Petition for Writ of Certiorari — Ruscitto v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
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Supreme Court, U.S.
FILED
@1-1299 FEB 10 1992
No. OFFICE OF THE CLEKK
IN THE .
Supreme Court of the Wnited States
OCTOBER TERM, 199]
FRANK C. RUSCITTO,
Petitioner,
Vv.
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC..
Respondent.
Petition For A Writ Of Certiorari To The
United States Court Of Appeals
For The Fifth Circuit
Petition of Frank C. Ruscitto
For A Writ Of Certiorari
Joe H. Staley, Jr.*
Margaret A. Donahue
LOCKE PURNELL RAIN HARRELI
(A Professional Corporation)
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Telephone: (214) 740-8000
Counsel for Petitioner
*Counsel of Record
February 10, 1992
ho
QUESTIONS PRESENTED
WHETHER SECTION 3 OF THE FEDERAL ARBI-
TRATION ACT, 9 U.S.C. §§ 1-14, PRECLUDES A
COURT FROM ISSUING PRELIMINARY INJUNC-
TIVE RELIEF PENDING ARBITRATION OF A CON-
TRACTUAL DISPUTE.
WHETHER A COURT MAY CONSIDER THE MER-
ITS OF A CLAIM SUBJECT TO ARBITRATION BY
ISSUANCE OF INJUNCTIVE RELIEF.
WHETHER EXPEDITED ARBITRATION SHOULD
BE THE QUID PRO QUO FOR A PRELIMINARY
INJUNCTION GRANTED BY THE COURT.
il
LIST OF PARTIES
The caption of the case in this Court contains the names
of all parties in the proceeding before the United States Court
of Appeals for the Fifth Circuit. Petitioner is an individual:
consequently, Rule 29.1 of the Supreme Court Rules does not
apply.
il
TABLE OF CONTENTS
Page
SC) Ney BE yy LO Oe ty 2 i
Se I cp kw ee es we ee be ee as ll
ee A PUES fick ce ee ewe ee ee lil
pp) 8 ee we tye 8 kee | iV
Oo 8 | A |
ES ee 2
iF Yiige 0 eh) % 2 Pe 2
Dem eememres Ur thee CASE... 2... ww wena. 3
REASONS FOR GRANTING THE WRIT ....... 5
4 The Fifth Circuit opinion is contrary to the
express terms of the FAA and its statutory
intent as expressed by the United States Su-
A er 7
II. There is a clear split among the circuit courts
on the issue of a court’s authority to issue in-
junctive relief in a suit subject to arbitration . 12
III. There is a clear split between the Texas courts
and the Fifth Circuit on the issue of a court’s
authority to issue injunctive relief in a suit
eumrect to arbitration. ................. 15
IV. There is a clear split among the state courts
on the issue of a court’s authority to issue in-
junctive relief in a suit subject to arbitration . 16
V. The authority to issue injunctive relief in a
Suit subject to arbitration is an important is-
sue which should be settled ............. 17
VI. The issues herein are potentially capable of
repetition, yet evading review ........... 18
VII. Denial of expedited arbitration upon the grant
of preliminary injunctive relief deprives a
party of its right to arbitrate the merits of a
ack aig Sc) ae Gp alX. 4 Klw kale. a 20
er 21
iV
TABLE OF AUTHORITIES
Cases Page
Arsenault v. Merrill Lynch, Pierce, Fenner and
Smith, Inc., CA3-91-1131G (N.D. Tex. 1991) ...... 19
Barrentine v. Arkansas-Best Freight System, 450
a ee ee eee a ae ee ee a ee eS 9
Blumenthal and Fein v. Merrill Lynch, Pierce,
Fenner & Smith, 910 F.2d 1049 (2nd Cir. 1990) . 13, 20
Brooklyn Savings Bank v. O'Neil, 324 U.S. 697
SOON a argc tn eae ee eR eo ae USE eee oe eee 11
Buffalo Forge Co. v. United Steelworkers, 428
SPs es ee ee RS Bea ee ee ee as 9,14
DeSantis v. Wackenhut, 793 S.W. 2d 670 (Tex.
ae mae ere t et ani mel aie A et Mak Co eS 4
Gilmer v. Interstate/Johnson Lane Corp., —_—. U.S. —___,
PE a ae CE OES, oo oo a 340,82
John Wiley & Sons v. Livingston, 376 U.S. 543
i: AT nee SORE Meta EM ae ea ee, Bee 9
Korn v. Ambassador Homes, Inc., 546 So.2d 756
an cone, oo. Oe EO Go e's oe ces ee ee tes 17
McDonald v. City of West Branch, Michigan, 466
ee ee eek Bae Oe ee eee Ck ek 9
Merrill Lynch, Pierce, Fenner & Smith v. Bradley,
fe ee Bo et Ee ef er rer 13
Merrill Lynch, Pierce, Fenner & Smith v. DeCaro,
537 F. Supp. 616 (W.D. MO. 1963) 04 kee ean es 12
Merrill Lynch, Pierce, Fenner & Smith v. Maghsoudi,
682 S.W. 2d 593 (Tex. App. — Houston [Ist Dist.]
ee IE 6S so a sk ee RCW a ear 16
Merrill Lynch, Pierce, Fenner & Smith v. Thomson,
Dim F. ae C442 CES. WO Teed ee eens 12
Merrill Lynch. Pierce. Fenner & Smith, Inc. v. District
COTE; Bia we Sees Cees BS ab ewe ees 17
Page
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Hovey, 726 F.2d 1286 (8th Cir. 1984)....... 12, 13, 16
Merrill Lynch, Pierce, Fenner & Smith, Inc.
v. Leach, CA3-91-1023-T (N.D. Tex. 1991) ........ 19
Merrill Lynch, Pierce, Fenner & Smith.
Inc. v. McCollum, 469 U.S. 1127
eMeeEs Cre ees ae ee 5, 6, 12, 15, 16, 18, 19, 20, 21
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
McLaughlin, No. 7948, 1985 WL 11538 (Del. Ch.
Fe ee NOROE nb eee a ees ll ee ee 16
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Moose, 528 A.2d 1351 (Pa. Super. Ct. 1987) ....... 17
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Price, No. 11097, 1989 WL 108412 (Del. Ch.
Pe 00, Rn ae kee ee ee ee 16
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Ray, No. 83-CC-2171 (La. Oct. 20, 1983) ......... 16
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Scheff, CA3-91-0877G (N.D. Tex. 1991) .......... 19
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Scott, No. 83-1480 (10th Cir., May 12, 1983) ...... 12
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Shin, No. 7424, 1984 WL 8203 (Del. Ch. Jan. 12.
en PER Re PEO re Hen hs 16
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth
amc., 473 U.S. Gi4 (198S). 5 ns cc can ca 10, 11
Moses H. Cone Memorial Hosp. v. Mercury Constr.
Corp... 060 O05.. 5 C00 ee 6.8 ce ee 8, 20
Ortho Pharmaceutical Corp. v. Amgen, Inc., 882
F260 GOO (ed Cin, 1968) nc cc cc cau awnc 13
PMS Distributing Company, Inc. v. Huber, 863
rai GSP (OO Ce, TGR) ci ee ee ee 13
Vi
Page
Rodriquez de Quijas, v. Shearson/American Express,
Pt, Pe Se RTT CR a KAS ae te ea 10, 15
Sauer-Getribe KG v. White Hydraulics, Inc., 715
wR Ft, £o Meo Berar pre 13
Shearson/American Express, Inc. v. McMahon, 482
OL) ee ee RED | kx? ao be een SO eee 9,10
Southland Corp. v. Keating, 465 U.S. 1 (1984) ...... 10
Teradyne Inc. v. Mostek Corp., 797 F.2d 43 (lst Cir.
VND s xo a ks back ee ee ee 13
Travel Masters, Inc. v. Star Tours, Inc., 35 Tex.
see. ©. 5: SHO GR. TS, PPE oe oo area ee 4
United Steelworkers v. American Mfg. Co., 363
CLS. SOG CiSee snk cea ee ee ee 8
Weinstein v. Bradford, 423 U.S. 147 (1975) ........ 18
Wilko v. Swan, 346 U.S. 427 (1953).............. 15
Rules
NYSE Asbstratine Hutt O47 6 xc kis ee ee ee 7
S. Ce: RR. Pe a sore ee ee eee 6, 14
Statutes
OUST S-S s bs ck cdcid ce es ee eee
SU BA. 8405 vise eee eee
USL. 4 1a so OG eee 2
BUSL0.418 le 3
No.
IN THE
Supreme Court of the United States
OCTOBER TERM, 1991
FRANK C. RUSCITTO,
Petitioner,
¥x
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC..
Respondent.
Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Fifth Circuit
Petitioner Frank C. Ruscitto respectfully prays that a
writ of certiorari issue to review the judgment of the United
States Court of Appeals for the Fifth Circuit in this case
affirming, per curiam, the district court grant of a preliminary
injunction against Petitioner and the district court denial of
motions of Petitioner to compel arbitration and to stay fur-
ther proceedings in the district court.
OPINIONS BELOW
The Fifth Circuit Court of Appeals issued no written
opinion in this case.
The Memorandum Opinion of the United States Dis-
trict Court for the Northern District of Texas (Fitzwater, J.)
has not been reported and is reprinted as Appendix A. Also
unreported and attached as Appendices are the Preliminary
Injunction issued by the district court (Appendix B), prior
order of the district court denying the motions of Petitioner
to compel arbitration and to stay further proceedings in the
2
district court (Appendix C), and the per curiam decision of
the Fifth Circuit (Appendix D).
JURISDICTION
The judgment of the Fifth Circuit was entered on
November | 2, 1991. The jurisdiction of this Court is invoked
under 28 U.S.C. § 1254(1).
STATUTES INVOLVED
9 U.S.C. § 3 Stay of proceedings where issue therein
9U
referable to arbitration
If any suit or proceeding be brought in any of the
courts of the United States upon any issue referable to
arbitration under an agreement in writing for such arbi-
tration, the court in which such suit is pending, upon
being satisfied that the issue involved in such suit or
proceeding is referable to arbitration under such an
agreement, shall on application of one of the parties stay
the trial of the action until such arbitration has been had
in accordance with the terms of the agreement, providing
the applicant for the stay is not in default in proceeding
with such arbitration.
S.C.§ 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 agree-
ment for arbitration may petition any United States dis-
trict court which, save for such agreement, would have
jurisdiction under Title 28, in a civil action or in admi-
ralty of the subject matter of a suit arising out of the
controversy between the parties, for an order directing
<<
ae
3
that such arbitration proceed in the manner provided for
in such agreement. * * *
STATEMENT OF THE CASE
This case arose on July 3, 1991, when Petitioner Frank
C. Ruscitto (“Ruscitto”) resigned as a broker for Merrill
Lynch, Pierce, Fenner & Smith, Inc. (‘Merrill Lynch’’) and
began work as a broker for PaineWebber, Inc. Because Rus-
citto was threatened by Merrill Lynch with action to enforce a
covenant not to compete, he commenced an arbitration claim
against Merrill Lynch pursuant to the rules and Constitution
of the New York Stock Exchange (“NYSE”).
