Dickler v. Shearson Lehman Hutton, Inc.

• Citation: 596 A.2d 860,408 Pa.Super. 286
• Parties: Dale DICKLER and Judy Kates, Individually and as Representatives on Behalf of all Persons Similarly Situated, Appellees, v. SHEARSON LEHMAN HUTTON, INC., Appellant.
• Decision Date: 30 August 1991
• Court: Superior Court of Pennsylvania

Page 860

596 A.2d 860

408 Pa.Super. 286

Dale DICKLER and Judy Kates, Individually and as Representatives on Behalf of all Persons Similarly Situated, Appellees, v. SHEARSON LEHMAN HUTTON, INC., Appellant.

Superior Court of Pennsylvania.

Argued May 15, 1991.

Filed Aug. 30, 1991.

Daniel T. Futch, Philadelphia, for appellant.

Lewis Kates, Philadelphia, for appellees.

Before McEWEN, KELLY and FORD ELLIOTT, JJ.

KELLY, Judge:

In this opinion we are called upon to determine whether the trial court erred in holding that in Pennsylvania a claim for equitable relief is by law, outside the terms of an arbitration agreement. The trial court held that this class action suit, calling for equitable as well as legal relief, was outside the terms of the arbitration agreement between the appellant, Shearson Lehman Hutton, Inc. [hereinafter "Shearson"], and the appellees [hereinafter the "Dickler Group"]. We find that the broad agreement [hereinafter "Shearson client agreement"] signed by the parties encompasses all controversies, and that federal and Pennsylvania law allows arbitrators to provide all kinds of relief not prohibited by statute. Furthermore we find that this class action, if properly certified, may continue through arbitration on a class-wide basis. We therefore remand to the trial court for class certification proceedings. After this ruling, the trial court must compel arbitration. The Dickler Group may then proceed with the dispute through arbitration either as a class or individually, depending on the result of the class certification proceedings.

The relevant facts and procedural history are as follows. The Dickler Group purchased securities between January, 1989 and June, 1989 from Shearson. On February 15, 1990, the Dickler Group brought this action, individually, and as class representatives for all similarly situated, alleging that Shearson failed to deliver the purchased securities or pay stock dividends on the securities despite their requests. The Dickler Group's original complaint sought recovery for three causes of action: breach of fiduciary duty, breach of contract and tortious conversion.

On April 12, 1990, Shearson filed a motion to stay claims and compel arbitration, citing the Shearson client agreement between the parties. Paragraph 23 of the agreement states:

Any controversy arising out of or relating to my accounts, to transactions with you, your officers, directors, agents and/or employees 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 NASD or the Board of Directors of the NYSE or American 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 will have the right to elect the arbitration tribunal of your choice. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof.

On May 18, 1990, the Dickler Group filed a response to the motion, and an amended complaint which included a prayer for equitable relief. In its response, the Dickler Group argued that the claims were not arbitrable because of the request for equitable relief. Shearson responded to the Dickler Group's answer, arguing that the Shearson client agreement was broad enough to address all disputes.

On July 10, 1990, the trial court entered an order denying appellant's motion to compel arbitration. The trial court ruled that the dispute presented was outside the terms of the Shearson client agreement. The trial court stated that "[t]he [equitable] relief requested cannot be awarded through arbitration." Tr.Ct.Op. at 3. On August 10, 1990, Shearson filed this appeal.

Shearson raises the following issue for our review:

I. WHETHER THE LANGUAGE OF THE ARBITRATION CLAUSE CONTAINED IN THE SHEARSON CLIENT AGREEMENT REQUIRES ARBITRATION OF CLAIMS ASSERTED BY THE PLAINTIFFS AGAINST SHEARSON LEHMAN

HUTTON, INC., INCLUDING CLAIMS FOR EQUITABLE RELIEF?

Appellant-Shearson's Brief at 3. ¹

Shearson contends that the trial court erred by failing to stay proceedings and compel arbitration. This Court, guided by the deference to arbitration agreements by both federal and Pennsylvania courts and legislatures, finds that the trial court erred by allowing this dispute to bypass the contracted for arbitration process. The trial court failed to defer to the broad directive of the United States Supreme Court which has mandated a standard of enforceability which should have guided the outcome of this case, and to Pennsylvania precedent which suggests that under the most recent legislation, equitable decrees by arbitrators will be enforced by state courts. The trial court, in reaching its conclusion, also gave inadequate attention to the comprehensive nature of the Shearson client agreement.

