Koenig v. Dunay, 59 N.Y.2d 27 (1983)

An arbitration agreement in the New York Stock Exchange (NYSE) constitution applies to disputes between members, even if their membership periods don’t overlap, and to disputes between a member and non-member arising from the member’s business.

Summary

Koenig and Weisglass sought arbitration against Dunay regarding ownership of Ladenburg stock. Dunay, a former allied member of the NYSE, argued that the arbitration clause in the NYSE constitution didn’t apply because his membership had lapsed before Koenig and Weisglass became members. The court held that the arbitration clause applied, even without overlapping membership periods, because Dunay’s obligations as a former member extended to future members concerning business dealings during his membership. Furthermore, the dispute arose from Dunay’s business as president of Ladenburg, making it arbitrable under the member-nonmember clause as well.

Facts

Koenig and Weisglass formed a joint venture with Dunay in 1974 to establish a brokerage firm. The venture affiliated with Ladenburg, Thalmann & Co., a member of the NYSE. Dunay became president of Ladenburg and an allied member of the Exchange. In 1975, Dunay purchased Ladenburg stock in his name, with an agreement to share gains with Koenig and Weisglass. A 1977 agreement restricted the sale or transfer of Ladenburg shares. Dunay’s employment and Exchange membership ended in 1979. Subsequently, a dispute arose over the ownership of the stock, leading Koenig and Weisglass to demand arbitration.

Procedural History

Dunay initiated a proceeding to stay arbitration. Koenig and Weisglass cross-applied to compel arbitration. The Supreme Court dismissed Dunay’s application and directed arbitration. The Appellate Division reversed and granted the stay. Koenig and Weisglass appealed to the Court of Appeals.

Issue(s)

1. Whether the NYSE arbitration clause requires simultaneous membership for disputes between members to be arbitrable.
2. Whether the dispute over stock ownership arose out of the business of the member (Dunay) for purposes of the member-nonmember arbitration clause.

Holding

1. No, because the arbitration agreement extends to future members regarding business dealings undertaken during the former member’s tenure.
2. Yes, because Dunay held the stock in connection with his role as president of Ladenburg, influencing its management and control.

Court’s Reasoning

The court reasoned that the “are members” language of the NYSE arbitration provision doesn’t require mutual membership. Dunay’s obligation to arbitrate survived the termination of his membership regarding business engaged in while a member. The court cited Coenen v Pressprich & Co., which held that the NYSE arbitration clause applies to “any controversy” between members, regardless of when membership was attained. The court distinguished Isaacson v Hayden, Stone, where both parties’ memberships had lapsed. Even under the member-nonmember clause, the court found that the controversy arose from Dunay’s business, as he held the stock in connection with his efforts to manage and control Ladenburg. The court emphasized the broad scope of the NYSE arbitration provision and the policy favoring arbitration, quoting Mobil Oil Indonesia v Asamera Oil stating the court policy favoring arbitration.