Marchese v. Shearson Hayden Stone, Inc.
| Decision Date | 01 June 1984 |
| Docket Number | 83-6014,Nos. 83-6013,s. 83-6013 |
| Citation | 734 F.2d 414 |
| Parties | Dominic MARCHESE, Plaintiff-Appellant, v. SHEARSON HAYDEN STONE, INC., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
David Daar, Miller & Daar, P.C., Beverly Hills, Cal., for plaintiff-appellant.
J. Stephen Young, Keesal, Young & Logan, Long Beach, Cal., Willkie, Farr & Gallagher, Armando T. Belly, Brian E. O'Connor, Martha B. Dietz, New York City, for defendant-appellee.
Appeal from the United States District Court for the Central District of California.
Before CHAMBERS, TANG, and SKOPIL, Circuit Judges.
This case concerns two separate district court actions that have been consolidated on appeal. We are again "confronted with the competing tensions of access to the courts and arbitration." Amaro v. Continental Can Co., 724 F.2d 747, 748 (9th Cir.1984). At the outset we must decide if a valid arbitration agreement exists between the parties. If we hold such an agreement exists, we must then decide: (1) whether a declaratory relief action concerning interpretation of a provision of the Commodity Exchange Act ("CEA") is properly referable to arbitration; (2) whether the district court erred in holding an implied private right of action does not exist under the CEA; (3) whether the district court erred in ordering arbitration of a breach of fiduciary duty claim; and (4) whether the district court erred in confirming the arbitrator's decision on the breach of fiduciary duty claim. We affirm in part, reverse in part, and remand.
For at least the past seven years Dominic Marchese engaged in commodities futures trading 1 through Shearson Hayden Stone, Inc. ("Shearson"), a securities broker and commodities futures commission merchant. The relationship between Marchese and Shearson has been governed by a series of "Commodity Customer Agreements". The last two contracts between the parties were entered in December 1976 ("1976 Agreement") and August 1977 ("1977 Agreement"). The 1977 contract contained an arbitration agreement that is set off from the principal agreement and is separately endorsed. 2 Marchese signed this 1977 In 1978 Marchese filed a district court action in which he sought a declaratory judgment that the "increment and interest" on funds maintained pursuant to section 4d of the CEA, 7 U.S.C. Sec. 6d, and its attendant regulations can only be retained by Shearson up to the amount of its lawful commission ("1978 action"). The district court held that the arbitration clause in the 1976 Agreement was void. It found the arbitration provision failed to meet the requirements set forth in 17 C.F.R. Sec. 180.3(b)(2) & (4) that arbitration clauses be separately endorsed and contain cautionary language in bold-faced type. It did hold, however, that the 1977 agreement, which contained the cautionary language, was valid and that the claim presented in the 1978 action was within the scope of that agreement. Accordingly, it stayed this proceeding and ordered Marchese to submit this claim to arbitration.
Agreement when he opened with Shearson an account that is not a subject of these controversies. In fact, no margin was ever deposited and no trading conducted in that account.
In 1979 Marchese filed a related but distinct district court action ("1979 action"). In this claim he sought damages for losses he allegedly incurred from Shearson's mishandling of his account in violation of the CEA. The district court granted Shearson's motion for judgment on the pleadings on the ground that there was no implied private right of action for violation of the CEA. Marchese amended his complaint to allege a breach of fiduciary duty in addition to the CEA claim. Again the district court stayed the action and ordered Marchese to submit this claim to arbitration.
An arbitration panel selected by the New York Stock Exchange, Inc. considered both of these claims. In February 1983 the arbitrators issued a decision that "dismissed" both claims. Upon Shearson's motions, the court confirmed the arbitrator's decision and dismissed with prejudice both the 1978 and 1979 actions.
The interpretation of a contract is a mixed question of fact and law. Interpetrol Bermuda, Ltd. v. Kaiser Aluminum International, 719 F.2d 992, 997 (9th Cir.1983) (citation omitted). If the district court makes factual findings concerning what the parties said and did, they are subject to clearly erroneous review. Id. We are here concerned with the principles of contract interpretation which are legal issues that are reviewed de novo. Id.
Marchese advances a host of arguments that the district court erred in relying on the 1977 arbitration agreement to compel arbitration of his claims. We find them unpersuasive.
The district court determined that, when the accounts in question here were Marchese further claims the 1977 Agreement is not supported by consideration because he never deposited any margin into the account and did not conduct any transactions in it. This, too, is without merit. The preamble to the 1977 Agreement stated: "In consideration of your accepting my account and your agreement to act as my broker, I agree to the following with respect to any of my accounts with you." (emphasis added). This specifies the consideration involved. Furthermore, the accounts forming the bases of this lawsuit were evidently active after Marchese signed the 1977 Agreement. The 1977 Agreement applied to these accounts. Trading in these accounts is evidence of additional consideration to support the agreement.
opened, the arbitration agreements between the parties were invalid. Shearson does not question that finding. The 1977 Agreement--the last agreement between the parties--was entered into after Marchese opened the accounts that form the basis of these controversies. Marchese claims the 1977 agreement does not apply to the accounts forming the basis of his claims. This argument is faulty. Paragraph 13 of the 1977 Agreement expressly states that "the signing of this agreement revokes any and all other agreements made with Shearson Hayden Stone, Inc." Therefore, the 1977 Agreement superseded all other agreements between the parties and covered all of Marchese's accounts
A third argument advanced by Marchese is that the 1977 Agreement was induced by fraud and is therefore invalid. Specifically, he claims that Shearson was in a fiduciary relationship with him and that its failure to advise him of the invalidity of the previous arbitration clauses constituted constructive fraud within the meaning of California Civil Code Sec. 1573. 3 We disagree.
