Opinion
Civil Action No. 03-0228
February 20, 2003
MEMORANDUM ORDER
This case involves the termination of an employment relationship between Merrill Lynch, Pierce, Fenner Smith, Inc. ("Merrill Lynch" or "Plaintiff") and its former employee, Roderick A. Poore ("Defendant"). On January 16, 2003, Merrill Lynch filed a Complaint in this Court seeking immediate injunctive relief, alleging that Defendant breached certain agreements he had entered into during his employment with Merrill Lynch. On the same date, at the conclusion of a conference with counsel, Merrill Lynch's request for a temporary restraining order was denied, and a hearing was scheduled for January 27, 2003 on Plaintiff's request for preliminary injunctive relief.
On January 23, 2003, Defendant filed a motion for the enforcement of a settlement agreement. Later that same day, counsel for Plaintiff sent correspondence to the Court indicating that Plaintiff was withdrawing its motion for preliminary injunctive relief, and that Plaintiff "will be proceeding with the arbitration of this matter in the National Association of Securities Dealers Dispute Resolution."
On January 30, 2003, an Order was entered dismissing Plaintiff's Complaint and all pending motions based on Plaintiff's January 23 correspondence. Defendant filed a motion for reconsideration of the January 30, 2003 Order, indicating that he had not agreed to arbitrate the instant dispute. Plaintiff responded with a motion to compel arbitration. Based on Defendant's assertions that he did not agree to arbitrate, we rescinded the January 30, 2003 Order.
Presently before the Court are Plaintiff's Motion to Compel Arbitration (Doc. No. 13), and the Cross Motion of Defendant Roderick A. Poore For Enforcement of Settlement Agreement and Release (Doc. No. 10). For the reasons that follow we will grant Plaintiff's Motion, deny Defendant's Motion, and dismiss the instant action.
I. FACTS
Defendant was employed as a financial advisor for Merrill Lynch from July or August of 2000 until he resigned on December 20, 2002. In connection with this employment, Defendant registered with the National Association of Securities Dealers ("NASD") and the New York Stock Exchange ("NYSE") as a Merrill Lynch "registered representative" and "associated person." (Mot. to Compel ¶ 11). As part of the registration process Defendant filed the required Uniform Application for Securities Industry Registration ("Form U-4"). This is a form developed by the Securities and Exchange Commission in conjunction with the national securities exchanges. The Form U-4 filed by Defendant contained the following clause:
"Generally, execution of a Form U-4 is a pre-condition for employment with securities brokers." Seus v. John Nuveen Co., 1997 WL 325792, at *1 (E.D. Pa. June 2, 1997), aff'd, 146 F.3d 175 (3d Cir. 1998), cert. denied, 525 U.S. 1139 (1999).
I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the SROs indicated in item II as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.
In addition to containing this arbitration provision, the Form U-4 incorporated by reference the NASD's Code of Arbitration Procedure ("NASD Code") (Mot. to Compel Arb., Exhibit "C", Form U-4 ¶ 2). The NASD Code contains an arbitration clause which provides:
10101. Matters Eligible for Submission
This Code of Arbitration Procedure is prescribed and adopted pursuant to Article VII, S 1(a)(iv) of the By-Laws of the [NASD] for the arbitration of any dispute, claim, or controversy arising out of or in connection with the business of any member of the [NASD], or arising out of the employment or termination of employment of associated person(s) with any member.
(Mot. to Compel Arb., Exhibit "D") (emphasis added).
As a condition to his employment as a financial advisor with Plaintiff, Defendant executed a document entitled Employment Agreement and Restrictive Covenants (Plaintiff's Mot. to Compel Arb., Exhibit "A"). This document provides that all customer information in any form is the sole and exclusive property of Plaintiff and that Defendant will not disclose (or permit the disclosure of) this information to any of Plaintiff's competitors. The document also provides that for one year after termination Defendant will not utilize customer information for solicitation purposes, that Defendant consents to the issuance of a preliminary injunction or temporary restraining order if he breaches the parties' agreement, and that such injunctive relief will stay in effect until an arbitration decision was reached, if the parties either voluntarily agree to arbitration or are ordered to arbitrate. Defendant also executed a confidentiality agreement as a condition of his employment. This agreement prohibited the disclosure of Merrill Lynch's record, and provided that Defendant would comply with Plaintiff's Conflict of Interest agreement, which prohibits disclosure of confidential information or business secrets "relating to Merrill Lynch." (Plaintiff's Mot. to Compel Arb., Exhibits "B" and "C".) Finally, Defendant signed an agreement to abide by Plaintiff's Guidelines for Business Conduct, which, inter alia, identified Merrill Lynch's information, trade secrets, and client lists among its assets, and informed employees that they must not misuse client lists (Plaintiff Mot. to Compel Arb., Exhibit "D").
