C.B.S. Employees Federal Credit Union v. Donaldson, Lufkin and Jenrette Securities Corp., No. 89-5601
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
| Writing for the Court | Before MARTIN and RYAN, Circuit Judges, and BROWN; RYAN |
| Citation | 912 F.2d 1563 |
| Parties | Fed. Sec. L. Rep. P 95,460, RICO Bus.Disp.Guide 7564 C.B.S. EMPLOYEES FEDERAL CREDIT UNION, Plaintiff-Appellee, v. DONALDSON, LUFKIN AND JENRETTE SECURITIES CORPORATION; and Joseph Donnelly, Defendants-Appellants, and Southern Securities Investment Bankers, Inc.; F. Lin Lawrence; James E. McBride, Sr.; John Lowery and Robert (Bobby) Sullivan, Defendants. |
| Docket Number | No. 89-5601 |
| Decision Date | 07 September 1990 |
Page 1563
v.
DONALDSON, LUFKIN AND JENRETTE SECURITIES CORPORATION; and
Joseph Donnelly, Defendants-Appellants,
and
Southern Securities Investment Bankers, Inc.; F. Lin
Lawrence; James E. McBride, Sr.; John Lowery and
Robert (Bobby) Sullivan, Defendants.
Sixth Circuit.
Decided Sept. 7, 1990.
Page 1564
Bruce S. Kramer, Martin H. Aussenberg, F. Guthrie Castle, Jr. (argued), Borod & Kramer, Memphis, Tenn., for plaintiff-appellee.
Stephen D. Wakefield, Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Memphis, Tenn., Robert A. Zauzmer, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., Susan L. Hoffman (argued), Rondal D. Tobler, Tuttle & Taylor, Los Angeles, Cal., for defendants-appellants.
Before MARTIN and RYAN, Circuit Judges, and BROWN, Senior Circuit Judge.
RYAN, Circuit Judge.
Defendants Donaldson, Lufkin and Jenrette Securities Corporation (DLJ) and Joseph Donnelly, a senior vice president of DLJ and general counsel for DLJ's Pershing Division, appeal the denial of their motion for stay of this securities fraud action pending arbitration under the Federal Arbitration Act, 9 U.S.C. Sec. 3. We affirm.
I.
C.B.S. Employees Federal Credit Union invested substantial funds in investments of various kinds. In November 1987, Ed Rostohar, the CBS manager in charge of CBS' securities transactions, opened an account with Southern Securities Investment Brokers, Inc. and purchased over $4 million in bonds and other securities for CBS for long-term investment.
Donaldson, Lufkin and Jenrette Securities Corporation served as Southern's clearing agent. Southern forwarded the securities transactions placed by CBS to DLJ's Pershing Division which carried out the transactions and performed the necessary record keeping tasks. The securities purchased by CBS were held in trust by DLJ in safekeeping accounts for long-term investment. DLJ also prepared the monthly account statements for CBS and other Southern customers. On the reverse side of the monthly account statements there was printed an "Agreement" providing for the arbitration of "any controversy between [CBS and DLJ], except for disputes ... which are non-arbitrable as a matter of law...."
In June 1988, Rostohar learned of some unauthorized transactions in CBS' account and instructed Southern to stop the unauthorized trading and to obtain Rostohar's express authorization for any future transactions involving the CBS account.
On July 18, 1988, Southern informed CBS that another Southern customer had committed to purchase a $15 million government bond paying 9% interest but that the customer could not take delivery on time but could take delivery a week later. Southern asked whether CBS was interested in buying the bond for the one-week period. CBS agreed to purchase and hold the $15 million GNMA bond for one week, using its own 7 3/4%, $1,012,826 GNMA bond as collateral, thereby earning the new bond's interest for one week. CBS agreed to purchase the $15 million bond on margin; that is, its purchase was to be funded by borrowing the purchase money from Southern. DLJ advanced the funds for the purchase but required CBS to sign a margin agreement to protect DLJ's interests.
On July 19, 1988, CBS' Rostohar received the margin agreement in the mail with directions to sign and return copies to DLJ and Southern. Rostohar did so on July 22, 1988. Although Rostohar thought only the
Page 1565
7 3/4% bond was being pledged as security, the language of the margin agreement pledged all of CBS' investments held in trust by DLJ. The margin agreement provided:4. All securities, commodities and other property of the undersigned which you may at any time be carrying for the undersigned, or which may at any time be in your possession or under your control, shall be subject to a general lien and security interest in your favor for the discharge of all the undersigned indebtedness and other obligations to you, without regard to your having made any advances in connection with such securities and other property and without regard to the number of accounts the undersigned may have with you. In enforcing your lien, you shall have the discretion to determine which securities and property are to be sold and which contracts are to be closed.
The margin agreement also contained an arbitration clause:
18. It is agreed that any controversy between us arising out of your business or this agreement, except for those disputes between us arising under the federal securities laws which are or are held to be non-arbitrable as a matter of law, 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 any other national securities exchange on which a transaction giving rise to the claim took place or pursuant to the Code of Arbitration Procedures of the National Association of Securities Dealers, Inc., as the undersigned may elect.
