Read 94-9174 and 94-10031: Smith Barney Shearson v. Warren Boone and Scott G. Sherman text version

UNITED

IN THE STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

SMITH BARNEY SHEARSON INC., Plaintiff-Appellant, vs. WARREN BOONE, INDIVIDUALLY AND AS TRUSTEE FOR WATERCOL PROFIT SHARING PLAN, DATED l/7/80, Defendant-Appellee.

-

) )

>

1

1 > >

Case No.

93-9174

)

1

AND

-

SMITH BARNEY SHEARSON INC., Plaintiff-Appellant, vs. SCOTT G. SHERMAN, Defendant-Appellee.

1 > ) 1 1 1 1 ) )

Case No.

9440031

BRIEF

OF THE PUBLIC INVESTORS ARBITRATION BAR ASSOCIATION AS AMICUS CURIAE Michael P. Gilmore John E. Lawlor LAW OFFICES OF JOHN E. LAWLOR, ESQ. 1461 Franklin Avenue Garden City, N.Y. 11530 (516) 248-7700 (516) 742-7675 (Telecopy) ON THE BRIEF FOR THE PUBLIC INVESTORS ARBITRATION BAR ASSOCIATION AS AMICUS CURIAE SUPPORT OF DEFENDANT-APPELLEE WARREN BOONE

IN

-ANDL. Jerome Stanley * LAW OFFICES OF L. JEROME STANLEY 7909 Wrenwood Boulevard, Suite C Baton Rouge, Louisiana 70809 ATTORNEY AND DIRECTOR ON BEHALF OF THE PUBLIC INVESTORS BAR ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF DEFENDANT-APPELLEE WARREN BOONE

