Belke v. Merrill Lynch, Pierce, Fenner & Smith, No. 81-6055

• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)
• Writing for the Court: Before TJOFLAT, KRAVITCH and HATCHETT; KRAVITCH
• Citation: 693 F.2d 1023
• Parties: Fed. Sec. L. Rep. P 99,022 Margaret K. BELKE, Plaintiff-Appellee, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, Frank Utermehle, Nobert Fisher, Edward C. Weizer, G. William Rolls and Leigh Rolls, Defendants-Appellants.
• Decision Date: 13 December 1982
• Docket Number: No. 81-6055

Page 1023

693 F.2d 1023 Fed. Sec. L. Rep. P 99,022 Margaret K. BELKE, Plaintiff-Appellee,
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, Frank Utermehle,
Nobert Fisher, Edward C. Weizer, G. William Rolls
and Leigh Rolls, Defendants-Appellants. No. 81-6055. United States Court of Appeals,
Eleventh Circuit. Dec. 13, 1982.

Page 1024

Bennett Falk, Walton Lantaff Schroeder & Carson, Miami, Fla., for Merrill Lynch, Utermehle, Fisher and Weizer.

Lewis N. Brown, Gilbride & Heller, P.A., Miami, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, KRAVITCH and HATCHETT, Circuit Judges.

KRAVITCH, Circuit Judge:

This case presents the question whether the district court correctly held that appellant waived its right to arbitrate by failing to move for arbitration at the outset of the litigation, despite the fact that at that time counsel for appellant considered such a motion futile. Finding that severance was impossible at the commencement of litigation because the claims were inextricably intertwined, that a motion for arbitration at the start of the litigation would have been futile, and that Merrill Lynch promptly filed for arbitration when the nonarbitrable claims were dismissed, we reverse. 518 F.Supp. 602.

I.

Margaret K. Belke (Belke) sued Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) and various other defendants alleging mismanagement of Belke's stock portfolio in violation of federal securities laws, stock exchange rules and regulations, and the common law of the State of Florida. All counts shared a common nucleus of operative facts set forth initially in paragraphs 1-34 of the complaint and incorporated by reference in all other counts. A determination of the issue of scienter was central to all claims against defendant Merrill Lynch, although there were various other common questions of fact as well. ¹

Page 1025

Belke filed her first discovery requests simultaneously with the complaint. Merrill Lynch answered and began its own discovery. Discovery continued for over a year, at which time Belke amended her complaint to allege diversity jurisdiction in support of her pendent state claims. A month later, on January 25, 1978, Merrill Lynch moved for partial summary judgment alleging that Belke's federal claims were time-barred. On June 14, 1979 the trial judge granted Merrill Lynch's motion, thereby eliminating all federal claims. On October 9, 1979 the district court denied plaintiff's motion for reconsideration of the grant of summary judgment, but allowed Belke to restate two counts of her complaint. Before responding to the amended complaint Merrill Lynch moved, on November 1, 1979, to compel arbitration of the remaining state common law claims, and for a stay of the action in federal court pending arbitration.

The district court denied appellant's motion for arbitration and a stay, holding that Merrill Lynch waived its right to arbitration by not raising the issue at the commencement of the litigation. Acknowledging that arbitration might have been impossible at the outset if arbitrable and nonarbitrable claims were "inextricably intertwined," the district court declined to discuss the "technicalities" of impossibility, or to determine whether severance would have been impossible in the case before it. Rather, the court stated that "[t]he correct thing for defendant to have done was to preserve its right to arbitrate early in the suit .... It is not for the litigant to decide that had an earlier motion to arbitrate been made it would surely have been denied and thus was a futile gesture."

Merrill Lynch appeals this denial of arbitration, arguing it did not waive arbitration as its request for arbitration was timely made. It is appellant's position that the law does not require the "futile gesture" of filing for arbitration before claims become arbitrable, and that delay in filing should be measured from the time of arbitrability. We agree. ²

Federal law evinces a clear preference for arbitration over litigation for private dispute resolution. Seaboard Coast Line Railroad Company, Inc. v. Trailer Train Company, 690 F.2d 1343, 1348 (11th Cir.1982); Ultracashmere House, Ltd. v. Meyer, 664 F.2d 1176, 1179-1180 (11th Cir.1981); Seaboard Coast Line Railroad Company v. National Rail Passenger Corp., 554 F.2d 657, 660 (5th Cir.1977). ³ Arbitration provides a speedier and less costly method of dispute resolution than does litigation, while relieving congested federal court dockets. Id. Because federal law favors arbitration, any party arguing waiver of arbitration bears a heavy burden of proof. Sibley v. Tandy Corp., 543 F.2d 540, 542 (5th Cir.1976), cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977); General Guaranty Insurance Co. v. New Orleans General Agency, Inc., 427 F.2d 924, 929 n.5 (5th Cir.1970).

In this case Belke plead both Florida common law claims and federal securities law claims. On the face of the complaint, the Florida common law counts are subject to arbitration under the terms of a contract between the parties. ⁴ Federal securities

Page 1026

claims, however, are not arbitrable. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953); Sawyer v. Raymond James & Associates, Inc., 642 F.2d 791, 792 (5th Cir.1981); Sibley v. Tandy Corp., supra, 543 F.2d at 543. Thus, the district court was faced with a case involving claims both arbitrable and nonarbitrable.

Generally, when a complaint sets forth a combination of claims the arbitrable claims should be severed from the nonarbitrable ones and the district court should stay judicial proceedings as to the arbitrable claims, thereby allowing arbitration to proceed. Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979). An exception to this rule exists, however, when the arbitrable and nonarbitrable claims are so related...