# Reply Brief — J. Aron & Co. v. Haviland

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_0230%3A4

## Record

- **Collection:** Supreme Court brief
- **Document type:** Reply Brief
- **Published:** January 1, 1992
- **Citation:** 504 U.S. 930

## Text

| No. ak ki

Supreme Court, U |
IN THE APR 24 1992
Supreme Court of the United States o¢ pac cin |

OCTOBER TERM, 1991

tN a en ome ae

hai

J. ARON & COMPANY,

Petitioner,
Vv.

LEO HAVILAND,
Respondent.

PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

J. ARON & COMPANY’S REPLY
TO BRIEF IN OPPOSITION

GANDOLFO V. DIBLAS!
125 Broad Street
New York, New York 10004
(212) 558-4000

Counsel for Petitioner

Of Counsel

THEODORE QO. ROGERS, JR.
ROBERT J. GIUFFRA, JR.
SULLIVAN & CROMWELL

April 24, 1992

Rule 29.1 Statement

The parent company of petitioner J. Aron & Company is
The Goldman Sachs Group, L.P. The only subsidiary of J.
Aron & Company that is not wholly owned is J. Aron &
Company (Singapore) PTE.

Table of Authorities

Page(s)
Cases

AT&T Technologies, Inc. v. Communications

Workers of Am., 475 U.S. 643 (1986) ........ 3
Barrowclough v. Kidder, Peabody & Co.,

752 F.2d 923 (3d Cir. 1985) ............. 4
Basic Inc. v. Levinson,

485 U.S. 224 (1988) .................. 6
Fleck v. E.F. Hutton Group, Inc.,

891 F.2d 1047 (2d Cir. 1989) ............. 3, 4
Gilmer v. Interstate/Johnson Lane Corp.,

eS | 6
Haviland v. Goldman, Sachs & Co.,

947 F.2d 601 (2d Cir. 1991) ............ passim
Martin v. Occupational Safety and Health

Review Comm’n, 111 S. Ct. 1171 (1991) ...... 6
McGinnis v. E.F. Hutton & Co.,

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

cert. denied, 484 U.S. 824 (1987) .......... 4
Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc. , 473 U.S. 614 (1985)... 3

Morgan v. Smith Barney, Harris Upham & Co.,
729 F.2d 1163 (8th Cir. 1984) ............ 4

‘i
Page(s)

Paine, Webber, Jackson & Curtis, Inc. v.

Chase Manhattan Bank, N.A., 728 F.2d

Se I eee oe be ek we 4 ee 2
Pavelic & LeFlore v. Marvel Entertainment

Group, 493 U.S. 120 (1989) ............. 6
Pearce v. E.F. Hutton Group, Inc.,

7 fw = Vi kee A, 7) ir 4,5
Scherk vy. Alberto-Culver Co..,

3 e 8 er ere ene ene 3
Shearson/American Express Inc. v.

McMahon, 482 U.S. 220 (1987) ........... 3, 5-6
United Steelworkers of Am. v. Warrior &

Gulf Navigation Co., 363 U.S. 574 (1960) ..... 3
Zolezzi v. Dean Witter Reynolds, Inc.,

789 F.2d 1447 (9th Cir. 1987) ............ 4

Statutes and Rules

Federal Arbitration Act,

ee ek a's eae ee ie ee passim
supreme Court Rule 16.1 . 0... ccc cnc eves 7
Rules of The New York Stock Exchange, Inc.

UE ge ge Be eon A Gea 2,4

eee Se 6 en a ee eee eS passim

mama

Supreme Court of the Anited States
OCTOBER TERM, 1991

NO. 91-1355

J. ARON & COMPANY,

Petitioner,

LEO HAVILAND,
Respondent.

J. ARON & COMPANY’S REPLY
TO BRIEF IN OPPOSITION

In its decision below, the Second Circuit — the circuit
whose decisions have the greatest impact on the U.S.
securities industry — directly contravened the Federal
Arbitration Act (“FAA”) by applying a judge-made
“exchange-relatedness” requirement to override the plain
language of the arbitration rules of the NYSE (and
agreements incorporating those rules). Respondent’s
protestations notwithstanding, this case is not a fact-bound
dispute over the application of the Second Circuit’s
“exchange-relatedness” limitation on the scope of NYSE
arbitration. Rather, it squarely raises the issue of whether the
FAA permits courts to create and impose such requirements,
thereby contradicting the express terms of arbitration
agreements.

The Second Circuit has limited NYSE Rule 600(a), the
NYSE arbitration provision governing member-non-member
disputes, in a manner contrary not only to the clear meaning

—

of the rule, but also to common sense. In the Second
Circuit’s view, an employee is free to litigate employment-
related claims against the non-member affiliate of his or her
employer, even when those very same claims against the
employer must be arbitrated. The Court should correct the
Second Circuit’s error before substantial public and private
resources are unnecessarily wasted on the litigation of
disputes that properly belong in NYSE arbitration.