*Admitted,

~~~

U.S.

Court

of

Appeals

for

the

5th

Circuit.

CERTIFICATE

OF INTERESTED

PERSONS certifies in the that the of the

The undersigned

following listed

counsel

of record

persons

have an interest

outcome that

this

Judges or

case.

of

These representations

this

are made in possible

order

Court

may evaluate

disqualification

recusal.

The parties Smith

are as follows: Barney Shearson, Inc.

for

Warren Boone, Individually and as Trustee Watercol Profit Sharing Plan, Dated l/7/80 Scott G. Sherman

The Public Investors Arbitration appearing and submitting a brief Attorneys for the parties

Bar Association is as amicus curiae

are as follows:

C.W. Flynn Susan L. Karamanian Bradley W. Foster Locke Purnell Rain Harrell (A Professional Corporation) 2200 Ross Avenue, Suite 2200 Dallas, Texas 75201 ATTORNEYSFOR PLAINTIFF-APPELLANT SMITH BARNEY SHEARSONINC. Tracy Pride Stoneman Mills, Presby & Anderson, 3102 Maple Avvenue, Suite Dallas, Texas 75201 L.L.P. 220

ATTORNEYSFOR DEFENDANT-APPELLEE WARRENBOONE

1

Jonathan T. Suder Friedman, Young & Suder 500 Throckmorton, 16th Floor Fort Worth, Texas 76102 Ronald A. Schy Daniel J. Becka Biegel, Schy, Lasky, Cohen, Rifkind 311 South Wacker Drive, Suite 6500 Chicago, Illinois 60606 ATTORNEYS FOR DEFENDANT-APPELLEE SCOTT G. SHERMAN Appearing on behalf of the Public Bar Association as amicus curiae Defendant-Appellee Boone: Michael P. Gilmore John E. Lawlor Law Offices of John E. 1461 Franklin Avenue Garden City, New York Investors in support Arbitration of

& Hennessey

Lawlor, 11530

Esq.

L. Jerome Stanley Law Offices of L. Jerome Stanley 7909 Wrenwood Boulevard, Suite C Baton Rouge, Louisiana 70809

[,[$i

L. Jehme Stanley LAW OFFICES OF L.

/

JEROME STANLEY

PUBLIC INVESTORS BAR ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF DEFENDANT-APPELLEE WARREN BOONE

ii

TABLE

OF CONTENTS

Page Certificate Table Table Brief of of of of Contents Authorities PIABA Interested . . . Persons . . . . . . . . i iii

V

. .

. . . Curiae . .

as Amicus .

viii viii viii 1 or Securities . . . . . . . .

Introduction Interest Argument Point Point I. II. of the

. . . . . Amicus .

l

Curiae . . .

. . . .

. . .

The Ascent Arbitration The Federal Arbitration A. B.

and Descent . . . . .

Arbitration Act Mandates of This Controversy . . . . of Act . the Federal . . . . . Strict Parties' . . . .

Applicability Arbitration

The FAA Mandates the Terms of the

. . . . .

l

Adherence to Agreement

. . . .

-

Point

III.

Under the FAA Timeliness and Eliaibilitv Issues Are For the Arbitrators to Decide . . . . . . . . . . . . . . . The Fifth Circuit Has Liberally Arbitration Clauses Consistent FAA Mandate . . . . . . . . .

i . 10

Point

IV.

Read With the . . . . .

15

Point

V.

The Second, Fourth, Eighth, Ninth and Eleventh Circuits Have Construed Arbitration Clauses Liberally and in Keeping With the Dictates of the FAA . . 17 The FAA is Controlling Despite a New York Choice of Law Provision in an Arbitration Agreement . . .

Point

VI.

. . .

18

-iii-

Conclusion Certificate

..................... of Service ...............

19 20

-iv-

TABLE OF AUTHORITIES P CASES AT&T Technologies, Communications 475 U.S. 643 Inc. v. Workers (1986)

.

of

. .

America,

l . l

. . . . . .

. . 7, . . . .

8,

9, . .

10 .19

Ackerberg v. Johnson, 892 F.2d 1328 (8th

Cir.

1989)

l

Appalachian Regional Healthcare v. Group, Architects, Beyt I Rish Robbins 963 F.2d 373 (6th Cir. 1992) . . . Austin Mun. Securities v. Nat. Ass? of Securities Dealers, Inc., 757 F.2d 676 (5th Cir. 1985) . .

. .

. .

. . .

.19

. . . 6, v. . . . . . .

15,

16,

17

Automotive Petroleum and Allied Industries Town and Country Ford, 709 F.2d 509 (8th Cir. 1983). . . . Barbier Belke v. Shearson Lehman Hutton, Inc. 752 F.Supp. 151 (S.D.N.Y. 1990) .

. . x, . .

18

l

. .

. .19 18 14 17

v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023 (11th Cir. 1982). . . . . . . Services, Inc. v. Philipp 1222 (2d Cir. 1980) . x, & Lion, 9, 10, . .

. . x, 11, 12,

Conticommodity 613 F.2d County

of Durham v. Richards 742 F.2d 811 (4th Cir.

& Associates, 1984). . . . . .

. . x,

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Edo2d 158 (1985) .

l l l

. . .

. .

. . . . .

.

.

2,

6 18 6 18

FSC Securities Corp. v. Freel, 811 F.Supp 439 (D.Ct.Minn Genesco, Inc. 815 F.2d In Re Mercury 656 F.2d

1993)

. . .

. . x, . 5,

v. T. Kakiuchi & Co., 840 (2d Cir. 1987) . . . . . Constr. Corp., 922 (4th Cir. 1981) .

. .

. .

. . . .

. .

. . x,

McDonnell Douglas Finance Power & Light Co., 858 F.2d 825 (2d Cir. Merrill Merrill

v.

Pa. . . . . . . . . . . . . . 8, . . 11 13

1988)

Lynch v. Noonan, 1992 WL 196741 (S.D.N.Y. Lynch, Pierce, Fenner & Smith v. Shaddock, 822 F.Supp 125 (S.D.N.Y. v. Prudential 884 F.2d 128 (4th Bathe Cir.

1992)

. .

. .

1993)

.

l

l

.

.

11, . .

14, . .

19 17

Miller

Securities, 1989) .

Inc. . .

l

. .

Mitsubishi Motors Corp. v. Solar Chrysler-Plymouth, Inc. 473 U.S. 614, 105 S.Ct. 3346, 87L.Ed.2d 444 (1985) . . . . Moses H. Cone Hospital v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 74 L.Ed.2d 765 (1983)

. . .

. .

. .

. .

5,

7

927, a . .

.

x,

5,

6,

7,

11,

16,

17

Necchi

S.p.A. v. Necchi Sewing Machine Sales Corp., 348 F.2d 693 (2d Cir. 1965) v. National Association of Securities Dealers, Inc., 667 F.2d 804 (9th Cir. 1982) 1989)

.

. . .

. .

. .

. . .

. 8

O'Neel

. . . . .

. . . .

. . . . .

. . x, . . .

18 . x

PaineWebber, Inc. v. Farnam, 870 F.2d 1286 (7th Cir.

l

PaineWebber, Inc. v. Hartmann, 921 F.2d 507 (3rd Cir. 1990) Reconstruction 204 F.2d Roney Ruff S.A.

. .

. . .

. .

. . . x 11 . x

Finance Corp. v. Harrisons & Crosfield, 366 (2d Cir. 1953) . . . . . . . . . . 9, Cir. 1992) . . . . . . . . . . .

& Co. v. Kassab, 981 F.2d 894 (6th v. Boosier Medical 952 F.2d 138 (5th

l

Center Cir. 1992)

. . . v.

l

. .

. . . . 6

Mineracao da Trindade-Samitri Utah Int'l, Inc., 745 F.2d 190, (2d Cir. 1984) -vi-

. . .

. .

. . . .

