Wagner v. Stratton Oakmont, Inc., 95-35176

• Decision Date: 30 April 1996
• Docket Number: No. 95-35176,95-35176
• Citation: 83 F.3d 1046
• Parties: 96 Cal. Daily Op. Serv. 2994, 96 Daily Journal D.A.R. 4975 Fred WAGNER; Scott Serven, d/b/a Wagner/Serven, a partnership, Plaintiffs-Appellees, v. STRATTON OAKMONT, INC.; Mathew Bloom; Neil Kimpermen, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1046

83 F.3d 1046

96 Cal. Daily Op. Serv. 2994, 96 Daily Journal

D.A.R. 4975

Fred WAGNER; Scott Serven, d/b/a Wagner/Serven, a partnership, Plaintiffs-Appellees, v. STRATTON OAKMONT, INC.; Mathew Bloom; Neil Kimpermen Defendants-Appellants.

No. 95-35176.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Sept. 12, 1995.

Decided April 30, 1996.

Francis L. Van Dusen, Jr., Miller, Nash, Weiner, Hager & Carlsen, Seattle, Washington, for defendants-appellants.

Barton L. Adams, Adams & Adams, Tacoma, Washington, for plaintiffs-appellees.

Appeal from the United States District Court for the Western District of Washington; Franklin D. Burgess, District Judge, Presiding, No. CV-94-05551-FDB.

Before: WRIGHT, ALARCON and CANBY, Circuit Judges.

CANBY, Circuit Judge:

The question presented by this appeal is whether an arbitration agreement signed by a partner when he opened his own individual account with a stockbroker binds his partnership or himself to arbitration of partnership claims against the stockbroker arising from a separate trading account opened in the partnership's name. We hold that it does not, and we therefore affirm the district court's refusal to stay this action pending arbitration.

BACKGROUND

In August 1993, Scott Serven opened a brokerage account with Stratton Oakmont, Inc. On the account application, Serven indicated that the account was an "individual" account, and he listed his social security number as the tax identification number. As part of his account application, Serven signed a customer agreement that provided in relevant part:

This agreement ("Agreement") sets forth the terms and conditions under which Bear Stearns Securities Corp., ... will transact business with you, including but not limited to the maintenance of your account(s).

....

You agree, and by maintaining an account for you Bear Stearns agrees, that controversies arising between you and Bear Stearns ... shall be determined by arbitration....

(Emphasis added). Bear Stearns is Stratton Oakmont's clearing broker. The agreement is made applicable to Stratton Oakmont by the following clause:

You agree that your broker [i.e., Stratton Oakmont] and its employees are third-party beneficiaries of this Agreement, and that the terms and conditions hereof, including the arbitration provision, shall be applicable to all matters between or among any of you, your broker and its employees, and Bear Stearns and its employees.

(Emphasis added). This agreement, which was signed in Serven's own name, listed only the account opened by Serven in the space provided for account numbers.

Within one month, Serven had deposited approximately $412,000 in the account opened in his name. According to Serven this sum consisted of funds that were either personal, drawn from his corporation, or borrowed. At one point, Serven attempted to deposit into this account a check for $98,635.00 that apparently was made payable to Wagner/Serven. Stratton Oakmont refused to deposit the funds and notified Serven that, because the account was an "individual" account, partnership funds could not be deposited without a letter from the partnership indicating that the funds could be placed in Serven's account without the partnership's having any rights to the funds. Serven subsequently provided such a letter, and the funds were deposited.

In October 1993, Wagner/Serven opened a brokerage account with Stratton Oakmont. The account application indicated that the account was a "partnership" account, and it listed the Wagner/Serven tax identification number. Shortly thereafter, Serven transferred $400,000 from the account opened in his individual name to the "partnership" account.

The partnership's account did not do well. In September 1994, Wagner/Serven brought this action in the Superior Court of the State of Washington against Stratton Oakmont. The complaint alleges six causes of action based on federal and state securities laws, state consumer protection laws, common law fraud, negligence, and breach of fiduciary duty. Stratton Oakmont removed the action to federal court and moved to stay the litigation pending arbitration, pursuant to the arbitration agreement between Serven and Stratton Oakmont. The district court denied the motion, finding that Stratton Oakmont had "provided no facts to support [its] position that a preexisting agreement to arbitrate existed between it and the plaintiff partnership [Wagner/Serven], or alternatively, through the doctrines of apparent authority and/or ratification, that Mr. Serven's individual acts bound the partnership to his agreement with the defendant." This appeal followed.

