author: Titone, J. Bellacosa, J.

text:
    [619 NE2d 377, 601 NYS2d 440]
    The People of the State of New York, Respondent, v Eugene Wong, Appellant. The People of the State of New York, Respondent, v Mary Wong, Appellant.
    Argued June 1, 1993;
    decided July 8, 1993

      POINTS OF COUNSEL

      Lemole, McCarthy, Murphy & Associates, Staten Island (Paul A. Lemole of counsel), for appellants.
    I. Appellants’ guilt was not proven beyond a reasonable doubt. (People v Montanez, 41 NY2d 53; People v Bearden, 290 NY 478; People v Cleague, 22 NY2d 363; People v Way, 59 NY2d 361; People v Sanchez, 61 NY2d 1022; People v Suffern, 267 NY 115; People v Rosenheimer, 209 NY 115.) II. Introduction of evidence of prior uncharged acts denied appellants a fair trial. (People v Hudy, 73 NY2d 40; People v Molineux, 168 NY 264; People v Sanchez, 154 AD2d 15; People v Lewis, 69 NY2d 321; People v Ortiz, 156 AD2d 77; People v Cabrera, 157 AD2d 551; People v Carr, 157 AD2d 794; People v Gautier, 148 AD2d 280; People v McDonald, 150 AD2d 805; People v Henson, 33 NY2d 63.) III. The refusal to charge that mere presence was not a sufficient basis for conviction was reversible error, particularly in light of the failure of the charges and the prosecution summation. IV. The prosecution was permitted improper rebuttal. (People v Alvino, 71 NY2d 233.) V. Appellants were denied a fair trial. (People v Hansen, 141 AD2d 417; People v Fernandez, 82 AD2d 922; People v Conyers, 52 NY2d 454; People v Yut Wai Tom, 53 NY2d 44; People v Bell, 38 NY2d 116; People v Butler, 57 AD2d 931.)

      Robert M. Morgenthau, District Attorney of New York County, New York City (Mary C. Farrington and James M. McGuire of counsel), for respondent.
    I. The guilt of each of defendants was proven by legally sufficient evidence. (People v Bynum, 70 NY2d 858; People v Gomez, 67 NY2d 843; People v Dekle, 56 NY2d 835; People v Bleakley, 69 NY2d 490; People v Castillo, 47 NY2d 270; People v Roe, 74 NY2d 20; People v Kennedy, 47 NY2d 196; People v Benzinger, 36 NY2d 29; People v Barnes, 50 NY2d 375; People v Robertson, 61 AD2d 600, 48 NY2d 993.) II. To rebut the defense of accident, the Trial Judge properly determined to admit evidence that two other infants had recently suffered injuries while in defendants’ care. (People v Ventimiglia, 52 NY2d 350; People v Henson, 33 NY2d 63; People v Molineux, 168 NY 264; People v Hudy, 73 NY2d 40; People v Alvino, 71 NY2d 233; People v Boyd, 164 AD2d 800; United States v Leight, 818 F2d 1297, 484 US 958; People v Kinder, 75 AD2d 34; People v Santoro, 68 NY2d 939.) III. Defendants were not deprived of a fair trial by anything the Judge said during trial. (People v Medina, 53 NY2d 951.) TV. The Trial Judge did not abuse his discretion in permitting the People to put on a rebuttal case. (People v Harris, 57 NY2d 335; Marshall v Davies, 78 NY 414; People v Alvino, 71 NY2d 233.) V. As is evidenced by the total absence of any defense objections, the prosecutor’s summation was proper. (People v Balls, 69 NY2d 641; People v Nuccie, 57 NY2d 818; People v Galloway, 54 NY2d 396; People v Ashwal, 39 NY2d 105; People v Richards, 78 AD2d 664; People v Mezzapella, 19 AD2d 729; People v Marks, 6 NY2d 67, 362 US 912; People v Trinidad, 59 NY2d 820.) VI. A charge on mere presence would have been superfluous in this case. (People v Hatcher, 162 AD2d 148.)
   OPINION OF THE COURT

Titone, J.

Defendants Eugene Wong and Mary Wong were charged with homicide and endangering the welfare of a child as a result of the death of a three-month-old infant who had been entrusted to their care. There was evidence at trial that both defendants were continuously present in the couple’s apartment and that one of them had shaken the infant violently enough to produce fatal injuries. However, because neither defendant gave a complete account of what had occurred and, apart from the Wongs’ three-year-old son, there were no other witnesses, the People were unable to prove which defendant had administered the fatal shaking. The issue before us on this appeal from the judgment convicting both defendants of second degree manslaughter and endangering the welfare of a child is whether the People’s case, as submitted to the jury, provided a sufficient factual basis for holding the defendant who had not shaken the infant as culpable for the infant’s death as was the defendant who had actually committed the abusive acts. Under the circumstances of this case, we hold that the evidence offered against these defendants was legally insufficient to support the sole theory the People now advance to justify their conviction.

