Corcoran v. Shearson/American Exp. Inc.

• Decision Date: 30 September 1984
• Docket Number: Civ. A. No. C84-706A.
• Citation: 596 F. Supp. 1113
• Parties: George J. CORCORAN, Jr. and Linda Corcoran, Plaintiffs, v. SHEARSON/AMERICAN EXPRESS INC., Defendant.
• Court: U.S. District Court — Northern District of Georgia

596 F. Supp. 1113

George J. CORCORAN, Jr. and Linda Corcoran, Plaintiffs, v. SHEARSON/AMERICAN EXPRESS INC., Defendant.

Civ. A. No. C84-706A.

United States District Court, N.D. Georgia, Atlanta Division.

September 30, 1984.

Carolyn Thorn Thurston, Varner, Stephens, Wingfield, McIntyre & Humphries, Atlanta, Ga., for plaintiffs.

Michael J. Hogan, Shearson/American Express, New York City, Ronald D. Reemsnyder, Neely & Player, Atlanta, Ga., for defendant.

ORDER

FORRESTER, District Judge.

This action is before the court on defendant's motion to compel arbitration and to stay discovery. Relying upon 9 U.S.C. § 3, defendant asks the court to enforce an arbitration agreement between the parties by staying this action and compelling plaintiffs to submit their claims to arbitration. Plaintiffs oppose defendant's motion by arguing that the arbitration agreement is unenforceable as a matter of law. Plaintiffs also argue in the alternative that even if the arbitration agreement is enforceable as to some of plaintiffs' claims, it does not apply to all of plaintiffs' claims and that the non-arbitrable and the arbitrable claims are so intertwined that none of them should be submitted to arbitration. Finally, plaintiffs argue that even if all the claims are submitted to arbitration, discovery in this case should continue.

Counts I through V of plaintiffs' complaint allege that defendant executed a number of unauthorized trades in plaintiffs' commodities account during the period from February 3 through 8, 1982 and that these trades resulted in losses of at least $20,224.75. Plaintiffs claim that these unauthorized trades constituted violations of the Commodity Exchange Act, breach of contract, fraud, negligence, and gross negligence.

Count VI of plaintiffs' complaint alleges that defendant attempted to cover the deficit in plaintiffs' personal account which resulted from the unauthorized trades by liquidating certain money market funds in a separate account held by Omni, a non-profit corporation of which plaintiffs are officers. Count VI alleges that such liquidation of the Omni funds to cover the deficit in plaintiffs' personal account constituted tortious interference by defendant in plaintiffs' business relations with Omni and resulted in professional embarrassment to plaintiffs.

Count VII of plaintiffs' complaint alleges that defendant, after being forced to restore the assets to the Omni account, took funds from an IRA account held by Mrs. Corcoran and a Keogh account held by Mr. Corcoran to cover the deficit. Count VII alleges that such actions with regard to the IRA and Keogh accounts constituted a breach of fiduciary duty as well as a breach of the express terms of the Keogh account agreement with Mr. Corcoran. Count VIII alleges that the unauthorized liquidation of the IRA and Keogh funds was a willful and malicious breach of fiduciary duty and asserts a claim for punitive damages. Finally, Count IX of the complaint asserts that the liquidation of the IRA and Keogh accounts against the express direction of plaintiffs constituted a conversion of plaintiffs' property. Count X simply asserts that defendant has been stubbornly litigious in settling the claims and thus should be liable for attorney's fees under Georgia law.

I. ENFORCEABILITY OF THE ARBITRATION AGREEMENT.

Plaintiffs in this case separately signed as part of their commodity customer agreement with defendant a paragraph entitled "Arbitration Agreement." This paragraph provides as follows:

Any controversy arising out of or relating to my account, 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 American Arbitration Association of (sic) the Board of Directors of the New York Stock Exchange, Inc. as I may elect. If I do not make such election by registered mail addressed to you at your main office within five days after demand by you that I make such election, then you may make such election. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof.

While the Commodity Futures Trading Commission (CFTC) encourages the settlement of disputes by arbitration, it requires that your consent to such agreement be voluntary. You need not sign this Arbitration Agreement to open an account with Shearson Loeb Rhodes, Inc. (see 17 CRF (sic) 180.1-180.6).