The standard for enforcing an arbitration agreement is mandated by federal law. The Federal Arbitration Act (FAA) has been interpreted by the Supreme Court as mandating the enforcement of all arbitration agreements which "evidence a transaction involving commerce, unless they are revocable on contractual grounds." Southland Corp. v. Keating, 465 U.S. 1, 11-12, 104 S.Ct. 852, 858-59, 79 L.Ed.2d 1, 12 (1984). ² The Court extended this principle of enforceability to the states, noting that if Congress did not intend states to be bound, the limiting language "evidenc[ing] a transaction involving commerce" would have been entirely superfluous. Id.

The Court has consistently reiterated this policy of respecting arbitration agreements. See Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 626, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444, 455 (1985) ("[A]s with any other contract, the parties' intentions control, but those intentions are generally construed as to issue of arbitrability."); Dean Witter Reynolds, Inc. v. A. Lamar Byrd, 470 U.S. 213, 219, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158, 164 (1985) ("The legislative history of the [Federal Arbitration] Act establishes that the purpose behind its passage was to ensure judicial enforcement of privately made agreements to arbitrate."); Moses H. Cone Hospital v. Mercury Constr., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765, 785 (1983) ("Section 2 [of FAA] is a congressional declaration of a liberal federal policy favoring arbitration agreements, not withstanding any state substantive or procedural policies to the contrary."); AT & T Technologies v. Communications Workers, 475 U.S. 643, 650, 106 S.Ct. 1415, 1419, 89 L.Ed.2d 648, 656-57 (1986) ("[T]here is a presumption of arbitrability in the sense that '[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.' Such a presumption is particularly applicable where the clause is [a] broad ... one.") (citation omitted).

In establishing this broad federal directive favoring arbitration agreements, the United States Supreme Court reinforced the traditional deference which federal courts have shown towards the remedial power of arbitrators. The Court has emphasized that the arbitration process would only be viable if it could handle all the disputes which could arise under the agreement and only if the arbitrators have a great deal of flexibility in fashioning remedies. See United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 80 S.Ct. 1358, 1361, 4 L.Ed.2d 1424, 1428 (1960).

In Southland Corp. v. Keating, supra, which extended federal enforceability standards to state courts, the Court noted that the Federal Arbitration Act was motivated by a congressional purpose to overcome the rule that courts of equity will not enforce arbitration agreements. ³ The Court noted that the resistance of many state courts was grounded solely in the tradition of English courts jealously maintaining their own jurisdiction. See Southland Corp. v. Keating, supra, 465 U.S. at 13, 104 S.Ct. at 859, 79 L.Ed.2d at 13-14.

The Southland Corp. v. Keating, supra, established a general rule of broad enforceability for arbitration agreements, including a strong suggestion that arbitrators be allowed to dispense equitable relief. While this decision will force many states to reevaluate and reverse their historical disdain for arbitration, Pennsylvania's policy towards arbitration is entirely consistent with the United States Supreme Court's holding. In Pennsylvania, our courts' decisions have been governed by two basic, but hard to reconcile propositions: (1) arbitration agreements are to be strictly construed and ... such agreements should not be extended by implication and (2) when the parties agree to arbitration in a clear and unmistakable manner, then every reasonable effort will be made to favor such agreements. See Emmaus Mun. Auth. v. Eltz, 416 Pa. 123, 125, 204 A.2d 926, 927 (1964); Hassler v. Columbia Gas Transmission Corp., 318 Pa.Super. 302, 307, 464 A.2d 1354, 1356 (1983).

While the admonition against extending by implication the terms of the agreement clearly suggests limits on the interpretation of arbitration agreements, such limits are of small concern in evaluating a contract which employs sweeping, all encompassing language. The Pennsylvania Supreme Court, when confronted with a contract which called for arbitration employing the term "[a]ny controversy ...," could find no grounds to enjoin such an agreement. The Court suggested that "[b]roader language would be difficult to contrive." Flightways Corp. v. Keystone Helicopter Corp., 459 Pa. 660, 663, 331 A.2d 184, 185 (1975). ⁴

The Shearson client agreement, also beginning with the words "[a]ny controversy ...," employs even more encompassing language in directing disputes towards arbitration than the...