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ROODVELDT v. MERRILL LYNCH

February 6, 1984

STEPHANY ROODVELDT
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC.



The opinion of the court was delivered by: CAHN

 CAHN, J.

 I. PRELIMINARY STATEMENT

 There are two motions before me. One is Roodveldt's motion for preliminary injunctive relief. *fn3" The other is Merrill Lynch's motion to dismiss. Merrill Lynch moves to dismiss this action, urging that Roodveldt's complaint and motion fail to state a claim upon which relief can be granted. Both motions raise the same issue, that is, whether federal judicial authority may properly be exercised over state court proceedings. Accordingly, I have consolidated the motions and will evaluate the arguments presented by the parties in a single opinion. For the reasons set out in this opinion, Merrill Lynch's motion will be denied. Roodveldt's motion for a preliminary injunction will be granted in part and denied in part.

 II. FACTUAL AND PROCEDURAL BACKGROUND

 As the parties have submitted affidavits and other additional material, Merrill Lynch's motion will be treated as a Federal Rule of Civil Procedure 56 motion for summary judgment. Fed. R. Civ. P. 12(b)(6). Consequently, in regard to that motion the pleadings must be construed liberally in a light most favorable to the plaintiff, and all doubt as to the existence of material facts must be resolved against the moving party. Lynn v. Heyl and Patterson, Inc., 483 F. Supp. 1247, 1250 (W.D. Pa. 1980), aff'd, 636 F.2d 1209 (3d Cir. 1980); Smith v. Webb, 420 F. Supp. 600, 601 (E.D. Pa. 1976). With these standards in mind, the factual and procedural background of this action is described below.

 The material facts are undisputed. Stephany Roodveldt began her employment with Merrill Lynch on July 20, 1978. At that time, Roodveldt signed a document entitled "Account Executive Trainee Agreement" ("Trainee Agreement"). Paragraph 1 of the Trainee Agreement provides that during and after termination of Roodveldt's employment with Merrill Lynch, all records of Merrill Lynch, including the names and addresses of its clients, will remain the property of Merrill Lynch. Paragraph 2 of the Trainee Agreement contains a clause by which Roodveldt agreed not to solicit any Merrill Lynch clients whom she served or whose names became known to her while employed by Merrill Lynch, for a period of one year from the date of termination of Roodveldt's employment at the firm. Paragraph 5 of the Trainee Agreement states:

 
I agree that any controversy between myself and Merrill Lynch arising out of my employment, or the termination of my employment with Merrill Lynch for any reason whatsoever shall be settled by arbitration at the request of either party in accordance with the Constitution and Rules of the New York Stock Exchange, then in effect.

 Roodveldt was employed as an account executive by Merrill Lynch from July 20, 1978, through June 21, 1983. The evidence suggests that Roodveldt was a responsible and productive employee. The firm provided Roodveldt with training courses, preparation courses for the General Securities Examination, fringe benefits and office facilities. Merrill Lynch also referred Roodveldt to potential clients and reassigned to her some internal customer lists so that she could develop a client base. Roodveldt, in turn, was a profitable employee. Her commissions increased each year that she was employed by Merrill Lynch, and she was well regarded by her superiors and customers.

 On June 21, 1983, Roodveldt informed her supervisor at Merrill Lynch, Lawrence Forlenza, that she was resigning in order to accept a position as Vice President at another brokerage firm. Forlenza advised Roodveldt that the company would not hesitate to resort to legal means in order to enforce the Trainee Agreement, and to prevent Roodveldt from soliciting Merrill Lynch clients. The next day, June 22, 1983, Roodveldt learned that Merrill Lynch planned to file suit against her based on alleged violations of the Trainee Agreement and other related claims pertaining to her conduct as a Merrill Lynch employee. Upon receiving this information, Roodveldt sent a demand to the New York Stock Exchange, requesting that all claims by Merrill Lynch against her be arbitrated, as mandated by paragraph 5 of the Trainee Agreement.

 Merrill Lynch did file suit against Roodveldt, in the Court of Common Pleas of Montgomery County, Pennsylvania, seeking special, preliminary and permanent injunctive relief and money damages. *fn4" In response, Roodveldt submitted to that court a petition for stay of proceedings pending arbitration. On June 23, 1983, the Montgomery County Court of Common Pleas, without explicitly denying the petition for stay, issued a temporary restraining order against Roodveldt. Judge Albert R. Subers found, inter alia, that Merrill Lynch would suffer irreparable harm and loss if Roodveldt were permitted to continue soliciting Merrill Lynch accounts, clients and customers for her new employer. Merrill Lynch Pierce Fenner & Smith v. Stephany Roodveldt, No. 83-09272, (Ct.C.P., Montgomery County June 23, 1983) (issuing temporary restraining order). Judge Subers required Merrill Lynch to post $50,000 security, as a condition to obtaining such relief.

 A preliminary injunction hearing began on June 28, 1983, and concluded July 7, 1983. On July 7, 1983, Judge Subers issued an opinion and order which enjoined Roodveldt from "soliciting any business from any clients of Merrill Lynch whom defendant [Roodveldt] served or whose names became known to defendant while in the employ of Merrill Lynch." Merrill Lynch Pierce Fenner & Smith v. Stephany Roodveldt, No. 83-09272, (Ct.C.P., Montgomery County July 7, 1983) (order granting preliminary injunction). In addition, he ordered the establishment of an escrow account, to contain all commissions and fees earned by Roodveldt on transactions between her and former Merrill Lynch customers. Judge Subers ordered the preliminary injunction to remain in effect for a period of one year from June 21, 1983, until June 21, 1984, or until further order from his court upon final determination of the matter. He also ordered that the "same security of Fifty Thousand ($50,000.00) Dollars will continue." Id. In reaching his determination to grant injunctive relief against Roodveldt, Judge Subers analyzed and applied relevant precedent under New York law. He concluded that a preliminary injunction against Roodveldt to maintain the status quo was appropriate and in accordance with New York law.

 Roodveldt purports to bring this action under the Arbitration Act, 9 U.S.C. § 1, et seq. She claims the Arbitration Act empowers a federal court, upon a judicial determination that the subject matter of a dispute is arbitrable, to stay any proceedings with respect to the merits of the controversy. *fn5" Roodveldt therefore seeks to enjoin Merrill Lynch from prosecuting, enforcing or seeking to enforce any order of any court which is related to Roodveldt's conduct as a former employee of Merrill Lynch. This, of course, would include the injunction issued by Judge Subers in the Court of Common Pleas of Montgomery County, Pennsylvania. Roodveldt also asks that I order the parties to arbitrate whatever differences exist between them, inasmuch as paragraph 5 of the Trainee Agreement constitutes a written agreement to arbitrate all controversies.

 III. DISCUSSION

 A. Merrill Lynch's Motion to ...


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