According to the evidence offered at trial, defendants had been retained to care for the three-month-old infant, KwokWei, as a result of an advertisement they had placed in a local Chinese-language newspaper. The infant’s parents, the Jiangs, both worked some 12 hours a day from Monday through Saturday and for that reason felt that they needed the 24-hour care that defendants were offering. The Jiangs were told that defendant Mary Wong would be providing much of their baby’s care but that her husband, defendant Eugene Wong, would also be tending to Kwok-Wei’s needs. Kwok-Wei was to sleep in a crib that was placed directly next to defendants’ bed, which was located in the bedroom of their one-bedroom apartment. The Jiangs planned to visit their child on Sundays, their one day off from work.

The Jiangs’ first visit with Kwok-Wei on July 3, 1988 was uneventful. Four days later, however, defendant Mary Wong called the baby’s father at about 6:30 a.m. and informed him that Kwok-Wei was dead. Ms. Wong told Jiang that the baby had cried continually from about midnight to about 2:00 a.m. on the previous night, that he had been given some "gripe water” obtained from a Chinese pharmacy, that everyone in the household had subsequently gone to sleep and, finally, that when defendants awoke they found that the baby had "turned black.” According to police department records, defendant Eugene Wong placed a "911” call at approximately the same time, requesting an ambulance for an "unconscious” child.

The police officers who responded to this call immediately noticed that defendants were fully dressed and appeared calm. Upon looking around the room, they saw the already dead infant lying in a baby carrier. The child’s face was discolored and his limbs were stiff and flexed in conformance to the shape of the carrier.

After the police’s arrival, defendants made additional, somewhat inconsistent statements about the events of the preceding night. Defendant Eugene Wong told the paramedics at the hospital that the baby had not been sick and had quieted down after he and his wife had fed him at 1:00 or 2:00 A.M. Wong also told the attending physician that the baby had awakened at about midnight and cried for about hours, during which time both he and his wife "attended the baby to see what was wrong.” According to Wong, Kwok-Wei eventually went to sleep and nothing else occurred until he was checked the next morning, at which point one of the Wongs observed that he was not breathing and had no heartbeat.

While she was at the hospital, Mary Wong asked a police officer whether the child had died and was informed that he had. Nonetheless, she then called Kwok-Wei’s father at the officer’s request and, in response to Jiang’s expressions of disbelief, told him she did not know whether his child was really dead. Several hours later, she spoke to Kwok-Wei’s mother, telling her that the child had fallen asleep at about 2:00 or 2:30 a.m. after having cried for two hours and having refused milk and water. Although Wong initially told the infant’s mother that Kwok-Wei had not appeared to be ill, she stated in a subsequent conversation that the child had had "cramps” and had been "shaking involuntarily.” Wong attributed these symptoms to the mother’s prior use of birth control pills or Chinese herbal medicine.

An autopsy performed on the child revealed that he had died as a result of internal brain injuries, including ruptured blood vessels, that could only be attributed to "shaken baby syndrome.” That condition occurs when an infant under the age of one is subjected to violent shaking causing his or her head to snap back and forth. Under those conditions, the infant’s brain, which is very soft, will move around inside the head, leading to ruptured blood vessels, hemorrhaging and swelling.

"Shaken baby syndrome” is not necessarily accompanied by external injuries. A baby suffering from the effects of a violent shaking would initially cry sharply and then, within about 30 minutes, lapse into a coma that would resemble ordinary sleep to a person who was not watching for the movements that naturally occur during sleep. According to the People’s experts, prompt medical attention can prevent fatality in cases such as Kwok-Wei’s, although serious permanent injuries, including blindness and intellectual impairment, are almost inevitable.

On the basis of the foregoing evidence, both defendants were indicted and tried on charges of first and second degree manslaughter (Penal Law § 125.15 [1]; § 125.20 [1]) and endangering the welfare of a child (Penal Law § 260.10 [1]). After the People’s direct case was presented to the jury, counsel for both defendants moved to dismiss on the ground that the proof had not established that either Eugene Wong or Mary Wong was the person who had caused the infant’s fatal injuries. The prosecutor argued, in response, that the People’s case rested on the theory that each defendant was independently liable for Kwok-Wei’s death because one of them had shaken the baby while the other had stood by and failed to intervene. According to the People’s theory, the defendant who had not actually shaken the infant, the "passive” defendant, was equally culpable because of his or her omission in failing to fulfill a duty that was imposed by law.

