Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware

PETITIONER:Merrill Lynch, Pierce, Fenner & Smith, Inc.
LOCATION:Richmond Post Office

DOCKET NO.: 72-312
DECIDED BY: Burger Court (1972-1975)
LOWER COURT: Supreme Court of California

CITATION: 414 US 117 (1973)
ARGUED: Oct 09, 1973 / Oct 10, 1973
DECIDED: Dec 04, 1973

Joseph C. Barton – for respondents
William H. Orrick, Jr. – for petitioner

Facts of the case


Media for Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware

Audio Transcription for Oral Argument – October 10, 1973 in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware
Audio Transcription for Oral Argument – October 09, 1973 in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware

Audio Transcription for Opinion Announcement – December 04, 1973 in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware

Warren E. Burger:

The judgment and opinion of the Court in 70-2312, Merrill Lynch and others against Ware will be announced by Mr. Justice Blackmun.

Harry A. Blackmun:

This case comes to us on writ of certiorari to the Court of Appeals of California of the First Appellate District.

It is here because of tension between certain rules of the New York Stock Exchange on the one hand, and some California statues on the other.

Merrill Lynch is a securities broker and the member corporation of the New York Stock Exchange.

Mr. Ware in 1958 entered Merrill Lynch’s employee as an account executive in Merrill Lynch’s San Francisco office.

He had worked there for almost 11 years when in 1969 he terminated that employment voluntarily and went to work in a similar capacity with a San Francisco competitor.

Since, well before Mr. Ware began his employment with Merrill Lynch, Merrill Lynch had in fact a noncontributory Profit-Sharing Plan for its employees in the United States.

Under that plan an employee obtains both vested and unvested units.

The plan, however, provides that a participant who voluntarily terminates his employment and engages in a competitive occupation shall forfeit all rights to the benefits due him under the plan.

When Mr. Ware quit, the governing committee determined that he had entered competitive employment and his interest in the plan was forfeited accordingly.

Mr. Ware, thereupon this suit in the California State Court against Merrill Lynch.

He sought a declaration that the forfeiture provision of the plan was illegal under California law when the Merrill Lynch was obligated to pay him all vested that’s credit to his account.

California has a statue providing that every contract by which anyone is restrained from engaging in the lawful business is void.

It has still another statue providing that an action to collect unpaid wages maybe maintain in that state without regard to the existence of any private agreement to arbitrate.

In its answer to Mr. Ware’s complaint, Merrill Lynch alleged that the forfeiture provision of the plan was valid under New York law, that the plan itself provided that is should be construed according to New York law, that Ware agreed to this when he went to work for Merrill Lynch, that he signed an employment form prepared by and approved by the New York Stock Exchange by which he has specifically agreed that any controversy with a member firm would be settled by arbitration and that Ware sole remedy would therefore was by arbitration in New York and not by a law suit in California.

Merrill Lynch therefore petitioned the California Court for an order compelling arbitration.

This was denied.

On appeal that judgment was affirmed, the court holding that the forfeiture clause and the pension plan was invalid under California law when applied to California residents and further holding that Ware had the right to assert his claim in court despite the existence of the agreement arbitrate.

The issue presented to us thus has to do with the extent to which authority delegated under a federal regulatory statue preempts the state law to the contrary.

In an opinion filed today, we have reviewed the Silver case, decided here in 1963 and which we feel bears upon the present case to review the Securities Exchange Act of 1934 has amended regulating the business of securities and brokers and dealers, and have reviewed the history and specific provisions of the California statues urged upon us here.

From all this we conclude that the pertinent rule of the New York Stock Exchange does not preempt contrary state law, that it cannot be categorized as part of a need for uniform national regulation, but there is applicable here the usual principle that federal regulation of the field of commerce shall not be deemed preempt to the state regulatory power in the absence of persuasive reasons, that the application of the California statues here would not unduly burden the interstate commerce.

From this it follows that the judgment of the Court of Appeal is to be affirmed and it is affirmed.

I am authorized to state that Mr. Justice Stewart took no part in the decision of this case.

Warren E. Burger:

Thank you Mr. Justice Blackmun.