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Fleck v. E.F. Hutton Group Inc.

decided: December 14, 1989.

AARON FLECK, PLAINTIFF-APPELLEE,
v.
E.F. HUTTON GROUP, INC., AND E.F. HUTTON & CO., INC., DEFENDANTS-APPELLANTS



Appeal from an order of the United States District Court for the Southern District of New York, Vincent L. Broderick, Judge, denying a motion to compel arbitration of tort claims made by former brokerage employee against his employer. The district court based its discretion on Coudert v. Paine Webber Jackson & Curtis, 705 F.2d 78 (2d Cir. 1983), in which we held that post-termination tortious conduct by an employer was not subject to arbitration under Rule 347 of the New York Stock Exchange. Held: Because Coudert's approach is no longer viable, we reverse and remand with instructions to order arbitration of some of the claims.

Oakes, Chief Judge, Van Graafeiland and Pratt, Circuit Judges.

Author: Oakes

OAKES, Chief Judge:

The defendants here, whom we will collectively call "Hutton," are both subsidiaries of Shearson Lehman Hutton, Inc. They appeal an order of the United States District Court for the Southern District of New York, Vincent L. Broderick, Judge, denying a motion to compel arbitration of the claims made in this suit. Plaintiff Aaron Fleck, who was employed by Hutton for twelve years, resigned or was discharged from his position in January of 1987. His suit claims that Hutton committed various torts against him after he left his job. He alleges libel, slander, portrayal in a false light, and conspiracy to commit tortious interference with prospective business relationships.

On September 11, 1987, Hutton moved to compel arbitration and to stay the litigation pending arbitration.*fn1 Hutton cited Rule 347 of the New York Stock Exchange ("NYSE"), which requires arbitration of disputes "arising out of the employment or termination of employment," and several other provisions of the NYSE rules and the National Association of Securities Dealers ("NASD") Code. On January 19, 1988, after receiving briefs and hearing argument, Judge Broderick denied the motion because he found our decision in Coudert v. Paine Webber Jackson & Curtis, 705 F.2d 78 (2d Cir. 1983), to be controlling, its facts indistinguishable. In Coudert, we held that an employee's claims of post-employment tortious conduct did not have to be arbitrated because Rule 347 did not apply to false statements that the employer made after the termination to describe the employee.

Hutton now appeals as of right under 9 U.S.C. § 15 (1988), which permits an appeal from an order refusing a stay requested under the United States Arbitration Act, 9 U.S.C § 3 (1988). See Fleck v. E.F. Hutton Group, Inc., 873 F.2d 649 (2d Cir. 1989) (per curiam) (denying, in view of applicability of 9 U.S.C. § 15, motion for appeal under certification procedures, and deeming appeal timely).

We reverse. Because we reconsider Coudert, we have circulated this opinion to all of the active judges in the circuit before releasing it. See Newman, In Banc Practice in the Second Circuit: The Virtues of Restraint, 50 Brooklyn L.Rev. 365, 370 & n. 30 (1984) (citing Trapnell v. United States, 725 F.2d 149, 155 (2d Cir. 1983)).

BACKGROUND

Fleck, according to his complaint, worked for Hutton in Florida for twelve years. His earnings averaged $600,000 to $700,000 per year, and he was one of the company's top twenty account executives nationwide for the years 1977 through 1986. He left the job in January of 1987. The complaint refers to his "termination" without saying whether he was fired, but a defense affidavit says that he was discharged.

The first count of Fleck's complaint alleges defamation. He claims that on April 27, 1987, Corey Steadman, the branch manager of Hutton's Tampa office, told one of Fleck's clients that Fleck was a disbarred lawyer, that he had lost his license in the securities business and could never get another job as a broker, and that many of Fleck's customers had complained about him to Steadman. Fleck also claims that on April 29, 1987, Steadman told another client that Fleck had been fired, that his broker's license had been permanently revoked, and that Fleck was a disbarred lawyer. Likewise, Fleck claims that on April 21 and April 28, Steadman told two other clients, among other things, that Fleck had been banned from the securities industry for cause, and that Steadman told one of them that Fleck was "basically a criminal." The complaint says that all these statements were false.

The second count of the complaint alleges that the Form U-5 that Hutton filed with the NASD in March of 1987 defamed him by falsely stating that he had been discharged for cause, that he had failed to follow firm policy, that he violated NASD rules by guaranteeing an investment, and that he was discharged because several of his clients had brought lawsuits against Hutton.

The third, fourth, and fifth counts allege that after Fleck left Hutton, Hutton induced three brokerage houses with which Fleck had negotiated, respectively, to break an employment contract, rescind an offer of employment, and terminate negotiations. The sixth count claims that in February of 1987 Hutton's branch manager in Longboat Key, Florida circulated to brokers in that office a document purporting to list fifteen lawsuits brought against Hutton by Fleck's clients. Finally, the seventh count alleges that, as a result of the conduct described above, Hutton presented Fleck in a false light as a criminal, a disbarred lawyer, a broker with a revoked license who had been banned from the securities industry, and a defendant in many lawsuits.

In 1975 and 1980, Fleck had executed a Form U-4, a Uniform Application for Securities and Commodities Industry Representative and/or Agent. In the Form U-4 he filed in 1980, he applied for registration with the NYSE, the NASD, the American Stock Exchange, the Chicago Board of Trade, and the Chicago Board of Options Trading, and he agreed to abide by the rules of those entities.

Hutton argues that several rules require arbitration of Fleck's claims, and we set out those rules here. Application of the provisions is somewhat complicated by the fact that defendant E.F. Hutton Group, Inc. ("the Group") is not a member of the ...


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