On July 3, 1991, Ruscitto also filed this action under 9
U.S.C. § 4 in the United States District Court for the North-
ern District of Texas seeking to compel Merrill Lynch to
submit to arbitration and to prevent Merrill Lynch from
enjoining him under the non-compete clause pending NYSE
proceedings which he had previously filed under the Federal
Arbitration Act (“FAA”).!
On July 8, 1991, Merrill Lynch filed a motion for a
temporary restraining order and for a preliminary injunction
in the district court, seeking equitable relief under the non-
compete provisions of the agreement judicially rather than in
the contracted for arbitration and as provided for in the FAA.
On July 9, 1991, the district court, without hearing,
issued an order denying both the Merrill Lynch and Ruscitto
applications for a temporary restraining order as well as the
Ruscitto motions to compel arbitration and to stay.
(Appendix C).
' Jurisdiction was invoked pursuant to 28 U.S.C. § 1332 (diversity of
citizenship). Ruscitto is a citizen of the State of Texas. Merrill Lynch is
a Delaware corporation maintaining its principal place of business in
the State of New York. The amount in controversy exceeds $50,000.00,
exclusive of interest and costs.
4
After refusal by Merrill Lynch to accede to Ruscitto’s
specific requests for expedited arbitration before the NYSE,
the district court entered a preliminary injunction against
Ruscitto without hearing and without reference to any U. S.
Supreme Court case addressing the issues herein raised. The
court also issued a Memorandum Opinion which is steeped
with specific factual determinations of significance on the
merits.- (Appendix B).
The injunction as issued was anything but preliminary;
it enjoined Ruscitto from doing business with any person
with whom he had dealt while employed at Merrill Lynch
(including literally his mother) for an entire year. It also
restrained him for the maximum term of injunctive relief
Merrill Lynch could seek under the non-compete agreement
with Ruscitto, and exceeded even that relief which Merrill
Lynch requested the court to grant. Additionally, the district
court at the date of the filing of this petition still has retained
jurisdiction of this matter and requires the parties to file
periodic status reports to it (see, e.g., Appendix E), which
indicates that the court perceives its role has not ended as yet
and that proceedings are still to continue under its thumb.
The court also failed to order arbitration.
Ruscitto filed his appeal to the United States Court of
Appeals for the Fifth Circuit. The former Merrill Lynch
employee assigned as error the district court failure to enforce
the valid terms of the agreement of the parties to arbitrate,
which as a matter of law precluded court ordered injunctive
relief under the express terms of the FAA and relevant case
law. He further assigned as error the district court refusal to
compel arbitration of the dispute and to stay further
proceedings.
’ For example. the district court by implication found the non-com-
pete clause to be binding and enforceable. That ts clearly not the case
under Texas law. See, e.g., Travel Masters, Inc. v. Star Lours, Inc., 35
Tex. Sup. Ct. J. 254 (Dec. 18. 1991): DeSantis v. Wackenhut, 793 S.W.
2d 670 (Tex. 1990).
5
Following expedited briefing and argument, the Fifth
Circuit issued its per curiam decision affirming the lower
court’s order. (Appendix D). Petitioner now seeks a writ of
certiorari in light of the erroneous district court interpreta-
tion of the FAA in its Memorandum Opinion and Prelimi-
nary Injunction, and the erroneous, albeit concise, approval
by the Fifth Circuit of the district court decision.
REASONS FOR GRANTING THE WRIT
The Court may recall that seven years ago the issue of
whether Section 3 of the FAA precludes a court from issuing a
preliminary injunction in favor of Merrill Lynch pending
arbitration of a contractual dispute was brought forth on peti-
tion for writ of certiorari. See, Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. McCollum, 469 U.S. 1127 (1985). Since then a
plethora of less than uniform decisions have been rendered
which continue to fuel the present confusion in the law on this
issue. Justices White and Blackmun in their dissent to the
denial of the prior writ explicitly adopted the position which
is being proffered by this petition for a writ of certiorari and
which they expressed as follows:
Whether the Arbitration Act bars the issuance of a
preliminary injunction pending arbitration appears
to be a frequently litigated question of considerable
importance to the parties to arbitration agreements.
The issue is one well worth definitive resolution by
this Court.
McCollum, 469 U.S. at 1129 (White, J. dissenting from denial
of cert., Blackmun, J. joining).'
How prescient their statement was. Since this Court
denied Merrill Lynch’s prior petition for certiorari in early
1985, an overwhe'ming number of federal and state courts in
‘A copy of the dissent of Justice White is attached hereto as
Appendix G
6
like proceedings, many involving Merrill Lynch, have been
forced to consider that same issue presented for review in
McCollum, and presented again in the case at bar. See,
Appendix F. The question still remains unresolved and
because of its importance still is creating significant case load
for the courts.
Additionally, Petitioner agrees wholeheartedly with the
Merrill Lynch statement in its earlier petition for certiorari
filed in McCollum, that “[t]his question of statutory construc-
tion 1s of critical importance . . . .”+, and submits that it is
certainly ripe for determination at this time.
The particular reasons urged by Petitioner for the Court
to exercise its discretion to grant a writ of certiorari include:
1) conflict between the Fifth Circuit Court of
Appeals and the applicable decisions of this Court on the
federal issue here presented:
2) conflict among various United States courts of
appeals on the same matter as here presented;
3) a conflict between the Fifth Circuit Court of
Appeals and the Texas court of last resort on the federal
issue here presented;
4) a conflict among the state courts on the federal
issue here presented; and,
5) the paramount issue of whether the federal courts
should be required to adjudicate, at the preliminary
stage, hundreds of arbitrable disputes.
S. Ct. R. 10 (a-c). Each of these grounds is legitimate and
of sufficient measure to invoke herein the review of this
Court; for this reason, Ruscitto urges that the Court grant
his petition for writ of certiorari and finally determine
the matter at hand.
+ Petition for Writ of Certiorari, filed by Merrill Lynch in Merri//
Lynch, Pierce, Fenner & Smith, Inc. v. McCollum, October Term 1984,
at 14.
5
1. The Fifth Circuit opinion is contrary to the express
terms of the FAA and its statutory intent as expressed
by the United States Supreme Court.
In light of the express and unambiguous terms of the
FAA and this Court’s decisions interpreting that statute in
other scenarios, it is puzzling that both the federal and state
courts have been so divided in their holdings as to whether
arbitration is the forum to determine the issue of injunctive
relief in instances where there is pending contract-based arbi-
tration ofa dispute. As Petitioner ardently argued to the Fifth
Circuit, where there is a binding contract to arbitrate. Sec-
tions 3 and 4 of the FAA and a forthright analysis of appurte-
nant Supreme Court cases should be dispositive of that issue.°
In enacting the FAA, Congress ensured the enforceabil-
ity of arbitration agreements by divesting the district courts
of all decision making over disputes covered by written arbi-
tration agreements, save the issue of whether there is an
agreement to arbitrate. Sections 3 and 4 of the FAA provide,
in pertinent part:
If any suit or proceeding be brought in any of the
courts of the United States upon any issue referable
to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending,
upon being satisfied that the issue involved in such
suit Or proceeding is referable to arbitration under
such an agreement, shall on application of one of the
parties stay the trial of the action until such arbitra-
tion has been had in accordance with the terms of the
agreement, providing the applicant is not in default
in proceeding with such arbitration.
9 U.S.C. § 3 (emphasis added).
> There is no controversy in this instance that there is a binding
predispute agreement to arbitrate the employment contract between
the parties under the FAA. See, e.g, NYSE Arbitration Rule 347.
attached hereto as Appendix H.
8
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, which, save for such
agreement, would have jurisdiction under
Title 28... for an order directing that such
arbitration proceed in the manner provided for in
such agreement... .
9 U.S.C. § 4.
There is no disagreement between the parties as to the
exclusive purview of the arbitrators in this matter to
determine the contractual dispute between them with this
one exception: Respondents would contend that the
agreement to arbitrate contract-based claims under the FAA
does not preclude the district court from entering injunctive
orders pending arbitration; Ruscitto respectfully disagrees.
In Moses H. Cone Memorial Hosp. v. Mercury Constr.
Corp., 460 U.S. 1 (1983), this Court recognized that:
Congress’ clear intent, in the Arbitration Act,
[was] to move the parties to an arbitrable dispute ou/
of court and into arbitration as quickly and easily as
possible.
Moses H. Cone, 460 U.S. at 22 (emphasis added). It further
stated in Gilmer v. Interstate/Johnson Lane Corp., US.
111 S. Ct. 1647, 1657 (1991), that the FAA:
reflects a “liberal federal policy favoring
arbitration agreements.” Mitsubishi 473 U.S., at
625, 105 S. Ct. at 3353.
As to the enforcement of such provisions to arbitrate, this
Court has held that upon a determination that the parties
have agreed to arbitrate their disputes, the district courts are
barred not only from delving into the merits or considering
the equities of a particular claim, United Steelworkers vy.
American Mfg. Co., 363 U.S. 564 (1959). but are barred from
9
even determining procedural questions which grow out of the
dispute and bear on its final disposition. John Wiley & Sons v.
Livingston, 376 U.S. 543 (1964).
The Court in Buffalo Forge Co. v. United Steelworkers,
428 U.S. 394 (1976), specifically discusses the power of a
district court to enter injunctive relief pending arbitration.
Recognizing that consideration at the preliminary injunction
Stage of any disputed facts or issues by the court is disruptive
of the whole arbitration process, the Court upheld the denial
by the district court to grant an injunction where there was a
binding agreement to arbitrate, because:
[T]he parties’ agreement to adjust or to arbitrate
their differences themselves would be eviscerated if
the courts for all practical purposes were to try and
decide contractual disputes at the preliminary
injunction stage.
Buffalo Forge, 428 U.S. at 411-12.
There are also a myriad of cases which have been deter-
mined by this Court concerning the issue of whether an agree-
ment to arbitrate a contract-based claim precludes
subsequent judicial resolution of statutory claims growing out
of the same factual! scenario. See, e.g., Gilmer v. Interstate/
Johnson Lane Corp., —— U.S. __, 111 S. Ct. 1647 (1991):
Shearson/American Express, Inc. v. McMahon, 482 U.S. 220
(1987); Barrentine v. Arkansas-Best Freight Systems, 450 U.S.
728 (1981); McDonald v. City of West Branch, Michigan, 466
U.S. 284 (1984). Likewise, there are numerous disparate
lower court interpretations of the law as to whether an agree-
ment to arbitrate a contract-based claim under the FAA bars
pre-arbitration judicial resolution of equitable issues growing
out of that same contract (see Appendix F). Yet, there is
presently no Supreme Court decision which has specifically
interpreted the FAA as to the question here presented.
Although analysis and the criteria of various Supreme Court
cases concerning arbitration disputes where statutory issues
10
exist shed light, there is certainly ample uncertainty from the
case law to implore a determination by this Court of the
particular issue of judicial pre-arbitration intervention in
these types of cases.
