Roueche v. Merrill Lynch Pierce Fenner & Smith, Inc.

• Decision Date: 10 January 1983
• Docket Number: Civ. No. 80-0433.
• Court: U.S. District Court — District of Hawaii
• Parties: Mark S. ROUECHE, Plaintiff, v. MERRILL LYNCH PIERCE FENNER & SMITH, INC., and James Igoe in his individual capacity, Defendants.

554 F. Supp. 338

Mark S. ROUECHE, Plaintiff, v. MERRILL LYNCH PIERCE FENNER & SMITH, INC., and James Igoe in his individual capacity, Defendants.

Civ. No. 80-0433.

United States District Court, D. Hawaii.

January 10, 1983.

David C. Schutter, Howard Glickstein, Schutter & Pavey, Honolulu, Hawaii, for plaintiff.

Jeffrey S. Portnoy, William J. Wynhoff, Cades Schutte Fleming & Wright, Honolulu, Hawaii, for defendants.

ORDER

SAMUEL P. KING, Chief Judge.

BACKGROUND

In August 1980 plaintiff Mark S. Roueche filed a seven-count complaint in both federal and state courts alleging damages suffered while buying and selling securities through a broker at the defendant firm of Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill Lynch"). The only difference between the complaints filed in federal and state courts is that Counts I and II of the federal complaint, unlike the state complaint, seek relief under section 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. § 78j(b) (1981). The remaining Counts III through VII allege common law or state law claims, such as fraud, breach of fiduciary duty, and conversion, and are brought before this Court by reason of pendent jurisdiction and diversity of citizenship.

By its present Motion for Stay of Proceedings Pending Arbitration, defendant Merrill Lynch seeks arbitration of the state law claims and a stay of proceedings on all claims, including the federal securities law claims, pending resolution of the arbitration. The basis for defendant's Motion is that the parties have agreed by contract that all claims arising out of the handling of plaintiff's account are to be referred to arbitration.

The circumstances of this case are complicated by a state court order dated January 27, 1982, staying all state proceedings pending arbitration. As of December 21, 1982, however, the parties had not yet proceeded to arbitration in accordance with the state court's order.

Despite plaintiff's decision to litigate this case in state as well as federal court, and notwithstanding the state court's order, plaintiff contends in opposition to defendant's Motion that all claims should be heard in federal court or at least that the arbitration should be stayed pending resolution of the federal securities law claims. In addition, plaintiff contends that Merrill Lynch has waived its right to compel arbitration because it has failed to pursue vigorously its contractual right to arbitrate the dispute.

DISCUSSION

Having examined the arguments and the facts presented by counsel, the Court concludes that Merrill Lynch has not waived its right to arbitration. The primary question, therefore, concerns which proceedings, if any, ought to be stayed.

It is well established that claims brought under the federal securities laws are not arbitrable. See Wilko v. Swan, 346 U.S. 427, 438, 74 S.Ct. 182, 188, 98 L.Ed. 168 (1953); De Lancie v. Birr, Wilson & Co., 648 F.2d 1255, 1259 (9th Cir.1981); see also 15 U.S.C. § 78aa (1981) (granting district courts exclusive jurisdiction). Thus, defendant concedes that Count I of plaintiff's First Amended Complaint, which alleges securities fraud under section 10(b) of the 1934 Act, is not arbitrable. In their briefs submitted in regard to the present Motion, both parties seem to assume that Counts II through VII involve state law claims. Plaintiff's Complaint clearly indicates, however, that Count II, which deals with churning, was also brought under section 10(b) of the 1934 Act, rather than under pendent or diversity jurisdiction. Consequently, the Court concludes that neither Counts I nor II are arbitrable.

Defendant submits that the proceedings on the non-arbitrable claims in this Court should nonetheless be stayed because of the state court's stay pending arbitration. This Court's staying its own proceedings on the non-arbitrable claims, however, would be difficult to reconcile with the exercise of exclusive federal jurisdiction over federal securities laws. Moreover, such a stay would penalize plaintiff for bringing his case in state as well as federal court. The Court therefore declines to stay proceedings on Counts I and II.

The remaining question involves Counts III through VII, which allege violations of state law. In principle, the Court could adopt the "doctrine of intertwining" and hear all of the plaintiff's claims together, on the theory that the federal and state claims are intertwined due to the similar...