Opinion
Index No. 650388/2013
07-16-2013
GFI BROKERS LLC, Plaintiff, v. PETER BELLARD, Defendant.
DECISION & ORDER
SHIRLEY WERNER KORNREICH, J.:
Motion sequence numbers 001 and 002 are hereby consolidated for disposition. In motion sequence 001, defendant Peter Bellard moves to dismiss or stay this action and compel arbitration before the Financial Industry Regulatory Authority (FINRA). Plaintiff GFI Brokers LLC (GFI) opposes. In motion sequence 002, filed the same day, GFI moves to permanently stay such arbitration. Defendant opposes. For the reasons that follow, the court grants defendant's motion to compel arbitration and denies plaintiff's motion to stay arbitration.
I. Background
GFI is a Delaware limited liability company whose principal place of business is in New York (complaint ¶ 2). It serves as a broker for the trade of financial products, predominantly between large institutions (id. at ¶ 6). GFI entered into an employment agreement with Bellard, hiring him to work as a broker on its behalf (id. at ¶ 10; affirmation of Todd Gutfleisch, April 8, 2013 [Gutfleisch moving affirmation], exhibit B [the Agreement]). The Agreement contains the following provision:
[T]he parties hereby agree that all claims, disputes or controversies ("Claims") arising under this Agreement or otherwise concerning in any way Bellard'sNASD and NYSE "merged" to become FINRA (defendant's moving brief 2 n 3).
employment . . . shall be resolved exclusively through arbitration. Such arbitration shall be conducted before, and in accordance with the arbitration rules of, the National Association of Securities Dealers ("NASD"), the New York Stock Exchange ("NYSE") or the National Futures Association ("NFA"), if the matter is eligible for such arbitration and the NASD, NYSE or NFA, as the case may be, agrees to arbitrate . . . If the matter is not eligible for arbitration before the NASD, NYSE or NFA, or other mandatory exclusive forum, the parties agree to submit any Claims to the exclusive jurisdiction of the United States District Court of the Southern District of New York or if such court lacks subject matter jurisdiction, to the jurisdiction of the Supreme Court of the State of New York, County of New York with respect to any Claims (Agreement § 10).
After many years of employment, on February 1, 2013, GFI fired Bellard claiming that he had violated the Agreement by trying to persuade certain GFI employees to leave the firm to work for a competitor. Soon after, GFI commenced the instant action by filing a summons with notice, seeking damages and a declaratory judgment. On March 15, 2013, however, Bellard commenced arbitration proceedings before FINRA against GFI; seeking damages based in part on claimed violations of the National Labor Relations Act (the NLRA) as well as a permanent injunction against the enforcement of certain non-compete and non-solicitation clauses in the Agreement (Gutfleisch moving affirmation, exhibit D). The same day, Bellard filed a complaint in federal court "in aid of arbitration" seeking a preliminary injunction of the enforcement of those same provisions, noting that he believed that the question of permanent relief properly belonged before the arbitrators (affirmation of Todd Gutfleisch, April 23, 2013 [Gutfleisch reply affirmation], exhibit 1 n 10). The federal case has been discontinued without prejudice.
Bellard, a FINRA member, now seeks to compel GFI to arbitrate. GFI is not a member of FINRA (affidavit of Nick Brown, sworn to on April 8, 2013, ¶ 4) and argues that it is under no obligation to arbitrate. FINRA, however, has agreed to hear the arbitration if GFI consents. GFI refuses to consent. Moreover, GFI contends that, in any case, Bellard waived any right he may have had to compel arbitration by filing the federal lawsuit and that claims he makes pursuant to the NLPA must be heard by the National Labor Relations Board.
II. Discussion
CPLR 7503(a) provides that if a party is aggrieved by another's failure to arbitrate, the aggrieved party may apply for an order compelling arbitration. The court "shall" direct the parties to arbitrate where there is no substantial question whether a valid agreement was made or complied with. Thus, when parties have expressly agreed to arbitration, the only question is whether the subject matter of the dispute is within the scope of the arbitration agreement and whether it may be submitted to arbitration without violating any law or public policy. Maross Constr. v Central N.Y. Regional Transp. Auth., 66 NY2d 341, 345 (1985).
Additionally, arbitration in the securities industry is governed by the FAA. Fletcher v Kidder, Peabody & Co., 81 NY2d 623, 630 (1993). "[T]he party seeking to avoid enforcement of an arbitration clause governed by the FAA must demonstrate a congressional intent 'to preclude a waiver of a judicial forum' for disputes based on a particularstatutory right." Id. at 632, citing Gilmer v Interstate/Johnson Lane Corp., 500 US 20, 26 (1991). Where an employment agreement contains an arbitration clause, there is a presumption in favor of arbitration, which presumption is not overcome by the fact that matters also may be within the purview of the National Labor Relations Board. Truck Drivers Local Union No. 807, I.B.T. v Regional Import & Export Trucking Co., 944 F2d 1037, 1043-44 (2d Cir 1991); see N.Y. HHS Union v NYU Hosps. Ctr., 343 F3d, 117 (2d Cir 2003). "An order to arbitrate should not be denied 'unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute'; doubts should be resolved in favor of coverage." N.Y. HHS Union, id. at 119, citing to Adirondack Trans. Lines, Inc. v United Transp. Union, Local 1582, 305 F3d 82, 86 (2d Cir 2002).