CBS later discovered that the $15 million bond transaction never occurred. What did occur was considerable unauthorized trading in CBS' account by Southern which resulted in substantial losses. All attempts by CBS to reverse these trades failed and, in August 1988, DLJ, relying upon the terms of the margin agreement and the agreement on the reverse side of the monthly statements, sold securities from CBS' account with Southern to pay the account's outstanding debit balance.
A.
On September 7, 1988, CBS filed this action against Southern, several of Southern's officers, Southern's clearing agent, DLJ, and DLJ's senior vice president Joseph Donnelly, alleging claims under federal and state of Tennessee securities laws, state common law, and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Sec. 1961, et seq.
CBS also sought a declaratory judgment that the margin agreement and its arbitration clause were procured by fraud and, thus, were unenforceable. CBS claimed that the one week $15 million bond purchase proposal was merely a pretense to obtain Rostohar's signature on the margin agreement, and that the real purpose in tendering the margin agreement was to enable defendants to fraudulently obtain a lien on CBS' securities in order to cover for losses occurring as a result of the unauthorized trading which began in July.
DLJ and Donnelly moved for stay of proceeding in the district court pending arbitration, pursuant to 9 U.S.C. Sec. 3. Section 3 provides:
If any suit or proceeding be brought in any of the courts of the United States...
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...must leave that issue to be decided by the arbitrators. See CBS Employees Fed. Credit Union v. Donaldson, Lufkin & Jenrette Sec. Corp., 912 F.2d 1563, 1566-67 (6th Cir. 1990); Rush v. Oppenheimer & Co., 681 F. Supp. 1045, 1048, 1050 n. 9 (S.D.N.Y. This point was effectively made in Robert L......
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Bank One, N.A. v. Coates, No. Civ.A. 3:00CV671LN.
...making of the arbitration agreement itself or to the contract as a whole. See C.B.S. Employees Federal Credit Union v. Donaldson, et al., 912 F.2d 1563 (6th Cir. 1990); Bhatia v. Johnston, 818 F.2d 418 (5th Cir.1987) ("We must determine whether Bhatia's complaint is directed at the entire c......
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Matter of Nuclear Elec. Ins. & Central Power & Light, No. 96 Civ. 2661 (SHS).
...the challenge also goes to the rest of the contract. See C.B.S. Employees Fed. Credit Union v. Donaldson, Lufkin and Jenrette Sec. Corp., 912 F.2d 1563, 1568 (6th Cir.1990); Rush v. Oppenheimer & Co., 681 F.Supp. 1045, 1048-53 (S.D.N.Y.1988); Jeppsen v. Piper, Jaffray & Hopwood, Inc., Civ. ......
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Glazer v. Lehman Bros., Inc., No. 03-4312.
...388 U.S. at 402-04, 87 S.Ct. 1801 (emphasis added). See C.B.S. Employees Fed. Credit Union v. Donaldson, Lufkin & Jenrette Sec. Corp., 912 F.2d 1563, 1567 (6th Cir.1990) (stating that if a fraud claim relates to the making of the arbitration provision, the court must first Page 448 the frau......
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HERCULES & CO. v. SHAMA RESTAURANT, No. 90-CV-593
...must leave that issue to be decided by the arbitrators. See CBS Employees Fed. Credit Union v. Donaldson, Lufkin & Jenrette Sec. Corp., 912 F.2d 1563, 1566-67 (6th Cir. 1990); Rush v. Oppenheimer & Co., 681 F. Supp. 1045, 1048, 1050 n. 9 (S.D.N.Y. This point was effectively made in Robert L......
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Bank One, N.A. v. Coates, No. Civ.A. 3:00CV671LN.
...making of the arbitration agreement itself or to the contract as a whole. See C.B.S. Employees Federal Credit Union v. Donaldson, et al., 912 F.2d 1563 (6th Cir. 1990); Bhatia v. Johnston, 818 F.2d 418 (5th Cir.1987) ("We must determine whether Bhatia's complaint is directed at the entire c......
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Matter of Nuclear Elec. Ins. & Central Power & Light, No. 96 Civ. 2661 (SHS).
...the challenge also goes to the rest of the contract. See C.B.S. Employees Fed. Credit Union v. Donaldson, Lufkin and Jenrette Sec. Corp., 912 F.2d 1563, 1568 (6th Cir.1990); Rush v. Oppenheimer & Co., 681 F.Supp. 1045, 1048-53 (S.D.N.Y.1988); Jeppsen v. Piper, Jaffray & Hopwood, Inc., Civ. ......
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Glazer v. Lehman Bros., Inc., No. 03-4312.
...388 U.S. at 402-04, 87 S.Ct. 1801 (emphasis added). See C.B.S. Employees Fed. Credit Union v. Donaldson, Lufkin & Jenrette Sec. Corp., 912 F.2d 1563, 1567 (6th Cir.1990) (stating that if a fraud claim relates to the making of the arbitration provision, the court must first Page 448 the frau......