875 F.2d 71 (4th Cir. 1989), 86-2146, Jeske v. Brooks
|Docket Nº:||86-2146, 86-2167, 87-2047 and 87-2048.|
|Citation:||875 F.2d 71|
|Party Name:||, RICO Bus.Disp.Guide 7203 Herbert A. JESKE, Plaintiff-Appellee, v. George E. BROOKS; Robinson-Humphrey Company, Inc.; Shearson Lehman Brothers, Inc., Defendants-Appellants (Two Cases). Herbert A. JESKE, Plaintiff-Appellant, v. George E. BROOKS; Robinson-Humphrey Company, Inc.; Shearson Lehman Brothers, Inc., Defendants-Appellees (Two Cases).|
|Case Date:||May 11, 1989|
|Court:||United States Courts of Appeals, Court of Appeals for the Fourth Circuit|
Argued June 6, 1988.
Randel Eugene Phillips (James P. McLoughlin, Jr., Moore & Van Allen, Charlotte, N.C., Theodore A. Krebsbach, Jeffrey L. Friedman, Mary E. Reisert, Shearson Lehman Hutton, Inc., on brief), for defendants-appellants.
David L. Terry (Ernest W. Machen, Jr., Paul B. Taylor, Blakeney, Alexander & Machen, Charlotte, N.C., on brief), for plaintiff-appellee.
Before HALL, MURNAGHAN and WILKINS, Circuit Judges.
MURNAGHAN, Circuit Judge:
We are called upon to decide two issues: (1) whether the district court erred in refusing to order arbitration of federal claims under the Securities Act of 1933 ("Securities Act"), the Securities Exchange Act of 1934 ("Exchange Act"), and the Racketeer Influenced and Corrupt Organization Act ("RICO"), and (2) whether the district court erred in compelling arbitration of various state law claims. We conclude that the district court should have ordered arbitration of the federal claims and should have stayed litigation of those claims pending the arbitration. However, we lack jurisdiction to review the district court's order compelling arbitration of the state claims.
The case before us arose out of a dispute between an investor and his former stockbroker. The investor is Herbert A. Jeske, who began dealing with George E. Brooks, a broker, in late January 1983. At that time Brooks was an employee of Robinson-Humphrey Company, Inc. ("Robinson-Humphrey"), a subsidiary of Shearson-Lehman Brothers, Inc. ("Shearson-Lehman"). Jeske signed a standard customer's agreement with Brooks in March 1983. Paragraph 13 of the agreement contained an arbitration clause covering all disputes over matters relating to the agreement. 1 Paragraph 15 of the agreement provided that any provisions of the agreement that conflicted with laws or administrative regulations "shall be deemed to be rescinded or modified in accordance with any such rule, law, or regulation."
Eight months after Jeske signed the agreement, the Securities and Exchange Commission ("SEC") adopted Rule 15c2-2, which provided, in pertinent part, that:
[i]t shall be a fraudulent, manipulative or deceptive act or practice for a broker or dealer to enter into an agreement with any public customer which purports to bind the customer to the arbitration of future disputes between them arising under the Federal securities laws, or to have in effect such an agreement, pursuant to which it effects transactions with or for a customer.
17 C.F.R. Sec. 240.15c2-2(a) (1987). The rule took effect December 28, 1983. The SEC rescinded the rule effective October 21, 1987.
Jeske filed suit in 1986 against Brooks, Robinson-Humphrey and Shearson-Lehman, seeking recovery under Sections 12(2) and 17 of the Securities Act, 2 15 U.S.C. Secs. 77l (2) and 77q; Section 10(b) of the Exchange Act, 15 U.S.C. Sec. 78j(b) and SEC Rule 10b-5; and RICO, 18 U.S.C. Sec. 1961 et seq. Jeske also asserted a variety of state law claims against the defendants, based on theories of fraud, breach of contract, negligence, breach of fiduciary duty, and violations of the North Carolina Securities Act, N.C.Gen.Stat. Sec. 78A-1 et seq., and the North Carolina Unfair Trade Practices Act, N.C.Gen.Stat. Sec. 75-1.1. Jeske alleges that Brooks advised him to make certain inappropriate investments that resulted in losses.
Brooks and the other defendants, relying on the arbitration clause in the customer's
agreement, moved to stay litigation pending arbitration. The district court ruled that Jeske's state law claims were arbitrable but that his federal claims were not. Accordingly, the district court compelled arbitration of the state claims but refused to order arbitration of the federal claims. 3
Parties on both sides of the dispute appealed. 4
While the parties' appeals were pending, our jurisdiction was called into question by the Supreme Court's decision in Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988). Gulfstream abolished the Enelow-Ettelson 5 doctrine, which had provided courts a basis of jurisdiction to review interlocutory orders granting or denying motions to stay litigation pending arbitration. We subsequently held in two unrelated cases that orders denying stays pending arbitration or refusing to compel arbitration were appealable under 28 U.S.C. Sec. 1292(a)(1), notwithstanding the holding in Gulfstream. J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 318 (4th Cir.1988); Kansas Gas & Elec. Co. v. Westinghouse Elec. Corp., 861 F.2d 420, 422 (4th Cir.1988). However, it remained unclear after...
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