The trial court adopted the People’s argument and declined to dismiss the indictment. The court subsequently charged the jury that it could find the "passive” defendant guilty for failing to act if it determined that that defendant "had a duty to prevent another from harming the infant” or to obtain "proper and prompt medical care” and, having had the requisite mental state, had failed in the performance of that duty despite having had the ability to act. The jury returned a guilty verdict on all counts against each defendant.

On defendants’ appeal, the Appellate Division modified by dismissing the convictions for first degree manslaughter on the ground that the finding that defendants had acted, or failed to act, with the "intent to cause serious physical injury” (see, Penal Law § 125.20 [1]) was against the weight of the evidence. The Court, however, rejected the contention that the People’s failure to adduce evidence identifying the. person who had actually shaken the baby vitiated the entire prosecution. Instead, over a vigorous dissent, the Court ruled that the convictions for second degree manslaughter and endangering the welfare of a child were sustainable because there was sufficient evidence to support a finding that the "passive” defendant had failed to perform a duty imposed by law under any one of a number of diverse theories.

On this appeal, the People have limited their case to a single theory. Eschewing several of the theories advanced by the Appellate Division majority, the People now argue only that the convictions of both defendants should be upheld because there was sufficient evidence for the jury to infer that "one of them shook the baby violently while the other, aware of the harm being done, failed to seek medical assistance.” We agree that the People’s formula could theoretically support convictions in a proper case. We conclude, however, that in this case the evidence adduced at trial simply does not provide a sufficient factual basis for finding the "passive” defendant guilty of committing second degree manslaughter by an act of omission. Accordingly, although one of the defendants could properly have been found guilty of second degree manslaughter by shaking Kwok-Wei to death, the convictions of both defendants must now be reversed because there was no evidence tending to show which of the two accused individuals was the abusive actor.

Initially, we note that the People’s theory against the "passive” defendant is legally sound. Under the Penal Law § 15.10, an individual’s criminal liability may be predicated on an "omission.” The "minimal” statutory requirement for criminal liability is "conduct which includes a voluntary act or the omission to perform an act which [the accused] is physically capable of performing” (id.). An "omission” is defined as "a failure to perform an act as to which a duty of performance is imposed by law” (id., § 15.00 [3]).

In People v Steinberg (79 NY2d 673, 680), this Court held that parents have an affirmative duty to provide their children with adequate medical care and that, under certain circumstances, the failure to perform that duty can form the basis of a homicide charge (see also, People v Flayhart, 72 NY2d 737). Defendants do not dispute that the same principle may fairly be applied to situations such as this, where adults other than the parents have undertaken by contract to provide 24-hour custodial care for a very young and helpless child and those adults have the physical capacity to take the necessary steps to secure any required medical care. Thus, where the requisite proof is present, a person in the position of the "passive” defendant here may be held criminally liable for failing to seek emergency medical aid for a seriously injured child, and the only remaining question is whether the People produced the necessary proof in this case.

Before discussing the merits of that issue, we must make brief mention of the proper standard for review in a case such as this, where the evidence against the accuseds is wholly circumstantial. In that situation, the People are obliged to prove the accused’s guilt to "a moral certainty” and the defendant is entitled to a jury instruction, in words or substance, to that effect (People v Daddona, 81 NY2d 992). On an appeal to the Court of Appeals, however, the proper standard of review is whether the evidence before the jury was legally sufficient to support a finding of guilt beyond a reasonable doubt. The phrase "proof to a moral certainty” is simply "a description of the standard to be applied by the fact finder * * * in the more complex and problematical reasoning process necessarily undertaken in cases of purely circumstantial evidence” (People v Barnes, 50 NY2d 375, 380-381; see also, People v Deegan, 69 NY2d 976, 979 ["the standard that every hypothesis but guilt be excluded to a 'moral certainty’ is to be applied only by the trier of fact”]; but cf, People v Cleague, 22 NY2d 363). Once the fact finder has made its determination, the "question of law” within this Court’s limited power to review the validity of a guilty verdict is whether the evidence, viewed in the light most favorable to the People, could lead a rational trier of fact to find the elements of the crime to have been proven beyond a reasonable doubt (People v Foster, 64 NY2d 1144, 1146; see, People v Bleakley, 69 NY2d 490, 495; see also, Jackson v Virginia, 443 US 307, 319). With that standard in mind, we turn to the evidence adduced at defendants’ trial.

Manifestly, the "passive” defendant’s "mere presence” in the Wongs’ apartment at the time of the crime is insufficient to support a finding of criminal liability (see, e.g., People v Sanchez, 61 NY2d 1022). The People’s contention that the "passive” defendant is criminally liable for failing to seek medical help for Kwok-Wei after he was violently shaken requires, at the very least, a showing both that the "passive” defendant was personally aware that the shaking had occurred and that such abusive conduct created a risk that the infant would die without prompt medical treatment.

