On appeal from the Superior Court of New Jersey, Law Division, Mercer County.
Approved for Publication July 23, 1996.
Before Judges Michels, Villanueva and Kimmelman. The opinion of the court was delivered by Michels, P.j.a.d.
The opinion of the court was delivered by: Michels
The opinion of the court was delivered by
Defendant Commodities Corporation (U.S.A.), pursuant to leave granted by this court, appeals from an order of the Law Division that denied its motion to compel plaintiff Jonathan Singer to submit his employment-related disputes to arbitration before the National Association of Security Dealers (NASD) and to stay litigation pending completion of that NASD arbitration; and from an order that denied its motion for reconsideration.
The record submitted on appeal shows that pursuant to an employment agreement dated February 7, 1992, plaintiff was employed, effective January 1, 1992, as Vice President of Securities Trading Limited (STL), a subsidiary of defendant. In this capacity, plaintiff was responsible for managing the trading activities of STL at its New York trading office. STL is the sole general partner of Hamilton Partners, L.P. (Hamilton), a limited partnership formed under Bermuda law, with its principal place of business in Hamilton, Bermuda. Hamilton is a United States broker-dealer registered with the Securities and Exchange Commission (SEC) and is a NASD member. Hamilton has no employees of its own. Until December 1, 1994, all securities trading activities by and on behalf of Hamilton in New York were performed by employees of STL.
On November 6, 1991, prior to entering into the employment agreement with STL, plaintiff executed a "Uniform Application For Securities Industry Registration or Transfer", a form commonly referred to as a "Form U-4." Beneath a caption which read: "THE APPLICANT MUST READ THE FOLLOWING VERY CAREFULLY", the Form U-4 provided:
I apply for registration with the jurisdictions and organizations indicated in Item 10 as may be amended from time to time and, in consideration of the jurisdictions and organizations receiving and considering my application, I submit to the authority of the jurisdictions and organizations and agree to comply with all provisions, conditions and covenants of the statutes, constitutions, certificates of incorporation, by-laws and rules and regulations of the jurisdictions and organizations as they are or may be adopted, or amended from time to time. I further agree to be subject to and comply with all requirements, rulings, orders, directives and decisions of, and penalties, prohibitions and limitations imposed by the jurisdictions and organizations, subject to right of appeal or review as provided by law.
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, constitutions, or by-laws of the organizations indicated in Item 10 as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.
The NASD is one of the organizations referred to in Item 10.
Although plaintiff acknowledges that he received the Form U-4 by mail in November 1991, he maintains that defendant never explained to him that in signing the Form U-4 he waived, by virtue of the term mandating that any disputes be submitted to arbitration, his right to bring a lawsuit against his employer. Plaintiff "thought the form was for law enforcement purposes."
According to plaintiff, the specific facts giving rise to the employment dispute here at issue commenced in the spring of 1994. Plaintiff maintains that shortly after March 31, 1994, defendant, in order to increase its investment, obtained a $60 million loan from Citibank and First Chicago (the banks) for an affiliate. According to plaintiff, the loans were predicated on the affiliate's net equity. Thus, the loan agreements provided for recall of the entire loan if Hamilton's unit value decreased by 25% from its peak level. The loan agreements also provided for accelerated payments or loan recall if the affiliate's financial status declined to threshold levels, and required notice to the banks of such change.
In the spring of 1994, plaintiff became concerned that Jeff Parket, one of the firm's portfolio managers, was assigning inaccurate prices to the securities in the portfolios he managed. Plaintiff claimed that shortly thereafter, he notified defendant of Parket's questionable pricing practices.
In November 1994, Parket complained that requiring him to hedge (insure) his securities was interfering with his ability to trade. Plaintiff instructed Parket that "until liquidity returns positions had to be hedged." According to plaintiff, relieving Parket of the hedging requirement would have adversely affected the firm's minimum capital requirement, which, plaintiff, as Compliance Officer, was responsible for monitoring. Hamilton, as a broker/dealer, was required to maintain a capital position equal to 120 percent of its minimum regulatory capital requirement. If the capital position fell below this level, the firm was required to notify the SEC that it was in "financial difficulty."
On December 1, 1994, all personnel and assets of STL's New York City office were assigned to defendant, which was a Netherlands Antilles corporation and an affiliate of STL. Accordingly, plaintiff's employment agreement was assigned to defendant and plaintiff became defendant's employee at its New York trading office. On that date, defendant became the investment advisor and agent to effect transactions on Hamilton's behalf.