On December 20, 2002, Defendant terminated his employment with Plaintiff, and joined a competitor securities firm, Morgan Stanley DW Inc. ("Morgan Stanley"). Plaintiff contends that when Defendant moved to Morgan Stanley, he began contacting Merrill Lynch clients, intending to bring them over to Morgan Stanley. On December 27, 2002, Plaintiff and Defendant entered into a agreement whereby Merrill Lynch agreed to accept $36,475.35 and Defendant's promise not to solicit Merrill Lynch clients from 2:00 p.m. December 27, 2002 through 9:00 a.m. January 9, 2003 "in exchange for releasing [Defendant] and Morgan Stanley for all claims surrounding [Defendant's] employment, termination of employment from Merrill Lynch and . . . subsequent employment with Morgan Stanley." (Mot. to Enforce Settlement ¶ 6).
As a result of a dispute regarding this December 27 agreement, Plaintiff, Defendant, and Morgan Stanley entered into a Settlement Agreement and Release ("Settlement Agreement") which was prepared by Plaintiff's attorney. Id. ¶¶ 7-9. In the Settlement Agreement, Merrill Lynch agreed it would release Defendant and Morgan Stanley from liability arising out of Defendant's relationship with Plaintiff:
in exchange for Mr. Poore and Morgan Stanley's payment of $36,475.35 which payment was to be made no later than January 27, 2003 and Mr. Poore's promise not to solicit any client, customer, or account whom he had serviced at Merrill Lynch, but specifically excluding Mr. Poore's family and relatives.
(Mot. to Enforce Settlement ¶ 10).
Defendant claims that he and Morgan Stanley executed and returned the Settlement Agreement and Release to counsel for Plaintiff on January 9, 2003 and that payment was tendered to Merrill Lynch on January 22, 2003.Id. ¶¶ 12-15. Plaintiff claims that because Defendant continued to solicit Merrill Lynch customers, there was no consideration for the Settlement Agreement, and that, therefore, there "was never a valid, enforceable settlement agreement." (Mot. to Compel Arb. ¶ 6). Plaintiff alleges that during the time between the execution of the Settlement Agreement and Merrill Lynch's receipt of payment on January 22, Defendant (1) removed and/or converted confidential information in Merrill Lynch's business records for his own use; (2) solicited Merrill Lynch's clients to terminate their relationship with Merrill Lynch and transfer accounts to Morgan Stanley; and (3) engaged in other acts contrary to the agreements he signed while employed at Merrill Lynch.
Plaintiff contends that this is a dispute arising out of Defendant's employment or termination of employment and requests that we send the matter to arbitration pursuant to the arbitration clause in the NASD Code. Defendant contends that this dispute is not arbitrable and that Plaintiff is not an aggrieved party under Section 4 of the Federal Arbitration Act. Defendant requests that we enforce the Settlement Agreement which he entered into with Plaintiff.
II. LEGAL STANDARD
The FAA "creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate . . ." John Hancock Mutual Life Ins. Co. v. Olick, 151 F.3d 132, 136 (3rd Cir. 1998) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32 (1983)). It was enacted to "reverse centuries of judicial hostility to arbitration agreements by placing arbitration agreements upon the same footing as other contracts." Pritzker v. Merrill Lynch, 7 F.3d 1110, 1113 (3d Cir. 1993). Applying to written arbitration provisions contained in any contract evidencing a transaction involving interstate or foreign commerce, 9 U.S.C. § 1, 2, the FAA requires that agreements to arbitrate be enforced to the same extent as other contracts. 9 U.S.C. § 1, 2; Harris v. Greentree Financial Corporation, 183 F.3d 173 (3d Cir. 1999); John Hancock, 151 F.3d at 137.
However, before ordering arbitration, a court must make the following threshold determinations: (1) whether the parties entered into a valid arbitration agreement, and (2) whether the specific dispute falls within the scope of that agreement. John Hancock, 151 F.3d at 137 (explaining that "district courts need only engage in a limited review to ensure that the dispute is arbitrable").
III. DISCUSSION
Addressing first the question of whether the parties have entered into a valid arbitration agreement, arbitration agreements are enforceable "save upon such grounds as exist at law or equity for the revocation of any contract," 9 U.S.C. § 2 (1994), or unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue, Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985). "In conducting [the] limited review, the court must apply ordinary contractual principles, with a healthy regard for the strong federal policy in favor of arbitration." John Hancock, 151 F.3d at 137 (citing Moses H. Cone, 460 U.S. at 24). "Nothing short of a showing of fraud, duress, mistake or some other ground recognized by the law applicable to contracts" provides a basis for a federal court to find an arbitration clause invalid. Seus v. John Nuveen Co., 146 F.3d 175, 185 (3d. Cir. 1998), cert. denied, 525 U.S. 1139 (1999). Because "arbitration is a creature of contract, courts have long since drawn the conclusion that, as a matter of contract, no party can be forced to arbitrate an issue unless that party has entered into an agreement to do so." John Hancock, 151 F.3d at 137 (citing AT T Technologies v. Communications Workers of Am., 475 U.S. 643, 648 (1986)).
