Smith Barney Inc. v. Schell
| Decision Date | 27 April 1995 |
| Docket Number | No. 94-3584,94-3584 |
| Citation | 53 F.3d 807 |
| Parties | Fed. Sec. L. Rep. P 98,701 SMITH BARNEY INC. and Sharon Michalsky, Plaintiffs-Appellees, v. Donald J. SCHELL, Individually and as Trustee for the Benefit of the Donald J. Schell Trust, et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
H. Nicholas Berberian (argued), Robert J. Mandel, Neal, Gerber & Eisenberg, Chicago, IL, for plaintiffs-appellees.
Phillip Fertik (argued), Ronald A. Schy, Beigel, Schy, Lasky, Rifkind, Goldberg & Fertik, Chicago, IL, for defendants-appellants.
Before BAUER, FLAUM, and KANNE, Circuit Judges.
Defendants Donald and Michelle Schell appeal the district court's issuance of a permanent injunction barring them from asserting certain claims against plaintiff Smith Barney in arbitration proceedings and from seeking punitive damages on any remaining claims. In light of our clear circuit precedent and the recent Supreme Court decision in Mastrobuono v. Shearson Lehman Hutton, Inc., --- U.S. ----, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995), we now affirm in part, reverse in part, and remand.
Between August, 1985, and December, 1986, Donald J. Schell and Michelle G. Schell, both individually and on behalf of their trusts, opened accounts with Shearson Lehman Brothers Inc. ("Shearson"), a predecessor of Smith Barney. The Schells and Shearson executed a "Customer's Agreement" and two "Client Agreements." In those agreements, the Schells expressly agreed that they would resolve any disputes in accordance with the rules of three arbitration forums, including the National Association of Securities Dealers, Inc. ("NASD") and that New York Law would govern these disputes.
Despite this agreement to arbitrate, in December, 1993, the Schells sued Smith Barney in Florida state court, alleging fraud and breach of fiduciary duty. Smith Barney filed a Motion to Dismiss, or in the alternative, to Abate the Florida action in its entirety, on the grounds that the parties had entered into a valid arbitration agreement. The Motion also asserted that any claims not submitted to arbitration within six years of the events giving rise to those claims were not eligible for arbitration. On May 16, 1994, the Florida court entered an order dismissing the case in its entirety, without compelling the parties to arbitrate.
The Schells then filed a Statement of Claim with the NASD alleging fraud and breach of fiduciary duty, and asking for compensatory and punitive damages. On September 7, 1994, Smith Barney responded by filing this action pursuant to Section 4 of the Federal Arbitration Act, 9 U.S.C. Sec. 4, seeking injunctive and declaratory relief in order to enforce the parties' arbitration agreement in accordance with its terms. First, Smith Barney argued that almost all of the Schells' claims arose out of events that occurred before August 5, 1988--over six years prior to the filing of the arbitration--therefore barring those claims under Section 15 of the NASD Code of Arbitration Procedure ("NASD Code"). Section 15 of the NASD Code, incorporated by reference in the parties' arbitration agreement, provides that:
No dispute, claim, or controversy shall be eligible for submission to arbitration under this Code where six (6) years shall have elapsed from the occurrence or event giving rise to the act or dispute, claim or controversy. This section shall not extend applicable statutes of limitations, nor shall it apply to any case which is directed to arbitration by a court of competent jurisdiction.
Second, relying on our decision in Mastrobuono v. Shearson Lehman Hutton, Inc., 20 F.3d 713 (7th Cir.1994), rev'd --- U.S. ----, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995), Smith Barney contended that punitive damages were not available under the governing New York law. The district court granted the motion for a permanent injunction, barring arbitration of the claims based on purchases made over six years before the Schells filed for arbitration and barring arbitration of their remaining claims for punitive damages. The Schells then appealed.
The Schells first argue that the issue of whether certain claims should be arbitrated is one for the arbitrator,...
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