Docket No. 161465.

212 Mich. App. 576 (1995)

538 N.W.2d 686


Michigan Court of Appeals.

Decided August 11, 1995, at 9:05 A.M.

Attorney(s) appearing for the Case

Fieger, Fieger & Schwartz, P.C. (by Geoffrey N. Fieger and Pamela A. Hamway), for the plaintiff.

Dickinson, Wright, Moon, Van Dusen & Freeman (by Lawrence G. Campbell and Francis R. Ortiz), and Altheimer & Gray (by Robert P. Bramnik, Thomas P. Fitzgerald, and Michael I. Behn), for the defendants.

Before: O'CONNELL, P.J., and WAHLS and N.O. HOLOWKA, JJ.


Defendants appeal by leave granted from the trial court's order denying in part defendant's motion to compel arbitration. We reverse.

Plaintiff was chief executive officer of defendant Olde Discount Corporation, a stock brokerage firm. Defendants accused plaintiff of embezzling from Olde Discount. Plaintiff was subsequently acquitted of this charge in a criminal trial. After his acquittal, plaintiff filed this suit for various actions sounding in tort and contract.

Defendants moved to have the entire case arbitrated pursuant to stock exchange rules. The trial court partially granted defendants' motion with respect to the claims against defendants Olde Discount, Ernest J. Olde, Olde Financial Corporation, and American Brokerage Services, Inc. (ABS). However, the trial court ruled that part of count I (malicious prosecution/false arrest) and part of count II (emotional distress) arose outside the employment relationship and would not be submitted to arbitration with regard to any defendant. In addition, the trial court ruled that public policy dictated against arbitration of the claims (legal malpractice, defamation, and tortious interference with contract) against defendant attorney Calvin Klyman. Finally, the trial court ruled that, because defendant Broker Dealer Services, Inc. (BDSI), was a separate entity and not a party to any arbitration agreement, plaintiff's claim against it would not be arbitrated.


Defendants argue first that plaintiff must arbitrate his claims of false arrest, malicious prosecution, and emotional distress. We agree. The federal arbitration act, 9 USC 1-15, governs actions in both federal and state courts arising out of contracts involving interstate commerce. Kauffman v Chicago Corp, 187 Mich.App. 284, 286; 466 N.W.2d 726 (1991). More specifically, disputes between a member of a national stock exchange and its employees are within the federal act if there is a binding arbitration agreement. Id. State courts are bound under the Supremacy Clause, US Const, art VI, § 2, to enforce the substantive provisions of the federal act. Id.

The existence of an arbitration contract and the enforceability of its terms are judicial questions that cannot be decided by the arbitrator. Huntington Woods v Ajax Paving Industries, Inc (After Remand), 196 Mich.App. 71, 74; 492 N.W.2d 463 (1992). To ascertain the arbitrability of an issue, the court must consider whether there is an arbitration provision in the parties' contract, whether the disputed issue is arguably within the arbitration clause, and whether the dispute is expressly exempt from arbitration by the terms of the contract. Id., pp 74-75. Any doubts about the arbitrability of an issue should be resolved in favor of arbitration. Id., p 75.

In connection with his employment, plaintiff executed a standard uniform application for securities industry registration (the U-4) with Olde Discount and ABS in which he agreed to arbitrate all disputes arising in connection with his employment under the rules of the organizations with which he registered. Because plaintiff registered with the New York Stock Exchange (NYSE), this agreement facially appears to adopt the rules of the NYSE.

NYSE Rule 347 requires arbitration of controversies between a registered representative and a member organization arising out of the employment or termination of employment of the registered representative. Plaintiff argues that this rule does not extend to posttermination torts. However, in Kauffman, supra, p 289, this Court stated that an issue of posttermination conduct is arbitrable under this rule when the claim involves significant aspects of the employment relationship. Specifically, a claim is arbitrable if its resolution depends upon evaluation of a party's performance either as a broker or as an employer of brokers during the time of the contractual relationship. Id.

A claim of false arrest requires proof that the arrest lacked probable cause. Blase v Appicelli, 195 Mich.App. 174, 177; 489 N.W.2d 129 (1992). Similarly, a malicious prosecution claim requires proof that there was no probable cause for the proceeding. Id. Here, plaintiff's claims of false arrest and malicious prosecution arose out of the charges of embezzlement that resulted when he prestamped blank envelopes with Olde Discount's postage meter machine and gave them to State Discount Brokers, a company run by his daughter and not affiliated with Olde Discount. Importantly, plaintiff did not deny providing the prestamped envelopes to State Discount, but maintained that he provided them to settle a disputed claim that Olde Discount had not paid. Necessarily, both of plaintiff's claims will require inquiry into "significant aspects" of plaintiff's employment relationship. Accordingly, these claims are arbitrable. Kauffman, supra, p 289.

