Bird v. Shearson Lehman/American Exp., Inc.

• Decision Date: 17 January 1991
• Docket Number: D,No. 721,721
• Citation: 926 F.2d 116
• Parties: , 13 Employee Benefits Ca 1289 Frank L. BIRD, Trustee of the Frank L. Bird Profit Sharing Trust, Frank L. Bird, Individually, and Joan Shea, Appellees, v. SHEARSON LEHMAN/AMERICAN EXPRESS, INC., and Raymond R. Clements, Appellants. ocket 90-7688.
• Court: U.S. Court of Appeals — Second Circuit

Page 116

926 F.2d 116

59 USLW 2441, 13 Employee Benefits Ca 1289

Frank L. BIRD, Trustee of the Frank L. Bird Profit Sharing Trust, Frank L. Bird, Individually, and Joan Shea, Appellees, v. SHEARSON LEHMAN/AMERICAN EXPRESS, INC., and Raymond R Clements, Appellants.

No. 721, Docket 90-7688.

United States Court of Appeals Second Circuit.

Argued Dec. 13, 1990.

Decided Jan. 17, 1991.

Jeffrey L. Friedman, New York City (Theodore A. Krebsbach, New York City, on the brief), for appellants Shearson Lehman/American Express, Inc. and Raymond R. Clements.

Donald R. Holtman, Hartford, Conn. (Katz & Seligman, Hartford, Conn., on the brief), for appellees Frank L. Bird, Trustee of the Frank L. Bird Profit Sharing Trust, Frank L. Bird, Individually, and Joan Shea.

Before TIMBERS, KEARSE and MINER, Circuit Judges.

TIMBERS, Circuit Judge:

Appellants Shearson Lehman/American Express, Inc. (Shearson) and Raymond R. Clements appeal from an order entered July 16, 1990 in the District of Connecticut, Jose A. Cabranes, District Judge, denying their motion to compel arbitration of a claim brought by appellees Frank L. Bird, Individually and as Trustee of the Frank L. Bird Profit Sharing Trust, and Joan Shea for breach of fiduciary duty pursuant to the Employee Retirement Income Security Act (ERISA). 29 U.S.C. Sec. 1001 et seq. (1988).

On appeal, appellants contend that the Federal Arbitration Act (FAA), 9 U.S.C. Sec. 1 et seq. (1988), requires that agreements to arbitrate statutory ERISA claims are enforceable.

For the reasons that follow, we reverse the judgment of the district court and remand for proceedings consistent with this opinion, including arbitration forthwith.

I.

We shall summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

Frank L. Bird is the Trustee and a participant and beneficiary in the Frank L. Bird Profit Sharing Trust (the Trust). Joan Shea is a participant and beneficiary in the Trust. The Trust was established to provide for the retirement of its participants and beneficiaries and is governed by the terms of ERISA.

Raymond Clements, a broker and vice president of Shearson, solicited Bird as a client. Bird was interested in investing the assets of the Trust. At their first meeting, Bird alleges that he explained to Clements that the investment objectives for the Trust were long term growth and safety of the Trust's assets. In his capacity as Trustee, Bird invested all the assets of the Trust in a securities account with Shearson.

Bird signed Shearson's standard "Customer's Agreement" prior to opening the account. That agreement contained an arbitration clause which provided that

"Unless unenforceable due to federal or state law, any controversy arising out of or relating to my accounts, to transactions with you for me or to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect, of the National Association of Securities Dealers, Inc. or the Boards of Directors of the New York Stock Exchange, Inc. and/or the American Stock Exchange, Inc. as I may elect."

All of the Trust's assets, a total of $62,205.56, were deposited in the account. Fifty-five transactions were made in the account between July 24, 1984 and May 28, 1986. At the end of that period, $13,427.53 remained in the account. Appellees allege that the assets of the Trust were diminished due to mishandling by appellants, who allegedly made high risk investments on behalf of the Trust in disregard of the stated investment objectives of the Trust.

On July 21, 1987, appellees commenced this action and filed the complaint in the District of Connecticut. Count one of the complaint alleged a breach of fiduciary duties under ERISA. 29 U.S.C. Sec. 1104 (1988). Count two alleged that the account had been churned in violation of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j (1988), and Rule 10b-5 promulgated thereunder, 17 C.F.R. Sec. 240.10b-5 (1990). The complaint also set forth various state law claims; these subsequently were dismissed.

