New York Law Review

Salvano v. Merrill Lynch, Pierce, Fenner & Smith, 85 N.Y.2d 173 (1995): Enforceability of Arbitration Agreements and Expedited Arbitration

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Salvano v. Merrill Lynch, Pierce, Fenner & Smith, 85 N.Y.2d 173 (1995)

In the absence of an explicit contractual provision, a court cannot compel parties to expedited arbitration; the Federal Arbitration Act (FAA) mandates enforcement of private arbitration agreements according to their terms.

Summary

Former Merrill Lynch account executives sought expedited arbitration to lift injunctions preventing them from soliciting former clients. The New York Supreme Court ordered expedited arbitration. The New York Court of Appeals reversed, holding that neither state nor federal law authorized the court to compel expedited arbitration because the parties’ arbitration agreement (NYSE rules) did not provide for it. The FAA’s primary purpose is to enforce private agreements to arbitrate according to their terms. The court emphasized that arbitration is a matter of consent, and courts should not impose additional terms or rewrite contracts.

Facts

Three account executives (Salvano, Coon, and Tate) resigned from Merrill Lynch to work for a competitor, Prudential Bache. Merrill Lynch initiated actions in federal courts in Illinois and Kentucky to enjoin them from soliciting former clients and using confidential records. The Illinois and Kentucky courts issued temporary injunctions. The employees then sought expedited arbitration through the New York Stock Exchange (NYSE).

Procedural History

The employees moved in New York Supreme Court to compel expedited arbitration. The Supreme Court granted the motion. The Appellate Division affirmed. The New York Court of Appeals granted Merrill Lynch leave to appeal.

Issue(s)

Whether a court has the authority to order parties to proceed to expedited arbitration when the parties’ arbitration agreement does not explicitly authorize expedited arbitration.

Holding

No, because neither state nor federal law grants such authority in the absence of an explicit agreement for expedited arbitration; the FAA requires enforcing arbitration agreements according to their terms.

Court’s Reasoning

The court held that the FAA governs disputes concerning employment in the securities industry. The FAA’s primary policy is to ensure the enforceability of private agreements to arbitrate, according to their terms. The Constitution and Rules of the New York Stock Exchange, which governed the arbitration, did not provide for expedited arbitration. CPLR 7506(b) authorizes the court to direct the arbitrator, not the parties, to proceed promptly. CPLR 7503(a) allows the court to compel arbitration if one party fails to arbitrate, which wasn’t the case here. CPLR 7502(c) only allows for attachment or preliminary injunctions. “Arbitration under the [FAA] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate [citation omitted] so too may they specify by contract the rules under which that arbitration will be conducted” (see, Volt Information Sciences v Leland Stanford Jr. Univ., 489 US 468, 479, supra). The court rejected the argument that NYSE Rule 621, giving arbitrators power to interpret provisions, implicitly allows them to compel expedited arbitration. The award was vacated because an erroneous court order compelled expedited proceedings, violating Merrill Lynch’s contract rights.

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