT&T

Technologies, Inc. v. Communications Workers of America, 475 U.S.

643, 649-650 (1986);- Prima Paint Corp. v. Flood & Conklin

Manufacturing Co., 388 U.S. 395, 404 (1967); United States

Steelworkers of America v. American Manufacturing Company, 363

U.S. 564, 568 (1960).

11

language of NYSE Rule 600(a) does not require a contract

between the parties to a controversy as a precondition to

arbitration where the claim concerns the business of a

member (like SLK) and the non-member (like respon-

dents) demands arbitration. Again, SLK does not directly

dispute the correctness of that holding.

SLK’s reliance on dicta in Silver v. New York Stock

Exchange, 373 U.S. 341 (1963) and Merrill Lynch, Pierce,

Fenner & Smith, Inc. v. Ware, 414 U.S. 117 (1973) fails to

recognize the holdings in those cases. Silver did not even

involve arbitration, but rather whether and to what

extent the federal anti-trust laws apply to the activities of

_ the NYSE. Silver simply held that the NYSE was subject to

the anti-trust laws. In reaching that conclusion the Court

in dicta makes the observations about self-regulation

upon which SLK relies. But that dicta supports respon-

dents and the holding of the Second Circuit. Self-regula-

tion is not frustrated by the Second Circuit’s decision;

instead the requirement that SLK arbitrate this dispute

before the NYSE (in a matter already before the NYSE by

way of its audit and the subsequent fines and censures of

SLK) furthers the self-regulation of the Exchange’s mem-

bers and ensures that the legality of SLK’s bu:siness activ-

ities, for which SLK was fined and censured by the NYSE, is

resolved in an NYSE arbitration.

Ware only held that a NYSE rule which required

arbitration of employment disputes was superseded by a

California state statute which allowed an aggrieved

employee to proceed in court notwithstanding the con-

tractual agreement to arbitrate. As this Court later noted,

Ware ailowed the state law to prevail only because the

FAA was not involved, and when the FAA and its policies

12

are implicated, as is clearly the case here, the pro-arbitra-

tion policy of the FAA must be given effect, even if state

law is to the contrary. Perry v. Thomas, 482 U.S. 483

(1987).3

The irony here is that most often it is the industry

member that seeks arbitration of controversies involving

their business, especially claims by non-members. How-

ever SLK’s complaints about self-regulation are not really

with the Second Circuit’s view of the law, but instead

with what SLK deems to be an unfair rule when applied

as a sword against it instead of a shield. Those complaints

need to be addressed to either the NYSE, or to the Securi-

ties and Exchange Commission. See 15 U.S.C. § 78s(c);

Gordon v. New York Stock Exchange, Inc., 422 U.S. 659, 667

(1975); McMahon, 482 U.S. at 233-34 (NYSE arbitration

procedures subject to review authority of SEC).

Ill. THE SECOND CIRCUIT’S DECISION DOES NOT

EXTEND THE INTENT OF THE PARTIES IN

CONTRAVENTION OF THE LIMITS ON ARBI-

TRABILITY UNDER THIS COURT’S JURISPRU-

DENCE.

SLK’s contention (Petition, p. 10) that the ruling of

the Second Circuit “goes far beyond the ‘intent of the

parties’ limit on arbitrability set by this Court's jurispru-

dence” misconstrues those holdings and, again, is really a

complaint about the NYSE rules themselves. SLK cites

3 Here the state law of the forum is not contrary to the

Second Circuit’s holding, but is wholly supportive. Nomura

Securities International, Inc. v. Citibank, 81 N.Y.2d 614, 601 N.Y.S.

2d 448 (1993).

13

three cases from this Court, none of which supports its

position. In Mitsubishi Motors, the Court not only held the

dispute was arbitrable, but also noted the permissive

policy with respect to arbitration. Id., 473 U.S. at 626. That

policy was reiterated in First Options where this Court

stated that “issues will be deemed arbitrable unless ‘it is

clear that the arbitration clause has not included’ them.”

Id., 115 S.Ct. at 1924-25, quoting G. Wilner, 1 Domke on

Commercial Arbitration § 12.02, p. 156 (rev. ed. Supp.

1993). SLK’s reliance on Volt Information Sciences, Inc. v.

Board of Trustees of Leland Standford Junior Univ., 489 US.

468 (1989) also ignores that this Court held only that

application of a California statute which conflicts with

the FAA is not preempted by the FAA where the parties

have agreed that their arbitration agreement will be gov-

erned by California law. Volt not only does not conflict

with the Second Circuit, it reaffirms those principles,

since Volt’s holding required the parties to follow the

arbitration rules which the parties had agreed to follow.

