Painwebber Inc v. Chase Manhattan Private Bank

• Decision Date: 31 July 2001
• Docket Number: No. 00-20917,00-20917
• Citation: 260 F.3d 453
• Parties: (5th Cir. 2001) PAINEWEBBER INCORPORATED, Petitioner-Appellee, v. THE CHASE MANHATTAN PRIVATE BANK (SWITZERLAND), Respondent-Appellant
• Court: U.S. Court of Appeals — Fifth Circuit

Page 453

260 F.3d 453 (5th Cir. 2001)

PAINEWEBBER INCORPORATED, Petitioner-Appellee, v. THE CHASE MANHATTAN PRIVATE BANK (SWITZERLAND), Respondent-Appellant.

No. 00-20917

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

July 31, 2001

[Copyrighted Material Omitted]

Robin C. Gibbs, Robert Joseph Madded (argued), Gibbs and Bruns, Houston, TX, for Plaintiff-Appellee.

John Bryant Thomas, Hicks, Thomas & Lilienstern, Houston, TX, Steven P. Caley (argued), John M. Callagy, Kelley, Dyre & Warren, New York City, for Defendant-Appellant.

Appeal from the United States District Court For the Southern District of Texas

Before SMITH, DUHE, and WIENER, Circuit Judges.

WIENER, Circuit Judge:

Respondent-Appellant The Chase Manhattan Private Bank (Switzerland) ("Chase-Switzerland") appeals the district court's order to arbitrate third-party claims brought against it by PaineWebber Incorporated ("PaineWebber"), contending that the district court lacked personal jurisdiction over it. We agree, and vacate the district court's order.

I. FACTS AND PROCEEDINGS

This dispute had its genesis in 1994 when PaineWebber, a financial services firm specializing in private wealth management, approached Chase-Switzerland, a Swiss bank, to secure its services for PaineWebber customers. After protracted negotiations, the parties entered into an agreement in June 1994 whereby PaineWebber would refer its customers who wished to house their assets in a Swiss bank to Chase-Switzerland (the "Referral Agreement"). Under the Referral Agreement, a PaineWebber customer would open a custodial account at Chase-Switzerland, which would in turn open an omnibus brokerage account at PaineWebber. PaineWebber would then execute transactions for the customer in the omnibus account. Most importantly for the instant case, the Referral Agreement provides:

Any dispute between [Chase-Switzerland] and PaineWebber which cannot be resolved by good faith negotiations shall be submitted to the appropriate arbitrator or court in the United States.

Not long after negotiating the Referral Agreement, PaineWebber referred the Lerma family of Mexico to Chase-Switzerland. A company controlled by the Lermas¹ opened an account with Chase-Switzerland, and Enrique Ernesto Perusquia ("Perusquia"), then a PaineWebber vice president, was designated by the Lermas as the "Independent Asset Manager" of their account. Chase-Switzerland opened an omnibus account at PaineWebber pursuant to the Referral Agreement and executed a PaineWebber trading authorization form.

The account-opening documents gave PaineWebber no authority to trade options in the omnibus account. Nevertheless, approximately nine months after Chase-Switzerland opened the omnibus account, at least one such transaction was executed in the account. PaineWebber belatedly sought Chase-Switzerland's retroactive approval by requesting its signature on a one-page form contract entitled "Client Option Agreement and Qualification Form" (the "Option Agreement"). In fine print on the form, the Option Agreement contained the following boilerplate arbitration clause:

I agree and by carrying an account for me you agree, that any and all controversies which may arise between you and me concerning any account, transaction, dispute or the construction, performance, or breach of this or any other agreement whether entered into prior, on or subsequent to the date shall be determined by arbitration. Any arbitration under this agreement shall be held under and pursuant to and be governed by the New York Exchange, Inc., or the National Association of Securities Dealers, Inc. I may also select any other national securities exchange's arbitration forum upon which PaineWebber is legally required to arbitrate the controversy with me, including, where applicable, the Municipal Securities Rule Making Board. Such arbitration shall be governed by the rules of the organization convening the panel. I may elect in the first instance the arbitration forum.

Over the course of one month, Chase-Switzerland signed three such Option Agreements, each containing the identical arbitration clause.² Chase-Switzerland sent a signed Option Agreement dated March 16, 1995 to PaineWebber with a transmittal cover letter stating that "this document is only valid on a temporary basis." Chase-Switzerland's letter also informed PaineWebber that if it "would like to just trade options on this account or others, we will need to modify the legal doc [sic] which is the Referral Agreement[.]" Chase-Switzerland signed another Option Agreement on March 28, 1995, again with a notation that the Option Agreement would be "valid until April 30, [19]95 only."

