Crawford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 35 N.Y.2d 290 (1974)

An agreement to arbitrate, even if unsigned, is enforceable if there is proof that the parties actually agreed to it, and courts may consider undisputed facts outside the initial record to resolve protracted litigation and promote the speedy resolution of arbitrable controversies.

Summary

James Crawford, a former registered representative of Merrill Lynch, sought to recover commissions. Merrill Lynch moved to compel arbitration based on Crawford’s employment contract. Crawford then served a notice demanding arbitration before the American Arbitration Association, while simultaneously opposing Merrill Lynch’s motion. The Court of Appeals held that Crawford was required to arbitrate before the New York Stock Exchange (NYSE) based on his agreement to abide by NYSE rules when he became a registered representative, and the court considered NYSE rules submitted on appeal to resolve the issue.

Facts

James Crawford, a former Merrill Lynch registered representative, sued Merrill Lynch to recover commissions allegedly owed to him. Merrill Lynch moved to dismiss the action and compel arbitration before the NYSE, citing Crawford’s employment contract. Crawford then served Merrill Lynch with a “Notice of Intention to Arbitrate” before the American Arbitration Association (AAA), referencing the same agreement and Pierson’s affidavit that arbitration was the exclusive remedy. The notice was sent to Merrill Lynch’s headquarters in New York City.

Procedural History

The Supreme Court granted Merrill Lynch’s motion to compel arbitration before the NYSE and vacated Crawford’s arbitration before the AAA. The Appellate Division reversed, holding that Merrill Lynch’s failure to move to stay arbitration within 10 days precluded them from objecting to the validity of the agreement. The Court of Appeals reversed the Appellate Division’s order, directing the parties to arbitrate before the NYSE and vacating the AAA arbitration.

Issue(s)

1. Whether Merrill Lynch’s failure to move to stay arbitration within 10 days after receiving Crawford’s notice precluded them from objecting to the validity of the arbitration agreement.
2. Whether the arbitration clause in Crawford’s Stock Exchange application constituted a “written agreement” to arbitrate, even though it was not signed by Merrill Lynch.
3. Whether the court can consider the Exchange rules, submitted for the first time on appeal, to determine the forum for arbitration.

Holding

1. No, because the notice was misleading and did not provide Merrill Lynch with a fair opportunity to respond.
2. Yes, because the statute only requires “a written agreement” and does not require that the writing be signed, “so long as there is other proof that the parties actually agreed on it”.
3. Yes, because considering the rules would resolve the protracted litigation and further the policy favoring speedy resolution of arbitrable controversies.

Court’s Reasoning

The Court found that the notice of intention to arbitrate was misleading, suggesting Crawford was merely joining Merrill Lynch’s motion to compel arbitration before the Exchange, and that serving the notice at Merrill Lynch’s New York City headquarters effectively deprived Merrill Lynch of a fair opportunity to respond within the 10-day period. The Court noted, “.If this service is effective to bar contest to the arbitration, [a party who] did a nationwide business could be served anywhere, with the practical certainty that it be precluded from opposing arbitration. Such practice should not be countenanced, on the principle that service not designed to give notice cannot be grounds for a default.”
Regarding the written agreement, the Court emphasized that CPLR 7501 only requires “A written agreement” to arbitrate and that there is no requirement that the writing be signed. The court cited to Matter of Helen Whiting, Inc. [Trojan Textile Corp.], 307 N.Y. 360, 368, stating that a signature is unnecessary “so long as there is other proof that the parties actually agreed on it”. The Court distinguished this case from Johnson v. Equitable Life Assur. Soc. of U. S. because accepting the Exchange rules would not generate factual questions needing resolution by other courts, and would instead conclude the protracted litigation and return the case to arbitrators. The Court found that the rules of the NYSE were properly before the court to ensure the speedy resolution of the case.