MERRILL LYNCH, PIERCE, FENNER, ETC. v. Haydu

• Decision Date: 11 January 1980
• Docket Number: No. 79-1088-Civ.-JLK.,79-1088-Civ.-JLK.
• Citation: 482 F. Supp. 788
• Court: U.S. District Court — Middle District of Florida
• Parties: In the Matter of the Arbitration between MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Petitioner, v. Helen Echo HAYDU, Respondent.

482 F. Supp. 788

In the Matter of the Arbitration between MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Petitioner, v. Helen Echo HAYDU, Respondent.

No. 79-1088-Civ.-JLK.

United States District Court, D. Florida.

Order Granting Petition to Compel Arbitration July 11, 1979.

On Emergency Motion for Injunction January 11, 1980.

N. James Turner, Walton, Lantaff, Schroeder & Carson, Miami, Fla., for petitioner.

Bill Shuford, Jr., Bartel & Shuford, P. A., Miami, Fla., for respondent.

JAMES LAWRENCE KING, District Judge.

This matter arose upon the petition of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to compel arbitration pursuant to the terms of agreements executed with Helen Echo Haydu on September 4, 1975 and July 19, 1977.

After carefully reviewing the record, the court notes, inter alia, that since there is diversity of citizenship between the parties under 28 U.S.C. § 1332, it may entertain the instant petition under 9 U.S.C. § 4.

The respondent, Ms. Haydu, has not contested the petitioner, Merrill Lynch's contention that the instant arbitration agreements, executed in connection with a stock brokerage account, involve "commerce" within the meaning of 9 U.S.C. § 2, Wilko v. Swan, 346 U.S. 427, 430, 74 S.Ct. 182, 98 L.Ed. 168 (1953), so that the court may enforce the agreements under 9 U.S.C. § 4.

While agreements to arbitrate future federal securities law violations are unenforceable, e. g., Wilko v. Swan, supra at 438, 74 S.Ct. 182, it does not appear from the respondent's state court Complaint (Ex. "A", attached to the April 27, 1979 "motion to dismiss") that the dispute between parties involves violations of federal securities laws. In his February 17, 1979 Order of Remand, the Hon. Joe Eaton, United States District Judge, found that the Complaint failed to invoke the Securities Act of 1933. This court agrees. And, since respondent filed her Complaint in state court, it is clear that no violations of the Securities Act of 1934 are involved in the instant dispute, for the state court lacks jurisdiction to hear suits for violations of this latter Act. 15 U.S.C. § 78aa; Moran v. Paine, Weber, Jackson & Curtis, 279 F.Supp. 573 (W.D.Pa. 1967), aff'd, 389 F.2d 242 (3d Cir. 1968). That is, it appears from the record that the 1934 Act claims are not part of the instant dispute for, in her efforts to resolve this dispute, respondent sued in a court which lacked jurisdiction to hear 1934 Act claims. This court therefore finds that the instant dispute is not nonarbitrable under the holding in Wilko v. Swan, supra, for federal securities law violations are not involved herein.

The respondent also argues that she did not understand the effect of the July 19, 1977 "Standard Option Agreement" which she signed. She additionally states in her affidavit that she was not given the opportunity to read the "Standard Option Agreement" because she was distracted by a "high-pressure sales talk" delivered by a representative of Merrill Lynch.

As for these arguments, the court notes that respondent has not attacked the initial September 4, 1975 agreement. Additionally, the doctrine of unilateral mistake would prevent the court from granting relief from the agreement as a result of the mere failure to comprehend its import. E. F. Hutton & Co. v. Schank, 456 F.Supp. 507, 511 (D.Utah 1976). In any event, these attacks on the agreement should be ruled on by the arbitrator, rather than by the court. The court bases this conclusion on Prima Paint Corp. v. Flood & Conklin, 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) the holding of which was succinctly explained in a Seventh Circuit Court of Appeals opinion, in which Circuit Justice John Paul Stevens joined:

The attack on validity of the contract containing the arbitration clause in Prima Paint . . . was broad gauged, asserting that the contract as a whole was voidable from its inception for fraud in the inducement. That equitable defense, if sustained, would have invalidated the entire contract, carrying the arbitration clause down with it. Nonetheless, the Supreme Court ruled that the defense must be adjudicated by the arbitrator, not the court.

Internat'l U. of Operating Engineers v. Morse, 529 F.2d 574, 578 (7th Cir. 1976) (Footnote omitted). The respondent's instant claim that she was deprived of the opportunity to read the "Standard Option Agreement" is similarly "broad gauged", and must be decided by the arbitrator.

