evidence a "clear and unmistakable" intent to submit issues of arbitrability to the arbitrators. (Id. at 6.) These Rules each provide that "the arbitrator(s) shall be empowered to interpret and determine the applicability of all provisions under this Code and to take appropriate action to obtain compliance with any ruling by the arbitrator(s)." (6/12/96 Stipulation, Ex. F: NYSE Rule 621; 6/12/96 Stipulation, Ex. G: AMEX Rule 612(b).)
In a later submission invited by the Court, Gruntal reiterated that NYSE Rule 621 and AMEX Rule 612(b) "are a clear expression of the parties' intent to submit issues of timeliness under [the six-year rules] to the arbitrator." (Def.'s Br. in Opp'n to Pl.'s Application for a Prelim. Inj. [hereinafter "Def.'s Second Br."] at 11.) Defendant claimed that there is "clear and unmistakable" evidence of the parties' intent to have the arbitrator determine issues of arbitrability, thus meeting the standard enunciated by the Supreme Court in First Options of Chicago, Inc. v. Kaplan, 131 L. Ed. 2d 985, 115 S. Ct. 1920 (1995). As support for this contention, Gruntal directed the Court's attention to PaineWebber Inc. v. Bybyk, 81 F.3d 1193 (2d Cir. 1996), and FSC Securities Corp. v. Freel, 14 F.3d 1310 (8th Cir. 1994). (See Def.'s Second Br. at 12.) In each of those cases, the appellate court found that NASD § 35, which is identical to NYSE Rule 621 and AMEX Rule 612(b), is a clear and unmistakable expression of an agreement to leave the question of arbitrability to the arbitrators. Gruntal sought to distinguish cases to the contrary by highlighting that Bao was a member of the Exchanges rather than a customer. (Id. at 12-13.)
Bao responded by arguing that First Options in fact reaffirmed the principles enunciated by the Court of Appeals for the Third Circuit in Hofmann and Hartmann. (Pl.'s Reply Br. at 2-4.) Plaintiff further asserted that the "bulk" of Gruntal's allegations against him may not be submitted to arbitration under the Exchanges' six-year rules. (Id. at 7-8.)
While plaintiff's application for a preliminary injunction was under consideration, Gruntal filed a motion to dismiss the complaint or, in the alternative, transfer this action to the United States District Court for the Southern District of New York. In support of its motion, Gruntal notes that the parties have been advised that both the NYSE and the AMEX arbitration hearings will be held in New York. (Def.'s Br. in Support of Mot. to Dismiss [hereinafter "Def.'s Dismissal Br."] at 2 & n.1; Affidavit of Janice M. Stroughter dated July 29, 1996, P 3.) Defendant argues that because the NYSE and AMEX arbitrations were filed in New York and scheduled to be heard in New York, only a federal court in New York can entertain Bao's present application for injunctive relief. (Def.'s Dismissal Br. at 4.) Gruntal relies upon Section 4 of the Federal Arbitration Act and Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lauer, 49 F.3d 323 (7th Cir. 1995), in which the Court of Appeals for the Seventh Circuit held that § 4 "requires a geographic link between the site of the arbitration and the district which, by compelling arbitration or directing its scope, exercises preliminary control." (Def.'s Dismissal Br. at 4-5.)
Bao emphasizes the language in § 4 that provides that a party may "petition any United States district court, which, save for such agreement, would have jurisdiction under Title 28, in a civil action." (Pl.'s Br. in Opp'n to Def.'s Mot. to Dismiss at 2.) Plaintiff contends that the decision of the Court of Appeals for the Seventh Circuit in Lauer is inconsistent with the plain language of § 4, and therefore should not be followed by this Court. (Id. at 4.)
In PaineWebber Inc. v. Hartmann, 921 F.2d 507, 510 (3d Cir. 1990), the Court of Appeals for the Third Circuit considered whether NYSE Rule 603 is a substantive bar to arbitration or a procedural limitation subject to the arbitrator's jurisdiction. Concluding that the claims at issue were outside the jurisdiction of the arbitrators, the district court issued a preliminary injunction staying the arbitration. Id. at 509. On appeal, the court noted that "the plain language of Rule 603 states that after six years from the events giving rise to a dispute have elapsed, the dispute 'shall [not] be eligible for submission to arbitration.'" Id. at 513 (alteration in original) (quoting NYSE Rule 603). The court of appeals thus affirmed the district court's conclusion that "the parties intended to bar from arbitration disputes raised more than six years after the events giving rise to them." Id. The court reasoned that because "'the question of arbitrability . . . is undeniably an issue for judicial determination," a party cannot be required to arbitrate the threshold issue of whether the underlying dispute is arbitrable. Id. at 514 (quoting AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649, 89 L. Ed. 2d 648, 106 S. Ct. 1415 (1986)).