The judicially mandated injunction which Merrill Lynch
will attempt to uphold in this appeal rises out of the terms of
its contract with Ruscitto which incorporates the rules of the
NYSE and specifies arbitration pursuant to the FAA. The
determination here to be made is the scope of the FAA and
whether judicial remedies are also available to parties arbi-
trating thereunder. Petitioner would submit that the clear
statutory intent of the FAA has been held by this Court on
every occasion reviewed to empower the arbitrators with
exclusive enforcement of the contract per se and to deny the
availability of the courts to resolve any disputes under such
agreement. Indeed, exceptions to the non-availability of judi-
cial remedies doctrine under the FAA have been specifically
limited by this Court to instances where congressional intent
is expressed in particular legislation to preclude the waiver of
one’s judicial remedies for the interpretation and enforce-
ment thereof.
As recently expressed in Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth Inc., 473 U.S. 614 (1985); Shearson/
American Express Inc. v. McMahon, 482 U.S. 220 (1987):
Rodriquez de Quijas, v. Shearson/American Express, Inc., 490
U.S. 477 (1989): Gilmer v. Interstate/Johnson Lane Corp.,
U.S. , 111 S. Ct. 1647 (1991); and Southland Corp. vy.
Keating, 465 U.S. 1 (1984), even where there are statutory
claims in addition to the contract dispute to be considered, if
the claims arise out of a particular transaction which 1s sub-
ject to an arbitration agreement, the agreement to arbitrate,
absent specific congressional intent otherwise as to the statu-
tory issues, exclusively controls determination of both the
statutory and common law claims. Merrill Lynch has some-
how convinced numerous lower courts that an agreement to
4
|
3
——me
1]
arbitrate under the FAA does not include the exclusive selec-
tion of the arbitral forum to hear all of the contractual issues
raised by the agreement (see Appendix F); it has done so
apparently by convincing the lower court that, insofar as pre-
arbitration injunctions are concerned, holding Merrill Lynch
strictly to its “selection of an arbitral rather than a judicial
forum” under its “bargain to arbitrate” as required by Mit-
subishi, 473 U.S. at 628, somehow undermines the role of the
courts.
Yet the FAA, which is the single Congressional statute
upon which the courts must rely in this instance, in no way
protects parties subject thereto from waiving their respective
rights to judicial remedies thereunder. And, this Court has
consistently adopted the position that ‘the question of
whether the statutory right may be waived depends upon the
intention of Congress as manifested in the particular statute.”
Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 705 (1945)
(emphasis added). Diligent search by Petitioner has yet to
turn up either an agreement of the parties, a rule of the NYSE.
such “Congressional intent’’, or a “particular statute” which
excludes determination of equitable pre-arbitration issues
from being exclusively within the arbitral remedies of the
forum selected by the parties under the rules of the NYSE and
the FAA.
To the contrary, Gilmer, which was cited to the Fifth
Circuit by Petitioner, specifically holds that the NYSE rules
do not restrict the types of relief an arbitration panel may
award and that the “arbitrators do have the power to fashion
equitable relief.” Gilmer, 111 S. Ct. at 1655. By agreeing to be
bound by these NYSE rules, the Court found that Gilmer was
required to arbitrate all of his equitable claims even though
some arose statutorily from without the contract. Yet, for
reasons unknown, the court below and numerous other trial
courts have carved out an exception to the apparent exclusive
equity jurisdiction conferred by the statute on the arbitrators:
12
one must assume this is based upon a trial court misconcep-
tion that somehow there is available a common law or statu-
tory judicial remedy when there is a pending NYSE
arbitration under the FAA. Petitioner can find no authority
from this Court which sustains such holdings.
The action of the courts in this instance in light of these
cases should provide sufficient basis for Supreme Court deter-
mination of the issue here presented in order to preserve
order in the courts and to resolve conflicts between the U.S.
Supreme Court and the courts of appeals.
II. There is a clear split among the circuit courts on the
issue of a court’s authority to issue injunctive relief in a
suit subject to arbitration.
Petitioner urges that stock brokers such as he do not
have a union to attack the issue raised here for the profession
as a whole; but he would submit that he now understands that
a broker’s ability to have his employment contract fully arbi-
trated may today depend upon where he works. This is so
because the question presented by this case and previously by
McCollum is one that has so widely divided such a number of
both the state and federal courts, and that it will not be put to
rest until specifically addressed by this Court.
The Eighth and Tenth Circuits have adopted Peti-
tioner’s position that preliminary injunctive relief from the
federal or state courts is unavailable in a case where there is a
preexisting agreement to arbitrate. See, Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Hovey, 726 F.2d 1286 (8th Cir. 1984);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Scott,
No. 83-1480 (10th Cir., May 12, 1983) (unpublished order).
See, also, Merrill Lynch, Pierce, Fenner & Smith v. DeCaro,
557 F. Supp. 616 (W.D. Mo. 1983) (holding not only that the
merits are for the arbitrator to decide, but also that the arbi-
trator has the power to issue injunctive relief); Merrill Lynch,
Pierce, Fenner & Smith v. Thomson, 574 F. Supp. 1472 (E.D.
Mo. 1983).
13
In the often-cited case of Hovey, the Eighth Circuit, upon
review of all of the relevant Supreme Court cases, held as
follows:
We find this compelling authority tu hold that,
where the Arbitration Act is applicable and no quali-
fying contractual language has been alleged, the dis-
trict court errs in granting injunctive relief. In doing
SO, we sustain not only “the plain meaning of the
statute but also the unmistakably clear congressional
purpose that the arbitration procedure, when
selected by the parties to a contract, be speedy and
not subject to delay and obstruction in the courts.”
Prima Paint Corp., 388 U.S. at 404, 87 S.Ct. at 1806.
Hovey, 726 F.2d at 1292.
The Fifth Circuit, by its one-word affirmance of the dis-
trict court’s opinion and order in this case, has, in essence,
aligned with the First, Second, Third, Fourth, Seventh, and
Ninth Circuits in their conclusion that a court may, despite
the language of the FAA, inject itself into arbitration proceed-
ings where valid predispute agreements to arbitrate exist and
thereby permit injunctive relief to be obtained from a differ-
ent forum. See, Teradyne Inc. v. Mostek Corp., 797 F.2d 43
(Ist Cir. 1986); Blumenthal and Fein v. Merrill Lynch, Pierce,
Fenner & Smith, 910 F.2d 1049 (2nd Cir. 1990); Ortho Phar-
maceutical Corp. v. Amgen, Inc., 882 F.2d 806 (3rd Cir.
1989); Merrill Lynch, Pierce, Fenner & Smith v. Bradley, 756
F.2d 1048 (4th Cir. 1985); Sauer-Getribe KG v. White
Hydraulics, Inc., 715 F.2d 348 (7th Cir. 1983), cert. denied,
764 U.S. 1070 (1984); PMS Distributing Company, Inc. vy.
Huber, 863 F.2d 639 (9th Cir. 1988).°
® As would be expected, within these circuits there are numerous
district court decisions which also so hold.
iia
14
Each of these holdings is grounded upon the faulty pre-
mise that issuance of a court ordered injunction merely pre-
serves the status quo pending arbitration; to the contrary,
when these decisions approve the making of preemptive
determinations on the merits that Merrill Lynch’s agreement
is worthy of specific enforcement, they have the potential of
rendering the arbitration a nullity. That possible underlying
cause for litigants such as Merrill Lynch to pursue judicial
determinations as to injunctive relief in these cases was real-
ized early on by this Court, and its reasoning is pointedly
applicable here:
It is incredible to believe that the courts would
always view the facts and the contract as the arbitra-
tor would; and it is difficult to believe that the arbi-
trator would not be heavily influenced or wholly pre-
empted by judicial views of the facts and the mean-
ing of contract(s) if this procedure is to be permitted.
Injunctions against strikes, even temporary injunc-
tions very often permanently settle the issue; and in
other contexts time and expense would be discourag-
ing factors to the losing party in court in considering :
whether to relitigate the issue before the arbitrator.
“Buffalo Forge, 428 U.S. at 412.
There is no doubt that the United States courts of
appeals have rendered conflicting opinions on the issue at
hand, and this is stated by S.Ct. R. 10 as being of the character
of reasons to be considered in determining review of the issue
by this Court. But there are certainly other supportive reasons
giving credence to the granting of a writ of certiorari based
upon that premise. Appendix F is only a partial listing of
cases, a great majority of which have been decided since this
Court previously reviewed this question, each of which spe-
cifically addresses this issue of the availability of judicially
mandated preliminary injunctive relief where there was a
contract which mandated arbitration. This plethora of con-
flicting authority should leave no doubt in one’s mind that
15
this “is a frequently litigated question of considerable impor-
tance to the parties to arbitration agreements” and “‘worth
definitive resolution by this Court.”” McCollum dissent, 469
U.S. at 814. Also, this Court has ruled since McCollum was
decided in 1985, specifically that arbitrators “Shave the power
to fashion equitable relief’ and under NYSE rules may award
equitable remedies as “damages and/or other relief’, Gi/mer,
111 S. Ct. at 1655; this issue is among those respectively
disputed in the appended lower court holdings.
This brings the question of why this Court should review
the issue presented in this controversy more into focus and
gives added impetus to the statement in the dissent of Justice
Frankfurter in Wilko v. Swan, 346 U.S. 427 (1953) as adopted
in Rodrigues de Quijas, 490 U.S. at 483, where he stated:
There is nothing in the record before us, nor in the
facts of which we can take judicial notice, to indicate
that the arbitral system . . . would not afford the
plaintiff the rights to which he is entitled.
Yet, if the conflict between the circuits is not disposed of
here, this statement is untrue. Under the congressionally
mandated arbitral system, everyone is supposedly entitled to
the same “rights”; with a split in the circuits on such a basic
issue, without guidance from this Court, some persons who
contrattéd for arbitration of their dispute a priori will be
denied their right to a proper forum. The issue is beyond
rectifying at this point without Supreme Court consideration
and for that reason writ should be granted.
III. There is a clear split between the Texas courts and the
Fifth Circuit on the issue of a court’s authority to issue
injunctive relief in a suit subject to arbitration.
As the Court is aware from its earlier consideration of
the McCollum case, the Texas state courts have expressly
rejected the notion that a party can seek judicial injunctive
relief in the face of a binding agreement to arbitrate. Merrill
16
Lynch, Pierce, Fenner & Smith, Inc. v. McCollum, 666 S.W.
2d 604 (Tex. App. —- Houston [14th Dist.], writ ref'd n.r.e.),
cert. denied, 469 U.S. 1127, reh’g denied, 470 U.S. 1024
(1985). See, also, Merrill Lynch, Pierce, Fenner & Smith vy.
Maghsoudi, 682 S.W. 2d 593 (Tex. App. — Houston [Ist
Dist.] 1984, no writ). The Texas Supreme Court has to date
not modified its position from that in the McCollum case and
now the Fifth Circuit, which has appellate review over the
federal district courts in Texas, is polarized from the state
courts on this issue. The dilemma in which this places citizens
of this state is obvious: different court, different results as a
matter of law. Since there is an unavoidable conflict created
specifically by this case between the Texas law as it relates to a
federal question and the United States court of appeals for
that state, it is now even more critical to numerous citizens,
especially of that state, for this Court to dispel the conflict by
rendering a decision on the merits herein.