By signing this Arbitration Agreement, you may be waiving your right to sue in a court of law. But you are not waiving your right to elect later to proceed pursuant to Section 14 of the Commodity Exchange Act to seek damages sustained as a result of a violation of the Act. In the event a dispute arises you will be notified that Shearson Loeb Rhoades intends to submit the dispute to arbitration. If you believe a violation of the Commodity Exchange Act is involved and you prefer to request a Section 14 "reparations" proceeding before the CFTC, you will still have 45 days in which to make that election.

The latter two paragraphs were printed in bold face type as required by 17 CFR § 180.3(4) and satisfied the requirements of that section. As noted above, plaintiffs separately signed and dated the Arbitration Agreement.

Section 2 of the United States Arbitration Act provides that "a written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Section 3 of the Act provides for the stay of a proceeding involving a contract subject to arbitration:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

The United States Arbitration Act embodies a strong federal policy to encourage arbitration and to relieve congestion in the courts. Seaboard Coastline Railroad Co. v. National Rail Passenger Corp., 554 F.2d 657 (5th Cir.1977). The Supreme Court has recently reaffirmed this policy. Southland Corporation v. Keating, ___ U.S. ___, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984):

Contracts to arbitrate are not to be avoided by allowing one party to ignore the contract and resort to the courts. Such a course could lead to prolonged litigation, one of the very risks the parties, by contracting for arbitration, sought to eliminate. Id. at 856. See also Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 400 87 S.Ct. 1801, 1804, 18 L.Ed.2d 1270 (1967).

Plaintiffs argue, however, that this court should not enforce an agreement to arbitrate claims for violations of the Commodity Exchange Act, 7 U.S.C. § 1, et seq. Plaintiffs rely upon Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). In Wilko the Supreme Court held that an agreement to arbitrate future controversies was invalid under Section 14 of the Securities Act of 1933, 15 U.S.C. § 77n. This section provided that "Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void." The Court in Wilko concluded that Section 14 rendered void an agreement to submit disputes to arbitration as opposed to trying them in court: "As the protective provisions of the Securities Act require the exercise of judicial direction to fairly assure their effectiveness, it seems to us that Congress must have intended § 14 ... to apply to waiver of judicial trial and review."

Although Wilko v. Swan was based upon a construction of Section 14 of the Securities Act of 1933, some lower courts have read it to create a broad exception to the United States Arbitration Act for cases involving "protective federal legislation." These courts have extended this "protective federal legislation" exception to a variety of areas. See Applied Digital Technology, Inc. v. Continental Casualty Co., 576 F.2d 116 (7th Cir.1978) (antitrust); Allegaert v. Perot, 548 F.2d 432, 437 (2d Cir.), cert. denied, 432 U.S. 910, 97 S.Ct. 2959, 53 L.Ed.2d 1084 (1977) (bankruptcy); Beckman Instruments, Inc. v. Technical Development Corp., 433 F.2d 55 (7th Cir.1970), cert. denied, 401 U.S. 976, 91 S.Ct. 1199, 28 L.Ed.2d 326 (1971) (patent). Several cases have also extended this exception to claims arising under the Commodity Exchange Act. See Breyer v. First National Monetary Corp., 548 F.Supp. 955, 961 (D.N.J. 1982); Bache Halsey, Stewart, Inc. v. French, 425 F.Supp. 1231 (D.D.C.1977); Milani v. Conticommodity Serv., Inc., 462 F.Supp. 405 (N.D.Cal.1976).

Although the cases cited above support plaintiffs' arguments for extending the doctrine of Wilko v. Swan to claims arising under the Commodity Exchange Act, there is considerable persuasive authority to the contrary. See Smokey Greenhaw Cotton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 720 F.2d 1446 (5th Cir.1983); Ingbar v. Drexel Burnham Lambert, Inc., 683 F.2d 603 (1st Cir.1982); Salcer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 682 F.2d 459 (3d Cir.1982); Tamari v. Bache & Co. (Lebanon) S.A.L., 565 F.2d 1194 (7th Cir.1977), cert. denied, 435 U.S. 905, 98 S.Ct. 1450, 55 L.Ed.2d 495 (1978); Hagstrom v. Breutman, 572 F.Supp. 692 (N.D. Ill.1983); Romnes v. Bache & Co., 439 F.Supp. 833 (W.D.Wis.1977). This court finds the reasoning of the cases upholding arbitration to be more persuasive than ...