. 7

Shearson American Express, 482 U.S. 220 (1987)

.

Inc. v. McMahon, 0 0 0 . . . . .

l

e . 9,

. .

10, 12,

1,

2

14

Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114 (2d Cir. 1991) . . . . Smith v. Merrill Lynch, Pierce, Smith Incorporated, 575 F. Supp 904 (N.D. Tex. Fenner 1983) .

x,

. .

. .

.

16,

17

Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d Tehran-Berkeley Civ & Env. Tippetts-Abbett, 816 F.2d 864 (2d Cir. Todd Shipyards 943 F.2d Corp. 1056, Eng. 1987)

1 (1984) v.

. .

. .

. . .

. 4

. . . . .

. .

. . . 9, . . .

12 19

v. Cunard Line, (9th Cir. 1991) Co. v. International 1968) .

Ltd., . . . .

. .

Trafalgar Shipping Milling Co., 401 F.2d 568

(2d Cir.

. . . .

. .

. .

11,

12

Transcontinental Gas Pipeline Corporation v. Dakota Gasification Co., 782 F.Supp 336 (S.D. Tex 1991) . . Victor Volt v. Dean Witter Reynolds, Inc., 606 So.2d 681 (Fla. 5th DCA 1992)

. . . . .

. .

. .

16

. .

. . .

. . 3

Information Sciences Inc. v. Board of Trustees of the Lleland Stanford, Jr. U., 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) . . . . . . .

l l

.

5,

7,

18

Wilko

v. Swan, 346 U.S. 427, 74 S.Ct. 182,

98 L.Ed.2d

268

(1953)

. .

. . .

. .

. 5

-vii-

BRIEF OF THE PUBLIC INVESTORS ARBITRATION BAR ASSOCIATION AS AMICUS CURIAE PRELIMINARY This arbitration (llPIABAJ1) involved firms to such Brief is submitted STATEMENT Public Investors referred public investors brokerage this in Warren 9309174), facts the Boone, and and Court to as

by the (hereinafter on behalf against

Bar Association as amicus in arbitrating as the the entitled, curiae

claims

securities PIABA urges

Appellant 6,

herein. 1993 Opinion Shearson Circuit

affirm

December Smith

and Order Inc. v.

action et ano.,

Barney (Fifth the

7:93-W-146-K directs of that

Case No. herein to the

specifically circumstances

arguments

case. OF THE AMICUS CURIAE Arbitration corporation. from 38 states, field represent Bar PIABA all of Association has is 222 in

INTEREST The Public a Texas prominent the Investors

not-for-profit attorneys

as members

whom practice public of public the

securities

arbitration PIABA members

representing thousands arbitrations of of PIABA the is:

investors. investors country.

involved The official

in

securities mission by:

around

To promote securities (1) (2)

the interests arbitration

public from just

investor abuses and fair:

in

protecting public in the arbitration making and securities

investors process; arbitration

-viii-

(3)

creating investor submits

a level playing field for in securities arbitration. this in brief the out of concern

the that:

public i) and ii) the

PIABA judicial inflexible Organization's effect arbitration chance to of

intervention judicial

arbitration of the rule" of investors

process: Self-Regulatory will each from

application

(SRO) "eligibility depriving with recover thousands otherwise some or

have

the in

proceeding as the by

legitimate all of of the their

claims losses

as well

occasioned industry. arbitrators

transgressions Securities possessed issues vagaries investors, of Appellant would provide inflexible precisely be to and, of

by members arbitration with expertise upon securities

securities to allow

was designed in their the

securities

field knowledge

to of

weigh the

all

based the render Smith whittle

expertise, industry, decision. Inc. arbitration

and securities To decide ("Smith in favor

an impartial Barney

Shearson, this

Barney") and in is an

away at to the the

process by casting Court. prevent.

impunity legal what

securities issue

industry before the to

mold arbitration

This

was designed of attorneys PIABA it could

As a bar interests of this of case in look the

association public and the the to

representing recognizes have The the

the importance issues urges this

investors impact

on the amicus of from the five

discussed Court Court to of

previous the

paragraph.

controlling States

authority

Supreme other

United

and decisions -ix-

United District given Court bound with There contrary submitted decisions

States Court's in of this

Circuit

Courts

of (1)

Appeals

in

affirming attention Second District been

the

is

decision. brief to (and Circuit before body the to

Considerable of extent which the the has

decisions

Circuit Courts confronted occasions.

Appeals

a lesser precedent)

by Second the is issues a small to that

this of law

tribunal that has (2)

on numerous taken the

position it is

espoused

herein.

However, based

that would with

to make a determination deprive legitimate thousands claims of in

on these from

investors arbitration.

proceeding

See, e.g., Moses H. Cohen Memorial Hospital v. (1) Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927,?4 L.Ed.2d 765 (1983); Conticommoditv Serv. v. Philipp & Lion, 613 F.2d 1222 (2d Cir. 1980); Shearson Lehman Hutton-v. Waqoner, 944 F.2d 114 (2nd Cir. 1991); O'Neel v. National Association of Securities Dealers, Inc. 667 F.2d 804 (9th Cir 1982); Bzke v. Merrill Lynch Pier& Fenner & Smith 693 F.2d 1023 (11 Cir. 1982); County of Durham v. Richards i Associates, 742 F.2d 811 (4th Ci.r71984), I<Re MercuryConstr. Corp., 656 F.2d 922 (4th Cir. 1981); Automotive, Petroleum and Allied Industries v. Town and Country Ford, 709 F.2d 509 (8th Cir.1983), FSC Securities Corp. v. Freel, 811 F.Supp. 439 (D.Minn. 1993). 1286 (7th (3rd Cir. (6th Cir.

(2)

See, e.g. PaineWebber, Cir. 1989); PaineWebber 1990); and Roney -& Co. 1992).

Inc. v. Farnam, 870 F.2d v. Hartmann, 921 F.2d 507 v.Kassab, 981 F.Supp. 894

The Fifth will have

Circuit's

determinaticn impact and PIABA vital

of

the

issue

before the

it

a nationwide of that being the

recognizes issue. Barney is

importance believes

heard rule

on this

PIABA will have to

propounded effect

by Smith on arbitration,

an unwarranted the with Thus dictates the it of

chilling the

contrary

Federal

Arbitration to arbitrate that by Smith this

Act, their Court

and inconsistent disputes. reject the