IV. There is a clear split among the state courts on the
issue of a court’s authority to issue injunctive relief in a
suit subject to arbitration.
There is further conflict among the statés on the federal
issue of whether the FAA bars the issuance of a preliminary
injunction pending arbitration. The Delaware and Louisiana
State courts, as the Texas courts, have followed the rationale
of Hovey in their refusal to grant injunctive relief in the face
of a binding agreement to arbitrate. See, Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Ray, No. 83-CC-2171 (La.
Oct. 20, 1983); Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
McLaughlin, No. 7948, 1985 WL 11538 (Del. Ch. Feb. 20,
1985); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Shin,
No. 7424, 1984 WL 8203 (Del. Ch. Jan. 12, 1984). But cf,
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Price,
No. 11097, 1989 WL 108412 (Del. Ch. Sept. 13, 1989).
On the other hand, state courts in Colorado and Florida,
in direct conflict with the Texas, Louisiana, and Delaware
17
State courts, have specifically held that they have authority to
issue injunctive relief in a dispute subject to arbitration. See,
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. District Court,
672 P.2d 1015 (Colo. 1983); Korn v. Ambassador Homes, Inc.,
546 So.2d 756 (Fla. Dist. Ct. App. 1989). See, also, Merrill
Lynch, Pierce, Fenner & Smith, Inc. v. Moose, 528 A.2d 1351
(Pa. Super. Ct. 1987), in which a Pennsylvania court, with no
discussion regarding the propriety of injunctions pending
arbitration, granted such an injunction at the time it deter-
mined the matter to be arbitrable.
The massive conflict on the issue of a court’s authority to
issue preliminary relief in a case subject to arbitration, not
only among and between the various state and federal courts
but between these courts and those seeking proper applica-
tion of the controlling decisions of the U.S. Supreme Court,
mandates immediate consideration and resolution of this
issue by the Court.
V. The authority to issue injunctive relief in a suit subject
to arbitration is an important issue which should be
settled.
As seen from the numerous cases cited in this petition in
which the question of judicial authority to render injunctive
relief in a suit subject to arbitration has been directly dis-
cussed (see Appendix F), this issue has been, and unless
finally determined will remain, a costly issue of paramount
importance to many brokers in numerous disputes. In this
cause, as in most of the other cases cited, the injunction
entered by the district court in essence has had the effect of
depriving the former employee of his job as well as his con-
tractual right to arbitrate his total dispute timely.
The NYSE provides for expedited arbitration upon
agreement of the parties. Merrill Lynch here would not so
agree, and thereby was able to bring about piecemeal determi-
nation of these contractual issues which caused the matter to
18
lapse into a protracted proceeding and gave Merrill Lynch the
distinct upper hand which it sought.
This is hardly “status quo”; indeed it is this gaining of
advantage which is the integral ingredient driving Merrill
Lynch to pursue these injunctions, not that of maintaining
status quo. Justice White in his McCollum dissent stated that
the determination of this issue is of “considerable impor-
tance”; Petitioner merely wants to assure this Court that such
a determination is extremely important to him as well as to
other brokers so situated and the numerous former Merrill
Lynch employees who have been forced to expend the untold
sums necessary to pursue a resolution of this issue.
V]. The issues herein are potentially capable of repetition,
vet evading review.
The doctrine of cases presenting issues “capable of repe-
tition, yet evading review” pertains to instances where pro-
ceedings may have begun and ended before the Court has
opportunity to resolve the issue. It permits judicial review in
such instances where “(1) the challenged action was in its
duration too short to be fully litigated prior to its cessation or
expiration, and (2) there was a reasonable expectation that
the same complaining party would be subjected to the same
action again.” Weinstein v. Bradford, 423 U.S. 147, 149
(1975): see, also, McCollum, 469 U.S. at 814.
Petitioner does not know when or if the issue of the
temporary injunction which is the subject of this case will be
considered by this Court. However, as in McCollum, the arbi-
tration proceedings herein are going forward and there is
some evidence that a hearing disposing of the matter in arbi-
tration may transpire prior to its consideration by this Court.
If that occurs, unless this doctrine is invoked, the issue here
presented likely never will be conclusively resolved.
The likelihood that Ruscitto (and any broker so situated)
may reasonably expect again to be subjected to challenging
19
injunctive relief pending arbitration with an employer is an
obvious occupational hazard for him so long as this case has
not been ruled upon and he is employed in the stock broker-
age business subject to the NYSE rules. Certainly Merrill
Lynch, as this Court has previously held in McCollum, also
will likely find itself in this repetitious position. Indeed, this is
the second appeal involving Merrill Lynch to this Court on
this issue since 1985, and the numerous cases in which it was
a party cited in Appendix F were repetitious of the same issue
raised in both instances.
Even though the cases state that the rule anticipates the
capability of repetition being applicable to a “complaining
party’, such a limitation would not seem to conform with the
purpose for this legal tenet to override the issue of mootness.
The Court surely does not intend to couch the applicability of
this precept in terms of whether a party won or lost in the
court below. Even though there is sufficient potential for repe-
tition which attaches to Petitioner, such test should apply
likewise to Merrill Lynch in this instance solely because of the
legitimacy of the repetition issue as it applies to that entity,
and not whether it is strictly the complaining party.’
This question is also capable of repetition not only by
both parties hereto, but by the new employer of Ruscitto,
PaineWebber, Inc., which has now been joined by Merrill
Lynch in the arbitration proceedings and which has a real
interest in these proceedings. Petitioner submits that under
the parameters of McCollum, the tests of “‘capable of repeti-
tion, yet evading review” are certainly sufficiently met in this
” See, e.g., the three cases raising this same issue in the N.D. of Texas
within a few months of this cause and which demonstrate the capability
for repetition as to brokers and as to Merrill Lynch. Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Scheff, CA3-91-0877G (N.D. Tex.
1991): Arsenault v. Merrill Lynch, Pierce, Fenner and Smith, Inc.,
CA3-91-1131G (N.D. Tex. 1991); and Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Leach, CA3-91-1023-T (N.D. Tex. 1991).
20
instance and should not be cause for the Court to deny its
writ.
VII. Denial of expedited arbitration upon the grant of
preliminary injunctive relief deprives a party of its right
to arbitrate the merits of a dispute.
Although Petitioner urges the Court to find that the
terms of the FAA preclude the courts from issuing pre-injunc-
tive relief at all, Petitioner also asks that the Court grant writ
of certiorari to consider an alternative solution to be raised by
Petitioner of requiring, at a minimun,, that the trial court
mandate expedited arbitration when a preliminary injunc-
tion 1s granted by the court.
After seven months of delay, today there still has been no
arbitration in this case and Ruscitto’s right to arbitrate the
validity of Merrill Lynch’s non-compete agreement has been
eviscerated by the actions of the district and Fifth Circuit
courts. The non-compete agreement purports to prohibit
Ruscitto from competing with Merrill Lynch for a period of
one year; the court’s order has had the effect of a decree of
specific performance of Merrill Lynch’s non-compete agree-
ment, without any adjudication of this dispute on the merits
by the arbitrators, or a hearing in any forum.
Petitioner would argue that, at the least, upon issuance
of injunctive relief by a state or district court, the Congres-
sional intent behind the FAA to “move the parties to an
arbitrable dispute out of court and into arbitration as quickly
and easily as possible” Moses H. Cone, 460 U.S. at 22, man-
dates that as a quid pro quo a court issuing injunctive relief
also order expedited arbitration to thwart the attempts by
either party to delay the timing of the arbitration and proper
consideration by the arbitrators of the issues at hand. See,
Blumenthal and Fein v. Merrill Lynch, 910 F. 2d 1049 (2nd
Cir. 1990) (noting lower court ordered expedited arbitration).
21
—
There being no opinion in this case discussing this issue
raised at both the trial court and appellate court levels, Peti-
tioner requests that this Court permit him to present same to
this Court by granting his writ herein requested.
CONCLUSION
Ruscitto and Merrill Lynch had a valid predispute agree-
ment to arbitrate under the rules of the NYSE all issues aris-
ing between them pursuant to an employment contract.
Neither has challenged the efficacy of the rules or agreement
which form the basis of their legal relationship. The single
issue which has been presented by this petition is whether the
Federal Arbitration Act precludes a court from issuing a tem-
porary injunction pending arbitration of a contractual
dispute.
This issue has created splits among the various United
States courts of appeals, state and federal courts, state courts,
and lurks in the periphery of a number of U.S. Supreme Court
decisions. The question has been virtually omnipresent some-
where in our court systems for the last seven years since this
Court refused writ in McCollum; this emphasizes both the
frequency of its being challenged as well as the importance of
the issue to parties to arbitration contracts.
The duration of this proceeding and reasonable expecta-
tion that both parties hereto may be subjected to such action
again substantiates the application by the Court of the “‘capa-
ble of repetition, yet evading review” doctrine which super-
sedes the issue of mootness in this case.
With the emphasis in the federal court system on arbitra-
tion and the recognition of the increased quality of the proce-
dures and effectiveness of that system in settling disputes,
these wide spread splits in authority cannot be permitted to
continue. If it is to preserve the effectiveness of such a system,
this Court must eliminate obvious impediments to its proper
and consistent functioning.
22
The conclusion of this brief, therefore, is facile. This
Court, to preserve order in future proceedings in arbitration,
must grant this petition and decide the merits of this case. To
do otherwise will thwart Congressional mandate, impede the
primacy of arbitration, and encourage disingenuous use of
our court system.
Respectfully submitted,
Joe H. Staley, Jr.
State Bar No. 19017000
Margaret A. Donahue
State Bar No. 05968450
LOCKE PURNELL RAIN HARRELL
(A Professional Corporation)
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
(214) 740-8000
(214) 740-8800 — FAX
Attorneys for Appellant,
FRANK C. RUSCITTO
A-|
APPENDIX A
MEMORANDUM OPINION
[OF AUGUST 2, 1991]
[United States District Court —
Northern District of Texas — Dallas Division]
[Filed August 2, 1991]
(Frank C. Ruscitto, Plaintiff, v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., Defendant — CA3-92-1312-D:
Entered on Docket pursuant to F.R.C.P. Rules 58 and 79a)
Defendant Merrill Lynch, Pierce, Fenner & Smith, Inc.,
(“Merrill Lynch”) applies for a preliminary injunction pre-
cluding plaintiff Frank C. Ruscitto (“Ruscitto”), a former
account executive employed by Merrill Lynch, from soliciting
and accepting business from certain clients whom he served
while a Merrill Lynch account executive and using, disclos-
ing, or transmitting certain information contained in Merrill
Lynch records. For the reasons that follow, see Fed. R. Civ. P.
65(d) and 52(a), the court grants the motion.
I
Plaintiff Ruscitto resigned from employment with
defendant Merrill Lynch on July 3, 1991 and went to work
immediately for a Merrill Lynch competitor, PaineWebber.