On August 18, 1987, appellants filed a motion invoking the arbitration clause in the Customer's Agreement and seeking a stay of proceedings in the district court. The district court granted the motion as to the securities law claim, but denied the motion as to the ERISA claim. We affirmed the district court's decision. Bird v. Shearson Lehman/American Express, Inc., 871 F.2d 292 (2 Cir.1989) (Bird I ). We held that Congress intended to preclude a waiver of judicial remedies for statutory ERISA claims, but not for contractual claims involving ERISA-covered plans. Id. at 298.

Appellants filed a petition for a writ of certiorari in the Supreme Court. In the meantime, the Supreme Court filed its opinion in Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989). In Rodriguez, the Court held that agreements to arbitrate statutory claims arising under the Securities Act of 1933 were enforceable. Subsequently, the Court granted certiorari in Bird I, vacated our judgment, and remanded the case for reconsideration in light of Rodriguez. Shearson Lehman/American Express, Inc. v. Bird, --- U.S. ----, 110 S.Ct. 225, 107 L.Ed.2d 177 (1989).

On January 19, 1990, we entered an order remanding the case to the district court for reconsideration in light of Rodriguez. On July 16, 1990, the district court, in a thoughtful opinion, affirmed its original decision. The district court reasoned that "Rodriguez [was] consistent with the Supreme Court's other recent rulings on arbitration and therefore [did] not significantly change the legal landscape in which this issue was originally considered." The district court held that statutory ERISA claims were not subject to compulsory arbitration. The court denied appellants' motion to compel arbitration and for a stay of the district court proceedings pending arbitration.

This appeal followed.

II.

Initially, we set forth our standard of review. "[A] court asked to stay proceedings pending arbitration in a case covered by the [FAA] has essentially four tasks: first, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then determine whether to stay the balance of the proceedings pending arbitration." Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 844 (2 Cir.1987) (citations omitted). We review the district court's determinations on those issues de novo. Id. at 846.

In Bird I, we affirmed the district court's holding that Bird and Shearson entered into a valid arbitration agreement that encompassed the ERISA claim. Bird I, supra, 871 F.2d at 295. We see no reason to disturb that holding. Accordingly, the only issue before us on the instant appeal concerns the third element, i.e., whether Congress intended statutory claims created by ERISA to be nonarbitrable.

III.

We turn first to appellants' contention that the FAA requires that their agreement to arbitrate be enforced notwithstanding the fact that appellees' claim is for a breach of fiduciary duties under ERISA. We agree.

In Bird I, we held that the text of ERISA--particularly the provisions for exclusive federal jurisdiction of statutory claims, the remedial nature of the statute, and the underlying purposes of ERISA--compelled the conclusion that "Congress intended the federal courts to be the exclusive forum for resolving disputes of substantive rights." Bird I, supra, 871 F.2d at 295. We are told that Bird I was motivated, in part, by an "outmoded presumption of disfavoring arbitration proceedings". Rodriguez, supra, 109 S.Ct. at 1920. Rodriguez makes it clear that that is no longer tenable. Accordingly, we now reach a contrary result.

The FAA, "reversing centuries of judicial hostility to arbitration agreements, was designed to allow parties to avoid 'the costliness and delays of litigation,' and to place arbitration agreements 'upon the same footing as other contracts . . . .' " Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-11, 94 S.Ct. 2449, 2452-53, 41 L.Ed.2d 270 (1974) (footnote and citation omitted). Section 2 of the FAA provides that "an agreement in writing to submit to arbitration an existing controversy ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. Sec. 2 (1988). "Section 2 [of the FAA] is a congressional declaration of a liberal federal policy favoring arbitration agreements." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983); see also Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985) (the FAA "requires that we rigorously enforce agreements to arbitrate").

The "duty to enforce arbitration agreements is not diminished when a party bound by an agreement raises a claim founded on statutory rights." Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987). Congress, however, may override the presumption favoring arbitration agreements by a contrary provision in another statute. Id. The burden of demonstrating such congressional intent rests with the party opposing arbitration. Rodriguez, supra, 109 S.Ct. at 1921; McMahon, supra, 482 U.S. at 227, 107 S.Ct. at 2337. The party contending that an agreement to arbitrate a statutory claim is not enforceable must show that "Congress intended in a separate statute to preclude a waiver of judicial remedies . . . ." Rodriguez, supra, 109 S.Ct. at 1921. "[S]uch an intent 'will be deducible from [the statute's] text or...