Chase-Switzerland did not grant PaineWebber general authority to trade options in the omnibus account until May 2, 1995 (the "May 1995 Authorization"). In the May 1995 Authorization, the parties drew a line through the phrase in the form agreement providing that options transactions would be conducted in accordance with PaineWebber's standard terms and conditions, and typed in its place a provision directing that such transactions be conducted according to the Referral Agreement.

In December 1998, the Lermas instituted arbitration to resolve a claim against PaineWebber, Perusquia, and Lehman Brothers (Perusquia's former employer) before the National Association of Securities Dealers (the "NASD"). The Lermas alleged that Perusquia, acting first as the employee of Lehman Brothers and then as the employee of PaineWebber, defrauded them of more than 80 million dollars. The Lermas' claim advanced multiple theories of liability including fraud, conversion, forgery, theft, breach of fiduciary duty, churning, self-dealing, violation of state and federal securities laws, and breach of contract. PaineWebber and the Lermas agreed to stay the NASD arbitration for 16 months while they attempted to sort out the complex relationships and transactions at issue.

In May 2000, PaineWebber answered the Lermas' claim, filed a cross-claim against Lehman Brothers, and asserted third-party claims against Chase-Switzerland and UBS AG, another Swiss Bank. PaineWebber's claims against Chase-Switzerland arose out of Perusquia's purchase for the Lermas of more than 21 million dollars worth of shares in Northern Orion Exploration ("Northern Orion"), a gold mining company. PaineWebber contends, inter alia, that Perusquia acted outside the scope of his employment in transacting the Northern Orion purchases for the Lermas, and that PaineWebber relied on Chase-Switzerland's representations in permitting Perusquia to execute the transactions. Chase-Switzerland, in turn, informed PaineWebber in writing on two occasions that it did not believe that the third-party claims were arbitrable, but if they nevertheless proved to be arbitrable Chase-Switzerland would elect to arbitrate in New York City before the New York Stock Exchange (the "NYSE").

In June 2000, a rapid series of steps was instituted by PaineWebber and the Lermas. First, PaineWebber and the Lermas agreed to place the NASD arbitration on inactive status; almost immediately thereafter, the Lermas initiated an arbitration before the NYSE against PaineWebber, Perusquia, and Lehman Brothers based on the same allegations and theories of liability advanced before the NASD; and, in its equally immediate response filed June 22, 2000, PaineWebber denied all liability and asserted third-party claims against Chase-Switzerland seeking contribution for any liability resulting from the Lermas's allegations that the Northern Orion purchases were unauthorized and unsuitable. In the final step of the series, PaineWebber requested the NYSE to set the arbitration hearing in Houston, Texas. A mere six days later, the NYSE granted PaineWebber's request (not objected to by the Lermas) to hold the arbitration in Houston.

Chase-Switzerland promptly filed a petition in New York state court seeking to stay arbitration of the third-party claims. Chase-Switzerland asserted that it had not agreed to arbitrate these claims; alternatively, that if such claims were arbitrable, they should be arbitrated in New York City.

August 2, 2000 was a busy day for PaineWebber. On that day, PaineWebber (1) as defendant, removed Chase-Switzerland's state-court suit to the Southern District of New York, (2) filed a motion in that court to transfer Chase-Switzerland's suit to the Southern District of Texas, and (3) as plaintiff, filed the instant action in the Southern District of Texas where it was assigned to the Honorable Lynn N. Hughes. Chase-Switzerland objected to the transfer of its New York suit on the ground, inter alia, that the Southern District of Texas lacked jurisdiction over Chase-Switzerland. Likewise, Chase-Switzerland moved to dismiss the suit that PaineWebber filed in Texas as the plaintiff (the case here on appeal) for lack of personal jurisdiction, or, in the alternative, to transfer this case to the Southern District of New York.

Instead, Judge Hughes ordered Chase-Switzerland to arbitrate the third-party claims after concluding that Chase-Switzerland "is within this court's jurisdiction because it agreed to arbitrate in the United States, it elected arbitration through the exchange, and the exchange sent the arbitration to Houston, where PaineWebber has begun to add [Chase-Switzerland] as a third party defendant." Judge Hughes did not specify which of the numerous agreements between the parties was the basis for his ruling that Chase-Switzerland "elected arbitration through the exchange."

On the very same day that Judge Hughes signed the order to compel arbitration in Houston, the district court in New York, over the objection of Chase-Switzerland, granted PaineWebber's motion to transfer Chase-Switzerland's New York suit to the Houston division of the Southern District of Texas, where it was assigned to the Honorable Melinda Harmon. After its suit was transferred to the Southern District of...