On or about December 1, 1994, plaintiff allegedly raised questions with Jacob Rosengarten, defendant's risk manager, about the overvaluation of securities in the non-investment grade portfolio. These questions involved plaintiff's late November 1994 concern that the prices Parket had assigned to the securities in the non-investment grade portfolio were inflated and not supportable.
Plaintiff alleged that in a January 4, 1995, meeting which included Parket and Michael Garfinkle, defendant's Head of Trading Administration, "Parket admitted that his pricing of the securities (including bonds) in his portfolios could be inaccurate because they were illiquid (not trading)." Plaintiff further alleged that he and Garfinkle began a pricing audit of Parket's positions on January 13, 1995 which disclosed on January 23, 1995, that "Parket had valued the portfolio about $8 million higher than the industry standard." On January 27, 1995, plaintiff called Pat Fallon, the chief accountant, and discussed the possibility of Parket deliberately mispricing his positions, thereby hiding losses. Parket resigned on January 31, 1995.
On February 1, 1995, plaintiff claimed that he participated in a conference call which included, inter alia, Tom Dailey, the president of Hamilton, Bob Easton, defendant's President, and Roch Hillenbrand, defendant's Chief Financial Officer, at which time he and Garfinkle explained Parket's actions. During this conference call, when plaintiff asked if the banks should be informed of the financial change, Hillenbrand apparently refused to do so.
The next day, February 2, 1995, plaintiff allegedly expressed concerns to Dailey, Easton, Hillenbrand and others about defendant's regulatory capital position and indicated that defendant should so inform the NASD. Plaintiff claimed that during his conversation with these individuals, he stated that due to Parket's actions the firm was caused to have filed inaccurate NASD financial statements. Plaintiff maintains that on February 2, 1995, when he traded Parket's positions, he confirmed that Parket had grossly overpriced his portfolios and had thereby hidden significant losses. On February 5, 1995, Garfinkle was called to defendant's Princeton office and told to terminate plaintiff, and in fact, plaintiff was terminated that day.
On June 7, 1995, plaintiff sent defendant a copy of a complaint that he intended to file against it in the Law Division on June 14, 1995. In the complaint, plaintiff charged that defendant wrongfully terminated his employment in violation of the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 et seq., and defamed him in a report to the NASD which had set forth the reasons for his termination. Plaintiff alleged in the complaint that "as a result of defendant['s] wrongful acts, [he] has suffered and continues to suffer loss of earnings and other employment benefits, as well as damage to reputation and severe mental anguish, stress, humiliation, and pain." Plaintiff sought (1) reinstatement to his position as General Securities Principal and Compliance Officer with backpay and interest and/or prospective lost wages; (2) retroactive restoration of seniority and all employee benefits; (3) compensatory damages; (4) damages for harm to reputation; (5) punitive damages; and (6) attorney's fees and costs.
On June 12, 1995, before plaintiff filed and served the complaint in this action, Hamilton and defendant filed a Statement of Claim with the NASD entitled "In the Matter of the Arbitration Between Hamilton Partners L.P. and Commodities Corporation (U.S.A.) N.V., Claimants, and Jonathan Singer, Respondent ", in which they sought a determination that plaintiff had not been wrongly terminated or defamed. They claimed that plaintiff was discharged because:
(1) he directed the execution of an unauthorized trading strategy consisting of the acquisition of well over 100% of a publicly traded junk bond issue (the "junk bond issue") and refused to disclose his bond acquisition strategy to anyone outside of his office unless secrecy was maintained as to identified members of Hamilton Partners L.P. ("Hamilton") senior management, who were members of Claimants' Risk Control Committee, and (2) he engaged in a pattern of conduct that caused the disruption of his office and forced the resignation of a most valued trader of the Claimants, who was under his supervision.