Here, the Agreement unambiguously provides that all controversies are to be resolved through arbitration. Although FINRA is not the arbitral body named in the Agreement, the NASD and NYSE, the bodies named, are one and the same as FINRA. FINRA is the entity formed by the consolidation of the arbitration fora to which plaintiff agreed. The SEC gave final approval for the consolidation in July 2007. As the Court of Appeals has since explained, "the member firm regulation and enforcement functions and employees from NYSE Regulation transferred to NASD, which then adopted FINRA as its new corporate name." Financial Indus. Regulatory Auth., Inc. v Fiero, 10 NY3d 12, 14 (2008); see also Morgan Stanley & Co., Inc. v Feeley, 75 AD3d 417 (1st Dept 2010) (arbitration clause designating NASD requires arbitration before FINRA).
Therefore, while it is flattering that plaintiff has chosen this court, the bronze medalist of the adjudicatory fora listed, to hear its complaint, it is exceedingly difficult to understand why plaintiff believed it did not need to proceed before FINRA. GFI argues that the use of the phrase "other mandatory exclusive forum" in the part of Section 10 that explains when a claim may be submitted to federal court somehow means that the parties only agreed to arbitrate before FINRA if such arbitration was mandatory by FINRA's own rules, which would only be the case if GFI was either a member of FINRA or associated with such a member (FINRA Rule 13200). This intepretation of the Agreement ignores its mandate that "the parties hereby agree that all claims, disputes or controversies ("Claims") arising under this Agreement or otherwise concerning in any way Bellard's employment . . . shall be resolved exclusively through arbitration." [emphasis added]. It would have the effect of rendering the Agreement's arbitration provision entirely superfluous, as, according to GFI, the Agreement would only force the parties to FINRA arbitration if they were already bound to do so by FINRA's own terms and conditions.
The parties' agreement did provide for alternative resolution of disputes in court if FINRA did not agree to arbitrate or "[i]f the matter [wa]s not eligible for arbitration before [FINRA]" or another "mandatory exclusive [arbitration] forum". So, for example, if FINRA declined to hear the case because it determined that the subject matter of the dispute was "inappropriate" or that hearing the case could pose a risk to the safety of the arbitrators or their staff (FINRA Rule 13203), court adjudication might substitute. Furthermore, this alternative clause recognizes that not all disputes are eligible for FINRA arbitration - i.e., class actions, shareholder derivative actions or claims arising out of events that occurred more than six years ago (FINRA Rules 13204-06). Hence, recognizing that arbitration was not guaranteed and not wishing to leave the choice of forum to the first litigant to file suit, the Agreement provides that in the event the dispute could not be heard by FINRA or some other "mandatory" arbitration forum to which either party could be compelled to submit, then all disputes would be heard by the United States District Court for the Southern District of New York (Agreement § 10). If that court lacked subject matter jurisdiction, then the parties agreed to submit all disputes to the New York State Supreme Court sitting in New York County (id.).
GFI's other arguments are unavailing. Bellard's suit in federal court, filed nearly simultaneously with his arbitration claim, merely sought a preliminary injunction against the enforcement of the non-solicitation and non-compete provisions of the Agreement, pending the decision of the arbitration panel. Seeking protective relief to preserve the status quo in aid of a pending arbitration does not constitute a waiver of a party's contractual right to arbitrate. Johanson Resources Inc. v La Vallee, 271 AD2d 832, 835 (3d Dept 2000), quoting Preiss/Breismeister Architects v Westin Hotel Co.-Plaza Hotel Div., 56 NY2d 787, 789 (2005); see also CPLR 7502(c). The court also declines to stay Bellard's claims based on the NLRA, as absent an actual proceeding before the National Labor Relations Board, "[t]he mere fact that the Board has jurisdiction does not in and of itself deprive an arbitrator of jurisdiction or prevent recourse to arbitration." Matter of Buchhholz, 15 AD2d 394 (1st Dept 1962). Any further questions of the eligibility of the parties' claims for FINRA arbitration are to be determined by the arbitrator. Life Receivables Trust v Goshawk Syndicate 102 at Lloyd's, 66 AD3d 495, 496 (1st Dept 2009), citing Smith Barney Shearson v Sacharow, 91 NY2d 39, 47 (1997); see Agreement § 10 (disputes to be arbitrated.in accordance with FINRA rules); FINRA Rule 13413 ("The panel has the authority to interpret and determine the applicability of all provisions under the Code"). Accordingly, it is
ORDERED that the motion of defendant Peter Bellard to compel arbitration and to stay this action is granted; and it is further
ORDERED that the motion of plaintiff GFI Broker LLC to stay the subject arbitration is denied; and it is further
ORDERED that the parties shall proceed to arbitration forthwith and defendant's counsel shall serve a copy of this order upon the arbitral tribunal; and it is further
ORDERED that all proceedings in this action are hereby stayed, except for an application to vacate or modify said stay; and it is further
ORDERED that either party may make an application by order to show cause to vacate or modify this stay upon the final determination of the arbitration.
ENTER:
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J.S.C.