The second prong of this required showing is plainly problematic in this case. In People v Steinberg (supra, at 681), we observed that, even where the accused has no medical training, "there are situations where the need for prompt medical attention would be obvious to anyone — a child bleeding profusely, for example.” Whether that was the case here presents a close question, particularly since the shaking to which Kwok-Wei was subjected produced no external bruises and the symptoms of the internal injuries he sustained could be mistaken for indicia of ordinary sleep.

Even if we were to resolve this question by holding that a rational fact finder could have determined the issue in the People’s favor, the People could not prevail because of the absence of proof from which the jury could infer that the "passive” defendant was even aware that the infant had been violently shaken. As to this critical element of their theory, the People rely almost exclusively on defendants’ own statements that they had been awake and tending to the child together during the 2 Vi-hour period when the shaking probably occurred. However, this evidence is simply too tenuous a thread to support the weight of the all-important inference of knowledge on the part of the "passive” defendant.

Neither defendant affirmatively indicated in his or her pretrial statements that the two adults had been continuously together during the entire 2 Vi-hour interval. Moreover, it seems more likely than not that at least one of them would have left the room in which the baby was located at some point during the relevant period, if only to use the bathroom or the kitchen. Contrary to the People’s argument, it would not have been a "remarkable coincidence” if the shaking just happened to occur when the "passive” defendant left the room. Indeed, it is hardly a remarkable notion that a person inclined to abuse a child would wait until another adult who might interfere had left the room before acting.

Similarly, the fact that the Wongs attempted to exculpate themselves by offering various, patently false explanations for Kwok-Wei’s condition did not add materially to the People’s case against the "passive” defendant. At most, their clumsy and transparent exculpatory efforts reflected their guilty knowledge that a horrible crime had occurred in their apartment on the preceding night. Because these statements bore no relationship to the events that actually led to the infant’s death, they did not shed any light on the "passive” defendant’s actual role in that death.

Finally, although the People argue otherwise, the size of defendants’ apartment also provides no basis for inferring the "passive” defendant’s awareness of the abusive acts. To be sure, the apartment had only one bedroom and the baby’s crib was placed directly against defendants’ own bed. It is also true, however, that the small apartment had at least three other rooms — a living room, a kitchen and a bathroom — where the "passive” defendant could go. In the absence of any evidence to show how, or at least where, the abusive acts had occurred and which room or rooms the two defendants had been in, there was no basis for the jury to infer that the "passive” defendant had actually witnessed the shaking — a form of abuse that would leave no visible exterior marks. It follows that any conclusion by the jurors that the "passive” defendant actually knew of the abuse would have to have been based on impermissible speculation.

In light of the foregoing, there is no sound factual basis on which to hold the person who did not actually shake the infant criminally responsible for the infant’s death. Similarly, the count charging both defendants with endangering the welfare of a child cannot be sustained because, with regard to the "passive” defendant, it too necessarily rests on the unproven premise that that individual was aware of the life-threatening situation in which the infant had been placed as a result of the violent shaking. Apart from the People’s medical-omission theory, the only other argument for holding the "passive” defendant guilty of the endangering count is the theory suggested by the Appellate Division majority, i.e., that the "passive” defendant was criminally culpable for knowingly permitting his or her spouse to tend to a crying child in a late-night situation that was likely to provoke abuse. The theory is premised on the evidence admitted at trial to demonstrate that other children entrusted to the Wongs’ care had also been abused.

The problem with relying on this theory is, quite simply, that it was not among the theories of liability that were submitted to the jury. Indeed, under the trial court’s charge, the evidence of prior incidents of abuse was admitted only for the limited purpose of rebutting a defense of accident or mistake.

Accordingly, we conclude that the convictions of both defendants must be reversed even though that conclusion means that one clearly guilty party will go free. The result in this case is an especially difficult one because of the heinousness of the crime as well as the evident culpability of one of the two appealing parties. Nonetheless, we are duty bound to reverse these two defendants’ convictions because the alternative— incarcerating both individuals for a crime of which only one is demonstrably culpable — is an unacceptable option in a system that is based on personal accountability and presumes each accused to be innocent until proven otherwise.

Accordingly, the order of the Appellate Division should be reversed and the indictment against defendants dismissed.

Bellacosa, J.

(dissenting). I respectfully dissent and vote to affirm the order of the Appellate Division upholding the convictions of the defendants.

This Court reverses defendants’ convictions for manslaughter in the second degree and endangering the welfare of a child and dismisses all criminal charges, despite the "evident culpability of one of the two appealing parties” (majority opn, at 611). This incongruous result in a complicated infanticide prosecution is most unfortunate and results, in my view, from misapplication of governing reviewability standards and appellate speculation.

