Adams v. Merrill Lynch, Pierce, Fenner & Smith

• Decision Date: 31 October 1989
• Docket Number: Nos. 85-2622,87-2471 and 88-1797,s. 85-2622
• Citation: 888 F.2d 696
• Parties: Fed. Sec. L. Rep. P 94,775 L.A. ADAMS; Johnnie Mae Adams; Margaret I. Baker; Gracie Moore, Plaintiffs-Appellants, v. MERRILL LYNCH PIERCE FENNER & SMITH, a corporation; Leo Roepke, an individual; Tom Busby, an individual, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 696

888 F.2d 696

Fed. Sec. L. Rep. P 94,775

L.A. ADAMS; Johnnie Mae Adams; Margaret I. Baker; Gracie Moore, Plaintiffs-Appellants, v. MERRILL LYNCH PIERCE FENNER & SMITH, a corporation; Leo Roepke, an individual; Tom Busby, an individual Defendants-Appellees.

Nos. 85-2622, 87-2471 and 88-1797.

United States Court of Appeals Tenth Circuit.

Oct. 31, 1989.

Submitted on the Briefs. ^*

Jack G. Bush, Gary R. Underwood, Alan E. Synar of Bush, Underwood & West, and Bush & Underwood, Oklahoma City, Okl., for plaintiffs-appellants.

Bruce W. Day, William B. Federman, Pamela D. McAllister, Rodney J. Heggy of Day & Timmons, and Day Hewett & Federman, Oklahoma City, Okl., for defendants-appellees Merrill Lynch Pierce Fenner & Smith, Inc. and Leo Roepke.

Before McKAY, SETH, and BRORBY, Circuit Judges.

BRORBY, Circuit Judge.

This case involves separate appeals of three orders of the district court compelling arbitration of claims arising under the Securities Act of 1933, the Securities Exchange Act of 1934, the securities laws of the State of Oklahoma, and common law fraud, breach of fiduciary duty, breach of contract, and negligent management. We affirm.

L.A. Adams, Johnnie Mae Adams, Margaret I. Baker, and Gracie Moore (Investors), engaged Merrill Lynch, Pierce, Fenner & Smith and its agents (Merrill Lynch) as their authorized broker-dealer in connection with the purchase and sale of securities and commodities. All of the Investors, except Gracie Moore, acknowledge executing a Standard Option Agreement, ¹ which contains an arbitration clause. The Standard Option Agreement reads in part:

Any controversy between us arising out of such option transactions or this agreement shall be settled by arbitration only before the National Association of Security Dealers, Incorporated, or the New York Stock Exchange, or an Exchange located in the United States upon which listed options transactions are executed....

The Customer Agreement, signed by each investor, also contains an arbitration clause which reads as follows:

It is agreed that any controversy between us arising out of your business or this agreement shall be submitted to arbitration conducted under the provisions of the Constitution and Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the National Association of Securities Dealers, Inc., as the undersigned may elect....

Investors filed a lawsuit alleging that Merrill Lynch violated numerous federal securities laws by misrepresenting material facts, treating their accounts as if they were discretionary, broker-controlled accounts, and "churning" the accounts for the purpose of generating excessive commissions. The Complaint also alleged the aforementioned pendent state claims.

Merrill Lynch filed a motion to compel arbitration of the claims arising under the Securities Exchange Act of 1934 and of the state and common law claims, and a motion to stay the action until the completion of arbitration. By Order entered on September 20, 1985, the district court granted Merrill Lynch's motion to compel arbitration as to Investors' state and common law claims and denied the motion as to the federal claims. The district court further granted Merrill Lynch's motion to stay all proceedings until arbitration was completed in accordance with the arbitration agreements at issue in the case. Investors appealed the district court's order compelling arbitration of the state and common law claims. Merrill Lynch cross-appealed the district court's denial of the motion to compel arbitration of the federal claims, and subsequently dismissed the same pursuant to stipulation. Investors' appeal of Order No. 1 is docketed in this court as No. 85-2622.

Following the Supreme Court's decision in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), Merrill Lynch filed a motion pursuant to Fed.R.Civ.P. 60(b)(6), asking the district court to reconsider its previous order partially denying arbitration. In view of McMahon, the district court found the case presented an "extraordinary situation" justifying relief under Rule 60(b)(6). By Order entered on August 27, 1987, the district court granted Merrill Lynch's motion and ordered to arbitration all Investors' federal claims arising under Sec. 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, along with all Investors' state and common law claims previously ordered to be arbitrated. The district court denied Merrill Lynch's motion to compel arbitration of Investors' federal claims arising under the Securities Act of 1933, even though Merrill Lynch had not requested such relief. Investors' appeal of Order No. 2 is docketed in this court as No. 87-2471.

