Page v. Moseley, Hallgarten, Estabrook & Weeden, Inc.

• Decision Date: 26 November 1986
• Docket Number: No. 86-1021,86-1021
• Citation: 806 F.2d 291
• Parties: , Fed. Sec. L. Rep. P 93,001, RICO Bus.Disp.Guide 6455 Frederick J. PAGE, Jr. and Kristin D. Page, Plaintiffs, Appellees, v. MOSELEY, HALLGARTEN, ESTABROOK & WEEDEN, INC., and Joseph McDonald, Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 291

806 F.2d 291

55 USLW 2328, Fed. Sec. L. Rep. P 93,001,

RICO Bus.Disp.Guide 6455

Frederick J. PAGE, Jr. and Kristin D. Page, Plaintiffs, Appellees, v. MOSELEY, HALLGARTEN, ESTABROOK & WEEDEN, INC., and Joseph McDonald, Defendants, Appellants.

No. 86-1021.

United States Court of Appeals First Circuit.

Argued June 3, 1986.

Decided Nov. 26, 1986.

Bruce E. Falby with whom John A.D. Gilmore and Hill & Barlow, Boston, Mass., were on brief for defendants, appellants.

Harry A. Garfield, II with whom Norman Berman and Berman, DeValerio & Pease, Boston, Mass., were on brief for plaintiffs, appellees.

Before CAMPBELL, Chief Judge, COFFIN and TORRUELLA, Circuit Judges.

TORRUELLA, Circuit Judge.

This action was brought below by plaintiffs-appellees, Frederick J. Page, Jr. and Kristin D. Page, against their former stockbroker Joseph McDonald, and his employer, a Cambridge, Massachusetts stockbrokerage firm known as Moseley, Hallgarten, Estabrook & Weedon, Inc. Plaintiffs' basic claim below was for alleged excessive trading or "churning" of their accounts by defendants. Plaintiffs sought to recover damages pursuant to Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b) (1982), and Rule 10b-5 promulgated thereunder, 17 C.F.R. Sec. 240.10b-5 (1985). Plaintiffs also alleged that defendants' conduct violated the civil provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sec. 1964(c). Finally, plaintiffs alleged a violation of Massachusetts General Law Chapter 93A, pertaining to deceptive and unfair trade practices.

After defendants answered the complaint and upon the completion of discovery, defendants moved, on November 30, 1984, to dismiss the RICO and state law counts for failure to state a claim, but requested that the motion not be briefed until trial due to rapid developments of the law in each area. Plaintiffs opposed the motion, but joined in the request that briefing be delayed.

On January 4, 1985, plaintiffs filed a motion for partial summary judgment as to the 10b-5 claim. For reasons that are not apparent from the record, the district court took no immediate action on this motion.

On March 29, 1985, approximately twelve months after plaintiffs filed their complaint and 3 1/2 weeks after the Supreme Court decision in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), defendants moved to compel arbitration. Again, this motion was not acted upon by the court at that time.

On June 17, 1985, the district court denied plaintiffs' motion for partial summary judgment, noting the presence of material issues of fact with respect to the 10b-5 claim. Defendants then moved, on December 16, 1985, to dismiss the state law claim on the ground that the Massachusetts Supreme Court had decided that securities fraud does not suffice to state a claim under Massachusetts General Law ch. 93A. See Cabot Corp. v. Baddour, 394 Mass. 720, 477 N.E.2d 399 (1985).

On January 6, 1986, the district court held a hearing to decide all pending motions before it. By stipulation of the parties, the court dismissed the state law claim. As to the motion to compel arbitration on the 10b-5 and RICO counts, the court noted that the law favoring arbitrability is unclear and that, given "the stage at which this case now stands," it would deny defendants' motion. This appeal followed.

On appeal, defendants-appellants urge us to reverse the district court and find that the 10b-5 and RICO claims were arbitrable. Plaintiffs-appellees suggest a contrary result, adding that we need not reach the issue of arbitrability given our alleged lack of appellate jurisdiction and plaintiffs' claim that defendants waived their right to compel arbitration.

For reasons stated more fully below, we hold that appellate jurisdiction exists, that defendants did not waive their right to compel arbitration, that the 10b-5 claim was arbitrable and that the RICO claim was not. Accordingly, the order of the district court is vacated with instructions to compel arbitration on the 10b-5 claim and to stay litigation on the RICO claim pending arbitration on the 10b-5 count.