Three years later, in PaineWebber Inc. v. Hofmann, 984 F.2d 1372 (3d Cir. 1993), the Court of Appeals for the Third Circuit reaffirmed its holding that NASD Code § 15 (which is, in all relevant parts, identical to NYSE Rule 603 and AMEX Rule 605(a)) "can reasonably be read in only one way--as a substantive limit on the claims that the parties have contracted to submit to arbitration." Id. at 1379 (citing Edward D. Jones & Co. v. Sorrells, 957 F.2d 509, 513 (7th Cir. 1992)). The court noted that although parties may agree to submit questions of arbitrability to the arbitrators, the contractual language doing so must be "clear and unmistakable." Id. at 1379 n.4 (citing AT&T Technologies, 475 U.S. at 649). The court concluded that the language of § 15 was not sufficiently clear and unmistakable to constitute a submission of arbitrability to the arbitrators. Id.
Other circuits have reached the opposite conclusion when faced with the question of who decides arbitrability under the six-year rule. Significantly, the Court of Appeals for the Second Circuit has determined that the arbitrators have jurisdiction to determine those issues of arbitrability. In PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1202 (2d Cir. 1996), the court addressed NASD Code § 35, which, like NYSE Rule 621 and AMEX Rule 612(b), provides: "The arbitrators shall be empowered to interpret and determine the applicability of all provisions under this Code and to take appropriate action to obtain compliance with any ruling by the arbitrator(s)." The Court of Appeals for the Second Circuit concluded that "nothing in the NASD Code removes section 15 [the six-year rule] from the ambit of section 35." Id. The Second Circuit thus held:
The parties' adoption of this provision [section 35] is a "clear and unmistakable" expression of their intent to leave the question of arbitrability to the arbitrators. In no uncertain terms, section 35 commits interpretation of all provisions of the NASD Code to the arbitrators. Reading the NASD Code . . . as a whole, we see no reason not to apply section 35 to the arbitrators' decision regarding application of section 15.
Id. (alterations in original) (quoting FSC Securities Corp. v. Freel, 14 F.3d 1310, 1312-13 (8th Cir. 1994)). The court emphasized that the "language of the [NASD] Code itself commits all issues, including issues of arbitrability and timeliness, to the arbitrators." Id.
Although the parties have not identified it as such, their papers, as well as the Court's own research, reveal a distinct split among the Circuits with regard to the issue of who decides arbitrability under the six-year rule. The Courts of Appeals for the Sixth, Seventh, Tenth, and Eleventh Circuits appear to have aligned themselves with the Third Circuit in holding that courts are to determine whether a claim is time-barred under § 15 of the NASD Code or its parallel rules in the other Exchanges. Cogswell v. Merrill Lynch, Pierce, Fenner & Smith Inc., 78 F.3d 474, 476 & n.3 (10th Cir. 1996). By contrast, the Second, Fifth, and Eighth Circuits have held that arbitrators should decide this issue of arbitrability. Id. at 477 (citing Freel, 14 F.3d at 1312-13; Smith Barney Shearson, Inc. v. Boone, 47 F.3d 750, 753 (5th Cir. 1995)).
Because this Court is bound by the decisions of the Court of Appeals for the Third Circuit, it appears that this Court would be required to determine the timeliness of Gruntal's claims against Bao under the six-year rules of the NYSE and the AMEX. Because the Court finds that it is without authority to direct the scope of arbitrations pending in New York, however, the Court declines to enter the requested injunctive relief.
As the Court of Appeals for the Third Circuit has recognized, § 4 of the Federal Arbitration Act ("FAA") "enables a litigant to invoke the authority of a federal district court in order to force a reluctant party to arbitrate a dispute." Hartmann, 921 F.2d at 510. The Act applies even where jurisdiction is based on diversity of citizenship. Id. at 510 & n.3 (citations omitted). Section 4 provides in relevant part:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28 . . . for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed.
9 U.S.C. § 4. This provision explicitly confers a federal remedy where one party refuses to arbitrate a dispute. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lauer, 49 F.3d 323, 327 (7th Cir. 1995). Moreover, courts have interpreted § 4 to extend to situations in which, as plaintiff contends in this case, the other party allegedly fails to arbitrate in accordance with the terms of the arbitration agreement. Id.
The first sentence of § 4 does not prescribe a venue; rather, it states that an aggrieved party "may petition any United States District Court." Id. (citing 9 U.S.C. § 4). As the Court of Appeals for the Seventh Circuit noted, however, this broad authority "quickly narrows." Id. The provision later mandates that "the hearings and proceedings . . . shall be within the district in which the petition for an order directing such arbitration is filed." Id. Analyzing this language, the Seventh Circuit concluded that
the directive of § 4 is mandatory. It clearly requires a geographic link between the site of the arbitration and the district which, by compelling arbitration or directing its scope, exercises preliminary control. . . . The statute limits the fora in which § 4 motions can be brought.