The dispositive question on this appeal is whether the evidence presented to the jury by the People was sufficient to prove that both defendants were present when the so-called "active defendant” shook three-month-young Kwok-Wei to death, and that the "passive defendant” perceived and disregarded the risk of death. I agree that the test is "whether the evidence, viewed in the light most favorable to the People, could lead a rational trier of fact to find the elements of the crime to have been proven beyond a reasonable doubt” (majority opn, at 608; see also, People v Contes, 60 NY2d 620, 621). Where, as here, the evidence is circumstantial, the "conclusion of guilt must be consistent with and flow naturally from the proven facts” (People v Kennedy, 47 NY2d 196, 202). My point of departure from the majority’s analysis is whether the People are required to affirmatively and conclusively prove that the passive defendant was present at the precise moment of the fatal shaking (majority opn, at 609). Under this Court’s established rubrics of evidence and appellate review, it should be sufficient that the People presented evidence from which the critical conclusions could be rationally inferred beyond a reasonable doubt.

Since the People "prevailed at trial * * * we are required to assume that the jury credited [their] witnesses” (People v Kennedy, supra, at 203). The People established that in order to cause death the shaking had to be prolonged, repeated and violent. While this testimony was contradicted by the defendants’ experts, who contended that a single shake could result in death, the acceptance or rejection of expert testimony in these circumstances is exclusively within the province of the jury. The People also established that following a violent, repeated shaking, an infant could suffer seizures or respiratory collapse, and would cry in a shrill, high-pitched tone, before lapsing into a coma. The victim’s crib was alongside the bed of the defendants "caretakers”. Thus, the inference that the relevant symptoms, in particular the shrill cry, must have been sensed by both defendants is not only reasonable, in this case it is virtually inescapable. At the very least, it is enough to pass appellate review, upon the affirmed portion of a verdict of guilt on a reduced homicide charge, as to the sufficiency of the evidence presented. All of the experts agreed that Kwok-Wei died prior to being placed in the baby carrier and that rigor mortis, which would have taken at least four hours to occur, had set in by 6:30 a.m. Again, the only reasonable inference was that Kwok-Wei died before 2:30 a.m. when, by defendants’ own admissions, they were both awake and "tending” to the infant. I conclude that no reasonable, innocent scenario is legally sustainable without resorting to appellate speculation.

The Court’s statement that the defendants’ statements are "simply too tenuous a thread to support the weight of the all-important inference of knowledge on the part of the 'passive’ defendant” (majority opn, at 609) is puzzling. The defendants made consistent statements to Kwok-Wei’s parents, the Emergency Medical Services personnel and hospital personnel, that they both tended to Kwok-Wei in the living room during the entire 2 Vi hours that he was crying and they both put him to bed when he stopped crying. The jury could justifiably have inferred from their own joint activity statements that they were "continuously together” (majority opn, at 609) during any or all of the critical events and time periods. Indeed, such an inference of joint conduct is less speculative than the Court’s rumination that "it seems more likely than not that at least one of them would have left the room * * * at some point during the relevant period” (majority opn, at 609). This speculation contradicts the unequivocal import of the defendants’ consistent admissions.

" '[I]n the end, it is a question whether common human experience would lead’ ” reasonable persons, putting their minds to it, " 'to reject or accept the inferences asserted for the established facts’ ” (People v Kennedy, 47 NY2d, at 203, supra, quoting People v Wachowicz, 22 NY2d 369, 372). The conclusion reached by the jury that the shaking had to be violent and prolonged and, thus, did not occur while the "passive” defendant was absent, distracted or unaware within the contemplation of the penal statutes, falls within the "common human experience” of reasonable persons and, therefore, should not be disturbed by this Court of last resort.

I believe that the lesser included homicide and the endangerment crimes for which these defendants stand convicted should be sustained.

Chief Judge Kaye and Judges Simons, Hancock, Jr., and Smith concur with Judge Titone; Judge Bellacosa dissents and votes to affirm in another opinion.

Order reversed, etc.


source: Caselaw Access Project

author: Titone, J.

license: Public Domain

text:
    [619 NE2d 385, 601 NYS2d 448]
    In the Matter of Nomura Securities International, Inc., Appellant, v Citibank, N. A., Respondent.
    Argued June 3,1993;
    decided July 9,1993

