Coffey v. Dean Witter Reynolds, Inc., 88-2286

• Decision Date: 05 December 1989
• Docket Number: No. 88-2286,88-2286
• Citation: 891 F.2d 261
• Parties: Fed. Sec. L. Rep. P 94,844 Florabelle COFFEY, Plaintiff-Appellant, v. DEAN WITTER REYNOLDS, INC., a Delaware corporation, Defendant-Appellee, Jeffrey HINES, an individual, Defendant-Appellee, v. L. Irving COFFEY, Third-Party-Defendant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 261

891 F.2d 261

Fed. Sec. L. Rep. P 94,844

Florabelle COFFEY, Plaintiff-Appellant, v. DEAN WITTER REYNOLDS, INC., a Delaware corporation, Defendant-Appellee, Jeffrey HINES, an individual, Defendant-Appellee, v. L. Irving COFFEY, Third-Party-Defendant.

No. 88-2286.

United States Court of Appeals Tenth Circuit.

Dec. 5, 1989.

Richard K. Rufner and Sergiu L. Herscovici, Denver, Colo., for plaintiff-appellant.

William G. Imig and Neal S. Cohen of Ireland, Stapleton, Pryor & Pascoe, Denver, Colo., for defendant-appellee.

Before LOGAN, SEYMOUR and BALDOCK, Circuit Judges.

LOGAN, Circuit Judge.

Plaintiff Florabelle Coffey brought suit under § 10(b) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78j(b), and SEC Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, against defendants Dean Witter Reynolds, Inc. (Dean Witter) and Jeffrey Hines, a Dean Witter account executive. ¹ Defendants moved to compel arbitration of the federal claims, but the trial court denied the motion based on Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953) (agreements to arbitrate federal securities claims void under Securities Act of 1933), overruled, Rodriguez de Quijas v. Shearson/American Express, Inc., --- U.S. ----, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989); and Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Moore, 590 F.2d 823 (10th Cir.1978) (agreements to arbitrate federal securities claims also void under Exchange Act). 640 F.Supp. 874. Defendants then appealed to this court. We remanded the case to the trial court for reconsideration in light of the Supreme Court's intervening decision in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), which overruled Moore and upheld agreements to arbitrate federal securities claims under the Exchange Act. ²

On remand, the district court compelled arbitration of Coffey's 10b-5 claims and subsequently confirmed an arbitral award in favor of both defendants. Coffey appeals from this order and asserts in the alternative that (1) no agreement to arbitrate existed between the parties, and (2) if an arbitration agreement existed, it was modified by operation of SEC Rule 15c2-2, 17 C.F.R. § 240.15c2-2, rescinded, 52 Fed.Reg. 39,216 (effective October 21, 1987).

I

Our threshold inquiry is whether the parties agreed to arbitrate the claims at issue. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985). An agreement to arbitrate is nothing more than a contract fashioned by the parties in accordance with their intentions. If the parties intended to arbitrate the relevant claims, we must enforce the agreement under the Federal Arbitration Act, 9 U.S.C. §§ 1-14, unless "legal constraints external to the parties' agreement foreclose[ ] the arbitration of those claims." Mitsubishi, 473 U.S. at 628, 105 S.Ct. at 3354.

In conducting this inquiry, we are mindful that under the Federal Arbitration Act "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1983) (footnote omitted). The Act, however, "does not require parties to arbitrate when they have not agreed to do so, nor does it prevent parties who do agree to arbitrate from excluding certain claims from the scope of their arbitration agreement." Volt Information Sciences, Inc. v. Board of Trustees, --- U.S. ----, ----, 109 S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989) (citations omitted).

On April 28, 1983, Coffey executed a Customer's Agreement in connection with a Dean Witter commodity account, which provided in relevant part as follows:

"16. Any controversy between you [Dean Witter] and the undersigned [Coffey] arising out of or relating to this contract or the breach thereof, shall be settled by arbitration....

17. This agreement ... and its provisions shall be continuous; shall cover individually and collectively all accounts which the undersigned may open or re-open with you...."

Pl. ex. 3 at 1.