The court is therefore "satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue . . .", 9 U.S.C. § 4, so that the court does now

ORDER and ADJUDGE that the petition to compel arbitration is hereby granted. The parties shall proceed to arbitration in accordance with the terms of the agreements sub judice. Such arbitration proceedings shall be conducted within the Southern District of Florida. 9 U.S.C. § 4. The court does further

ORDER and ADJUDGE that, having granted the petition to compel arbitration, the case is hereby dismissed, except that the court shall retain jurisdiction to enforce the terms of this Order.

On Emergency Motion For Injunction

This matter arose upon the emergency motion of the petitioner, Merrill Lynch, Pierce, Fenner & Smith, Inc., (hereinafter "Merrill Lynch"), to enjoin the respondent, Helen Echo Haydu, from prosecuting her state court action, Haydu v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 79-583 (CA-05, filed Jan. 10, 1979) (hereinafter "state court action").

In support of its emergency motion, Merrill Lynch contends that the state court action must be enjoined to protect and effectuate this Court's order of July 11, 1979. In opposing the motion, the respondent argues that this Court's order of July 11 was "effectively barred and prohibited" by a prior state court order under doctrines of res judicata and collateral estoppel. The respondent also raises issues of concurrent jurisdiction and abstention under Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971).

The July 11, 1979 order compelled arbitration of the respondent's underlying claim against Merrill Lynch pursuant to 9 U.S.C. § 4. That order is now on appeal to the Fifth Circuit and has been stayed pending appeal. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, No. 79-2993 (5th Cir., Dec. 17, 1979) (order granting stay pending appeal and relinquishing jurisdiction to district court). The Fifth Circuit panel has also relinquished jurisdiction to this Court "for the restricted purpose of its entertaining the appellee's application for injunctive relief and determining whether such is warranted and is permissible in effectuation or protection of its order, see 28 U.S.C. Section 2283." Id.

Specifically, the court of appeals has not remanded the July 11, 1979 order for reconsideration. Hence, respondent's arguments on the validity, propriety, or wisdom of the July 11 order are inapposite. It would be a usurpation of Fifth Circuit panel's retained appellate jurisdiction for this Court, in effect, to treat the present motion as an occasion to reconsider the July 11 order once again on its merits. Moreover, the respondent's arguments were urged upon this Court upon her motion for reconsideration on July 13, 1979 and were rejected at that time.

The Court concludes that the following three issues are properly present for its consideration: (1) whether the emergency motion falls within the exception to the anti-injunction statute "to protect or effectuate the Court's judgments," 28 U.S.C. § 2283; (2) if so, whether the general prerequisites for the granting of an injunction are present; and (3) if so, whether the injunction should be denied in the interests of federalism.

I. Protection and Effectuation of the July 11 Order

At the outset, the Court notes that there is no question but that the underlying controversies that form the basis of the July 11 Order and the state court action are the same. Indeed, the respondent states: "The parties and issues involved in both the State and Federal actions here at issue are identical." Respondent's Response and Memorandum in Opposition at 2. See also Emergency Motion at 2.

Also as an initial matter, there seems little question that the provisions of 28 U.S.C. § 2283 apply to this motion. This Court is obviously a "court of the United States" and the petitioner is seeking "an injunction to stay proceedings in a state court." Thus, this Court is prohibited from granting such an injunction unless one of the exceptions to the anti-injunction statute applies. Both parties agree that only the third exception permitting a federal court "to protect and effectuate its judgments" is pertinent.

The July 11 order, as a final, appealable order of this Court, clearly constitutes a judgment for the purposes of the exception to the anti-injunction statute. See Wright, Miller & Cooper, 17 Federal Practice and Procedure § 4226 at 346-47. Therefore, the questions under the anti-injunction statute may be reduced to the single issue of whether a stay of the state court proceedings would protect or effectuate the July 11 order. Indeed, this issue was the very one noted in the appeals court order relinquishing jurisdiction.

The July 11 order directed the parties to take their dispute to arbitration pursuant to the terms of their agreement to do so. Although at common law arbitration agreements were not enforceable, arbitration today is regarded as a convenient and relatively inexpensive alternative to litigation. This advantage to the parties and the advantage of relieving congestion in the courts prompted the passage of the United States Arbitration Act of 1925, the successor provisions of which are codified at 9 U.S.C. §§ 1-14. See, e. g., Seaboard Coast Line Railroad Co. v. National Rail Passenger Corp., 554 F.2d 657, 660 (5th Cir. 1977) (per curiam) (policy to relieve congestion in the courts); Aerojet-General Corp. v. American...