      POINTS OF COUNSEL

      Kelley Drye & Warren, New York City (Kevin J. Walsh and Nicholas J. DiCarlo of counsel), Peter J. Chepucavage, New York City, and Eugene Allan Schlanger for appellant.
    I. Arbitration before the New York Stock Exchange is improper and cannot be compelled because this dispute is not exchange related. (Haviland v Goldman, Sachs & Co., 947 F2d 601; Paine, Webber, Jackson & Curtis v Chase Manhattan Bank, 728 F2d 577; Coenen v Pressprich & Co., 453 F2d 1209, 406 US 949.) II. The court below erred in creating a "wrongdoer” exception to the exchange-relatedness doctrine which unfairly provides nonmembers the option to choose New York Stock Exchange arbitration for all disputes in which members are defendants. (Paine, Webber, Jackson & Curtis v Manhattan Bank, 728 F2d 577; Haviland v Goldman, Sachs & Co., 947 F2d 601; Pearce v E.F. Hutton Group, 828 F2d 826.) III. Nomura Securities International did not agree to arbitrate this dispute and compelling it to do so would be manifestly unjust. (Schubtex, Inc. v Allen Snyder, Inc., 49 NY2d 1; Schenkers Intl. Forwarders v Meyer, 164 AD2d 541.)

      Howard, Darby & Levin, New York City (Jack P. Levin and J. Jay Lobell of counsel), for respondent.
    I. Under the New York Stock Exchange constitution and rules, and all applicable case law, Nomura is obligated to arbitrate this dispute. (Paine, Webber, Jackson & Curtis v Chase Manhattan Bank, 728 F2d 577; Haviland v Goldman, Sachs & Co., 947 F2d 601;
      Pearce v E.F. Hutton Group, 828 F2d 826; Fleck v E.F. Hutton Group, 891 F2d 1047; Matter of Dunay v Weisglass, 54 NY2d 25; Flanagan v Prudential-Bache Sec., 67 NY2d 500, 479 US 931; McLaughlin, Piven, Vogel v Nolan & Co., 114 AD2d 165, 67 NY2d 606; McGinnis v E.F. Hutton & Co., 812 F2d 1011, 484 US 824; Merrill Lynch, Pierce, Fenner & Smith v Hovey, 726 F2d 1286.) II. New York Stock Exchange arbitration is a just forum for resolving this dispute. (Pearce v E.F. Hutton Group, 828 F2d 826; Gilmer v Interstate/Johnson Lane Corp., 500 US 20, 111 S Ct 1647; Shearson/Am. Express v McMahon, 482 US 220; McGinnis v E.F. Hutton & Co., 812 F2d 1011; Flanagan v Prudential-Bache Sec., 67 NY2d 500; Dean Witter Reynolds Inc. v Byrd, 470 US 213.)
   OPINION OF THE COURT

Titone, J.

The underlying dispute in this case arises out of certain of petitioner’s business activities that were not conducted through the auspices of the New York Stock Exchange (NYSE) or any of the other self-regulated exchanges within the United States. The issue before us is whether rule 600 (a) of NYSE’s rules, to which petitioner, a NYSE member, has subscribed, requires petitioner to submit to arbitration conducted under NYSE’s auspices, at the request of respondent, who is not a NYSE member. Our reading of the NYSE rule and the relevant case law construing it leads us to conclude that petitioner is bound to arbitrate the dispute before NYSE even though the dispute is unconnected to petitioner’s NYSE activities.

Petitioner is a registered broker-dealer which engages in a variety of securities transactions. Because it effects some transactions through NYSE, petitioner is a member of that exchange and, as such, has agreed to be bound by the exchange’s rules, including rule 600 (a)’s provisions for mandatory arbitration of certain disputes.

The dispute that brought these parties to court, however, concerns transactions in American Depository Receipts (ADR’s), which are not traded through NYSE. Indeed, ADR’s are financial instruments which are used to facilitate trading in the shares of foreign corporations that are not listed on any of the domestic exchanges. ADR’s are, in substance, "receipts” issued by a domestic bank for shares of foreign corporations that have been deposited in an overseas bank. These "receipts” can then be traded in the United States without any of the complications that ordinarily arise because of currency conversions and customs requirements.

The ADR’s that are at the center of this litigation represent common shares in Mitsui & Co., Ltd., a Japanese business concern whose securities are traded on the Tokyo Stock Exchange. Respondent Citibank is the exclusive authorized depository bank for Mitsui shares. Respondent’s bank facility in Japan customarily holds the Mitsui common shares, and its facility in the United States issues ADR equivalents to American investors under an agreement that requires the American ADR’s to "mirror” the shares held in Japan. As a consequence of this agreement, respondent is obligated to pay ADR holders dividends and other benefits to match whatever dividends and benefits that accrue on the Mitsui shares held in Japan.

On September 16, 1986, Mitsui declared a dividend of 10% to be paid on common shares held on a specific date occurring later in the month. At various points after that date, petitioner purchased Mitsui shares for several of its customers, depositing those shares in respondent’s facility in Japan. Respondent’s American facility issued ADR’s representing these shares to petitioner and petitioner immediately placed these ADR’s in its customers’ custodial accounts. According to respondent Citibank, these shares, which were not entitled to dividends, were handled by petitioner’s agent, Depository Trust Co. (DTC), in a manner that made it impossible to distinguish them from ADR’s that were entitled to dividend payments. Thus, on the date the dividend declared on September 16, 1986 became payable, all of petitioner’s customers who had purchased ADR’s representing Mitsui shares were incorrectly credited with the dividend and respondent’s account with DTC was debited accordingly.

