Arkoosh v. Dean Witter & Co., Inc.

• Decision Date: 20 April 1976
• Docket Number: 75-0-504.,Civ. No. 75-0-503
• Parties: Fred G. ARKOOSH, Plaintiff, v. DEAN WITTER & CO., INCORPORATED, a corporation, Defendant. Fred G. ARKOOSH, Jr., Plaintiff, v. DEAN WITTER & CO., INCORPORATED, a corporation, Defendant.
• Court: U.S. District Court — District of Nebraska

415 F. Supp. 535

Fred G. ARKOOSH, Plaintiff, v. DEAN WITTER & CO., INCORPORATED, a corporation, Defendant.

Fred G. ARKOOSH, Jr., Plaintiff, v. DEAN WITTER & CO., INCORPORATED, a corporation, Defendant.

Civ. Nos. 75-0-503, 75-0-504.

United States District Court, D. Nebraska.

April 20, 1976.

COPYRIGHT MATERIAL OMITTED

Gerald Laughlin, of Baird, Holm, McEachen, Pedersen, Hamann & Haggart, Omaha, Neb., for plaintiff.

Eugene Pieper, of Thompson, Crounse & Pieper, Omaha, Neb., for defendant.

MEMORANDUM

ROBINSON, Senior District Judge.

THIS MATTER is before the Court on the defendant's Motion to Stay these proceedings pursuant to the United States Arbitration Act, 9 U.S.C.A. § 3 (1970).¹ The Court's jurisdiction is found in 28 U.S.C.A. § 1332 (1966).

In early 1975, the plaintiffs and defendant entered into "Customer Agreements" (Filing Number 11, Exhibit A) which generally authorized the defendant, "futures commission merchant", 7 U.S.C.A. § 2 (Supp.1975), to trade in commodity futures contracts for and on behalf of the plaintiffs. Prior to November 3, 1975, the defendant, pursuant to plaintiffs' instructions, had purchased a number of futures contracts for the plaintiffs' accounts. On November 3rd, several of these contracts were liquidated by the defendant after the plaintiffs allegedly failed to answer a margin call. The plaintiffs immediately protested the defendant's action. When the parties were unable to arrive at an amicable settlement of their dispute, the plaintiffs filed a common law action in the Nebraska State Court. On December 24, 1975, the defendant made a written demand upon the plaintiffs for the submission of their dispute to binding arbitration pursuant to paragraph 16 of their Customer Agreement.² The plaintiffs did not respond to the arbitration demand and on December 30th the state action was removed to this Court and the pending motion to stay these proceedings was subsequently placed on file.

Since the Customer Agreement clearly evidences a transaction in interstate commerce it would ordinarily be subject to the terms of the United States Arbitration Act.³ However, the plaintiffs contend that paragraph 16 is void on the grounds that it is contrary to certain provisions of the recently enacted Commodity Futures Trading Commission Act of 1974, 88 Stat. 1389, 7 U.S.C.A. § 2 et seq. (Supp.1975). Section 209 of the Act of 1974, 7 U.S.C.A. § 7a(11) (Supp.1975) provides that certain commodity exchanges (known under the Act as a "contract markets") shall

"provide a fair and equitable procedure through arbitration or otherwise for the settlement of customer's claims and grievances against any member or employee thereof: Provided, That (i) the use of such procedure by a customer shall be voluntary, (ii) the procedure shall not be applicable to any claim in excess of $15,000, (iii) the procedure shall not result in any compulsory payment except as agreed upon between the parties, and (iv) the term `customer' as used in this paragraph shall not include a futures commission merchant or a floor broker. . ."

It is the plaintiff's contention that the above provision prohibits a futures commission merchant and its customer from agreeing to submit all disputes to compulsory and binding arbitration by an independent organization not associated with the contract market, prior to the time a dispute actually exists between the parties.

First they argue that the enforcement of such arbitration provisions will frustrate the contract market's duty to provide a fair and equitable procedure for the settlement of customer's claims and grievances. Of course, the short answer to this contention is that the grievance procedures of the contract market are expressly voluntary on the part of the customer and he is under no obligation to initiate his claim in that forum if he voluntarily chooses to do so elsewhere.