On June 16, 1995, plaintiff instituted this action by filing the aforementioned complaint in the Law Division. On June 19, 1995, the NASD notified plaintiff that the claims set forth in Hamilton's and defendant's Statement of Claim were subject to the arbitration provisions of the NASD Code. On July 5, 1995, plaintiff served defendant with a copy of the summons and complaint in this action. Defendant immediately moved in the Law Division pursuant to R. 4:6-2 and R. 4:52-6, the Federal Arbitration Act (FAA), 9 U.S.C.A. §§ 1-9, and the New Jersey Arbitration Act (NJAA), N.J.S.A. 2A:24-1 to 4, for an order compelling plaintiff to submit his claims to arbitration before the NASD and for a stay of the action pending the outcome of the NASD arbitration. The trial court denied the motion, stating in part:
Plaintiff correctly notes that at the time he signed the Form U-4 the NASD Code of Arbitration Procedure did not explicitly provide for the arbitration of employment disputes. It was not until October 1, 1993 that the NASD amended sections one and eight of its code, "to clarify that employmentrelated disputes are arbitratable under the code."
The trial court, although recognizing the general "policy preferences in favor of allowing matters or compelling matters to proceed to arbitration and in favor of conserving scarce judicial resources[,]" nonetheless concluded that "no party can be required to submit a dispute to arbitration which it has not agreed to submit." The trial court rejected defendant's argument that in signing the Form U-4 plaintiff agreed to abide by the existing arbitration provisions of the Code as well as the Code as it "may be amended from time to time." The trial court held that it "would be highly inequitable and controvert the intentions of the parties at the time of contracting to hold plaintiff to the literal terms of that provision." Defendant's motion for reconsideration was denied.
We granted defendant leave to appeal. Defendant seeks a reversal of the order and a declaration instructing plaintiff to submit all employment-related claims and disputes to the NASD for arbitration, including but not limited to those asserted in the trial court, and that the matter be stayed pending the final Disposition of the NASD arbitration. Defendant contends, among other things, that the trial court's failure to enforce the employment agreement as written and executed is contrary to federal and New Jersey law favoring arbitration. We agree and reverse.
It is a well-accepted principle that New Jersey supports the settlement of disputes by arbitration. This support is evidenced by N.J.S.A. 2A:24-1, which, in pertinent part, states:
A provision in a written contract to settle by arbitration a controversy that may arise therefrom or a refusal to perform the whole or a part thereof or a written agreement to submit, pursuant to section 2A:24-2 of this title, any existing controversy to arbitration, whether the controversy arise out of contract or otherwise, shall be valid, enforceable and irrevocable, except upon such grounds as exist at law or in equity for the revocation of a contract.
In Kalman Floor Co., Inc. v. Jos. L. Muscarelle, Inc., 196 N.J. Super. 16, 26, 481 A.2d 553 (App. Div. 1984), aff'd o.b., 98 N.J. 266 (1985), this court noted that New Jersey courts "have accepted the statute as reflecting a public policy favoring commercial arbitration." See Barcon Assocs., Inc. v. Tri-County Asphalt Corp., 86 N.J. 179, 186, 430 A.2d 214 (1981); Hudik-Ross, Inc. v. 1530 Palisade Ave. Corp., 131 N.J. Super. 159, 166, 329 A.2d 70 (App. Div. 1974); see also Ohio Casualty Ins. Co. v. Benson, 87 N.J. 191, 196, 432 A.2d 905 (1981).
Indeed, "our courts have long favored the settlement of disputes by arbitration." Stigliano v. Saint Rose High Sch., 198 N.J. Super. 520, 529, 487 A.2d 1260 (App. Div. 1984); see also Marchak v. Claridge Commons, Inc., 134 N.J. 275, 281, 633 A.2d 531 (1993); Perini Corp. v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479, 489, 610 A.2d 364 (1992); Faherty v. Faherty, 97 N.J. 99, 105-06, 477 A.2d 1257 (1984); Barcon Assocs., Inc., (supra) , 86 N.J. at 186; Rivers v. Gen. Accident Group, 192 N.J. Super. 355, 360, 470 A.2d 19 (App. Div. 1983); Johowern Corp. v. Affiliated Interior Designers Inc., 187 N.J. Super. 195, 199, 453 A.2d 1370 (App. Div. 1982); Hudik-Ross, Inc., (supra) , 131 N.J. Super. at 166. Thus, our courts have held that an arbitration agreement "should be read liberally in favor of arbitration." Marchak, (supra) , 134 N.J. at 282; see also J. Baranello & Sons, Inc. v. City of Paterson, 168 N.J. Super. 502, 506-07, 403 A.2d 919 (App. Div.), certif. denied, 81 N.J. 340 (1979); Moreira Constr. Co., ...