ANALYSIS

I.

We first must decide whether the district court or the arbitrators should determine whether an arbitration agreement between the parties exists. Like the district court, we conclude that this was an issue for the district court to decide.

The Federal Arbitration Act requires a court to stay an action whenever the parties to the action have agreed in writing to submit their claims to arbitration:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement....

9 U.S.C. § 3 (emphasis added). Under this provision, the question whether the Wagner/Serven partnership is governed by the arbitration agreement must initially be resolved by the district court. See Ralph Andrews Prods., Inc. v. Writers Guild of America, 938 F.2d 128, 130 (9th Cir.1991); cf. Van Ness Townhouses v. Mar Indus. Corp., 862 F.2d 754, 756 (9th Cir.1989) ("When we are asked to compel arbitration of a dispute, our threshold inquiry is whether the parties agreed to arbitrate."). The rationale for such an inquiry comes from the fact that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Tracer Research Corp. v. Nat'l Envtl. Servs. Co., 42 F.3d 1292, 1294 (9th Cir.1994) (quoting United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960)), cert. dismissed, --- U.S. ----, 116 S.Ct. 37, 132 L.Ed.2d 917 (1995).

Stratton Oakmont concedes that the district court correctly concluded that the district court must determine whether there is an agreement to arbitrate, but it maintains that the district court should have determined only whether Serven signed the agreement with Stratton Oakmont. Stratton Oakmont contends that, once Serven has signed the agreement, all questions of its effect must be arbitrated. That proposition, however, assumes Stratton Oakmont's position on the merits: that Serven's agreement was effective to bind the partnership to arbitration of partnership claims. For reasons discussed below, we reject that contention. The district court thus did not err, as a threshold matter, in deciding for itself whether the agreement bound the partnership.

II.

We next address whether an arbitration agreement between Wagner/Serven and We review de novo the district court's determination of arbitrability. Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 474, (9th Cir.1991) cert. denied., 503 U.S. 919, 112 S.Ct. 1294, 117 L.Ed.2d 516 (1992). In so doing, we must resolve whether Wagner/Serven and Stratton Oakmont agreed to arbitrate. See Van Ness, 862 F.2d at 756. We interpret the contract by applying general state-law principles of contract interpretation, while giving due regard to the federal policy in favor of arbitration by resolving ambiguities as to the scope of arbitration in favor of arbitration. Intel Corp. v. Advanced Micro Devices, Inc., 12 F.3d 908, 914 (9th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 2675, 129 L.Ed.2d 810 (1994); cf. Tracer Research, 42 F.3d at 1294 ("[t]he scope of the arbitration clause is governed by federal law."). ¹

                Stratton Oakmont exists.   The district court found no facts to support Stratton Oakmont's claim that an arbitration agreement exists between it and Wagner/Serven, or that the agreement signed by Serven was an exercise of apparent authority or was ratified by the partnership.   In addition, the district court held that Wash.  Rev.Code § 25.04.090(3)(e) precludes the enforcement of an arbitration agreement against a partnership "unless authorized by the other partners."
                

A. Statutory and Other Authority to Bind the Partnership

Stratton Oakmont contends that the district court asked and answered the wrong question. The issue, in the view of Stratton Oakmont, is not whether the partnership agreed to arbitrate, but whether either partner did. Stratton Oakmont emphasizes that Serven's agreement was to arbitrate all disputes with Stratton Oakmont, not just disputes involving the account he was opening. According to Stratton Oakmont, Serven's agreement requires arbitration of the partnership claims because a partnership is not an entity, but rather an association of individuals with a defined business relationship. Thus, whether the partnership as an entity entered into an agreement, it asserts, is irrelevant.

Stratton Oakmont's argument is without merit. In the first place, it flies in the face of one of the provisions of the Uniform Partnership Act, as adopted by Washington: Wash. Rev.Code § 25.04.090(2) provides that "[a]n act of a partner which is not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership unless authorized by the other partners." In addition, Stratton Oakmont's argument overlooks the fact that partnerships have characteristics as entities as well...