Inc. (“*PaineWebber’’). On the day he resigned, he sent letters
(o customers whom he had served at Merrill Lynch, soliciting
their brokerage business. E.g., July 10, 1991 Affidavit of Wil-
bur R. Monier, Ex. A. The letter informed the customer that
Ruscitto would “continue my business association with you
through the brokerage firm PaineWebber.” /d.
Ruscitto is a 47-year old resident of Dallas County,
Texas. July 3, 1991 Affidavit of Frank C. Ruscitto at 13. He
went to work for Merrill Lynch in August 1987 at its Las
Colinas, Texas branch office. /d. at 14. Ruscitto had been a
A-2
broker with EFHutton (““Hutton’’) from 1969-1974. July 22,
1991 Affidavit of Frank C. Ruscitto at 13. Thereafter, he was
employed in the Trust Department of Mercantile National
Bank (‘Mercantile’) for 13 years before commencing
employment with Merrill Lynch. /d. at 193-4.
When Ruscitto commenced his employment with Mer-
rill Lynch, he executed an Account Executive Trainee Agree-
ment (the ““Agreement’’).! Mem. Supp. Mot. Prel. Inj. Ex. A.
The Agreement contains two provisions on which Merrill
Lynch now relies in part for the preliminary injunction it
seeks. The provisions state:
1. All records of Merrill Lynch, including the names
and addresses of its clients, are and shail remain the
property of Merrill Lynch at all times during my
employment with Merrill Lynch and after termina-
tion of my employment for any reason with Merrill
Lynch. None of said records nor any part of them is
to be removed by me from the premises of Merrill
Lynch either in original form or in duplicated or
copied form, and the names, addresses, and other
facts in such records are not to be transmitted ver-
bally or in writing by me except in the ordinary
course of conducting business for Merrill Lynch. All
of said records or any part of them are the sole pro-
prietary information of Merrill | ynch and shall he
treated by me as confidential information of Merrill
Lynch.
' In one of his affidavits in opposition to the preliminary injunction
application, Ruscitto avers that “it is my strong belief that any such
written agreement with Merrill Lynch was only for a two-year term, it
expired by its own terms, and thus is no longer binding upon me.”
Ruscitto Aff. (July 3, 1991) at "4. This allegation does not present a
controlling credibility question that requires an evidentiary hearing.
Ruscitto neither questions the authenticity of the Agreement nor of his
signature. The Agreement contains no provision that dictates the entire
agreement expires after two years. Only {3 — a clause irrelevant to
Merrill Lynch’s application — has a two-year term.
A-3
2. Inthe event of termination of my services with Mer-
rill Lynch for any reason, I will not solicit, for a
period of one year from the date of termination of
my employment in any community or city served by
the office of Merrill Lynch, or any subsidiary
thereof, at which I was employed at any time, any of
the clients of Merrill Lynch whom I served or whose
names became known to me while in the employ of
Merrill Lynch. In the event that any of the provi-
sions contained in this paragraph and/or paragraph
(1) above are violated I understand that I will be
liable to Merrill Lynch for any damage caused
thereby.
Merrill Lynch contends Ruscitto is violating {2 of the
Agreement by soliciting 300-450 clients he serviced at Merrill
Lynch, which represent over $28 million in assets managed
by the defendant and $370,000 in commissions for Merrill
Lynch in 1990. See July 8, 1991 Affidavit of Wilbur R.
Monier at 14. Merrill Lynch argues Ruscitto is violating 11 of
the Agreement by taking, using, and disseminating informa-
tion concerning these customers, including their names,
addresses, past investment activities, current status of their
investments, and holdings. It seeks a preliminary injunction
(1) precluding Ruscitto from soliciting business from certain
clients of Merrill Lynch whom Ruscitto served while in Mer-
rill Lynch’s employ and from accepting business from any
customers whom Ruscitto has solicited in the past for the
purpose of doing business with Merrill Lynch and
(2) preventing Ruscitto from using, disclosing, or transmit-
ting information contained in certain records of Merrill
Lynch.
Ruscitto opposes the application, arguing Merrill Lynch
is not entitled to injunctive relief because the parties have
entered into an agreement that compels them to arbitrate
their dispute, Merrill Lynch cannot satisfy the elements
required for entry of a preliminary injunction, Merrill Lynch
A-4
has unclean hands, and a preliminary injunction will confer
upon Merrill Lynch all the relief it seeks.
II
A
At the outset, the court turns to a procedural question.
Because Ruscitto filed suit against Merrill Lynch in anticipa-
tion of relief he thought Merrill Lynch would pursue in court,
Merrill Lynch is the defendant in this action. According to the
clerk’s office, as of today Merrill Lynch has yet to file a coun-
terclaim against Ruscitto. As the court notes below, in the
Fifth Circuit the first inquiry for determining entitlement to a
preliminary injunction is whether the applicant has shown a
likelihood of success on the merits. Indeed, Merrill Lynch
predictably contends in its application “that there exists a
substantial likelihood that Merrill Lynch will succeed on the
merits of its claims against the Plaintiff.” Mem. Supp. Mot.
Prel. Inj. at 6-7. But because Merrill Lynch has not filed a
counterclaim, the question arises whether it procedurally has
identified “its claims.”
There is scant authority on the question, but the court is
satisfied from its research that Merrill Lynch need not have
filed a counterclaim. At least one circuit court has held there
are circumstances of such an exigent nature that an injunc-
tion can precede even the filing of the suit itself. In Srude-
baker Corp. v. Gittlin, 360 F.2d 692 (2d Cir. 1966), the
Second Circuit affirmed an injunction entered by the district
court on the basis of an affidavit and without a complaint. /d.
at 694. The circuit court observed that “it would have been
better to file a complaint along with the affidavit and order to
show cause,” /d., but under the circumstances (a complaint
was filed after the hearing but before the injunction issued),
the district court could properly treat the affidavit as a com-
plaint. /d. Professors Wright and Miller state as the applicable
rule that, “although it is preferable to file the complaint first, a
A-5
preliminary injunction may be granted upon a motion made
before a formal complaint is presented.” 11 C. Wright & A.
Miller, Federal Practice and Procedure § 2949 at 468(1973).
In the present case Merrill Lynch’s motion and associ-
ated briefing make pellucid the precise relief it seeks and the
bases it contends warrant such relief. The lack of a counter-
claim therefore presents no impediment. Merrill Lynch shall
file its counterclaim promptly.
A second preliminary question is more difficult. Ruscitto
argues with some force that this court should not enter a
preliminary injunction because the parties are obligated to
arbitrate their dispute before the New York Stock Exchange
(“NYSE”). He contends 9 U.S.C. § 3, which is part of the
Federal Arbitration Act, mandates a stay of all proceedings
until arbitration is completed or a party fails to arbitrate. He
points to NYSE Arbitration R. 347, which also mandates
arbitration in cases such as the present one, see 2 N.Y.S.E.
Guide (CCH) 12347 (Sept. 1988), and to § 8(a) of the Code of
Arbitration of the National Association of Securities Dealers
Inc., which contains a similar provision.
The court recognizes there is a split of authority among
the circuits that have decided the question whether 9 U.S.C.
§ 3 precludes entry of an injunction in a case where the under-
lying dispute is plainly covered by a mandatory arbitration
agreement. The Fifth Circuit has not expressly addressed the
question and even federal and state judges within Texas have
reached conflicting results. The court is persuaded by its read-
ing of the cases, and by Judge Feldman’s thoughtful opinion
in Speedee Oil Change Sys., Inc. v. Siate Street Capital, Inc.,
727 F.Supp. 289 (E.D. La. 1989), that the Fifth Circuit will
ultimately opt for the majority view and decide that a prelim-
inary injunction can be entered to preserve the status quo
during the process of arbitration. See id. at 292. Accordingly,
A-6
the court holds that a preliminary injunction that does noth-
ing more than preserve the status quo does not run afoul of
9 USA. § 5.
Iil
The court now turns to consideration of the merits of
Merrill Lynch’s application. The formulation of Canal Auth.
of State of Fla. v. Callaway, 489 F.2d 567, 572 (Sth Cir. 1974),
is familiar. In order to show entitlement to a preliminary
injunction, Merrill Lynch must demonstrate (1) a substantial
likelihood of success on the merits, (2) a substantial threat of
irreparable harm, (3) the threatened injury to Merrill Lynch
outweighs the threatened harm to Ruscitto if injunctive relief
is granted, and (4) granting the injunction will not disserve
the public interest.
A
To decide the question of likelihood of success, the court
must first ascertain the controlling substantive law. Merrill
Lynch argues the merits of its application on the basis of
numerous cases throughout the L: ied States that have
awarded it injunctive relief on a variety of grounds. Notwith-
standing the numerical weight of the cases, most have no
application here. As Ruscitto properly points out, the Agree-
ment and applicable common law jurisprudence are governed
by Texas choice of law rules, which apply Texas law to the
instant facts. See DeSantis v. Wackenhut Corp., 793 S.W.2d
670, 679 (Tex. 1990) (on rehearing), cert. denied,
U.S. , 111 S.Ct. 755 (1991). The vast majority of the
cases on which Merrill Lynch now relies do not apply Texas
law. This is not a situation, then, where Merrill Lynch can
simply point to the succession of courts that have already
traveled a particular course and urge this court to do likewise.
In the late 1980s, the Texas courts turned a cold shoulder
to enforcement of covenants not to compete. See Property
A-7
Tax Assocs., Inc. v. Staffeld, 800 $.W.2d 349, 351 (Tex. App.
1990, writ denied) (“Since the Hill [v. Mobile Auto Trim. Inc.,
725 S.W.2d 168 (Tex. 1987)] decision, those seeking to
enforce covenants not to compete have not been very success-
ful in [the Texas Supreme Court]’’). But the Texas legislature
changed this attitude with the enactment effective August 28,
1989 of Tex. Bus. & Comm. Code Ann. §§ 15.50 and 15.51
(Vernon Supp. 1991). Under these standards, a covenant not
to compete is enforceable to the extent (1) it is ancillary to an
otherwise enforceable agreement? and (2) contains reasonable
limitations as to the time, geographical area, and scope of
activity to be restrained that do not impose a greater restraint
than is necessary to protect the goodwill or other business
interest of the promisee. /d. § 15.50. A court may award the
promisee injunctive relief for a breach of the covenant. Jd
§ 15.51(a).
The applicability of § 15.50 to an agreement not to com-
pete that was entered into before the statute was enacted was
left undecided by the Texas Supreme Court in DeSantis. See
793 S.W.2d at 685. But a Texas intermediate court held three
weeks after DeSantis that the statute does apply if the breach
of a covenant not to compete occurs after August 28, 1989.
See Webb v. Hartman Newspapers, Inc., 793 S.W.2d 302, 304
(Tex. App. 1990, no writ): accord Property Tax Assocs., 800
S.W.2d at 352 (applying statute to covenant executed Janu-
ary 5, 1988). The new law applies to today’s case.
Under the statute, the court first determines if the cove-
nant is ancillary to an otherwise enforceable agreement. In
the present case the first test is met: the covenant was part of
Ruscitto’s agreement to become employed with Merrill
Lynch.
° If the covenant is executed on a date other than the date on which
the underlying agreement is executed. the covenant must be supported
by independent valuable consideration. Jd § 15.50(1).
