Amicus Curiae Brief — J. Aron & Co. v. Haviland

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Qe AY No. 91-1355

ie? | IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

J. ARON & COMPANY.

Petitioner,

Vv.

LEO HAVILAND,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

S ceieemennnnientioan <e

MOTION OF SECURITIES INDUSTRY ASSOCIATION FOR

LEAVE TO FILE A BRIEF AS AMICUS CURIAE IN

SUPPORT OF THE PETITION OF J. ARON & COMPANY

AND BRIEF OF AMICUS CURIAE

WILLIAM J. FITZPATRICK

Senior Vice President and

General Counsel

Securities Industry Association

120 Broadway

New York, New York 10271

(212) 608-1500

Counsel for Securities Industry

Association, Amicus Curiae

GERALD J. QUINN

Associate General Counsel

Securities Industry Association

Of Counsel February 27, 1992

IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

NO. 91-1355

J. ARON & COMPANY,

Petitioner,

LEO HAVILAND,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

MOTION OF SECURITIES INDUSTRY

ASSOCIATION FOR LEAVE TO FILE A BRIEF

AS AMICUS CURIAE IN SUPPORT OF

THE PETITION OF J. ARON & COMPANY

The Securities Industry Association (“SIA”) moves

pursuant to Rule 37 of the Rules of this Court for leave to file

the brief annexed hereto as amicus curiae in support of the

petition for a writ of certiorari of J. Aron & Company.

Petitioner has consented to the filing of such brief, but respon-

dent has refused to do so.

SIA is a trade association of more than 600 securities firms

of all sizes and types. Its members account for approximately

90 percent of the securities business conducted in North

America and include all of the major securities firms in New

York City. In the past, SIA has submitted an amicus brief to

this Court when, as here, a case presents an issue of national

importance to our industry.

—

‘3

SIA has a substantial interest in the issues relating to the

arbitrability of employment-related claims by registered

representatives of the New York Stock Exchange (“NYSE”).

Many of SIA’s members are members of the NYSE, and those

SIA members have historically relied upon arbitrations

conducted by the NYSE to resolve employment-related disputes

with their thousands of employees who have registered with

the NYSE as securities representatives.

As a result of the decision of the United States Court of

Appeals for the Second Circuit below, registered

representatives of NYSE member firms who do not formally

participate in securities trading on the NYSE will be able to

circumvent their commitment to arbitrate employment-related

claims by bringing suit in federal or state court against the

non-member affiliates of their employers, even if those same

claims against their employers must be arbitrated.

Unless corrected by this Court, SIA fears that the Second

Circuit’s decision will (i) disrupt the expectations of NYSE

member firms and their employees with respect to the

arbitrability of employment-related claims, (ii) increase the

costs to the securities industry of resolving such claims, and

(iii) raise the burden imposed on federal and state courts in

connection with claims that historically have been resolved by

highly respected NYSE arbitration procedures.

ili

For the reasons stated herein, SIA respectfully prays that

the Court grant this motion to file its amicus brief annexed

hereto.

Respectfully submitted,

WILLIAM J. FITZPATRICK

Senior Vice President

and General Counsel

Securities Industry Association

120 Broadway

New York, New York 10271

(212) 608-1500

Counsel for Securities Industry

Association, Amicus Curiae

GERARD J. QUINN

Associate General Counsel

Securities Industry Association

Of Counsel February 27, 1992

ji

TABLE OF CONTENTS

PAGE

NE k's ck Ue i oe eee ee eee 2

Summary of Argument .................. 3 '

RE nA aos a eve ee eee 4

ES TOT CS ee 6

TABLE OF AUTHORITIES

Cases

PAGE(S)

Barrowclough v. Kidder, Peabody & Co.,

192 F.2d 923 (3d Cir. 1985) ............. 3

Gilmer v. Interstate/Johnson Lane Corp.,

RES me. Gh OO? Coe). kee kee ck eee. |

Dean Witter Reynolds, Inc. v. Byrd,

ke Me. en 3

Fleck v. E.F. Hutton Group, Inc.,

891 F.2d 1047 (2d Cir. 1989) ............ 2

Haviland v. Goldman, Sachs & Co.,

947 F.2d 601 (2d Cir. 1991) ............. passim

McGinnis v. E.F. Hutton & Co..,

812 F.2d 1011 (6th Cir.),

cert. denied, 484 U.S. 824 (1987) .......... 3

———

ii

Morgan v. Smith Barney, Harris Upham & Co.,

729 F.2d 1163 (8th Cir. 1984) ............

Pearce v. E.F. Hutton Group, Inc.,

828 F.2d 826 (D.C. Cir. 1987)............

Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477 (1989) .........

