Matter of Griesenbeck v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 28 N.Y.2d 690 (1971)
An arbitration clause limited to controversies arising out of transactions “made on the Exchange” does not extend to disputes arising from transactions made on other exchanges, even if those transactions are related.
Summary
Griesenbeck (defendant) sought to compel arbitration with Merrill Lynch (plaintiff) regarding losses sustained from copper futures contracts. Merrill Lynch purchased copper futures on the London Metal Exchange for Griesenbeck’s account, which was connected to Griesenbeck’s existing account with copper future contracts on the New York Commodities Exchange. The New York Court of Appeals held that the arbitration clause in the agreement between the parties, which covered controversies “arising out of any transaction in commodities made on the Exchange,” did not apply to transactions on the London Metal Exchange, even if those transactions related to the New York commodities exchange transactions. The Court affirmed the order denying arbitration.
Facts
Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) and Griesenbeck had a customer agreement that included an arbitration clause.
The arbitration clause covered any controversy between a member and member firms arising out of any transaction in commodities made on the Exchange.
Griesenbeck sustained losses on copper futures contracts and sought to compel arbitration.
Merrill Lynch had purchased copper futures contracts short on the London Metal Exchange for Griesenbeck’s account.
Griesenbeck also held copper futures contracts on the New York Commodities Exchange.
The transactions on the London Metal Exchange were related to a drop in the price of copper on the New York Commodities Exchange.
Procedural History
The lower court initially ruled in favor of Merrill Lynch, denying Griesenbeck’s motion to compel arbitration.
The Appellate Division affirmed the lower court’s decision.
Griesenbeck appealed to the New York Court of Appeals.
Issue(s)
Whether an arbitration clause in an agreement between a customer and a brokerage firm, which provides for arbitration of controversies arising out of transactions made on a specific exchange, applies to transactions made on a different exchange, even if the transactions are related.
Holding
No, because the arbitration clause is limited to transactions made on the specified exchange and does not extend to transactions made on other exchanges, even if those transactions are related to activities on the specified exchange.
Court’s Reasoning
The Court reasoned that the plain language of the arbitration clause limited its scope to transactions made on the New York Commodities Exchange. The clause stated that it covered controversies “arising out of any transaction in commodities made on the Exchange.” The Court emphasized that the transaction at issue, the purchase of copper futures on the London Metal Exchange, was not a transaction made on the New York Commodities Exchange.
The Court rejected the argument that the connection between the London Metal Exchange transactions and the New York Commodities Exchange transactions was sufficient to bring the dispute within the scope of the arbitration clause. The Court stated that even though the London Metal Exchange transaction was causally related to the drop in the price of copper on the New York Commodities Exchange, it was still a separate transaction. The court emphasized the importance of adhering to the plain language of the arbitration agreement.
The dissenting opinion argued that the arbitration clause should be interpreted broadly, but the majority rejected this argument, stating that they have never applied arbitration clauses in contravention of their plain language. Judge Keating, in dissent, stated, “While it is true that in cases such as Matter of Exercycle Corp. (Maratta) (9 Y 2d 329) we have broadly interpreted arbitration clauses, we have never applied them in contravention of the plain language in which they are couched.”