A-8
“Once the first criterifon] is met, the courts have no
choice but to enforce the covenant if the promisee seeks rea-
sonable enforcement.” Jd. at 350. The present record plainly
shows that Merrill Lynch’s request is reasonable. Ruscitto
may continue to compete as a stock broker in the same locale.
He is merely restricted for one year from soliciting clients
whom he served or whose names became known to him while
at Merrill Lynch. The duration of the covenant is plainly
reasonable under Texas law, as is the prohibition upon use of
records and customer intormation.
Merrill Lynch 1s likely to succeed on the merits of its
claims.
B
The court next considers the element of irreparable
injury. Under Texas law, covenants not to compete present
the paradigm of irreparable injury, so that reasonable
enforcement appears to be the rule rather than the exception.
Tex. Bus. & Comm. Code Ann. § 15.51(a) expressly makes
available injunctive relief. The factual record supports a find-
ing that Merrill Lynch is threatened with irreparable injury by
Ruscitto’s breach of the Agreement.
a
The court determines next that the threat of injury to
Merrill Lynch outweighs the threat of injury to Ruscitto. The
court rejects the facile temptation simply to compare the
corporate employer with the individual former employee and
to balance the harm only with reference to their correlative
financial standing. To do so would almost always dictate a
ruling against the corporate behemoth. The proper equation
is surely otherwise, balancing instead the terms and breadth
of the injunction contemplated against the threatened harm if
equitable relief does not issue.
A-9
Here, Ruscitto will be permitted to pursue his current
profession and to compete with Merrill Lynch in the very
community in which he has long-resided. Although the
restrictions on him will be meaningful, the harm they exact
does not outweigh what Merrill Lynch will incur in terms of
lost customer goodwill, trade secrets, and lost business.
D
The entry of a preliminary injunction will not disserve
the public interest.
IV
The court has carefully considered Ruscitto’s clean
hands argument as well as his contention that a preliminary
injunction will accord Merrill Lynch all the relief it seeks. The
court is not persuaded that either contention warrants denial
of injunctive relief.
* *” a
The application for a preliminary injunction is granted
for the reasons stated.
August 2, 1991,
/s/ SIDNEY A. FITZWATER
United States District Judge
B-|
APPENDIX B
PRELIMINARY INJUNCTION
[OF AUGUST 2, 1991]
[United States District Court —
Northern District of Texas — Dallas Division]
[Filed August 2, 1991]
(Frank C. Ruscitto, Plaintiff, v. Merri!! Lynch, Pierce,
Fenner & Smith, Inc., Defendant — CA3-92-1312-D)
For the reasons set out in a memorandum opinion filed
today, it is ordered and adjudged that plaintiff Frank C.
Ruscitto (“Ruscitto”), his agents, servants, employees, attor-
neys, and persons in active concert or participation with them
who receive actual notice of this order by personal service or
otherwise, are enjoined pending further order of this court.
and until no later than July 2, 1992, from
(1) soliciting any business from any client of defen-
dant Merrill Lynch, Pierce, Fenner & Smith, Inc. (*‘Mer-
rill Lynch’) whom Ruscitto served or whose name
became known to Ruscitto while in the employ of Merrill
Lynch, and from accepting any business from any of said
clients; and
(2) using, disclosing, or transmitting information
contained in the records of Merrill Lynch, including but
not limited to, the names, addresses, and financial infor-
mation of such clients, and failing immediately to return
any original records to Merrill Lynch.
This preliminary injunction shall take effect immedi-
ately upon Merrill Lynch’s posting with the clerk of court.
cash or a bond (in a form approved by the clerk of court) in
the sum of $50,000.
SO ORDERED.
August 2, 1991.
/s/ SIDNEY A. FITZWATER
United States District Judge
|
C-|
APPENDIX C
ORDER DENYING RUSCITTO’S MOTIONS FOR
TEMPORARY RESTRAINING ORDER, TO COMPEL
ARBITRATION, AND TO STAY FURTHER
PROCEEDINGS AND DENYING MERRILL LYNCH’S
MOTION FOR TEMPORARY RESTRAINING ORDER
{United States District Court —
Northern District of Texas — Dallas Division]
[Filed July 9, 1991]
(Frank C. Ruscitto, Plaintiff. v. Merrill Lynch, Pierce.
Fenner & Smith, Inc., Defendant — CA3-92-1312-D)
Plaintiff Frank C. Ruscitto (“Ruscitto”) on July 3, 199]
and defendant Merrill Lynch, Pierce, Fenner & Smith, Inc.
(“Merrill Lynch’’) on July 8, 1991 each filed applications for
temporary restraining orders. Ruscitto has also requested a
Stay of the present action and an order compelling Merrill
Lynch to arbitrate any disputes with him covered by an arbi-
tration agreement between the parties. Merrill Lynch has also
applied for a preliminary injunction.’
The court denies Ruscitto’s application for a temporary
restraining order. Ruscitto fears Merrill Lynch will seek and
obtain ex parte relief from a court precluding him from
engaging in employment and will Oppose engaging in arbitra-
tion. To the court's knowledge, however, Merrill Lynch has
Only sought from this court — and with notice — such
injunctive relief. Ruscitto will have a fair Opportunity to
Oppose the injunction request and will not be restrained by an
ex parte order.
The court denies without prejudice Ruscitto’s motion to
compel arbitration. Merril] Lynch’s July 8, 1991 memoran-
dum, “while not conceding the arbitrability of its claims.”
* In an order filed July 8, 1991 the court established the regimen for
determining Merrill Lynch's preliminary injunction application.
C-2
discloses that it “is willing to arbitrate its claims.” Mem. at
22. There is apparently no present need for the court to com-
pel arbitration.
The court denies Ruscitto’s motion for a stay. He has not
shown that Merrill Lynch is without authority to apply for a
preliminary injunction even while arbitration is taking place.
The court denies Merrill Lynch’s application for a tem-
porary restraining order. To justify entry of a TRO, the
movant must demonstrate not only entitlement to a prelimi-
nary injunction but that the injury it will incur is so extraordi-
nary as to warrant expedited relief. It has not persuaded the
court that a TRO is warranted, see Arsenault v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., CA3-91-1131-G (N.D. Tex.
June 21, 1991) (Fish, J.), and should instead promptly pursue
its preliminary injunction application and/or arbitration.
The clerk of court shall advise counsel of the entry of this
order.
SO ORDERED.
July 9, 1991.
/s/ SIDNEY A. FITZWATER _
United States District Judge
oe att
D-|
APPENDIX D
PER CURIAM OPINION
[OF NOVEMBER 12, 1991]
[Fifth Circuit Court of Appeals — on Appeal from
the United States District Court —
Northern District of Texas — Dallas Division]
[Filed November 12. 1991]
(Frank C. Ruscitto. Plaintiff-Appellant, v. Merril]
Lynch, Pierce, Fenner & Smith, Inc., Defendant-Appellee —
No. 91-1869)
Before CLARK. Chief Judge, WILLIAMS and BARKS-
DALE, Circuit Judges.
PER CURIAM:*
AFFIRMED. See Local Rule 47.6.
* Local Rule 47.5 provides: “The publication of opinions that have
no precedential value and merely decide particular cases on the basis of
well-settled principles of law imposes needless expense on the public
and burdens on the legal profession.” Pursuant to that rule, the court
has dete mined that this opinion should not be published.
i
E-]
APPENDIX E
STATUS REPORT ORDER
[OF DECEMBER 13, 1991]
[United States District Court —
Northern District of Texas — Dallas Division]
[Filed December 13, 1991]
(Frank C. Ruscitto, Plaintiff, v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., Defendant — CA3-92-1312-D)
The court has received and reviewed the parties’ Decem-
ber 10, 1991 status report. The parties shall file a similar
report on or before February 1, 1992. The court will defer
entering an order requiring proposal for pretrial scheduling
and discovery order in this action pending receipt of that
report.
SO ORDERED.
December 13, 1991.
/s/ SIDNEY A. FITZWATER |
United States District Judge
F-]
APPENDIX F
CASES IN WHICH A LOWER COURT HAS EITHER
ISSUED INJUNCTIVE RELIEF PENDING
ARBITRATION OR HAS DIRECTLY CONSIDERED
THE ISSUE HERE PRESENTED BY PETITIONER
|. Dean Witter Reynolds, Inc. v. Francis, No. 91-15181-J.
Dallas County (Texas) District Court. 191st Judicial
District, (Jan. 10, 1992) (Brooks. J.);
Merrill Lynch, Pierce, Fenner & Smith y. Sheff,
No. CA3-91-0877-G, U.S. District Court. N.D. Tex.,
Dallas Division (1991) (Fish, J.);
3. Arsenault v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
No. CA3-91-1131-G, U.S. District Court. N.D. Tex.,
Dallas Division (June 21, 1991) (Fish. J.);
4. Merrill Lynch, Pierce, Fenner & Smith, Inc. y. Otzko,
No. 9103400, U.S. District Court. N.D. Illinois, Eastern
Division (June 4, 1991) (Leinenweber, J.):
nN
5. Merrill Lynch. Pierce, Fenner & Smith, Inc. y. Rowell,
No. 91-170-2-Mac, U.S. District Court. M.D. Georgia,
Macon Division (May 31, 1991) (Owens, Jr., J.):
6. Merrill Lynch, Pierce, Fenner & Smith, Inc. y. Leach,
No. CA3-91-1023-T, U.S. District Court. N.D. Texas,
Dallas Division (May 30, 1991) (Maloney, J.):
7. Merrill Lynch, Pierce, Fenner & Smith, Inc. y. DeLeon,
No. C-91-125, U.S. District Court, $.D. Texas. Corpus
Christi Division (May 29, 1991) (Head. J.);
8. Merrill Lynch, Pierce, Fenner & Smith. Inc. y.
Southwick, No. 91-2100, U.S. District Court. District
New Jersey (May 28, 1991) (Gerry, J.):
9. Merrill Lynch, Pierce, Fenner & Smith, Inc. y. Gray,
No. C-91-120, U.S. District Court, $.D. Texas. Corpus
Christi Division (May 24, 1991) (Head. } A
a
10.
11.
12.
13.
14.
15.
17.
18.
19.
F-2
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Altman,
No. 91-B-798, U.S. District Court, D. Colorado
(May 20, 1991) (Babcock, J.);
Merrill Lynch, Pierce, Fenner & Smith v. Schwartz,
No. 91-2162, U.S. District Court, D. New Jersey
(May 17, 1991) (Politan, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Patinkin,
No. 91-C-2324, U.S. District Court, N.D. Illinois, East-
ern Division (May 3, 1991) (Williams, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Romano,
No. 91-C-2432, U.S. District Court, N.D. Illinois, East-
ern Division (April 25, 1991) (Parson, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cooner,
No. 91-163L, U.S. District Court, D. Rhode Island
(April 17, 1991) (Lagueux, J.);
J.C. Bradford & Co. v. Arnold Brown & Merrill Lynch,
Pierce, Fenner & Smith, Inc., No. 9100033, Circuit
Court, Roanoke, Virginia (January 22, 1991);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Branch,
C.A. No. W-90-CA-390, U.S. District Court, W.D.
