Merrill Lynch, Pierce, Fenner & Smith v. Hovey

Ivan Hovey and other individuals (executives) (defendants) were account executives for Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) (plaintiff). Merrill Lynch and several of the executives were members of the New York Stock Exchange (stock exchange) and had agreed to be bound by the stock exchange’s arbitration rules. The rules provided for arbitration of all disputes arising out of employment or termination of employment with member organizations. The executives signed employment agreements stating that certain records would remain Merrill Lynch’s property during and after the executives’ time as employees of the company. The agreements prohibited former executives from removing or retaining copies of the records and from soliciting clients of Merrill Lynch for one year after termination of employment. The executives resigned and joined a rival company. The executives admitted to retaining some client information from their time at Merrill Lynch and to using that information to solicit clients. Merrill Lynch petitioned a federal district court for an injunction to prevent the executives’ continued use of Merrill Lynch records and solicitation of Merrill Lynch clients. The executives moved to compel arbitration of the dispute under the Federal Arbitration Act (FAA), citing the rules of the stock exchange. The district court granted the injunction and refused to compel arbitration. The executives appealed to the Eighth Circuit. The Eighth Circuit analyzed whether the dispute was arbitrable and whether the court was authorized to issue a preliminary injunction.