Respondent thereafter filed a statement of claim demanding arbitration before NYSE. The gist of respondent’s claim was that petitioner had violated industry standards by refusing to arrange for the return of the improperly paid dividends and, additionally, that petitioner had been unjustly enriched at respondent’s expense. Petitioner thereafter made the present application for an order staying arbitration on the ground that the dispute was not within the coverage of rule 600 (a).

The trial court rejected petitioner’s arguments and denied its request for relief. The court noted that the dispute between petitioner and respondent was within the literal language of rule 600 (a) and concluded that there was nothing in the recent case law interpreting that rule to warrant a departure from its literal terms in this situation. On petitioner’s appeal, the Appellate Division affirmed for essentially the same reasons. The intermediate appellate court then granted petitioner leave to appeal to this Court.

NYSE rule 600 (a) mandates arbitration of "[a]ny dispute * * * between a * * * non-member and a member * * * arising in connection with the business of such member * * * upon the demand of the * * * non-member.” Petitioner is a member of NYSE, respondent is a customer of petitioner and the dispute unquestionably arises out of petitioner’s business activities. Thus, the dispute clearly falls within the rule’s literal reach.

Despite its apparent applicability, petitioner argues that the rule’s mandatory arbitration provisions should not be employed in this dispute because the scope of the rule has been limited by recent case law and those limitations are applicable here. Specifically, petitioner relies on the principle formulated in Paine, Webber, Jackson & Curtis v Chase Manhattan Bank (728 F2d 577). In that case, the Second Circuit considered the special difficulties involved in applying a NYSE rule to situations involving business entities that are not NYSE members and held that the reach of rule 600 (a) "should be limited, at least in cases * * * in which the alleged improper conduct is on the part of the non-member, to controversies arising out of the member’s exchange-related business” (id., at 580-581 [emphasis supplied]). The Paine, Webber holding was reiterated by the Second Circuit in Haviland v Goldman, Sachs & Co. (947 F2d 601, cert denied — US —, 112 S Ct 1995), but the court continued to "confine [its] ruling to situations in which the alleged misconduct is attributed to the nonmember” (id., at 606, n 1; see also, Pearce v E.F. Hutton Group, 828 F2d 826).

By its terms, the Paine, Webber holding does not necessarily relieve petitioner of its rule 600 (a) obligations in these circumstances, since, unlike in that case, the allegations of misconduct here refer to the activities of petitioner, a NYSE member, rather than to the activities of a nonmember. Indeed, as petitioner’s submissions make clear, the proper application of rule 600 (a) to these facts is precisely the question that the Second Circuit left open in Paine, Webber when it stated that it was "not deciding * * * whether a non-member could compel arbitration of a dispute in an action in which the alleged wrongdoer is an exchange member and the transaction is not related to exchange business” (728 F2d, at 580, n 5). Nonetheless, petitioner contends, the Paine, Webber rationale, as well as the analysis in subsequent cases (e.g., Haviland v Goldman, Sachs & Co., supra), compels extension of the Paine, Webber holding to the dispute at issue here.

Initially, we note that, as the parties agree, the question whether respondent nonmember can compel arbitration under rule 600 (a) is one that must be resolved under Federal-law principles (see generally, Singer v Jefferies & Co., 78 NY2d 76, 81). Further, although the United States Supreme Court has not yet spoken on the proper application of rule 600 (a) in disputes between exchange members and nonmembers, the Federal courts, particularly the United States Court of Appeals for the Second Circuit, have had occasion to explore the problem and have established a series of postulates that furnish a starting point for analysis (see, Flanagan v Prudential-Bache Sec., 67 NY2d 500, 505-506 [absent definitive Supreme Court precedent on the question, State courts should follow "rule established by lower Federal courts if they are in agreement”]). In any event, the parties to this appeal have assumed the correctness of the Second Circuit’s decision in Paine, Webber and, accordingly, have narrowed the issue before us to whether, under the logic of that decision, its holding should be extended to these facts. Thus, there is no need in this appeal for us to consider the validity of the Paine, Webber rule or to look beyond the analysis in the existing Federal case law.