I. Appellate Jurisdiction

Plaintiffs-appellees do not dispute that their action is one for damages, and hence, is legal in nature. Appellees also acknowledge the "Enelow-Ettelson" doctrine. ¹ This doctrine establishes that if the underlying action is one at law, orders compelling arbitration, 9 U.S.C. Sec. 4, or staying district court proceedings pending arbitration, 9 U.S.C. Sec. 3, are appealable under 28 U.S.C. Sec. 1292(a)(1). See Mowbray v. Moseley, 795 F.2d 1111, 1113 (1st Cir.1986); Langley v. Colonial Leasing Co. of New England, 707 F.2d 1, 5 (1st Cir.1983); Hartford Financial Systems v. Florida Software Services, Inc., 712 F.2d 724, 726-727 (1st Cir.1983).

Appellees, however, argue that the rule of appealability should be modified where a denial, and not a grant, of a motion to compel arbitration is at issue. Appellees further suggest that, even assuming appellate jurisdiction can be found under Enelow-Ettelson, the same should be struck down. See Mowbray, supra, at 1114 n. 5 (noting that "some courts and commentators have urged abandonment of the ... doctrine.").

We reject both of appellees' propositions. The rule of this circuit is clear that the grant or denial of Sec. 3 motions to stay district court proceedings pending arbitration and Sec. 4 motions to compel arbitration is appealable where the underlying action is one at law. Langley, supra. Since it is undisputed that appellees' action is one at law, appellate jurisdiction clearly exists. The suggestion that we overrule Enelow-Ettelson itself addresses powers beyond our domain. Enelow-Ettelson was a creation of the Supreme Court, and only that tribunal, or Congress, can overrule it.

II. Waiver

In considering the issue of waiver, it is paramount that we keep in mind the Supreme Court's admonition that, due to the strong federal policy favoring arbitration agreements, any doubt concerning arbitrability "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 Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983).

It is in deference to this policy favoring arbitration that courts have stated that "[w]aiver is not to be lightly inferred, and mere delay in seeking [arbitration] without some resultant prejudice to a party cannot carry the day." Rush v. Oppenheimer & Co., 779 F.2d 885 (2d Cir.1985) (citing Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir.1968)); see also Hilti, Inc. v. Oldach, 392 F.2d 368, 371 (1st Cir.1968).

Thus, in order for plaintiffs-appellees to prevail on their claim of waiver they must show not only that defendants delayed in seeking arbitration, but also that such delay caused plaintiffs prejudice. For reasons elaborated below, we find that appellees have not shown sufficient prejudice to make out a claim of waiver. ²

In order properly to understand plaintiffs' claim of prejudice, it is necessary to reiterate the events prior to and after defendants' motion to compel arbitration. Plaintiffs' complaint was filed on March 15, 1984. Discovery was completed on November 7, 1984. On January 4, 1985, plaintiffs filed a motion for partial summary judgment as to the 10b-5 claim. Approximately twelve months after plaintiffs had filed their complaint, and 3 1/2 weeks after the Supreme Court opinion in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), the defendants moved to compel arbitration on March 29, 1985. No immediate action was taken on this motion by the district court.

Three months later, and without addressing defendants' still pending motion to compel arbitration, the district court denied plaintiffs' motion for summary judgment on June 13, 1985. Finally, on January 6, 1986, nine months after defendants moved to compel arbitration, the district court held a hearing. At that hearing, plaintiffs' counsel represented that they would be willing to waive a jury trial. The court then denied defendants' motion and told the parties to be prepared to try the case on 72 hours notice.

On appeal, plaintiffs claim prejudice from the fact that they were at the stage of complete readiness to try the case, and if made to arbitrate, will be forced to "restart the entire process before a new tribunal." This argument, while compelling if defendants had indeed filed their motion 72 hours before trial, obfuscates the fact that the defendants filed their motion nine months prior, at which point the only prejudice incurred by plaintiffs was having to engage in discovery. ³ As to the alleged burden of discovery, plaintiffs have stipulated in their brief that it caused them no prejudice. Accordingly, we hold that, because plaintiffs have neither alleged nor shown any prejudice from the discovery prior to defendants' motion to compel arbitration, defendants cannot at that point be said to have waived their right to compel arbitration. See J & S Construction Co., Inc. v. Travelers Indemnity Co., 520 F.2d 809 (1st Cir.1975) (no showing of prejudice by plaintiffs, and hence, no waiver by defendants, despite 13 month delay in seeking arbitration and participation in discovery).

III. Arbitrability of Claims Under Section 10(b) of the Securities Exchange Act of 1934

This issue currently divides the circuits. The Second, Third, Fifth, Sixth, Seventh, Ninth, Tenth and Eleventh Circuits have adopted a rule of nonarbitrability. ⁴ The Eighth Circuit, standing alone, has recently ruled that, where the parties agree, arbitration can be allowed. ⁵ We are persuaded by the result reached by the Eighth Circuit, although for somewhat different reasons, and rule that, where private parties agree...