Shearson/American Express Inc. v. McMahon,

482 U.S. 220 (1987) ..................

Zolezzi v. Dean Witter Reynolds, Inc..,

789 F.2d 1447 (9th Cir. 1987) ............

Statute and Rule

Federal Arbitration Act,

9U.S.C. §letseq. ... 0... ee

Rules of The New York Stock Exchange, Inc.

NYSE Rule 600(a) ...................

PAGE(S)

IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

NO. 91-1355

J. ARON & COMPANY,

Petitioner,

Vv.

LEO HAVILAND,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF OF SECURITIES INDUSTRY ASSOCIATION

AS AMICUS CURIAE IN SUPPORT OF THE

PETITION OF J. ARON & COMPANY

The Securities Industry Association (“SIA”) submits this

brief as amicus curiae in support of the petition of J. Aron &

Company and on an issue of substantial national importance to

the securities industry: Whether the Federal Arbitration Act

permits a New York Stock Exchange (“NYSE”) registered

representative to avoid his commitment to arbitrate

employment-related claims against his employer by asserting

those claims against an affiliate of his employer. that is not a

member of the NYSE? :

Statement

Because the nation’s securities industry is centered in New

York City, decisions of the United States Court of Appeals for

the Second Circuit have widespread ramifications for the indus-

try. We submit this brief to urge review and reversal of the

October 16, 1991 decision of a divided panel of the Second

Circuit, which permitted respondent, a former vice president

of an NYSE member firm, to circumvent his agreement to

arbitrate employment-related disputes by bringing suit against

the firm’s non-member affiliate, even though the same dispute

against the member firm was indisputably subject to NYSE

arbitration.

NYSE Rule 600(a) requires arbitration of any dispute

between an “associated person”’ and a non-NYSE member “in

connection with [the associated person’s] activities as an

associated person.” As interpreted by the Second Circuit,

Rule 600(a) does not cover employment-related disputes

between employees of NYSE members and non-member affil-

iates of their employers, unless the employees actually

participate in securities trading on tie NYSE. Haviland y.

Goldman, Sachs & Co., 947 F.2d 601, 602, 605-07 (2d Cir.

1991) (A4, Al1-A16).? Thus, in the Second Circuit, NYSE

registered representatives who do not actually trade securities

on the NYSE may now avoid their contractual obligation to

arbitrate employment-related claims against their employers

simply by asserting those claims in federal or state court

against the non-member affiliates of their employers.

' An “associated person” includes “an officer, director, branch

manager or employee of a broker or dealer that is a member.” Fleck

v. E.F. Hutton Group, Inc. , 891 F.2d 1047, 1054 (2d Cir. 1989).

? Citations in the form “A__” are to the appendix to J. Aron &

Company’s petition.

Summary of Argument

The Second Circuit’s decision is contrary to the express

language of NYSE Rule 600(a), the strong federal policy

favoring arbitration repeatedly enunciated by this Court,? and

the decisions of the other courts of appeals.* Unless corrected

by this Court, we fear that the Second Circuit’s decision will

(i) upset the settled expectations of NYSE member firms and

their employees with respect to the arbitrability of

employment-related claims, (ii) increase the costs to the

industry of resolving such claims, and (iii) substantially

increase the burden on federal and state courts with respect to

claims that until now have been the subject of highly respected

NYSE arbitration procedures.

> See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 111 S. Ct.

1647, 1654 (1991); Rodriguez de Quijas v. Shearson/American Express,

Inc., 490 U.S. 477, 481 (1989); Shearson/American Express Inc. v.

McMahon, 482 U.S. 220, 226 ( 1987); Dean Witter Reynolds, Inc. y.

Byrd, 470 U.S. 213, 221 (1985).

* As Judge Walker argued below, 947 F.2d at 609 (Walker, J.,

dissenting) (A20), the Second Circuit’s narrow interpretation of Rule

600(a) squarely conflicts with that of the D.C. Circuit. See Pearce v.

E.F. Hutton Group, Inc., 828 F.2d 826, 830-31 (D.C. Cir. 1987). In

addition, other circuits have expressly held that the strong federal policy

favoring arbitration requires that NYSE rules be construed literally and

that any uncertainty or ambiguity be resolved in favor of arbitration.