Secondly, the plaintiff contends that a contract market is nothing more than the sum of its members and, therefore, if a contract market is prohibited from establishing a dispute procedure which is involuntary and binding in contravention of 7 U.S.C.A. § 7a(11), then a futures commissions merchant which is a "member of the contract market", 7 U.S.C.A. § 2 (supp. 1975), is under a similar prohibition. Since a customer is expressly permitted by § 7a(11) to agree to be bound by the decision of the grievance procedures of the contract market, and since § 7a(11) does not expressly refer to private arbitration by an organization which is independent of the contract market and disinterested in the outcome, this argument is necessarily based upon the dual premise that: (1) arbitration pursuant to an agreement entered into before a dispute actually arises between the parties (as opposed to arbitration pursuant to a compulsory rule of the contract market) is involuntary; and (2) for the purpose of determining the voluntariness of arbitration clauses in Customer Agreements of the type involved in this case, private arbitration before an independent and disinterested arbitrator is to be treated as substantially equivalent to binding arbitration by the contract market.

Of course, ordinarily there would be no question of the voluntary nature of plaintiffs' assent to paragraph 16 of the Customer Agreement, in the absence of facts which brought the voluntariness of plaintiffs' assent into question. A contract is, by definition a voluntary agreement between the parties. The fact that one or more of the terms of that contract look forward to future contingent events or circumstances is not ordinarily regarded as impinging upon the presumption that the agreement was entered into voluntarily. Nor is it customary for courts to be suspect of the voluntariness of a contract merely because certain contractual terms are more or less advantageous to one or the other of the parties. A contract will invariably involve not only rights, but, obligations for both parties and the mere existence of such obligations does not render a contract involuntary. Accordingly, arbitration clauses in private contracts, which look forward to future contingent events and circumstances, are customarily regarded as an integral part of the parties voluntary agreements, Cf. Crane & Rigging Co. v. Docutel Corp., 371 F.Supp. 240 (E.D.N.Y.1973), unless a party to a contract can establish that his assent was the product of the wrongful conduct of the other party. U. S. for Use of Moseley v. Electronic & Missile Facilities, Inc., 374 U.S. 167, 83 S.Ct. 1815, 10 L.Ed.2d 818 (1963); Hellenic Lines Limited v. Louis Dreyfus Corp., 372 F.2d 753 (2nd Cir. 1967). However, the term voluntary cannot be given an unyielding definition appropriate in all circumstances and applicable regardless of the context in which it is used. In the present case, that word is used in the context of a statute which is part of a sophisticated regulatory scheme. Therefore, it is possible that it has been used as a term of art and that it has a content which it would not otherwise be given in the context of a dispute arising at common law. See N. L. R. B. v. Hearst Publications, Inc., 322 U.S. 111, 120-22, 64 S.Ct. 851, 88 L.Ed. 1170 (1944).

In order to determine the statutory definition of the term voluntary it may be helpful to briefly describe the conditions which brought about the enactment of the Act of 1974, the changes in federal policy accomplished by the Act, and the relevant provisions dealing with the settlement and adjudication of customers' claims and grievances.

Prior to the enactment of the Act of 1974 federal policy toward commodity futures trading was based upon the assumption that the price mechanism of the contract markets would function best, if regulation of the markets was left largely in the hands of the markets themselves, with only marginal federal supervision through the Commodity Exchange Authority within the Department of Agriculture. For a variety of reasons this policy was found by Congress to be ill-suited to the present and future needs of the commodity futures market. Though Congress was primarily concerned with the technical aspects of commodity trading, there was also evidence before the Congress suggesting that the contract markets were unable or willing to establish necessary trading policies and practices and to adequately police the questionable trading practices of their members. Furthermore, there was evidence before the Congress that the markets had denied certain basic procedural rights to persons bringing claims and grievances against members of the market,⁴ and that the existing administrative agency lacked competent manpower and was otherwise slow, cumbersome and ineffective in administering government policies regarding the trading of commodity futures.

The Act of 1974 made certain changes in federal policy. Though it retained an element of market self regulation, its emphasis shifted to federal regulation of the contract markets though the Commodity Futures Trading Commission, (CFTC) an independent agency with vast administrative capacity and sufficient regulation authority to insure the promotion of the public interest.

One significant aspect of this new federal policy was the establishment of a multi-tier procedure for handling customer claims and grievances. The first rung in this system is that established by § 7a(11). This, of course, is the procedure of the contract market itself. It is expressly made voluntary and non-binding unless the parties specifically agree to be bound by the markets decision. Section 7a(11) provides that the contract market may entertain "customers' claims and grievances against any member . . .. (of the contract market)". Therefore, whether the dispute involves a violation of the statute, or merely a common law claim, the customer has the option of seeking an amicable settlement through the contract market.

If a customer wishes to forego the procedures of the contract market, or if he chooses not...