Bache Halsey Stuart, Inc. v. French

• Decision Date: 14 January 1977
• Docket Number: Civ. A. No. 76-1803.
• Citation: 425 F. Supp. 1231
• Parties: BACHE HALSEY STUART, INC., Plaintiff, v. Charles E. FRENCH, Defendant.
• Court: U.S. District Court — District of Columbia

425 F. Supp. 1231

BACHE HALSEY STUART, INC., Plaintiff, v. Charles E. FRENCH, Defendant.

Civ. A. No. 76-1803.

United States District Court, District of Columbia.

January 14, 1977.

Jon Paugh, Kirkland, Ellis & Rowe, Washington, D.C., for plaintiff.

Charles E. French, pro se.

MEMORANDUM OPINION AND ORDER

SIRICA, District Judge.

In this action, Bache Halsey Stuart, Inc. (Bache), a commodity brokerage firm, seeks to invoke an arbitration clause contained in a contract with Charles E. French, a former Bache customer, as a basis for requiring French to arbitrate a dispute he has with Bache. Additionally, Bache seeks an order enjoining French from proceeding any further with an administrative action he has filed with the Commodity Futures Trading Commission (CFTC). Jurisdiction is founded upon diversity of citizenship, 28 U.S.C. § 1332, and the Federal Arbitration Act (the Arbitration Act), 9 U.S.C. § 1 et seq. The case is presently before the Court on the motion of Bache for summary judgment and the motion of French for dismissal.¹

I.

On June 10, 1975, the defendant French executed a Customer Agreement with the plaintiff Bache for the purpose of carrying on a trading account in commodity futures. The Customer Agreement established the terms and conditions governing the account and included a clause providing for the arbitration of disputes arising out of the account.² Following the execution of the Customer Agreement, French directed Bache to carry out a number of transactions in Mexican peso futures. Of these, some were carried out as directed by French, while others, it is claimed, were not. Dissatisfied, for this reason, with the handling of his account by Bache, French requested that his account be closed. Bache complied with his request on November 21 and 24, 1975. In the interim, French claims, he sustained heavy losses as a result of Bache's refusal to carry out his directions.

At unspecified times after the closing of his account, French lodged complaints and protests with Bache, through his former account representative, complaining of the handling of his account during September, October and November 1975. Apparently dissatisfied with Bache's response in the matter, French filed a "reparations" action with the CFTC, seeking to recover damages from Bache in the amount of $30,149.00 pursuant to procedures established under Section 14 of the Commodity Exchange Act (the Commodity Act), 7 U.S.C. § 18 (Supp. V, 1975) and governing regulations, 17 C.F.R. § 12.1 et seq., 41 Fed.Reg. 3994 (January 27, 1976).

Bache received notice of the reparations action on July 27, 1976. In a letter dated August 18, 1976, Bache informed French that disputes concerning his account were subject to mandatory arbitration as provided in the Customer Agreement. The letter directed French to elect one of the two forums for arbitration specified in the Agreement and advised him that, if he failed to make an election within five days from his receipt of the letter, Bache would exercise its right to select the forum for arbitration proceedings. French responded on August 19, 1976, and indicated that he intended to pursue his administrative remedy at the CFTC rather than to have his complaint submitted to arbitration. Bache in turn responded on August 24, 1976, insisting on its right to arbitrate the dispute and, in light of French's refusal to elect a forum, selecting the American Arbitration Association as the forum for arbitrating the matter.

This lawsuit followed. Bache seeks to invoke the arbitration clause in connection with the Arbitration Act and this Court's equity powers as grounds for ordering French to arbitrate his dispute and cease prosecuting his complaint at the CFTC. The case is before the Court on the motion of Bache for summary judgment and the motion of French to dismiss.

II.

The facts essential to deciding this case, although somewhat sketchy, are not in dispute. What is in dispute is the legal consequences that flow from these facts. The determination of these consequences involves the reconciliation of two federal statutes representing, under the facts present here, two conflicting federal policies. On the one hand, there is the Arbitration Act, which provides for the judicial enforcement of arbitration agreements contained in contracts, such as the one at issue here, involving interstate commerce. This Act and its underlying policy in favor of arbitration is advanced by Bache. On the other hand, there is the Commodity Act, which provides for the administrative resolution of disputes between commodity customers and their brokerage firms. This Act and its underlying policy of creating an administrative forum for settling commodity disputes is put forward by French. For the reasons that follow, the Court is of the opinion that the policy represented in the Commodity Act affords an adequate basis for denying the relief sought under the Arbitration Act. Accordingly, the motion of Bache for summary judgment must be denied and the motion of French to dismiss must be granted.³

A

By its terms, Section 4 of the Arbitration Act provides for the judicial enforcement of arbitration agreements so long as the "making of the agreement for arbitration" and the "failure to comply therewith" are not "in issue." 9 U.S.C. § 4 (1970). As such, Section 4 of the Arbitration Act embodies a federal policy favoring the arbitration of disputes between parties who have contractually agreed to arbitrate. This policy, however, is not without judicial exception. Where compelling the arbitration of disputes conflicts with other important federal policies, the courts have frequently refused to order arbitration. The leading case is Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). In that case, the Supreme Court recognized "the desirability of arbitration," yet nevertheless held that an agreement to arbitrate future disputes between a customer and his securities brokerage firm was not enforceable under the Arbitration Act where arbitration interfered with a conflicting federal policy reflected in the Securities Act of 1933. Id. at 431, 74 S.Ct. at 185, 98 L.Ed. at 173. That policy was to make the federal and state courts the primary forums for settling disputes involving violations of the Securities Act. Id. To the same effect is American Safety Equipment Corp. v. J. P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968). There, the policy of the Arbitration Act favoring arbitration was found to be insufficient to override the policy of the federal antitrust laws favoring the judicial resolution of disputes raising antitrust claims. Id. at 826-27. As stated in American Safety, "In some situations Congress has allowed parties to obtain the advantages of arbitration if they `are willing to accept less certainty of legally correct adjustment,' citing Wilko, but we do not think that this is one of them." Id. at 828.

Nor does the instant controversy present such a situation. There is no principled reason why the exceptions to the Arbitration Act carved out in Wilko and American Safety with regard to securities and antitrust laws should not apply here with regard to the Commodity Act. Like the Securities Act of 1933 (Wilko) and the antitrust laws (American Safety), the Commodity Act is a remedial measure designed to protect the integrity of the marketplace. S.Rep.No.93-1131, reprinted in 3 U.S.Code Congressional and Administrative News, 93d Cong., 2d Sess., p. 5856 (1974). And like the Securities Act and antitrust laws, the Commodity Act specifies a public forum as the means best calculated for resolving private disputes in a manner that protects the marketplace. This public forum is the CFTC,⁴ which is charged with the responsibility of entertaining and bringing its expertise to bear upon complaints seeking reparation damages for violations of the Commodity Act, CFTC rules, regulations and orders. 7 U.S.C. § 18 (Supp. V, 1975). Reparation actions under 7 U.S.C. § 18 are initiated by the filing of an administrative complaint, followed by an answer, a hearing and decision by an Administrative Law Judge, application for review by the full Commission and judicial review in a United States Court of Appeals. See 7 U.S.C. §§ 18(a-g); 17 C.F.R. § 12.1 et seq. These procedures contemplate full, expert administrative adjudications of claims under the Commodity Act in much the same way that the Securities Act (Wilko) and the antitrust laws (American Safety) contemplate full, expert judicial adjudications. It follows then that ordering private arbitration of the present dispute, involving as...