parties' is

agreement urged as urged

respectfully rule"

"eligibility

Barney.

-xi-

ARGUMENT POINT I. THE ASCENT AND DESCENT OF SECURITIES ARBITRATION

Since decision U.S. all have 220, public been in

the

June,

1987,

United Express,

States Inc. 185 v.

Supreme McMahon, virtually

Court 482

Shearson/American 2332, claims (3) Barney customer clauses agreements, shall the

107 S.Ct. investor arbitrated. of Smith execute

96 L.Ed.2d against This is

(1987), brokerage

retail the

firms the

result brokerage

of

requirement their dispute Most provide Vnder clients

and other

firms

that

agreements

containing brokerage the one at

preaccounts. issue, or

arbitration customer

when opening including take place

that the

arbitration rules of"

either

**before'*

industry including,

self-regulatory the National New York Exchange Association Stock (VMEXV1). Exchange The

organizations of Securities

(lfSROsgt), Dealers, the these

Inc. American

("NASD"), Stock

("NYSE") rules of

, and/or each of

SROs provide:

No dispute, claim or controversy shall be eligible for submission to arbitration under this Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim or controversy. This section shall not extend applicable statutes of limitations, nor shall it apply to any case which is directed to arbitration by a court of competent jurisdiction. (4) In that case, the Supreme Court ruled that he (3) arbitration clause found in the standard customer agreements were binding on the customers.

(4)

NASD Code Section

15;

NYSE Rule -l-

603;

AMEX Rule

605.

Smith of the

Barney

Shearson, industry bars at issue investor frequency,

Inc. in

("Smith

Barney") argue that

and members this date9 before the of

securities rule"

general where more than

"eligibility the date With investments on which increasing is

claims are

the six

"purchase years for

the

files however, the to

a claim the

arbitration. rule of these advantage eligibility investors the her upon court llrightll them by court by

eligibility In each

argument cases, arguing rule. to

being

made to firms

courts. gain

brokerage for In strict doing

seek

a collateral of industry the

judicial so, the

application securities fees in to that

causes with his or

expend

additional by forcing the in the

legal the

conjunction defend

actions, to the arbitrate;

investor

same VighP first v A place.

was imposed supra;

industry

McMahon, 213,

see also 1238,

Dean Witter 84 L.Ed.2d This securities collateral industry stated case at in

Reynolds 158 Court (1985).

.Byrd. / 470 U.S.

105 S.Ct.

can and should as a whole Having

deny the

Smith

Barney to the

and the gain such a

industry advantage. should

opportunity bed,

made their in it. similar

securities

be made to case

sleep

As was eloquently to those in the

a Florida

with

facts

bar: For its own purposes, Dean Witter [a nationwide brokerage firm] chose to draft customer agreements requiring customers to submit to arbitration any controversy. It is not surprising that, in circumstances like those presented in this case, Dean Witter would now prefer the procedural and

substantive advantages of a judicial forum for the prompt and dispassionate application of such dispositive legal defenses as the statute of limitations. But Dean Witter elected a different, nonjudicial forum for resolution of 'any controversy' with its customers. Having provided for arbitration in the customer agreement, Dean Witter will have to trust the arbitrators to do their jobs properly. Victor 5th v. -Dean Witter Reynolds. Inc., 606 So.2d 681 (Fla.

DCA 1992). For this compelling this so, reason, Court this should Court and for the the other reasons

set

forth

below, By doing to the

dismiss would

instant

appeal. contribute referring accordance

meaningfully of arbitrators Arbitration parties' justice in Act by

equitable

administration to of the the

eligibility with the with to arbitrate.

questions mandates a plain

Federal of the

and consistent agreements POINT II.

reading

THE FEDERAL ARBITRATION OF THIS CONTROVERSY The Federal Arbitration of

ACT MANDATES ARBITRATION Act mandates arising organizations be determined substantive under the and Federal such arbitration has considered as in that under all the such by the

issues eligibility as the

as to

the rules

timeliness of self

claims,

regulatory Stock Exchange, between relevance in there

NASD or New York

arbitrators. procedural Arbitration the action

The distinction issues Act at has less

particularly where

a circumstance, exists a broad Court

bar,

provision.

The United

States

Supreme

issues governed States numerous Arbitration

relating by the Court of

to

the

breadth Arbitration for the

of

arbitration Act,

agreements and the United on

Federal Appeals

Second effect

Circuit of the

has

occasions Act

considered on securities States the

the

Federal

industry Court of light of the

arbitration Appeals Federal relevant it a wide apply including by the Federal Second Circuit for the Fifth

agreements. Circuit Act in has arbitral Supreme

The United considered

effect in

Arbitration United berth. to the

controversies Court decisions, suggested arbitration the precepts least to

of

States It is

and given that this

respectfully industry at and of issue, followed

Court

securities agreement Circuit Courts

agreements, embraced four the of other arbitrators claims

by at and leave

Appeals,

determinations arbitration

as the agreements.

timeliness

as provided

in

A. Applicability

The 16 (hereinafter this dispute. Federal

of the Federal

Arbitration to Act, as the

Arbitration

9 U.S.C.A., "FAA*') is

Act

Sections, applicable Barney") of of to is a in l-

referred Appellant with are not

Smith its

Barney principal of

(**Smith place the State

Delaware New York. While the the District

corporation, Appellees FAA does Courts, 852,

business Texas. upon 465 U.S. complete

residents

confer

independent Corp. v. there

