In Re: Merrill Lynch, Pierce, Fenner & Smith Inc.

The Federal Arbitration Act governs this dispute and the trial judge did not abuse his discretion in denying the motion to compel arbitration.

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Click here for the full text of this decision FACTS:In this employment case, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Walter W. Brosey seek relief from the trial judge’s Aug. 22, 2003 order denying their motion to compel arbitration and stay proceedings. Merrill Lynch employed Lisa Fox as a financial advisor. Fox sued Merrill Lynch and Brosey for breach of contract, promissory estoppel, negligent misrepresentation, and fraud, and Brosey for assault. Fox alleged Brosey had sexually harassed her and that when she reported his actions to Merrill Lynch, the company did nothing to stop his actions and effectively terminated her. Both defendants answered and filed a motion to compel arbitration and stay proceedings. After the trial judge denied the motion, Merrill Lynch and Brosey filed 1. an interlocutory appeal of the order denying the motion to compel arbitration as permitted by the Texas Arbitration Act and 2. a motion for leave to file a petition for writ of mandamus under the Federal Arbitration Act. In both the interlocutory appeal and the petition for writ of mandamus, Merrill Lynch and Brosey contend the trial judge abused his discretion in denying the motion to compel arbitration. HOLDING:The interlocutory appeal is dismissed, the writ of mandamus is denied. Under the supremacy clause of U.S. Constitution, the Federal Arbitration Act preempts all otherwise applicable state laws, including the Texas Arbitration Act. The Federal Arbitration Act applies to contracts “evidencing a transaction involving commerce.” 9 U.S.C.A. �2 (1970). Whether a particular arbitration agreement is controlled by the Federal Arbitration Act is determined by whether the contract relates to interstate commerce. “The sale of securities has been held to involve interstate commerce.” In Re: Whitfield, 115 S.W.3d 753 (Tex. App. — Beaumont 2003, orig. proceeding). A Form U-4 is a “separate contract involving the sale of securities, and its arbitration clause is enforceable under the [Federal Arbitration Act].” In Re: Scott, 100 S.W.3d 575 (Tex. App. — Ft. Worth 2003, orig. proceeding). Because the Form U-4, a registration form used to register securities professionals with different securities exchanges and associations, is a contract involving the sale of securities and the sale of securities involves interstate commerce, the court concludes the Federal Arbitration Act applies. Further, the court addresses the issues raised in Merrill Lynch and Brosey’s petition for writ of mandamus because, under the Federal Arbitration Act, they have no adequate remedy at law. Accordingly, the court dismisses the interlocutory appeal as moot. Fox signed a standard Form U-4 when she became a financial advisor at Merrill Lynch. The form contains a paragraph stating “I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitution, or by-laws of the organizations in item 10 as may be amended from time to time . . .” Item 10 lists the securities exchanges and associations in which Fox sought to be registered: the American Stock Exchange, the Chicago Board Options Exchange, the National Association of Securities Dealers, the New York Stock Exchange, the Philadelphia Stock Exchange, and the Pacific Stock Exchange. Rule 12.1(a) of the PSE Rules of the Board of Governors states, “Any claim which is related to employment, including any sexual harassment or any discrimination claim in violation of a statute, will be eligible for submission to arbitration under this Rule only where all parties have agreed to arbitrate the claim after it has arisen.” It is undisputed that 1. Fox’s claims relate to employment and 2. she did not agree to arbitrate those claims after they arose. Because the PSE rules specifically exclude Fox’s claims from arbitration, the court cannot conclude the trial judge abused his discretion in denying Merrill Lynch and Brosey’s motion to compel arbitration. OPINION:Whittington, J.; Whittington, Lang and Lang-Miers, JJ.

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