In the instant case, Defendant does not appear to contest the validity of the arbitration agreement. Nor does he argue that its application to these claims has been precluded by Congress. Rather, Defendant contends that the dispute as it presently stands is a dispute over the Settlement Agreement, not a dispute over employment, and as such it is beyond the scope of the arbitration provisions. Defendant essentially argues that the Settlement Agreement is a separate agreement that stands alone and is beyond the scope of the NASD arbitration provision. We disagree.
We note that the Third Circuit in Seus v. John Nuveen Company, supra, found a similar arbitration provision valid and enforceable under the FAA.
"The scope of arbitration is determined by the intention of the parties as ascertained in accordance with the rules governing contracts generally." State Farm Mutual Automobile Ins. Co. v. Coviello, 233 F.3d 710, 716-17 (3d Cir. 2000) (citing Sley Sys. Garages v. Transp. Workers Union of America, 178 A.2d 560, 561-62 (Pa. 1962)); John Hancock, 151 F.3d at 138 (requiring a limited review of parties' intent); Bruno v. Pepperidge Farm Inc., 256 F. Supp. 865, 868 (E.D. Pa. 1966) ("In any dispute involving the interpretation of an arbitration clause, it is the court's primary duty to ascertain whether the matter at issue was intended to be included therein."). The analysis "depends upon the intent of the parties as it appears from the language used, its context within the instrument, and the circumstances surrounding its formation and execution." Bruno, 256 F. Supp. at 868. Federal courts will enforce broadly-worded arbitration clauses. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 23 (1991) (involving a NYSE arbitration clause incorporated into a Form U-4 which required arbitration of "any dispute, claim or controversy arising between him and [the other party]"); Rodriguez De Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 478 (1989) (involving an arbitration clause in a contract between investors and broker requiring arbitration of "any controversies relating to the accounts").
Here, the NASD arbitration provision at issue is broadly worded to include "the arbitration of any dispute, claim, or controversy . . .arising out of the employment or termination of employment of associated person(s) with any member. . . ." (emphasis added). The Settlement Agreement was intended to resolve a dispute arising out of the termination of Defendant's employment. The dispute over the validity of the Settlement Agreement is based on an alleged continuation of the conduct which gave rise to the initial dispute. We are satisfied that the disputes between these parties arise out of Defendant's employment or the termination thereof and are therefore arbitrable. Moreover, the Settlement Agreement itself would appear to contemplate the use of arbitration to enforce the agreement. Paragraph 6 entitled CONFIDENTIALITY states:
. . . this agreement and its terms shall not be used or disclosed in any court, arbitration, or other legal proceeding . . . except to enforce the provisions of this agreement.
Finally, we disagree with Defendant's contention that Plaintiff fails to qualify as an "aggrieved party" under the language of 9 U.S.C. § 4. Section 4 states in pertinent part:
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, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.9 U.S.C. § 4. The Third Circuit has held that this requirement means that an action to compel arbitration accrues only when a party "unequivocally refuses to arbitrate, either by failing to comply with an arbitration demand or by otherwise unambiguously manifesting an intention not to arbitrate the subject matter of the dispute." Painewebber Inc. v. Faragalli, 61 F.3d 1063, 1066 (3d Cir. 1995) (emphasis added).
The reason for an "aggrieved party" requirement is based on the notion that "unless and until an adverse party has refused to arbitrate a dispute putatively governed by a contractual arbitration clause, . . . no harm has fallen the petitioner — hence, the petitioner cannot claim to be `aggrieved' under the FAA." Painewebber, 61 F.3d at 1067.
In the instant case, Plaintiff filed a motion to compel arbitration only after Defendant unambiguously manifested an intention not to arbitrate the instant dispute. Defendant argues that there is no refusal to arbitrate because there is no arbitrable dispute. We have concluded that this dispute arose out of Defendant's employment or the termination of his employment. Thus, the dispute is arbitrable and Plaintiff is an "aggrieved party."
IV. CONCLUSION
Based upon the foregoing, we will grant Plaintiff's motion to compel arbitration, deny Defendant's motion to enforce settlement agreement, and dismiss the action in its entirety. See Seus v. John Nuveen Co., Inc., 146 F.3d 175, 179 (3d Cir. 1998) (acknowledging that where all claims in an action are arbitrable, the district court may dismiss the action).
An appropriate order follows.
ORDER
AND NOW, this ____ day of February, 2003, upon consideration of Plaintiff's Motion to Compel Arbitration (Doc. No. 13) and Defendant's Cross Motion for Enforcement of Settlement Agreement (Doc. No. 10), it is hereby ORDERED as followed:
(1) Plaintiff's Motion to Compel Arbitration (Doc. No. 13) is GRANTED;
(2) Defendant's Cross Motion for Enforcement of Settlement Agreement (Doc. No. 10) is DENIED;
(3) Plaintiff's Complaint (Doc. No. 1) is DISMISSED;
(4) The Parties are directed to proceed to Arbitration.
IT IS SO ORDERED.