In holding that the literal language of rule 600 (a) must be narrowed in at least some disputes involving NYSE members and nonmembers, the Second Circuit noted first that the judiciary should be guided by the "reasonable expectations” of the member who, in becoming a signatory, agreed to be bound by rule 600 (a). Using these "reasonable expectations” as a touchstone, the court then went on to conclude that it is unreasonable to infer from the rule that a NYSE member would be required to submit to arbitration "every dispute it has with any entity in the world, no matter what the subject matter” (728 F2d, at 580-581). Moreover, the Second Circuit observed, requiring members to arbitrate all of their business disputes regardless of the membership status of the adversary or the origin and nature of the dispute would "extend without justification the congressional mandate of self-regulation under which the exchange adopted these dispute resolution provisions” (id., at 581). As petitioner here has noted, literal application of the rule would lead to the absurd conclusion that even eviction proceedings brought by members against their nonmember tenants would be subject to NYSE arbitration at the tenant’s insistence, since such disputes could fairly be said to "aris[e] in connection with” the member’s business, albeit not the member’s exchange-related business.

The considerations that led the Second Circuit to adopt a narrowing construction in Paine, Webber are not as persuasive in a case involving a nonmember’s claim based on a NYSE member’s alleged wrongdoing. As noted in the District of Columbia Circuit’s opinion in Pearce v E.F. Hutton Group (supra, at 832), a post-Paine, Webber decision, it may be anomalous to allow a nonmember to compel NYSE arbitration of a dispute concerning its own allegedly wrongful actions when that party has no relationship to NYSE, is not a party to any agreement to arbitrate and is beyond NYSE’s regulatory authority. In contrast, "no such anomaly arises” where the dispute concerns the actions of a party that has agreed to be subject to NYSE arbitration and, further, is within NYSE’s regulatory power (id., at 832).

In such situations, it is certainly reasonable for the signatory member to expect that claims by nonmembers calling its business practices into question would be subject to arbitration under rule 600 (a). Further, as was suggested by the analysis in Haviland v Goldman, Sachs & Co. (supra, at 607), "the Exchange’s interest in the business conduct of its members” itself warrants imposition of NYSE’s arbitration requirements in such disputes. Manifestly, the Second Circuit’s objection to "extending] without justification the congressional mandate of self-regulation” (Paine, Webber, Jackson & Curtis v Chase Manhattan Bank, supra, at 581) is not present when a claim asserted by an outsider to the exchange raises questions about a member’s business practices. Thus, the rationale for departing from the literal language of rule 600 (a) is vitiated and the plain terms of the rule itself should control.

For similar reasons, we reject petitioner’s final contention that the "wrongdoer” exception to the Paine, Webber rule is inapplicable in this case because the conduct alleged in respondent’s statement of claim is not "wrongful.” The gist of petitioner’s argument in this regard is that it is not an "alleged wrongdoer” as that phrase is used in Paine, Webber because it has not been accused of fraud, misrepresentation or any other corrupt practice and, consequently, the regulatory interests of the exchange are not implicated in the dispute.

The problem with petitioner’s argument is, quite simply, that it takes too narrow a view of NYSE’s regulatory goals. Manifestly, those goals are not limited to combatting dishonest or unscrupulous conduct on the part of those who trade in securities. On the contrary, NYSE and the other self-regulated exchanges have an indisputable interest in " 'governing [the] practices and procedures and the business conduct of their members’ ” (Paine, Webber, Jackson & Curtis v Chase Manhattan Bank, supra, at 580, n 5, quoting SEC, Report of Special Study of Securities Market, HR Doc No. 95, 88th Cong, 1st Sess, pt 1, at 3 [1963]).

Petitioner has been accused of conducting securities transactions through an agent whose record-keeping practices led to an erroneous transfer of funds attributable to dividend payments. Further, the statement of claim filed against petitioner alleged that petitioner violated "industry practice” by failing to return or to cause the return of these dividend payments. Both of these charges implicate the exchange’s interest in assuring accuracy in financial transactions and in monitoring adherence to industry practice. Such interests are far more central to the exchange’s self-regulatory mission than was the broad interest in members’ "reputations” that was apparently rejected as a basis for requiring rule 600 (a) arbitration in Haviland v Goldman, Sachs & Co. (supra, at 606-607; but cf., Pearce v E.F. Hutton Group, supra, at 830 [stressing exchange’s interest in reputation as valid ground for compelling arbitration]). Thus, applying rule 600 (a)’s arbitration mandate to this situation would not exceed either the reasonable expectations of NYSE’s members or the proper boundaries of the exchange’s self-regulatory authority (see, Paine, Webber, Jackson & Curtis v Chase Manhattan Bank, supra, at 581).

In sum, as both courts below concluded, petitioner is obligated by the terms of rule 600 (a) to arbitrate respondent’s claim regarding petitioner’s ADR transactions in the fall of 1986. Consequently, petitioner was not entitled to an order staying arbitration, and its application for such relief was properly denied.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges Simons, Hancock, Jr., Bellacosa and Smith concur.

Order affirmed, with costs.