jurisdiction Keating, exists

Southland

1,

104 S.Ct.

79 L.Ed.2d

1 (1984),

diversity $50,000.00, over the Section arbitrate evidencing valid, as exist contract/' congressional favoring substantive effect of

in

this thus

case, the

and the

amount Court

in

controversy

exceeds

District

had original

jurisdiction

controversy. 2 of 'Iin the FAA provides that a written or commerce save the agreement to

any maritime

transaction involving

a contract . upon . . shall such of a policy any state The be

a transaction irrevocable, at 1aw or 9 U.S.C.

and enforceable, in equity Section of for 2.

grounds any

revocation 2 is federal

'rSection

declaration

a liberal

arbitration

agreements, policies is to create

notwithstanding to the contrary. of

or procedural the section of

a body applicable

federal to any act." 460 U.S. Volt Lleland 1,

substantive arbitration Moses at 24, H.

law

arbitrability, within v. the Mercury

agreement Cone Hospital 927,

coverage Constr. 765 of (1983);

of

the

Corp.,

103 s.ct.

74 L.Ed.2d Inc. v. Board

see also of -the

Information Stanford, 488 (1989); Jr.

Sciences

Trustees 1248,

U , 489 U.S. 2 Mitsubishi

468,

109 S.Ct. Corp. v z

103 L.Ed.2d

Motors 614,

Soler 3346,

Chrvsler87 L.Ed.2d 444

Plymouth, (1985).

Inc.,

473 U.S.

105 S.Ct.

As stated 815 F.2d U.S. 427, 840, 431,

in 844

Genesco, (2d Cir.

Inc L&A 1987)

v

T-

Kakiuchi Wilko

& -- Co., v A268 Swan, (1953)) 346

(quoting

74 S.Ct.

182,

184-185,

98 L.Ed.

the

FAA "reflects of of

a [congressional] arbitration litigation.'1f of that to discretion district arbitration has been Reynolds

recognition

of to leaves court, direct as to

the the no place but the which an at 213,

'desirability complications for the exercise

as an alternative ll\[T]he Act

by a district courts

shall

instead parties arbitration 844 218,

mandates to proceed

on issues signed/I1 Inc . v. 158 at

agreement Dean Witter 1238, at

Genesco, Byrd, (1958)). issue,

815 F.2d 470 U.S.

(quoting 105 S.Ct. In the

1241 84 L.Ed.2d bar, the contract in

action

between (see Boone

a ROA a to

Delaware at

Corporation

headquartered of the

New York of Texas, the

1 and 2),

and residents in at 25, interstate issue. (5)

State

concerns

transaction the U.S. dispute 1, at

commerce. See Moses Mun. H 2

Thus,

FAA applies 460 Ass% 1985). of

Cone Hospital, v. (5th Nat. Cir.

and Austin Inc.,

Securities 676

Securities

Dealers,

757 F.2d

(5) Though the District Court did not consider the applicability of the FAA, as pointed out by Appellants at V3" of Appellant's brief page Vonclusions of law made by the district court are not binding on the Appellate Court and the latter is free to substitute judgment on the law for that of the court below/ Ruff v. Boosier Medical Center, 952 F.2d 138, 140 (5th Cir. 1992). Appellee argued before the District Court for the Applicability of the FAA at Boone ROA at 111.

B.

The FAA Mandates Strict Terms of the Parties' Arbitrability is subject

Adherence Agreement to the

to specific

the provisions as to the in went scope favor on to

of of of

the the

arbitration arbitration

agreement. clause Volt, itself supra.

ll[A]mbiguities [must In Volt be] the

resolved Court

arbitration."

state: These cases [Moses H. Cone Memorial Hosp., supra. and Mitsubishi Motors Corp. v. Soler ChrvslerPlymouth, Inc., 473 u s. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)] 0; course establish that; in applying general state-law principles of contract interpretation to the interpretation of an arbitration agreement within the scope of the [FAA], due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration. 489 U.S. at 475-76 supra, (citation 460 U.S. omitted). at 24-25: As stated in Moses P H z

Cone Hospital,

Any doubts concerning the scope of the arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction the contract language itself or the allegation waiver, delay, or a like defense to arbitrability. See also 3354; S.A. Mitsubishi Mineracao 190, 194-95 Motors, 473 U.S. at 626, v. 105 S.Ct. Utah IntY,

of of

at

da Trindade-Samitri (2d Cir.1984).

the

Inc.,

745 F.2d

As noted held of 648 matter in

by Appellants,

United v.

States

Supreme

Court

AT & T Technologies, -w475 U.S. that contract 643, 648, to

Inc.

Communications 1415, 1418,

Workers 89 L.Ed. is to a

America, (1986), of

106 S.Ct. the

pursuant

FAA Il[a]rbitration cannot be required

and a party

submit

to

arbitration

any dispute According of to the

which Supreme

he has Court

not in

agreed AT -v- & T, at 650,

so to there and is

submit.11

a tfpresumption

arbitrability",

475 U.S.

`[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.' Warrior & Gulf Navigation, 36 3 U.S. at 582-583. See also Gateway Coal Co. v. Mine Workers, supra, at 377-378. Such a presumption is particularly applicable where the clause is [] broad . . . (emphasis added) "Although any contract parties,' Machine denied, the id. Sales \[t]he provision, at 193 scope is (citing 348 F.2d 86 S.Ct. of an arbitration of S.p.A 696 the v. clause, intent Necchi of like the

a question Necchi 693, 892, in

Sewinq cert I

Carp,, 909,

(2d Cir.

1965), 664

383 U.S. federal that of Power

15 L.Ed.2d favor of

(1966))

strong

presumption as to id. Co.,

arbitration be resolved Douglas 1988). Finance In Court of

dictates in

V 2

doubts coverage, -& Light at

arbitrability at 194/

should McDonnell 825 (2d Cir. Second

favor Pa.

858 F.2d

McDonnell Appeals

Douglas went on to

858 F.2d

832 the

Circuit

state:

In construing arbitration clauses, courts have at times distinguished between 'broad' clauses that purport to refer all disputes arising out of a contract to arbitration and 'narrow' clauses that limit arbitration to specific types of disputes. (citations omitted) If a court concludes that a clause is a broad one, then it will order arbitration and any subsequent construction of the contract and of the parties' rights and obligations under it are within the jurisdiction of the arbitrator. (citations omitted) Moreover, as the Supreme Court has noted,