Although plaintiff argues that "liberty interest" cases are excluded from the broad scope of arbitration clauses, our review of case law does not so indicate. To the contrary, any doubts about the arbitrability of an issue should be resolved in favor of arbitration. Huntington Woods, supra, p 75.

Plaintiff also argues that Adams v Nat'l Bank of Detroit, 444 Mich. 329; 508 N.W.2d 464 (1993), requires a different result. However that decision is not binding here because it involved a statutory provision of the Worker's Disability Compensation Act. That provision is not at issue here. Moreover, a plurality decision in which no majority of the participating justices agree concerning the reasoning is not binding authority under the doctrine of stare decisis. Summers v Detroit, 206 Mich.App. 46, 50; 520 N.W.2d 356 (1994).

Finally, plaintiff argues that defendants waived any right to arbitration by bringing prior lawsuits. A party may waive its right to arbitration, and each case must be decided on the basis of its individual facts. North West Michigan Construction, Inc v Stroud, 185 Mich.App. 649, 651; 462 N.W.2d 804 (1990). However, waiver of a contractual right to arbitration is not favored. Kauffman, supra, p 291. A party arguing there has been a waiver of this right bears a heavy burden of proof. Id., p 292. The party must demonstrate knowledge of an existing right to compel arbitration, acts inconsistent with the right to arbitrate, and prejudice resulting from the inconsistent acts. Id.

Here, Olde Discount's prior suit against State Discount seeking return of the postage and other assets given it by plaintiff involved a defendant who is not involved here. It was plaintiff, and not State Discount, who signed the U-4 agreement that required arbitration.

A separate prior suit, Olde Discount's suit against plaintiff, sought only to prevent plaintiff from disclosing the content of confidential communications with Olde Discount's attorneys learned while plaintiff was still chief executive officer of the firm. Seeking a preliminary injunction in court to preserve the status quo is not inconsistent with the right to arbitrate. Kauffman, supra, p 292. Plaintiff did not sustain his heavy burden of proof to show a waiver. Id.

Because the NYSE rule provides ample authority for arbitrating plaintiff's claims, we do not address defendants' argument that arbitration was also required under the rules of the National Association of Security Dealers. In addition, plaintiff's claim of emotional distress is derivative of his claims of false arrest and malicious prosecution and should be arbitrated. See, generally, DAIIE v Reck, 90 Mich.App. 286, 289; 282 N.W.2d 292 (1979). The trial court erred in not compelling arbitration of plaintiff's claims of false arrest, malicious prosecution, and emotional distress. Kauffman, supra, p 289.


Defendants argue that a nonmember of a national securities exchange can compel arbitration of a securities broker's claims pursuant to NYSE rules. We agree. Under NYSE Rule 600(a), a nonmember of the exchange can require arbitration of a dispute with a member if the dispute is otherwise within the scope of an existing arbitration agreement. See Pearce v E F Hutton Group, Inc, 264 US App DC 246; 828 F.2d 826 (1987); Axelrod & Co v Kordich, Victor & Neufeld, 451 F.2d 838 (CA 2, 1971); Madden v Ellspermann, 813 S.W.2d 51 (Mo App, 1991); Thomas v Perry, 200 Cal.App.3d 510; 246 Cal.Rptr. 156 (1988).

Plaintiff's claim against BDSI, a shareholder's direct and derivative action, is otherwise within the scope of his existing arbitration agreement. The claim necessarily calls into question defendant Olde's handling of BDSI's assets vis-a-vis Olde Discount and ABS. Once again, this claim involves "significant aspects" of plaintiff's employment relationship. Arbitration is required. Kauffman, supra, p 289; see also Fleck v E F Hutton Group, Inc, 891 F.2d 1047 (CA 2, 1989).

With regard to plaintiff's claims against defendant Klyman, to the extent that any malpractice liability arose outside plaintiff's exchange-related activities, it is not arbitrable. Lucas v Peters, 206 Mich.App. 530, 533; 522 N.W.2d 642 (1994). However, the specific allegations of plaintiff's complaint linked Klyman's conduct to the business of the brokerage firm. Paragraph 97 of plaintiff's complaint, which was listed under plaintiff's count of legal malpractice against Klyman, stated:

That at all time relevant hereto, and specially between the dates of January 1990 through October 15, 1990 Defendant Klyman acted as both attorney for Ernest J. Olde, as attorney for Olde, ABS and Olde Financial, and, in that capacity, did also act and did represent to act as attorney for Herbert J. Burns.

Accordingly, plaintiff's complaint alleged an activity that arose out of his exchange-related activities and was arbitrable. Lucas, supra, p 533. The trial court erred in not compelling arbitration of plaintiff's claims against defendants BDSI and Klyman. Id.; Kauffman, supra; Fleck, supra; Pearce, supra.



* Circuit judge, sitting on the Court of Appeals by assignment.


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