See McGinnis v. E.F. Hutton & Co., 812 F.2d 1011, 1013 (6th Cir.),

cert. denied, 484 U.S. 824 (1987); Zolezzi v. Dean Witter Reynolds,

Inc, , 789 F.2d 1447, 1449 (9th Cir. 1987); Barrowclough v. Kidder,

Peabody & Co. , 752 F.2d 923, 937-38 (3d Cir. 1985); Morgan v. Smith

Barney, Harris Upham & Co., 729 F.2d 1163, 1165 (8th Cir. 1984).

The Second Circuit failed to follow the plain language of Rule 600(a),

see 947 F.2d at 611 (Walker, J., dissenting) (A17), and, in any event,

did not follow the law of the other circuits that any uncertainty or

ambiguity be resolved in favor of arbitration. See, e.g., Zolezzi, 789

F.2d at 1450-51; Morgan, 729 F.2d at 1167.

Argument

The facts and applicable law are fully stated in J. Aron’s

petition and will not be recanvassed here. We wish only to

emphasize the national importance to the securities industry of

the issue raised by this petition and to direct this Court’s

attention to the following points.

1. For many years, employment-related disputes in the

securities industry have been the subject of NYSE arbitration.

The Second Circuit’s decision has upset the settled expectations

of NYSE members and their employees with respect to the

arbitrability of such claims. Prior to the Second Circuit’s

decision, NYSE Rule 600(a) was widely understood in the

securities industry to require registered representatives of

NYSE member firms to arbitrate employment-related disputes

against the non-member affiliates of those firms.

2. Because more than fifty NYSE members, including all

of the major firms, have non-member affiliates (see A42-A43),

we fear that the Second Circuit’s decision will result in many

instances in which employees of NYSE member firms seek to

avoid NYSE arbitration by bringing employment-related claims

in federal or state court against the non-member affiliates of

their employers, even though the same claims against member

firms must be arbitrated. We believe that this shift of cases

from NYSE arbitration to federal and state courts will

substantially increase the litigation costs borne by member

firms without resulting in the more just resolution of

employees’ claims. Indeed, it is possible that the high cost of

litigation in court — as compared to arbitration — might force

firms to settle unmeritorious claims.

3. The securities industry is highly specialized, and

arbitrators are particularly suited to decide the complicated

issues that can arise out of employment disputes in the

industry. As Judge Walker emphasized in his dissent below,

NYSE “arbitrators would be well-qualified to resolve

5

Haviland’s dispute with J. Aron and the issues of

responsibilities to clients, information exchanges in the energy

futures and options markets, and the employment conditions

imposed by J. Aron’s [alleged] co-conspirator Goldman.” 947

F.2d at 611 (A25). This observation is likely to be equally true

with respect to almost any employment-related claim brought

against an NYSE member firm.

4. The highly respected NYSE arbitration procedures

protect the interests of both employers and employees in the

securities industry. Thus, in rejecting the claim that NYSE

arbitration was somehow unfair, this Court in Gilmer v.

Interstate/Johnson Lane Corp., 111 S. Ct. 1647, 1654-55

(1991), emphasized that NYSE arbitration rules “protect[]

against biased panels,” provide for generous discovery and

require arbitrators to issue written decisions.

5. NYSE arbitrators resolve many employment-related

claims in the securities industry every year. We are concerned

that the Second Circuit’s decision will result in a substantial—

and completely unnecessary—increase in the caseload of

federal and state courts as employees increasingly engage in

forum shopping. We believe that scarce judicial resources

Should not be wasted in this manner. The Second Circuit’s

decision may also result in the uneconomical situation of an

NYSE member firm being required to defend itself in arbitra-

tion, while its non-member affiliate must defend against the

same claim in federal or state court.

Conclusion

For the reasons stated in the petition and herein, SIA urges

that certiorari be granted to review the judgment of the United

States Court of Appeals for the Second Circuit.

Respectfully submitted,

WILLIAM J. FITZPATRICK

Senior Vice President

and General Counsel

Securities Industry Association

120 Broadway

New York, New York 10271

(212) 608-1500

Counsel for Securities Industry

Association, Amicus Curiae

GERARD J. QUINN

Associate General Counsel

Securities Industry Association

Of Counsel February 27, 1992

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