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BROWN v. MERRILL

June 29, 1987

Mary Lois Brown
v.
Merrill, Lynch, Pierce, Fenner & Smith, Inc., et al.



The opinion of the court was delivered by: NEWCOMER

 Newcomer, J.

 In this action, Mary Lois Brown filed a five count complaint *fn1" against defendants Merrill Lynch, Pierce, Fenner & Smith, Inc., ("Merrill Lynch") and Shearson/American Express Inc. ("Shearson"). The plaintiff seeks monetary damages based on contractual relationships with defendants and alleged tortious behavior in which defendants are alleged to have willfully and maliciously impugned plaintiff's business reputation. Defendants Merrill Lynch and Shearson now move to compel arbitration under the Federal Arbitration Act, based upon the Uniform Application for Securities Industry Registration Form U-4 ("U-4 Form"). For the reasons enumerated below, the defendant's motion to compel arbitration will be granted as it pertains to Merrill Lynch but denied as it pertains to Shearson, with leave to renew the motion if warranted by facts not now in the record.

 I.

 The case arises from employment agreements between Brown and Shearson in 1982 and between Brown and Merrill Lynch in 1984. At the commencement of her employment with the defendants, Brown completed and signed two U-4 Forms. Completion of a U-4 Form is a prerequisite for registration with the security industry's Self Regulating Organizations ("SRO's"), which are also known as stock exchanges. *fn2" Question 8 of the U-4 Form contains an arbitration clause, which requires that "any dispute, claim or controversy" arising from the employment relationship and covered by an SRO with which the applicant registers be submitted to arbitration. *fn3" The arbitration clause also states that the scope of arbitration is determined from the constitution, by-laws or rules of those SROS selected on the U-4 Form.

 In the Motion to Compel Arbitration, defendants allege that by signing the 1982 and 1984 U-4 Forms, and completing question 8 on each form, Brown agreed to submit the disputes at issue in this case to arbitration under the by-laws of the NYSE, and specifically Rule 347 which defines arbitration within this SRO. Plaintiff Brown opposes the motion on the three grounds. First, Brown argues that by completing and signing the 1982 U-4 Form at the commencement of her employment with Shearson, she did not agree to the arbitration of disputes arising out of this employment relationship. Second and more generally, plaintiff asserts that the disputes between herself and both Merrill Lynch and Shearson do not fall within the scope of the arbitration clause contained in the U-4 form. Third, plaintiff argues that submission of the disputes presented in the complaint to arbitration violates public policy.

 II.

 The Federal Arbitration Act, 9 U.S.C. §§ 1-14, provides that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Act also expressly mandates that a district court shall stay the trial of any issue which the court believes is subject to a valid written arbitration agreement upon application of any party to that agreement. 9 U.S.C. § 3. Section 4 mandates that a district court shall direct the parties to proceed to arbitration in those instances where it is clear that an agreement for arbitration has been made and that there has been a failure to comply with the agreement. 9 U.S.C. § 4.

 Embodied in this Act is a strong policy favoring arbitration as an alternative dispute resolution process. Perry v. Thomas, 482 U.S. 483, 55 U.S.L.W. 4832, 96 L. Ed. 2d 426, 107 S. Ct. 2520 (1987); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 55 U.S.L.W. 4757, 96 L. Ed. 2d 185, 107 S. Ct. 2332 (1987); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 74 L. Ed. 2d 765, 785, 103 S. Ct. 927 (1983). The Arbitration Act and the policies it embodies have been regularly applied to disputes between stock brokers and stock brokerage firms. Perry, supra; Shearson/American Express, supra; Zolezzi v. Dean Witter Reynolds, Inc., 789 F.2d 1447 (9th Cir. 1986); Morgan v. Smith Barney Harris Upham & Co., Inc., 729 F.2d 1163 (8th Cir. 1984).

 "The first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 87 L. Ed. 2d 444, 454, 105 S. Ct. 3346 (1985). This determination is made by applying federal law under the Arbitration Act, id. at 455, citing Moses H. Cone Memorial Hospital, supra, 460 U.S. at 24, according to which,

 
Questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration. . . . The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract itself [or other questions.]

 Moses H. Cone Memorial Hospital, supra, 460 U.S. at 24-25.

 A. Shearson


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