On October 3, 1984, Coffey and her husband executed a Joint Account Agreement With Right of Survivorship ("Joint Account Agreement") in connection with a differently numbered stock account. The Joint Account Agreement did not contain an arbitration clause, and Coffey did not sign a new Customer's Agreement. The Joint Account Agreement is not inconsistent with the Customer's Agreement Coffey had already signed, which treats many aspects not covered by the Joint Account Agreement. Indeed, the Customer's Agreement expressly contemplates that it will apply whether the securities are carried "either individually or jointly with others." Id. p 5. And the Joint Account Agreement provides that "[i]f the undersigned [Coffey and her husband] sign and deliver to you [Dean Witter] a Customer's Agreement ..., [it is] intended to cover, in addition to the provisions hereof, the terms on which the joint account is to be carried." Pl. ex. 2. Because Coffey already had signed a Customer's Agreement that covered "all accounts" she might thereafter open, no new agreement was necessary to bind her. ³ Thus, because we have no evidence to the contrary, we hold that Coffey and Dean Witter intended the arbitration clause in the Customer's Agreement to apply to claims by Coffey arising under the joint account.

II

Coffey next argues that even if the arbitration clause in her Customer's Agreement applies to claims under the joint account, SEC Rule 15c2-2 modified the agreement to arbitrate. Paragraph 2 of the Customer's Agreement provides that "whenever any rule or regulation shall be prescribed or promulgated by ... the Federal Securities and Exchange Commission, ... which shall affect in any manner or be inconsistent with any of the provisions hereof, the provisions of this agreement so affected shall be deemed modified or superseded."

Rule 15c2-2 provided as follows:

"(a) It shall be a fraudulent, manipulative or deceptive act or practice for a broker or dealer to enter into an agreement with any public customer which purports to bind the customer to the arbitration of future disputes between them arising under the Federal securities laws, or to have in effect such an agreement, pursuant to which it effects transactions with or for a customer.

(b) Notwithstanding paragraph (a) of this section, until December 31, 1984 a broker or dealer may use existing supplies of customer agreement forms if all such agreements entered into with public customers after December 28, 1983 are accompanied by the separate written disclosure:

Although you have signed a customer agreement form with FIRM NAME that states that you are required to arbitrate any future dispute or controversy that may arise between us, you are not required to arbitrate any dispute or controversy that arises under the Federal securities laws but instead can resolve any such dispute or controversy through litigation in the courts.

(c) A broker or dealer shall not be in violation of paragraph (a) of this section with respect to any agreement entered into with a public customer prior to December 28, 1983 if:

(1) Any such public customer for whom the broker or dealer has after July 1, 1983 (i) carried a free credit balance, or (ii) held securities for safekeeping or as collateral, or (iii) effected a securities transaction is sent, no later than December 31, 1984, the disclosure prescribed in paragraph (b) of this section; or

(2) Any other public customer is sent upon the completion of his next transaction pursuant to such agreement, the disclosure prescribed in paragraph (b) of this section."

Under this rule, Dean Witter was required to send a written disclosure to Coffey informing her of the right to a judicial forum for adjudication of any federal securities claims in spite of the arbitration clause in the Customer's Agreement. The question, then, is whether this written disclosure, although based on a view of the law that no longer prevails, precludes arbitration of Coffey's Exchange Act claims over her objection. Relevant to our decision is that Rule 15c2-2 was rescinded after the instant suit was filed but before the district court's decision on remand.

We recognize that some circuits have applied the rescission of Rule 15c2-2 retroactively, paying little or no attention to the contractual modifications and resultant changed expectations effected during the life of the Rule. See Jeske v. Brooks, 875 F.2d 71 (4th Cir.1989); Adrian v. Smith Barney, Harris, Upham & Co., 841 F.2d 1059 (11th Cir.1988); Villa Garcia v. Merrill Lynch, Pierce, Fenner and Smith Inc., 833 F.2d 545 (5th Cir.1987). The strongest argument in support of these decisions appears to be "the usual rule that 'federal cases should be decided in accordance with the law existing at the time of the decision,' " Jeske, 875 F.2d at 75 (quoting Saint Francis College v. Al-Khazraji, 481 U.S. 604, 608, 107 S.Ct. 2022, 2025, 95 L.Ed.2d 582 (1987)), unless "injustice" would result thereby, id.; see also Villa Garcia, 833 F.2d at 548 ("manifest injustice" would justify an exception to the "usual rule of retroactivity"). In Jeske, the court concluded that no injustice would result from retroactive application of the rule's rescission because (1) the plaintiff signed the customer agreement at issue before the SEC's adoption of the rule, and so could not have relied on the rule in signing the agreement; and (2) the court found no evidence to indicate that the plaintiff "would not have signed the agreement if he had foreseen that his securities claims would be arbitrable." Id.

Both of the Jeske court's observations are equally applicable to the Customer Agreement that Coffey signed in October...