the strong federal presumption in favor of arbitrability applies with greater force when an arbitration clause is a broad one. See AT & T --Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 650, 106 S.Ct. 1415, 1419, L.Ed.2d 648 (1986). In (2d Cir. determined provided my account, authorization arbitration required timeliness Lion, defined I![a]ny trading Berkeley Cir. 1987) Shearson

1991)

Lehman the Court

Hutton, of

Inc.

v. for

Wagoner, the Second

944 R.2d Circuit which relating

114

Appeals firm

that that to

a brokerage "any controversy

customer arising out for shall arbitration on all

agreement of or

to

transactions or the breach

with thereof

you

me or

this by that

be settled provision

. . .I1 arbitral issues. 1222

was a *lbroadl* determinations In

issues, Serv. v A

including Philips likewise & -

Conticommodity 1980) the

613 F.2d

(2d Cir. arbitration

court

as a Itbroad" controversy contract

Civ

provision out of or

one that relating Tehran816 F.2d provision between

stated to" the

. . . arising be referred Ens. v. to

arbitration.

& Env. defined

Tippetts-Abbett, arbitration that may arise

864 the the

(2d

as a lVbroadl*

following: Contractor

Vl[a]ll

and the

the disputes

Consultant

whether

relating

to the to

execution interpretation Conditions attached

of the works under

the Contract

or relating of the General documents

Finally, & - Crosfield,

of any of the Paragraphs or Technical Provisions

(emphasis Corp. v. -9.

or other

added)."

to the Contract

Finance

Reconstruction

Harrisons

204

F.2d

366

(2d Cir. a contract disputes to this

1953)

defined

as a "broadI the following

arbitration language: under by or in "all

provision claims, relation arbitration?

containing controversies shall

or

arising

contract

be determined

The customer pertinent part:

agreements

executed

by Appellees

provide

in

Any controversy arising out of or relating to . . my accounts, to transactions with you . or to this agreement or the breach thereof shail'be settled by arbitration . . . (Boone This read claims is to ROA at clearly refer under to the with not 42-47) a rrbroadU arbitrators relevant positive arbitration provision that as to can be

determinations SRO rules. assurance of

timeliness it

Moreover, that the

"unless arbitration that

can be said clause the to is

susceptible all questions AT&T,

an interpretation timeliness at 650. must

covers

dispute" the

as to

be referred

arbitrators. III.

475 U.S.

POINT

UNDER THE FAA TIMELINESS ARE FOR THE ARBITRATORS "[A3ny limitations

AND ELIGIBILITY TO DECIDE

ISSUES from or

defense--whether arbitration to association by the v,

stemming rule,

the state

arbitration statute--'

agreement, 1s an issue Shearson

be addressed Hutton, Serv. Inc. v.

arbitrators." F.2d at 121

Lehman

Waqoner,

944

(citing

Conticommodity

Phillipp

& -- Lion,

-lO-

613 F.2d Fin. Corp.

at v.

1224-25

(2d Cir.1980); -& Crosfield,

see

also

Reconstruction supra.

Harrisons

Ltd.,

[O]nce it is determined that parties to a contract have created an enforceable arbitration clause, then the policies inherent in the Federal Arbitration Act dictate that 'any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.' McDonnell 831 at (quoting 24-24). the Douglas Moses ll[A]ll parties Fin LAP v Pa Power & - Light supra which to the Co., at relate arbitration court.11 401 F.2d Fenner 858 F.2d 460 U.S. to at 1,

H. Cone Mem. Hosp., questions have agreed of to delay submit not Millinq Lynch, 125, Inc. v.

issues . . .

which [must] Shipping Cir. Inc.

be resolved

by arbitrators, International Merrill

Trafalsar 568 (2d

co. v.

co.,

Pierce, 131

1968); v.

see also

-& Smith, 1993). the most

Shaddock,

822 F.Supp. Services Circuit the

( S.D.N.Y., & -- Lion, issue,

Conticommoditv authoritative an application before arbitration controversy trading required "within which the Second to

Philipp on the of

decision arbitration Inc. for out of

involved claim relevant

stay

a commodities The of "any the

Commodities agreement . . .

Exchange provided arising the

())CoMEX1~). arbitration or relating

to1l

contract the filing

between of of to the the

parties.

The COMEX rules statement transaction . . .I! of or claim event The Second

an arbitration date claim of the

one year gave rise

or grievance -ll-

Circuit

in

Conticommodity

stated

that

"the

validity

of

time

bar defenses should

the

to the enforcement be determined

of arbitration by the arbitrator Pursuant

agreements rather

than

generally

court.11

613 F.2d at 1225. the 'making'

to Section to arbitrate

4 of the or

FAA Vnless 'the is failure, in dispute,

of the agreement or refusal'

must

neglect, the court

of one party

to arbitrate (emphasis Civ. &

compel arbitration.'1 Tehran-Berkeley

added)

613 F.2d at 1225.

(See also 816 F.2d

Enq. v. Tippetts-Abbett,

Trafalqar Shippinq Co.

864 (2d Cir.

Millinq

1987) and

Co.

International

, 401 F.2d

568 (2d Cir.1968)). held:

The Conticommoditv

Court

ultimately

It is undisputed that there was an agreement to arbitrate and that Conti has refused to do so. The dispute instead concerns whether Philipp's original demand to arbitrate its dispute with Conti was timebarred under the one-year provision in the parties' private agreement or under the COMEX rule. Under the cases already discussed, this question is within the exclusive province of the arbitrator (citation omitted). This does not mean that the one-year limitation period in the contract is meaningless, since there is no reason to assume that an arbitrator will ignore any provision of the agreements that bind the parties. It does mean that the arbitrator, not the court, should determine the effect of the oneyear limitation. Shearson leading filed Lehman Hutton, case, Inc. v. Wagoner, supra., another

Second Circuit against

.

involved

a customer

complaint

Shearson

at the New York Stock customer agreement

Exchange '*any to