Texas (December 21, 1990) (Smith, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lloyd,
No. C-90-3358-VRW, U.S. District Court, N.D. Cali-
fornia (December 4, 1990) (Walker, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Blomeyer,
C.A. No. CV-90-C-2492-E, U. S. District Court, N. D.
Alabaina, (November 20, 1990 and December 19, 1990)
(Clemon, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Molfetto,
C.A. No. 1990-5116, New York Supreme Court, Dutch-
ess County (November 26, 1990) (Benson, J.):
F-3
Merrill Lynch, Pierce, Fenner & Smith, Inc. vy. Feeney,
No. 90-5085, New York Supreme Court. Dutchess
County (October 18, 1990) (Benson, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Barnett.
No. 90-CV-139, U.S. District Court, W.D. Michigan,
Southern Division (October 17, 1990) (Enslen, J.):
Wheat First Securities, Inc. y. Ormond, No.
90-129-CIV-7-F, U.S. District Court, E.D. North Caro-
lina, Wilmington Division (October 2, 1990) (Fox. J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Turner,
No. 90-0037-C, U.S. District Court, W.D. Virginia,
Charlottesville Division (September 7, 1990)
(Michael, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. vy. Rosen-
baum, No. 90-C-5031, U.S. District Court, N.D. IIli-
nois, Eastern Division (September 5. 1990)
(Conlon, S.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Setrakian,
No. 90-5296, U.S. District Court, E.D. Pennsylvania
(August 14, 1990) (Kelly, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Brady,
No. 90-5044, U.S. District Court, E.D. Pennsylvania
(August 2, 1990 and August 13, 1990) (Gawthrop, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lucken-
bill, No. 3266, Lancaster County (Pa.) Court of Com-
mon Pleas, (August 7, 1990) (Eckman, rsx
Merrill Lynch, Pierce, Fenner & Smith, Inc. vy. Mathes,
No. CY-90-3060-AAM, U.S. District Court, E.D. Wash-
ington (July 24, 1990) (McDonald, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Tobias.
No. 90-C-20210, U.S. District Court, N.D. illinois,
Western Division (July 17, 1990 and September 12.
1990) (Roszkowski. +e
F-4
30. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. DeBord,
No. 90-1260, U.S. District Court, M.D. Pennsylvania
(July 2, 1990) (Caldwell, J.);
31. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Middle-
ton, No. 8097190, New York Supreme Court, New York
County (April 24, 1990) (Weissberg, J.);
32. Shearson Lehman Hutton, Inc. v. Kerley, No. 90-03254,
Chester County (Pa.) Court of Common Pleas,
(April 19, 1990) (Joyner, J.):
33. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cenci,
No. 90-2560, U.S. District Court, E.D. Pennsylvania
(April 13, 1990) (Gawthrop, J.);
34. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Corrado,
No. 90-1715, U.S. District Court, E.D. Pennsylvania
(March 16, 1990) (Pollak, J.);
35. Merrill Lynch, Pierce, Fenner & Smith. Inc. v. Ferry,
No. 607431, Circuit Court St. Louis, Missourt
(March 5, 1990):
36. Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Tramontano, No. 4888-90, New York Supreme Court,
New York County (March 5, 1990 and March 12, 1990)
(Fingerhood, J.);
37. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Nelson,
No. 90-0113-E-EJK, U.S. District Court, D. Idaho (Feb-
ruary 23, 1990 and March 8, 1990) (Lodge, J.):
38. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cunning-
ham, No. 90-C-1034, U.S. District Court, N.D. Illinois
(February 23, 1990) (Hart, J.);
39. McLaughlin, Piven, Vogel, Inc. v. Deutsch, No. 3881/90,
New York Supreme Court, Nassau County (Febru-
ary 21, 1990) (Levitt, J.);
40. Merrill Lynch. Pierce, Fenner & Smith. Inc. v. Hemphill.
No. 90-2464, Delaware County (Pa.) Court of Common
aia iit iii
41.
43.
44.
45.
46.
47.
48.
49.
. F-5
Pleas (February 20, 1990 and February 22, 1990)
(Bradley, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. DeLo-
renzo, No. 90-21, U.S. District Court, W.D. Penn-
sylvania (January 26, 1990) (Mencer, J.):
Shearson Lehman Hutton, Inc. v. Howell. No.
89-043880, Harris County (Texas) District Court.
280th Judicial District, (October 16. 1989)
(Lindsay, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Price.
No. 11097, Delaware Court of Chancery, New Castle
County (September 13. 1986 and September 21, 1989)
(Allen, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. y. King,
No. 89-HM-5338-NE. U-S. District Court, N.D. Ala-
bama (August 1, 1989) (Halton, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Totten.
No.89-105, U.S. District Court, E.D. Kentucky, Ash-
land Division (June 12. 1989):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Switow.
No. 89-0494-L-B, U.S. District Court, W.D. Kentucky,
Louisville Division (June 7, 1989) (Ballantine, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Kudler.
No. 89-0609, U.S. District Court, M.D. Pennsylvania
(May 1, 1989) (Caldwell, J.):
Blumenthal and Fein v. Merril] Lynch, Pierce, Fenner &
Smith, Inc., No. 89-1209. U.S. District Court, S.D. New
York (February 23, 1989 and February 27, 1989)
(Keenan, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bender,
No. 89-0096, U.S. District Court, M.D. Pennsylvania
(January 20, 1989) (Conaboy, J.):
50.
51.
aa.
54.
>
56.
57.
58.
59.
F-6
Rainer v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
No. 88-8306, U.S. District Court, E.D. Pennsylvania
(October 28, 1988 and October 31, 1988)
(Newcomer, J.);
Merrill Lynch, Pierce, Fenner & Smith v. Kehoe,
No. 88-7387, U.S. District Court E.D. Pennsylvania
(September 26, 1988) (Ludwig, J.);
Merrill Lynch, Pierce, Fenner & Smith v. Hondula,
No. 88-1096, U.S. District Court, D. New Jersey
(March 14, 1988) (Lechner, Jr., J.);
Merrill Lynch, Pierce, Fenner & Smith v. Hook,
No. 88-1097, U.S. District Court, D. New Jersey
(March 14, 1988) (Lechner, Jr., J.);
Lenahan vy. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
No. 88-0241, U.S. District Court, M.D. Pennsylvania
(February 19, 1988) (Nealon, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Hess,
No. 88-0160, U.S. District Court, M.D. Pennsylvania
(Feb. 2, 1988, February 19, 1988, and February 19,
1988) (Herman, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Atherholt,
No. 88-0110, U.S. District Court, M.D. Pennsylvania
(January 24, 1988) (Nealon, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
O'Donnell, No. 87-3771, U.S. District Court, D. New
Jersey (September 18, 1987) (Ackerman, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Fisher,
No. 87-3621, U.S. District Court, D. New Jersey (Sep-
tember 9, 1987) (Rodriguez, J.);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Adams,
No. 87-0953, U.S. District Court, M.D. Pennsylvania
(July 13, 1987) (Caldwell, J.):
60.
61.
63.
64.
65.
66.
67.
68.
69.
70.
F-7
Merrill Lynch, Pierce, Fenner & Smith y. Legg, Mason,
Gillon, No. 87-353-WS, U.S. District Court, M.D.
North Carolina (June 2, 1987 and June 10, 1987):
Payes v. Merrill Lynch, Pierce, Fenner & Smith,
No. 87-0610, U.S. District Court, M.D. Pennsylvania
(May 6, 1987) (Caldwell, J.):
Merrill Lynch, Pierce, Fenner & Smith y. Tramo, No.
87-01992, Montgomery County Court of Common
Pleas (February 12, 1987) (Salus, J.):
Thomson McKinnon Securities, Inc. v. Panarass and
Merrill Lynch, Pierce, Fenner & Smith, Inc., No.
1986-CE-7086, Northampton County Court of Com-
mon Pleas (September 16, 1986) (Franciosa, J.):
Merrill Lynch, Pierce, Fenner & Smith, Inc. y. Moose
Beard & Rohrbaugh, No. 86-SU-02235-07, York
County Court of Common Pleas (June 9, 1986)
(Miller, J.):
McLaughlin, Piven, Vogel, Inc. v. W.J. Nolan & C. om-
pany, Inc., 498 N.Y.S. 2d 146, 114 A.D. 2d 165 (1986)
App. Div. (2d Dep't February 3, 1986) (Weinstein, J.):
Merrill Lynch, Pierce, Fenner & Smith y. Bradley, 756 F.
2d 1048 (4th Cir. 1985):
Propane Gas Co. of Puerto Rico, Inc. y. Sony Consumer
Products Co., 613 F.Supp. 215 (D.P.R. 1985);
Merrill Lynch, Pierce, Fenner & Smith y. Clark, No.
84-04718, Montgomery County Court of Common
Pleas (April 6, 1984) (Brown. J.);
Smith v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
575 F.Supp. 904 (N.D. Tex. 1983):
Merriil Lynch, Pierce, Fenner & Smith, Inc. y. de Liniere,
$72 F.Supp. 246 (N.D. Ga. 1983):
71.
en
73.
74.
ta
76.
77.
78.
80.
81.
F-8
Dean Witter Reynolds, Inc. v. Carlin, No. 83-4417, U.S.
District Court, D. New Jersey (November 18, 1983);
Merrill Lynch, Pierce, Fenner & Smith v. Fogler,
No. 83-4342, U.S. District Court, D. New Jersey
(November 10, 1983) (Bissell, J.);
Merrill Lynch, Pierce, Fenner & Smith v. Sims,
No. 83-7917-05, Bucks County Court of Common Pleas
(November 3, 1983):
Merrill Lynch, Pierce, Fenner & Smith v. Taksler,
No. 0-3748-83, N.J. Super. Ct. Ch. Div. (Sept. 13,
1983);
Merrill Lynch, Pierce, Fenner & Smith v. Pilon, Moffett
and Bradley, No. 83-6014, Westmoreland County Court
of Common Pleas (August 23, 1983) (Scherer, J.);
Merrill Lynch, Pierce, Fenner & Smith v. Carnevale,
No. 83-10565, Montgomery County Court of Common
Pleas (July 20, 1983) (Vogel, J.);
Merrill Lynch, Pierce, Fenner & Smith v. Roodveldt,
No. 83-09272, Montgomery County Court of Common
Pleas (June 23, 1983) (Suber, J.):
Merrill Lynch, Pierce, Fenner & Smith v. Baird,
No. 83-2635, Philadelphia County Court of Common
Pleas (May 19, 1983) (Greenberg, J.);
Merrill Lynch, Pierce, Fenner & Smith v. Grabowski, No.
83-600, Philadelphia County Court of Common Pleas
(March 17, 1983) (Greenberg, J.);
Merrill Lynch, Pierce, Fenner & Smith y. Gorman,
No. 83-CV-915, Wisc. Cir. Ct. (March 10, 1983);
Merrill Lynch, Pierce, Fenner & Smith v. Kahn, New
York Supreme Court (October 18, 1982) (Stone, J.):
82.
83.
