Beckman v. Greentree Securities, Inc., 87 N.Y.2d 566 (1996)

Due process is satisfied when notice of arbitration is sent to a designated agent, reasonably calculated to provide actual notice, even if the individual does not receive actual notice, provided the agent has a duty to forward the notice.

Summary

This case addresses whether an arbitration award against a former employee of a securities firm should be vacated for lack of proper notice. The New York Court of Appeals held that the notice provided to the firm, as the employee’s designated agent under NASD rules, was sufficient to satisfy due process requirements, even though the employee claimed he did not receive actual notice. The court reasoned that by registering with the NASD, the employee consented to the firm acting as his agent for service of notice regarding arbitration claims filed during his association with the firm. Because the firm failed to forward the notice or inform the NASD of the employee’s new address, the employee’s due process rights were not violated.

Facts

Petitioners (investors) had a dispute with Greentree Securities and appellant (Beckman), a broker at Greentree, regarding investment losses. Petitioners filed a demand for arbitration with the NASD. Notice of the arbitration claim was sent to Greentree and Beckman, care of Greentree, by certified mail. Beckman had terminated his employment with Greentree prior to the notice being sent, but the NASD was not directly notified of his new address, although a U-4 form reflecting his new employment was filed with the NASD registration office. Greentree did not forward the notice to Beckman, nor did it inform NASD that it was not representing him or provide Beckman’s new address. Beckman did not respond to the arbitration claim, and an award was entered against him by default.

Procedural History

Petitioners sought to confirm the arbitration award in court. Beckman cross-moved to vacate the award, arguing he never received actual notice and that the NASD’s procedures denied him due process. The Supreme Court granted the petition to confirm the award. The Appellate Division affirmed, holding that service complied with NASD procedures and that the failure to give Beckman actual notice was attributable to Greentree’s breach of its obligations. Beckman appealed to the New York Court of Appeals based on a claimed denial of due process.

Issue(s)

Whether the notification method employed by NASD, specifically mailing the notice of arbitration to the former employer (Greentree) of the appellant (Beckman), constituted a means reasonably calculated to provide notice, thereby satisfying due process requirements, even though Beckman claimed he did not receive actual notice.

Holding

Yes, because Beckman, as a condition of his registration with the NASD, agreed to comply with NASD rules, which included the Code of Arbitration Procedure. This Code allowed service on a member firm to be deemed service on an associated person, placing a duty on the firm to perfect service on that person.

Court’s Reasoning

The court reasoned that due process does not require actual receipt of notice, but only that the means selected for providing notice be “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Mullane v Central Hanover Bank & Trust Co., 339 US 306, 314. The court found that sending the notice to Greentree was reasonable because Beckman had consented to Greentree’s agency for service of notice when he registered with the NASD. Section 25 (c) (2) of the NASD Code of Arbitration Procedure states that service on an associated person may be effected by service upon the member firm, “which shall perfect service upon the associated person.” Greentree had a duty under the NASD Code to either forward the notice to Beckman or notify NASD that it was not representing him and provide his current address. NASD was entitled to assume Greentree would fulfill this obligation. The court distinguished this case from others where the serving party knew the chosen method was unlikely to provide actual notice (e.g., notice returned as undeliverable). Once NASD mailed the arbitration claim and it was not returned, they were not required to ensure any subsequent notice reached him. As the Court noted, Mullane “has not generally been interpreted to require a party to make additional attempts beyond notice that is legally satisfactory at the time it is sent”.