("NYSE")

The relevant arising

provided

controversy

out of or relating -12.

to my account,

transactions breach (Compare agreement filed In thereof, this

with

you shall

for

me

or

this

authorization . .

or .'I

the

be settled with at the

by arbitration almost identical 42-47.) the

language

customer Shearson

language in the

herein Federal

Boone Court

ROA at to stay

a petition reversing

arbitration. that Second Circuit

District were

Court's for the

determination courts, the

timeliness stated:

questions

'any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . [including] an allegation of waiver, delay, or'a like defense to arbitrability.' [citing Moses H. Cone Memorial HOSP., supra] . . . 'doubts regarding [the intent of the parties] must also be resolved in favor of arbitrability' [McDonnell Douglas Fin. Corp., supra, 858 F.2d at 831) 'Again, when the contract contains a 'broad' arbitration clause, as the one at issue, that purports to 'refer all disputes arising out of a contract to arbitration,' the strong presumption in favor of arbitrability applies with even greater force.' Id. at 832, (citing AT & T Technologies, 475 U.S. at 650, 106 S.Ct. at 1419). All issues as to at Federal has forum with are offer been for timeliness NYSE. Court upon to for the Southern the issue in District of the of were ultimately referred to the

arbitrators The New York proper disputes decisions and can Noonan,

the

District called determining

address

eligibility in recent several Court. 1992) In

issues years. are Merrill well

securities the

great not

frequency authoritative, to the

Though

reasoned Lynch v.

guidance

1992 WL 196741

(S.D.N.Y.

Judge

Kram

stated:

-13.

.

First, the rules of the various SROs specifically provide that this decision [as to the timeliness of claims under the NASD Code] should be left to the arbitrators. Section 35 of the NASD Code of Arbitration Procedure, for example, provides that 'the arbitrator shall be empowered to interpret and determine the applicability of all provisions under this Code which interpretation shall be final and binding upon the parties.' Further, in Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 121 (2d Cir. 1991), the court held that 'any limitations defense -- whether stemming from the arbitration agreement, arbitration association rule, or state statute -- is an issue to be addressed by the arbitrators.' (citing Conticommoditv Serv. v. Phillip & Lion, 613 F.2d 1222, 1224-25 (2d zr. 1980)). Since the NASD Code reserves the right to interpret all provisions under its Code, including Section 15, and since the Second Circuit has mandated that any limitations defense is in the province of the arbitrators, this Court compels arbitration before the NASD in New York City and defers to the arbitrator's judgment on the issue of the timeliness of respondent's claims. In Merrill 1993), Lynch v. Shaddock, at 822 F. Supp 131 (S.D.N

l

Y

.

the Court

stated:

There is little dispute as to the interstate nature of the transactions underlying this controversy: they involve investors from Colorado, a New York financial institution, and the execution of trades involving financial instruments on a national exchange. On this ground at least, respondents' reliance on the FAA is unimpeachable. In Shaddock, the Court went on to state:

That the [Federal Arbitration] Act and subsequent court decisions embrace a clear federal policy in favor of arbitration is now virtually axiomatic and, thus, the numerous decisions underscoring a strong presumption in favor of arbitrability need not be recounted here at length. It suffices to state that where the agreement contains a 'broad' -14.

arbitration clause, such as the one at issue here, purporting to submit to arbitration 'any controversy between us arising out of'your business or this agreement,' the strong presumption in favor of arbitrability has been held to apply with even greater force. (citations omitted) Under this presumption, any doubts as to the arbitrability of particular issues must be resolved in favor of arbitration; moreover, statute of limitations defenses have been specifically held by the Second Circuit to be an issue for the arbitrators. Wagoner, 944 F.2d at 121. The Shaddock court ultimately held:

Rather, under the clear direction of the law in this circuit, these [time limitation] defenses must be submitted to the NASD arbitration panel for resolution. Wagoner, 944 F. 2d at 121. Consequently, Merrill Lynch's motion for a permanent stay of the pending arbitration proceedings is denied. It is respectfully of arbitrators industry issue the suggested FAA utilized questions arbitration arguably the issue of that this Court Second employ Circuit under If require the the an to the that

interpretation remands broad to

by the

timeliness agreements. be said should to

securities at

agreement arbitral the

can even then

determination

be referred

arbitrators. THE FIFTH CIRCUIT HAS LIBERALLY READ ARBITRATION CLAUSES CONSISTENT WITH THE FAA MANDATE The Fifth Circuit, given and the District reading in light Austin Securities Courts to of in this

POINT IV.

jurisdiction, provisions underlying Securities

have such the v.

an expansive one at issue

arbitration the Mun. Dealers, policies

as the

FAA as discussed National Association -15-

herein. of

Inc., Pierce,

757 F.2d 676 (5th Fenner -& Smith

Cir.

1985);

Smith

v 2

Merrill

Lynch,

Incorporated, Gas Pipeline

575 F.Supp 904 (N.D.Tex. Corporation 1991). v. Dakota

1983) ; Transcontinental Gasification Austin against Co.,

782 F.Supp 336 (S.D.Tex. claims This by Austin, determined

involved

a member of the NASD, that Austin was

the NASD.

Court

bound by an arbitration membership controversy agreement arising that

provision provided:

contained Ir\.ny

in the NASD dispute, with claim or

out of or in connection

the business (2) between . . .I is

of any member . . . (1) between or among members and public subject provision NASD. to arbitration," required This Court Austin stated:

or among members; or others was whether his claim

customers The issue to arbitrate

the relevant with the

The arbitration clause is ambiguous, and arguably covers this dispute . . . The arbitration agreement fails to clearly resolve whether the agreement to arbitrate encompasses claims that also involve the NASD itself, or claims arising out of the acts of its officers. In light of the federal policy favoring arbitration, however, the written agreement to submit disputes to arbitration should be liberally construed, and any doubt as to arbitrability should be resolved in favor of arbitration. Moses H. Cohen Memorial Hospital v. Mercury Construction COG., 460 U.S. 1, 24-25, 103S.ct. 927, 941, 74 L.Ed.2d 765 (1983) See also Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979) ('unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue, then a stay pending arbitration should be granted.')

l

C

-160

In Austin

this

Court

ultimately

held:

The district court, therefore, lacks discretion to decide whether to stay the proceedings, despite the presence of any intertwining nonarbitrable claims. The district court is directed to compel arbitration on any arbitrable issues, including the defamation and intentional interference with business relations claims. In Smith provided

V.

Merrill

Lynch,

supra

the relevant

agreement

"any controversy

l

between

me and any member or the

organization termination arbitration.11 issue took

. .

arising

out of my employment shall be settled that since by

of my employment Merrill place after

Lynch claimed Smith left its

the events the arbitration and added: matter of

The

at

employ,

agreement

was not in force. any doubts agreements (citing denied

The court

disagreed

llFurthermore, arbitration arbitration." court therefore

concerning

the subject

of

are to be resolved Moses H aMerrill

in favor

Cone Hospital. Lynch's

supra.)

application

to stay

arbitration.

POINT V. THE SECOND, FOURTH, EIGHTH, NINTH AND ELEVENTH CIRCUITS HAVE CONSTRUED ARBITRATION CLAUSES LIBERALLY IN KEEPING WITH THE DICTATES OF THE FAA

The Second Circuit interpretation in arbitration See the Fourth Prudential 1989),

is not alone that

in its timeliness issues

of the FAA as requiring agreements Circuit be determined

by the arbitrators. Miller v. Cir.

decisions Inc.

including

884 F.2d

Bathe Securities, of Durham

V,

128 (4th

County

Richards

-& Associates,

742 F.2d

811 (4th 922 (4th Automotive,

Cir. Cir.

1984), 1981); Petroleum

In -- Re Mercury Eighth Circuit

Con&r. decisions Industries

Corp.,

656 F.2d

including v. Town and FSC Securities 4th Div.); Ninth

and Allied

County Ford, Corp. Circuit v.

709 F.2d 509 (8th 811 F.Supp. including, Inc., decisions,

Cir.

1983),

Freel, decisions,

439 (D.Ct.Minn., O'Neel v A

National

Association Cir. 1982); Merrill Cir.

of Securities and Eleventh Lunch. 1982). POINT VI. Pierce,

Dealers, Circuit

667 F.2d 804 (9th including 693 F.2d

Belke v A 1023 (11th

Fenner - Smith, &

The FAA is Controlling Despite a New York Choice of Law Provision in an Arbitration Agreement Many of the standard securities industry be governed customer and Article

that

agreements interpreted

provide

that

such agreements

by the laws of the State Practice issues

of New York.

75

of the New York Civil statute of limitations industry

Law and Rules be determined that this

provides

by the Courts. requires issues Inc., courts under 489

,

The securities applying

has argued

New York law to determine citing Volt

timeliness

the SRO rules, U.S. 468, supra.

Information this

Sciences,

However,

has been met with including \ Court

universal in the

condemnation Second Circuit.

in the Federal

Courts,

those

In Wawner, applied that

supra,

the Second Circuit embodying the

FAA,

of Appeals

the precepts

and the determination decide the

arbitrators

and not the courts

should

applicability existence

of time

limitations

issues,

despite

the See also 1056,

of a New York choice Corp. 1991) though Ackerberq (Minnesota

of law provision. Ltd., than

Todd Shipvards 1062 (9th rules Cir.

v. Cunard Line, (federal contract rather contained

943 F.2d state

arbitration of law (8th

apply,

New York choice 1328,

provision); Cir. 1989)

v. Johnson, choice-of-law of claims that

892 F.2d provision

1333-34

does not under under Bevt,

prevent Minnesota federal Rish, 1992)

arbitration

are non-arbitrable arbitrable

law where such claims law); Appalachian Group,

otherwise

Reqional

Healthcare, 963 F.2d

Inc . v. Cir.

Robbins (choice

Architects,

373 (6th

of law provision of state rather

does not operate than federal Inca

to require law); 151, 1560

application Barbier v A

arbitration 752 F.Supp. does not

Shearson 1990)

Lehman Hutton, (choice-of-law rules); on the

58 (S.D.N.Y. implicate 125,

provision

state

arbitration discussion

and Shaddock,

822 F.Supp.

(general

issue).

CONCLUSION Based upon the foregoing, Arbitration urges Circuit Bar Association States Court the Public Investors respectfully the Fifth below, or

as amicus

curiae for

the United affirm

of Appeals

the Opinion conduct

and Order

of the Court of that

in the alternative and render

a de novo review that under

decision of the

a determination

the precepts

-19-

Federal pursuant issue

Arbitration to herein the are

Act, securities the

questions industry of the

of

timeliness

of

claims at

arbitration arbitrators. submitted,

agreements

province

Respectfully

L. Jerbme Stanley LAW OFFICES OF L. JEROME 7909 Wrenwood Boulevard, Suite Baton Rouge, Louisiana 70809

C

Michael P. Gilmore John E. Lawlor LAW OFFICES OF JOHN E. LAWLOR, ESQ. 1461 Franklin Avenue Garden City, New York 11530 PUBLIC INVESTORS BAR ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF DEFENDANT-APPELLANT WARREN BOONE

-2o-

Information

94-9174 and 94-10031: Smith Barney Shearson v. Warren Boone and Scott G. Sherman

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