F-9
Merrill Lynch, Pierce, Fenner & Smith v. Vanderheijden
and Bender, No. 22, Lancaster County Court of Com-
mon Pleas (August 20, 1982) (Eckman. J.);
Merrill Lynch, Pierce Fenner & Smith v. Branson.
No. 82-3136, New York Supreme Court (June 24. 1982)
(Lynch, J.).
G-1
APPENDIX G
469 U.S. 1127, 83 L.Ed.2d 804
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC.
vi
ERNEST M. MCCOLLUM et al. No. 84-629.
Rehearing Denied Feb. 25, 1985.
See 470 U.S. 1024, 105 S.Ct. 1384.
Case below, 666 S.W.2d 604.
On petition for writ of certiorari to the Court of Appeals
of Texas, Fourteenth Supreme Judicial District.
Jan. 7, 1985. The petition for a writ of certiorari is
denied.
Justice WHITE, with whom Justice BLACKMUN joins,
dissenting.
This petition presents the question whether § 3 of the
Federal Arbitration Act, 9 U.S.C. § 3, bars a court from issu-
ing a temporary injunction pending arbitration of a contrac-
tual dispute. ' Respondent McCollum (hereafter respondent)
is a former employee of petitioner Merrill Lynch, Pierce,
Fenner and Smith, Inc. The employment contract signed by
Merrill Lynch and respondent provided that in the event that
respondent’s employment with Merrill Lynch was termi-
nated, respondent would not be allowed to remove chent lists
' Section 3 provides:
“If any suit or proceeding be brought in any of the courts of the
United States upon any issue referable to arbitration under an
agreement in writing for such arbitration, the court in which such
suit Is pending, upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration under such an agree-
ment, shall on application of one of the Parties stay the trial of the
action until such arbitration has been had in accordance with the
terms of the agreement, providing the applicant for the stay is not in
default in proceeding with such arbitration.”
G-2
from the premises of Merrill Lynch nor to solicit any of Mer-
rill Lynch’s clients for a period of one year from the date of
termination. The contract also provided that “‘any contro-
versy between [respondent] and Merrill Lynch arising out of
[respondent’s] employment, or the termination of [respon-
dent’s] employment with Merrill Lynch for any reason what-
soever shali be settled by arbitration at the request of either
party...
Respondent left petitioner and obtained a position with
one of petitioner’s competitors. Alleging that respondent had
violated the terms of his contract by absconding with peti-
tioner’s client lists and soliciting petitioner’s clients, peti-
tioner sued respondent for damages and injunctive relief in
the District Court for Harris County, Texas. After entering a
temporary restraining order enjoining respondent from any
actions in vidiation of the contract, the District Court con-
cluded that the dispute was arbitrable and that the court
therefore lacked authority to adjudicate it. Accordingly,
although the court was of the opinion that petitioner would
have been entitled to injunctive relief but for the arbitration
clause, the court dissolved its restraining order, denied peti-
tioner’s motion for a temporary injunction, and stayed all
further proceedings in the action pending arbitration of the
underlying dispute.
Petitioner appealed the District Court’s order to the
Texas Court of Appeals. Petitioner attacked the trial court’s
finding that the dispute was arbitrable, the denial of prelimi-
nary injunctive relief, and the order compelling arbitration.
The Court of Appeals affirmed the lower court on all three
issues. 666 S.W.2d 604 (1984). In upholding the denial of the
preliminary injunctive relief pending arbitration, the Court
of Appeals interpreted § 3 of the Federal Arbitration Act
(applicable, in the court’s view, to state as well as federal
courts) to command an immediate halt to judicial proceed-
ings once a court determines that the dispute underlying an
action is arbitrable. Judicial resolution of the issues involved
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in a motion for injunctive relief, the court held, would be
inconsistent with the Act’s command that the merits of the
dispute be determined by the arbitrator. Thus. the court con-
cluded that § 3 of the Arbitration Act precludes a court from
entering a preliminary injunction to maintain the status quo
pending arbitration in any arbitrable dispute.
The Supreme Court of Texas denied petitioner’s appli-
cation for a writ of error to review the judgment of the Court
of Appeals, and petitioner filed this timely petition for
certiorari.
The question presented by this case — whether the Arbi-
tration Act bars a court from issuing a preliminary injunction
in a case subject to arbitration — is one that has divided the
State and federal courts. 2? In adopting the position that pre-
liminary injunctive relief is unavailable, the Texas Court of
Appeals followed recent rulings of the Federal Courts of
Appeals for the Eighth and Tenth Circuits, Merrill Lynch,
Pierce, Fenner & Smith. Inc. y. Hovey, 726 F.2d 1286. 129}
(CA8 1984): Merril/ Lynch, Pierce, Fenner & Smith. Inc. y
Scott, No. 83-1480 (CA10. May 12, 1983) (unpublished
order). However, the Second and Seventh Circuits. appar-
ently untroubled by § 3 of the Arbitration Act, have routinely
held that preliminary injunctions are available to maintain
the status quo pending arbitration even in actions subject to
> Petitioner contends not only that the Texas Court of Appeals mis-
construed § 3 of the Arbitration Act. but also that § 3 is inapplicable in
State-court proceedings Although this Court. in holding that state
courts must apply § 2 of the Act, has reserved the question whether § 3
applies to the state courts. see Southland Corp. v. Keating, 465 US. .:
16,n. 10, 104S.Ct. 852, 861. n. 10. 79 L.Ed.2d 1 (1984), petitioner cites
no authority for the Proposition that § 3 does not apply. and there
appears to be no substantial disagreement among the state courts ov er
§ 3°s applicability. See Moses H.C; me Memorial Hospital v. Mercury
Construction Corp., 460 U.S. 1.26. n. 34, 103 S.Ct. 927, 942. n. 34. 74
L.Ed.2d 765 (1983): Merrill Lyng h, Pierce, Fenner & Smith. Inc. y.
Velamed, 405 So.2d 790 (Fla. App. 1981)
G-4
the Arbitration Act’s command that the court compel arbitra-
tion rather than adjudicating the underlying dispute. See
Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348
(CA7 1983); Connecticut Resources Recovery Auth. v. Occi-
dental Petroleum Corp., 705 F.2d 31 (CA2 1983); Guinness-
Harp Corp. v. Joseph Schlitz Brewing Co., 613 F.2d 468 (CA2
1980); Erving v. Virginia Squires Basketball Club, 468 F.2d
1064 (CA2 1972). The Supreme Court of Colorado has also
recently held (without any discussion of the Arbitration Act)
that a preliminary injunction to maintain the status quo is
available in an action in which a court is otherwise obligated
to stay its proceedings and compel arbitration. Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. District Court of Denver, 672
P.2d 1015 (1983).
The importance of resolving the question of the availa-
bility of preliminary injunctive relief in cases subject to arbi-
tration is underscored by the confusion over the issue among
the Federal District Courts — courts whose decisions on the
issuance of preliminary relief are often effectively final, given
that the imminence of arbitration may sharply limit a party’s
incentives to appeal an adverse decision. In an opinion writ-
ten in 1951, Judge Weinfeld of the Southern District of New
York concluded that the power to issue a preliminary injunc-
tion pending arbitration follows from the court’s power to
compel arbitration, for “‘[i]t would be an oddity in the law if
the Court, after compelling a party to live up to his undertak-
ing to arbitrate, had to stand idly by during the pendency of
the arbitration which it has just-directed and permit him to
assert his ‘right to breach a contract and to substitute pay-
ment of damages for nonperformance.”” Albatross S.S. Co. v.
Manning Bros., Inc., 95 F. Supp. 459, 463 (1920) (quoting
O. Holmes, Collected Legal Papers 175). Judge Weinfeld’s
reasoning was adopted by the District Court for the Eastern
District of New York in Janmort Leasing, Inc. v. Econo-Car
International, Inc., 475 F. Supp. 1282 (1979). In other recent
cases, however, District Courts have concluded that they lack:
the power to issue a preliminary injunction in cases subject to
G-5
§ 3 of the Arbitration Act. See, e.g., Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. DeCaro, 577 F. Supp. 616 (WD Mo.
1983); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Shubert,
577 F. Supp. 406 (MD Fla. 1983); Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Thompson, 575 F. Supp. 978 (ND Fla.
1983); Smith v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
575 F. Supp. 904 (ND Tex. 1983); Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Thomson, 574 F. Supp. 1472 (ED Mo.
1983). But cf. Merrill Lynch, Pierce, Fenner & Smith, Inc. y.
De Liniere, 572 F. Supp. 246 (ND Ga. 1983), in which the
court, in a case governed by § 3, apparently assumed it had
the power to grant a preliminary injunction but denied the
injunction on the merits.
Whether the Arbitration Act bars the issuance of a pre-
liminary injunction pending arbitration appears to be a fre-
quently litigated question of considerable importance to the
parties to arbitration agreements. The issue is one well worth
definitive resolution by this Court. The most obvious obstacle
to review of this particular case is that the arbitration pro-
ceedings will likely have begun and ended — mooting the
issue of relief pending arbitration — by the time this Court
has the opportunity to resolve the issue. This obstacle, how-
ever, is more apparent than real. The Court has recognized an
exception to its general mootness doctrine for cases present-
ing issues that are “capable of repetition, yet evading
review.” See, e.g., Sosna v. Iowa, 419 U.S. 393. 95 S.Ct. 553,
42 L.Ed.2d 532 (1975): Dunn vy. Blumstein, 405 U.S. 330, 92
S.Ct. 995, 31 L.Ed.2d 274 (1972). In Weinstein v. Bradford,
423 U.S. 147, 96 S.Ct. 347, 46 L.Ed.2d 350 (1975), we held
that “the ‘capable of repetition, yet evading review’ doctrine
was limited to the situation where two elements combined:
(1) the challenged action was in its duration too short to be
fully litigated prior to its cessation or expiration, and (2) there
was a reasonable expectation that the same complaining party
would be subjected to the same action again.” Id. at 149, 96
S.Ct., at 348. Both criteria are satisfied in this case. It would
be the rare case indeed in which an arbitration proceeding
———————————
G-6
compelled under the Arbitration Act would not have com-
menced before the issue of the propriety of injunctive relief
pending arbitration found its way to this Court. Thus, unless
the Court is willing to apply the “capable of repetition, yet
evading review” doctrine, it is likely that the issue will never
be conclusively resolved here. Moreover, the likelihood that
petitioner will again find itself in the position of seeking
injunctive relief pending arbitration of a contractual dispute
with a former employee seems substantial: in fact, several of
the courts that have so far examined the issue have done so in
proceedings initiated by petitioner. The question, then, is one
that is “capable of repetition, yet evading review‘; and in
view of its importance, I would grant certiorari to resolve it.
H-|]
APPENDIX H
NEW YORK STOCK EXCHANGE RULE
REQUIRING ARBITRATION
2 N.Y.S.E. GUIDE (CCH)
12347 Controversies As to Employment or Termination of
Employment
Rule 347. Any controversy between a registered repre-
sentative 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 mem-
ber organization shall be settled by arbitration, at the instance
of any such party, in accordance with the arbitration proce-
dure prescribed elsewhere in these rules.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.