Id. at 479. The Second Circuit’s decision reaffirms all of

the principles followed in those cases.

IV. THE SECOND CIRCUIT’S DECISION IS NOT

CONTRARY TO ANY OTHER CIRCUIT.

Though not explicitly stated SLK’s “last gasp” con-

tention (Petition, pp. 12-13) appears to be that the effect

of the Second Circuit’s decision is in conflict with Wheat,

First Securities, Inc. v. Green, 993 F.2d 814 (11th Cir. 1993).

The Wheat, First decision is easily distinguishable. The

dispute in that case arose between Green and another

brokerage firm. Wheat, First happened upon the scene

14

when it purchased the assets of the other brokerage firm

well after the alleged fraudulent stock transaction.

Wheat, First expressly did not assume any liability of the

other brokerage.

First, the theories of arbitrability in Wheat, First were

based on a claim that the defendants were “customers” of

Wheat, First and that Wheat, First was the successor in

interest to the brokerage house where the alleged fraud

occurred. The second theory is wholly inapplicable here.

Moreover the first theory was premised on the language

of the rules of the National Association of Securities Dealers

(“NASD”) not the Constitution and Rules of the NYSE.

Second, the Eleventh Circuit’s decision focused solely

on the issue of whether or not defendants were “cus-

tomers” of Wheat, First premised on the narrower lan-

guage of the NASD’s arbitration provisions as compared

with those of the NYSE.* For that reason the Eleventh

4 Compare NASD Code of Arbitration Procedure, Sec. 1:

“This Code of Arbitration Procedure is prescribed and

adopted . . . for the arbitration of any dispute, claim, or

controversy arising out of or in connection with the business of

any member of the Association . . . (2) between or among

members and public customers, or others...” and

Sec. 12 (a) “Any dispute, claim, or controversy eligible for

submission under Part I of this Code between a customer and a

member .. . arising in connection with the business of such

member . . . shall be arbitrated under this Code, . . . upon

demand of the customer.” (emphasis added), with NYSE Rule

600(a) “Any dispute, claim or controversy between a customer

or non-member and a member .. . arising in connection with the

business of such member . . . shall be arbitrated under the

Constitution and Rules . . . upon demand of the customer or non-

member.” (emphasis added). Respondents were well aware of

15

Circuit never reached the issues dispositive here, i.e.,

whether the claims arose in connection with the business

of the NYSE member and whether that membership was

a sufficient basis for compelling arbitration of the dispute

between the member and non-member. The Eleventh Cir-

cuit expressly left open the tantalizing question of

whether Wheat, First must submit to arbitration by virtue

of its NASD membership. Id. at 820-821.

The Second Circuit decision here is fully consistent

with Pearce v. E.F. Hutton Group, Inc., 828 F.2d 826 (D.C.

Cir. 1987) which also required arbitration of a dispute

pursuant to NYSE Rule 600(a).

7.

CONCLUSION

As this Court stated in Mitsubishi Motors, 473 U.S. at

626-27:

[W]e are well past the time when judicial suspi-

cion of the desirability of arbitration and of the

competence of arbitral tribunals inhibited the

development of arbitration as an alternative

means of dispute resolution.

The Second Circuit correctly applied the principles

established by this Court in holding that the dispute

between SLK and respondents, upon their demand, must

be arbitrated. The Second Circuit decision does nothing

more than follow the established policy that parties who

commit themselves to arbitration are bound to that duty.

this distinction when their demand for arbitration was filed

with the NYSE.

16

No conflicts in the law are created by this decision. No

error of law is presented. There simply is no reason for

this Court to review this matter and further delay arbitra-

tion.

For all of the foregoing reasons, the Writ of Certiorari

should be denied.

Respectfully submitted,

JOHN J. PHevan, III,

JOHN J. PuHevan, III, P.C.

1414 Sixth Avenue

New York, NY 10019

Telephone: (212) 688-8088

Telecopier: (212) 838-9534

*J]. MicHAEL VAUGHAN

Herp: R. Youncs

Rosert R. BARTON

WEISENFELS & VAUGHAN

1111 Main Street

Tenth Floor — Harzfelds Building

P.O. Box 13585

Kansas City, MO 64199-3585

Telephone: (816) 421-5000

Telecopier: (816) 474-5500

Attorneys for Respondents

Central Life Assurance Company,

Alexander Hamilton Life Insurance

Company of America, Inc. and

Canada Life Assurance Company

* Counsel of Record