MarketAxess Holdings, Inc. v Ziegelbaum

[*1] MarketAxess Holdings, Inc. v Ziegelbaum 2007 NY Slip Op 52483(U) [18 Misc 3d 1110(A)] Decided on December 11, 2007 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on December 11, 2007
Supreme Court, New York County

Marketaxess Holdings, Inc., Plaintiff,

against

Michael H. Ziegelbaum, Defendant.



600602-2007_

Bernard J. Fried, J.

MarketAxess Holdings, Inc. (MAH)motion, dated October 6, 2007 (sequence 002), to stay permanently the arbitration commenced on April 18th is denied.

MAH's cross-motion, dated November 7, 2007 (sequence 002), for leave to reargue, and upon reargument, to strike that portion of the decision and order that states that the FINR arbitrator shall have the power to decide whether MarketAxess Holdings, Inc., may be compelled to join the arbitration as a "certain other," or pursuant to the Federal Arbitration Act, is denied.

Ziegelbaum's motion, dated October 24, 2007 (sequence 003), to stay the declaratory judgment action and compel arbitration of the April 18, 2007 MAH arbitration is granted to the extent of referring the matter to a FINR arbitration panel to determine whether the claim is arbitrable in light of MAI's resignation from NASD; and the declaratory judgment action is stayed pending a determination by the FINR arbitration panel, and until further order of this court.

I hold that it is for the FINR arbitration panel to determine, as a question of arbitrability, whether MAI may unilaterally extinguish its duty to arbitrate Ziegelbaum's claim, by resigning from NASD, changing its name, becoming a publicly traded holding company, and transferring Ziegelbaum and all its domestic operations to a wholly-owned subsidiary, while retaining the duty to pay him incentive compensation out of its now publicly-traded stock. I recognize that this claim arose from actions that occurred years after MAI's resignation, but the issues of timeliness and whether the claim arose from Ziegelbaum's former employment by MAI, are for the arbitrator. By virtue of MAI's NASDAQ membership, and Ziegelbaum's execution of the Form U-4, MAI and Ziegelbaum agreed to arbitrate pursuant to NASD rules, which "clearly and unmistakably" refer questions of arbitrability to the arbitrator.

I am not persuaded that the Third Circuit case relied upon by MAH requires a contrary result. These facts are to be distinguished from the context of Kaplan v First Options of Chicago, Inc. (19 [*2]F.3d 1503, affd 514 US 1503 [1995]). Kaplan involved a dispute between, on the one hand, MK Investments, Inc., a NASD member, and its principal, Manual Kaplan, an associated person, and, on the other, First Options of Chicago, Inc., also a NASD member. The dispute involved a workout agreement related to trading losses by MK Investment, for which First Options was the clearing broker. At the time the workout agreement was executed, Kaplan had resigned from the NASD. The issue was whether Kaplan, who had not signed the workout agreement individually, could be compelled to arbitrate in his individual capacity on the basis of his former membership. The Third Circuit opinion notes that there was no Form U-4 involved. In distinction to the present case, there was no employment relation between Kaplan and First Options, which could, as here, have required an arbitrator to determine whether First Options' claim arose from such employment under NASD Rule 10201 (a). Moreover, the arbitration was pursuant to an arbitration clause contained in the workout agreement, not pursuant to the duty of NASD members and associated person to arbitrate industry disputes.

Ziegelbaum and MAI agreed to arbitrate prior to the restructuring. I see no reason why the structure created by MAI's resignation and transformation into a holding company, and MAI's acquisition of a subsidiary into which it combined its domestic operations should be permitted to abrogate the duty undertaken by MAI to arbitrate at least the arbitrability of a claim by Ziegelbaum, which, arguably, arises from his employment or termination. Nor should MAI's actions enable it, or its alleged successor, to avoid the industry practice of submitting disputes that require interpretation and application of the ever-changing NASD rules and procedures to FINR arbitrators. MAH does not concede that it is the successor to MAI. The duty to arbitrate, at least arbitrability, arises from the employment relation of Ziegelbaum as a an associated person formerly employed by MAI, a NASD member at the time of such employment, and is not affected by the amendment and

succession of contracts governing incentive compensation relating to that, and subsequent, employment. The parties are bound by the NASD rules, pursuant to which they agreed that the arbitration panel has the power to interpret and determine whether this claim "aris[es] out of the employment or termination of employment of [an] associated person," pursuant to NASD Rule 10201 (a).

Ziegelbaum's motion (sequence 003), dated October 25, 2007, for leave to reargue and renew the September 27, 2007 Decision and Order, and, upon reargument and renewal, to compel MAH to join the MAC arbitration on the basis of the Form U-4 newly produced between MAI and Ziegelbaum, is denied.

Dated: [*3]

J.S.C.