In February 1988, Merrill Lynch filed a motion to compel Investors to arbitrate their claims arising under the Securities Act of 1933, which by this time were the sole remaining claims. By Order entered April 21, 1988, the district court ordered Investors to arbitrate their claims under the Securities Act of 1933 in conjunction with their claims under the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, as well as their claims under state and common law. With the entry of this order, all of Investors' claims were subjected to arbitration. Investors' appeal of Order No. 3 is docketed in this court as No. 88-1797.

I. JURISDICTION

In two of the three appeals, Merrill Lynch raises jurisdiction as an issue on appeal. Citing Pioneer Properties, Inc. v. Martin, 776 F.2d 888, 892 (10th Cir.1985), Merrill Lynch argues in No. 85-2622 that the district court order staying all proceedings pending arbitration is not an appealable order. Citing Quinn v. CGR, 828 F.2d 1463 (10th Cir.1987), Merrill Lynch argues in No. 87-2471 that the district court's order enforcing the terms of an arbitration agreement and directing the parties to arbitrate their dispute is not a final appealable order. We are not persuaded that we lack jurisdiction. Because Order No. 3 terminated the judicial controversy, we have jurisdiction to hear the consolidated appeals.

Ordinarily, an order compelling arbitration is not a final order under 28 U.S.C. Sec. 1291. Quinn, 828 F.2d at 1465 (citing Pioneer Properties, 776 F.2d at 890). At the time of the first two appeals, this court did not have jurisdiction. The first two orders appealed by Investors ordered specified claims to arbitration and stayed the proceedings until the completion of arbitration. As of the entry of the first two orders, the district court made no findings permitting an appeal under Fed.R.Civ.P. 54(b), which states:

When more than one claim for relief is presented in an action, ... the court may direct the entry of a final judgment as to one or more but fewer than all of the claims ... only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. In the absence of such determination and direction, any order ... which adjudicates fewer than all the claims ... shall not terminate the action as to any of the claims ... and the order ... is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties.

(Emphasis added.) With the entry of the third order, however, the district court effectively terminated the judicial controversy. Because the third order compelled arbitration of all remaining claims and the trial court did not retain jurisdiction, there was nothing left for the district court to adjudicate. When a district court has adjudicated all remaining outstanding claims before the appellate court acts to dismiss the appeal, we will consider the appeal on its merits rather than dismiss for lack of jurisdiction. Lewis v. B.F. Goodrich Co., 850 F.2d 641, 645 (10th Cir.1988). We therefore have jurisdiction in these appeals.

II. No. 85-2622

First we consider Investors' appeal of the order of the district court dated September 20, 1985, whereby it ordered arbitration of Investors' pendent state law claims, refused to order arbitration of the claims arising under the 1934 Securities Exchange Act, and stayed the proceedings pending completion of arbitration. Investors assert: (1) Investor Gracie Moore cannot be compelled to arbitrate because she did not sign a customer agreement; (2) the agreements to arbitrate cannot be enforced because they are contracts of adhesion; (3) the arbitration agreements were procured through fraud; (4) Merrill Lynch waived its right to arbitration; and (5) Investors should be allowed to proceed with their lawsuit for violations of federal securities law. We are not persuaded by Investors' arguments.

A. Gracie Moore

Investors contend that the court cannot compel Gracie Moore to arbitrate her claims because she did not see or execute "the Agreement." Appellants' Brief at 4. We are unable to discern from the briefs and the record what Investors mean when they refer to "the Agreement." The complaint contains a claim by Gracie Moore for breach of contract, and the only contract referred to in the complaint is "a customer agreement." Complaint at 5. In her response to Merrill Lynch's motion to dismiss the complaint pursuant to Fed.R.Civ.P. 9(b), 12(b), and 12(e), Ms. Moore represented that she had "execute[d] an agreement authorizing Merrill Lynch ... to act as [her] broker." Brief in Opposition to Motion to Dismiss at 3. In Merrill Lynch's answer to the complaint, it admitted the execution of the agreement referred to in Investors' complaint. R.I, tab 30, Answer p 11 at 2. In its counterclaim, Merrill Lynch alleged the execution by Ms. Moore of the Standard Option Agreement, and attached a copy thereto. Because the answer to the counterclaim was not designated as a part of the record, we do not know what facts, if any, Ms. Moore pled at that point. Merrill Lynch then...