Byrd v. Dean Witter Reynolds, Inc., 83-5736

• Citation: 726 F.2d 552
• Decision Date: 22 February 1984
• Docket Number: No. 83-5736,83-5736
• Parties: Blue Sky L. Rep. P 71,937, Fed. Sec. L. Rep. P 99,679 A. Lamar BYRD, Appellee, v. DEAN WITTER REYNOLDS, INC., a Delaware corporation, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 552

726 F.2d 552

Blue Sky L. Rep. P 71,937, Fed. Sec. L. Rep. P 99,679

A. Lamar BYRD, Appellee, v. DEAN WITTER REYNOLDS, INC., a Delaware corporation, Appellant.

No. 83-5736.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 6, 1983.

Decided Feb. 22, 1984.

Eric V. Benham, Sullivan, Delafield, McGrath, & McDonald, San Diego, Cal., for appellee.

Eugene W. Bell, Kevin K. Fitzgerald, Jones, Bell, Simpson & Abbott, Los Angeles, Cal., for appellant.

William J. Fitzpatrick, New York City, amicus curiae.

Appeal from the United States District Court for the Southern District of California.

Before GOODWIN and TANG, Circuit Judges and AGUILAR, ^* District Judge.

GOODWIN, Circuit Judge.

Dean Witter appeals the denial of its motion for an order severing Byrd's pendent state-law claims, compelling their arbitration, and staying such arbitration until after resolution of his federal securities claim. We have jurisdiction because the denial of the stay is an interlocutory order refusing an injunction under 28 U.S.C. Sec. 1292(a)(1). We affirm.

Byrd alleges that he sold his dental practice and invested the $160,000 proceeds through Gale, Dean Witter's employee. Between September 1981 and March 1982 the value of the account declined by more than $100,000 due to allegedly improper handling by Gale. During this period Byrd alleges that Gale represented that the account was making a profit. The broker-client contract contained an agreement to arbitrate disputes arising out of the management of the account.

The United States Arbitration Act, 9 U.S.C. Sec. 1, et seq., provides that arbitration agreements are to be given effect. A federal court must stay an action if an issue involved is subject to a written arbitration agreement, 9 U.S.C. Sec. 3. Notwithstanding the statute and the contractual agreement to arbitrate, because of the protective intent of the federal securities laws, arbitration of Byrd's claim under the Securities Exchange Act of 1934 is not compelled. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953); De Lancie v. Birr, Wilson & Co., 648 F.2d 1255, 1259 (9th Cir.1981); Sibley v. Tandy Corp., 543 F.2d 540, 543-544 (5th Cir.1976), cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977) (requiring arbitration of contractual claims before judicial resolution of securities claims); Greater Continental Corp. v. Schechter, 422 F.2d 1100, 1103 (2d Cir.1970).

In response to Dean Witter's contention that the federal securities claim should be tried in federal court and that the state-law claims should be arbitrated afterwards, Byrd asserts that the state and federal claims are so intertwined that to try them sequentially would cause needless delay and expense. We have previously addressed the doctrine of intertwining only once, by way of an approving reference in a footnote. De Lancie v. Birr, Wilson & Co., 648 F.2d at 1258-1259 n. 4. District courts in the Ninth Circuit are split on this issue. Roueche v. Merrill Lynch Pierce Fenner & Smith, Inc., 554 F.Supp. 338 (D.Hawaii 1983), and Macchiavelli v. Shearson Hammill & Co., 384 F.Supp. 21, 31 (E.D.Cal.1974), adopted the bifurcated approach, i.e., trying the federal claims first and then leaving the state-law claims for arbitration. Cunningham v. Dean Witter Reynolds, Inc., 550 F.Supp. 578 (E.D.Cal.1982), and Milani v. Conticommodity Services, Inc., 462 F.Supp. 405, 407 (N.D.Cal.1976), adopted the intertwining approach, i.e., not saving the state-law claims for arbitration. Cunningham, Macchiavelli, and Milani all asserted that the district court had discretion whether to order arbitration of the state-law claims or to try all claims in federal court.

Some courts have held denial of arbitration to be justified when the facts supporting all of the claims are intertwined, because arbitration of state claims could produce results that in effect would bind the federal court through issue preclusion as to the facts material to the federal securities claims. See, e.g., Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023 (11th Cir.1982); Miley v. Oppenheimer & Co., 637 F.2d 318 (5th Cir.1981).

Other circuits have held that when nonarbitrable federal securities claims are joined with claims subject to a valid arbitration agreement, a district court must separate the federal and state claims, order arbitration of the state claims, and stay arbitration of the state claims pending resolution of the federal securities claim. Liskey v. Oppenheimer & Co., 717 F.2d 314 (6th Cir.1983); ¹ Dickinson v. Heinold Securities, Inc., 661 F.2d 638 (7th Cir.1981).

Given that "a federal court has the sole right to decide the ultimate issues essential to a federal securities law...