1. The Second Circuit first announced the “exchange-
relatedness” requirement in Paine, Webber, Jackson &
Curtis, Inc. v. Chase Manhattan Bank, N.A., 728 F.2d 577,
580 (2d Cir. 1984), a case predating this Court’s recent
decisions under the FAA favoring arbitration. Paine Webber
did not involve, as here, employment-related claims by an
officer of an NYSE member firm against his member
employer and its non-member affiliate. Instead, in Paine
Webber, an NYSE member firm brought suit against a non-
member bank and one of the bank’s employees for making
fraudulent representations that led the member firm to extend
credit to a third party. In those circumstances, the Second
Circuit ignored the language of the NYSE Constitution and
Rule 600(a) and limited the rule to “controversies arising out
of the member’s exchange-related business.” Jd.

In this case, the Second Circuit erred when it expanded
the “exchange-relatedness” requirement to cover employment-
related claims. That requirement is not found in the text of
Rule 600(a), or anywhere else in the NYSE’s arbitration rules
for that matter, and its application here conflicts directly with
the FAA. Indeed, until the decision below, it had been
“widely understood in the securities industry” (Brief of the
Securities Industry Association as Amicus Curiae (“SIA Br.”)
at 4) that NYSE Rules 347 (governing claims against member
firms) and 600(a) (governing claims against non-members)

2

3

were coextensive in employment-related cases.’ By expressly
rejecting that consensus view, 947 F.2d at 605 (A20), the
Second Circuit created a situation that threatens to increase
markedly the burdens on federal and state courts by requiring
them to hear the numerous employment-related cases that
comprise a substantial portion of the claims before NYSE
arbitrators (SIA Br. at 4-5).

2. The FAA was intended to put an end to “centuries of
judicial hostility to arbitration agreements,” Scherk v.
Alberto-Culver Co., 417 U.S. 506, 510 (1974), of the sort
evinced by the Second Circuit here and in other recent cases
requiring action by this Court, ¢.g., Shearson/American
Express Inc. v. McMahon, 482 U.S. 220 (1987) (reversing
Second Circuit’s refusal to enforce NYSE arbitration agree-
ment). Courts may not, as the Second Circuit did by
imposing the “exchange-relatedness” requirement, “distort
the process of contract interpretation . . . in order to ferret
out [controversies thought] inappropriate” for arbitration.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 627 (1985).

Contrary to respondent’s claims (Opp. at 11-13), the
Second Circuit’s decision cannot be reconciled with the
strong federal policy mandating enforcement of arbitration
agreements “‘unless it may be said with positive assurance
that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute.’” AT&T
Technologies, Inc. v. Communications Workers of Am., 475
U.S. 643, 650 (1986) (quoting United Steelworkers of Am. v.
Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83
(1960)) (emphasis added). That is not the case here.

1 Ina prior case, Fleck v. E.F. Hutton Group, Inc., 891 F.2d
1047, 1054 (2d Cir. 1989), the Second Circuit had held —
correctly — that a registered representative’s employment-related
dispute with a non-member affiliate was arbitrable “to the same
extent” as his or her dispute with the NYSE member.

a

4

Rule 600(a), as Judge Walker wrote in his dissent below,
“plainly covers this dispute.” 947 F.2d at 608 (A17). It
expressly requires arbitration of “[aJny dispute, claim or
controversy” between a non-member, such as petitioner, and
an associated person, such as respondent, “arising in
connection with the business of such member” or “associated
person in connection with his activities as an associated
person.” (A41). It is not disputed that respondent is an
“associated person” or that his employment-related claims
against petitioner arose in connection with (a) the business of
Goldman, Sachs & Co. (“Goldman Sachs”), and (b) his
activities as an associated person, i.e., as a vice president of
Goldman Sachs.?

3. Respondent treats as irrelevant (Opp. at 14-16)
rulings by other courts of appeals that NYSE arbitration rules
must be interpreted literally, and that any doubt concerning
a tule’s scope is resolved in favor of arbitration. See, e.g.,
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). By
attempting to distinguish those cases as based on the
construction of NYSE Rule 347 instead of Rule 600(a),
respondent misses the significance of their holdings for this
case: the Second Circuit stands alone in its unwillingness to
give effect to the plain language of NYSE arbitration rules.

2 Respondent was an “associated person” because he was an
officer of Goldman Sachs, an NYSE member firm. See Fleck, 891
F.2d at 1054; Pearce v. E.F. Hutton Group, Inc. , 828 F.2d 826, 830
(D.C. Cir. 1987). Having voluntarily agreed to arbitrate before the
NYSE any dispute with a non-member arising in connection with his
activities as a Goldman Sachs officer, petitioner cannot now claim that
such an agreement is unfair because he never traded on the NYSE as

a registered representative (Opp. at 13).