As a securities broker and commodities futures commission merchant, Shearson stood in a fiduciary relationship with Marchese. See Securities & Exchange Commission v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194, 84 S.Ct. 275, 284, 11 L.Ed.2d 237 (1963). This status imposed on it an "affirmative duty of utmost good faith, and full and fair disclosure of all material facts." Id. We find that Shearson did not breach this duty or engage in any constructive fraud. First, the 1977 Agreement cited the relevant federal protective regulations, including 17 C.F.R. Sec. 180.3. There was no concealment of the existence of these regulations or the fact that these regulations invalidated the previous agreements. Cf. Smoky Greenhaw Cotton Co., Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 720 F.2d 1446, 1450-51 (5th Cir.1983) (). Second, the 1977 Agreement contained the necessary cautionary language, including the provision that Marchese "need not sign this arbitration agreement to open an account with Shearson Hayden Stone." This emphasized the voluntariness of the decision to agree to arbitration. The agreement expressly stated that signing this new "Commodity Customer Agreement" revoked all other agreements. Marchese could have entered into the basic Commodity Customer Agreement without agreeing to the separate arbitration provision. Had he not desired arbitration, he could have effectively repudiated his prior arbitration agreements by signing the basic agreement but not endorsing the arbitration provision. We find that Shearson did not fail to disclose any material information that resulted in any advantage to it.
We now consider whether it was proper for the district court to refer Marchese's 1978 claim to arbitration. Section 4d(2) of the CEA, 7 U.S.C. Sec. 6d(2), places restrictions on the manner in which a futures commission merchant may deal with the "money, securities and property" of a customer. The statute provides in part that the customer's "money may be invested in [certain] obligations ... in accordance with such rules and regulations and subject to such conditions as the Commission may prescribe." 7 U.S.C. Sec. 6d(2). 17 C.F.R. Sec. 1.29 provides in part that the permissible investments "shall not prevent the futures commission merchant ... investing such funds from receiving and retaining as its own any increment or interest resulting therefrom." See also 17 C.F.R. Sec. 1.25.
Marchese's 1978 action is brought as a class action and seeks a declaratory judgment that section 4d of the CEA, 7 U.S.C. Sec. 6d, and its attendant...
To continue reading
Request your trial
-
McLendon v. Continental Group, Inc.
...he could also have chosen one of these fora but not the other, as plaintiffs have done here. See, e.g., Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 419-21 (9th Cir.1984) (action brought under Commodities Exchange Act); Peabody Galion v. Dollar, 666 F.2d 1309, 1319-23 (10th Cir.19......
-
Evanston Bank v. Conticommodity Services, Inc.
...most courts, before finding a § 6b violation, look for at least knowing and deliberate conduct. See Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414 (9th Cir.1984); Silverman v. CFTC, 549 F.2d 28, 31 (7th Cir.1977); Haltmier v. CFTC, 554 F.2d 556 (2d Cir.1977). The standard for private......
-
U.S. for Use of C.J.C., Inc. v. Western States Mechanical Contractors, Inc.
...interpretation of a facially clear contract is considered a question of law and is for the court."); Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 417 (9th Cir.1984) ("The interpretation of a contract is a mixed question of fact and law."). The standard of review, however, does not......
-
Conover v. Dean Witter Reynolds, Inc.
...omitted). For other cases comparing the relative merits of judicial proceedings and arbitration, see Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 419-421 (9th Cir.1984) (declaratory relief action concerning the interpretation of the Commodities Exchange Act is not arbitrable); Ama......
-
Pslra, Slusa, and Variable Annuities: Overlooked Side Effects of a Potent Legislative Medicine - Michael J. Boren
...holds that a stockbroker always owes a fiduciary duty to the customer. Id. at 418-20; see, e.g., Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 418 (9th Cir. 1984); Roth v. Roth, 571 S.W.2d 659, 668 (Mo. Ct. App. 1978). A related approach embraces the law of agency, reasoning that t......
-
Errors and omissions coverage for securities brokers.
...83. (5.)See, e.g., Irish v. Securities & Exchange Comm'n, 367 F.2d 637 (9th Cir. 1966). (6.)Marchese v. Shearson Haydon Stone Inc., 734 F.2d 414, 418 (9th Cir. 1984). (7.)Carol R. Goforth, Stockbrokers' Duties to Their Customers, in SECURITIES LAW REVIEW--1990 483, 494-512. (8.)E.g., Mi......