5

Further, the Second Circuit’s interpretation of the
“exchange-relatedness” requirement is itself contrary to that
of the D.C. Circuit in Pearce v. E.F. Hutton Group, Inc.,
828 F.2d 826 (D.C. Cir. 1987). Whereas the Second
Circuit held that respondent’s employment-related dispute
with petitioner is not arbitrable under Rule 600(a) because
respondent did not trade on the NYSE, the D.C. Circuit
expressly refused to limit Rule 600(a) “to activities involving
customer accounts or broker-dealer functions.” Jd. at 831-32.
The D.C. Circuit instead held that the employment-related
claims of an employee of an NYSE member firm are by
definition sufficiently tied to the interests of the NYSE to
satisfy the “exchange-relatedness” test and be arbitrable
under Rule 600(a). Jd. at 830. As Judge Walker emphasized
below, Pearce “require[d the Second Circuit] to hold that
Haviland’s claims against J. Aron are connected to
Haviland’s activities as an associated person and thus
arbitrable.” 947 F.2d at 609 (A20).

4. Respondent minimizes the “substantial national
importance to the securities industry” of this petition (SIA
Br. at 1), by claiming that it merely involves the “inter-
pretation of a privately enacted rule” (Opp. at 16-17). Once
again, respondent is wrong. As rules approved by the
Securities and Exchange Commission (“SEC”), NYSE
arbitration rules are an integral part of federal regulation of
national securities markets.‘ In addition, they are

3 In Pearce, the D.C. Circuit did not consider the appropriate-
ness of the Second Circuit’s “exchange-relatedness” requirement
because the non-member affiliate there did not object to its
application. 828 F.2d at 831.

4 Since 1970, Congress has granted the SEC “expansive power
to ensure the adequacy of [NYSE] arbitration procedures.” McMahon,
482 U.S. at 233. Indeed, “[nJo proposed rule change may take effect
unless the SEC finds that the proposed rule is consistent with” the
Securities Exchange Act of 1934. Id. (citing 15 U.S.C. § 78s(b)(2)).

(continued...)

6

incorporated by reference into many thousands of arbitration
agreements throughout the securities industry.

Making much of the fact that Rule 600(a) can be
amended (Opp. at 16), respondent ignores that this Court has
repeatedly reviewed cases to resolve circuit splits over the
proper interpretation of statutes, rules (including SEC and
NYSE rules), and regulations, all of which are subject to
amendment.* More importantly, given the Second Circuit’s
“exchange-relatedness” requirement, it is hard to see how the
NYSE could amend Rule 600(a) to require arbitration of
employment-related claims against non-member affiliates,
when the present rule already requires arbitration of such
claims on its face.

Respondent urges the Court not to expend its resources
to hear this case. (Opp. at 3, 17). Yet, the Court’s failure to
- do so will substantially undermine its previous efforts,
including just last Term in Gilmer v. Interstate/Johnson Lane
Corp., 111 S. Ct. 1647 (1991), to enforce the FAA’s pro-
arbitration policy and strengthen NYSE arbitration. Because
more than fifty NYSE members, including all of the major

4 (...continued)

The SEC has “the power, on its own initiative, to ‘abrogate, add to,
and delete from’ any [NYSE] rule if it finds such changes necessary
or appropriate to further the objectives of the Act.” Jd. (quoting 15
U.S.C. § 78s(c)).

> See, e. g., Martin v. on as te ety and Health Review
Comm'n, 111 S. Ct. 1171 5 (1991) {resolving conflict over
degree of deference owed to conflicting interpretations of ambiguous
regulation under OSHA); Pavelic & LeFlore v. Marvel Entertainment
Group, 493 U.S. 120, 12? (1989) (resolving conflict between Second
and Fifth Circuits over whether Fed. R. Civ. P. 11 permits imposition
of sanctions against individual atto rney’s law firm); Basic

Inc. v. Levinson, 485 U.S. 224, 2 30 (1988) (ree (resolving conflict over
application of SEC Rule 10b-5 to preliminary corporate merger
discussions); McMahon, 482 U.S. at 225 (resolving conflict over
arbitrability of § 10(b) and RICO claims before NYS

7

firms, have non-member affiliates (see A42-A43), the Second
Circuit’s use of the “exchange-relatedness” test to override
the plain language of Rule 600(a) is likely to “result in a
substantial — and completely unnecessary — increase in the
caseload of federal and state courts as employees increasingly
engage in forum shopping” (SIA Br. at 5).

Conclusion

This Court’s decisions are clear: the FAA does not
permit courts to create additional requirements to circumvent
the express terms of arbitration agreements. The Court should
therefore grant certiorari and reverse summarily pursuant to
Rule 16.1, striking down the Second Circuit’s expansion of
its “exchange-relatedness” requirement, which sharply limits
the arbitration of employment-related claims before the
NYSE and thereby subverts one of the Nation’s oldest and
most respected systems of arbitration.

Respectfully submitted,

GANDOLFO V. DIBLASI
125 Broad Street
New York, New York 10004
(212) 558-4000

Counsel for Petitioner
J. Aron & Company

THEODORE QO. ROGERS, JR.
ROBERT J. GIUFFRA, JR.

SULLIVAN & CROMWELL

Of Counsel April 24, 1992

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_0230%3A4. Public record. Not legal advice.