Wylie v. Investment Management and Research Inc.

• Decision Date: 24 November 1993
• Docket Number: No. 92-3256,92-3256
• Citation: 629 So.2d 898
• Parties: Fed. Sec. L. Rep. P 98,009, 18 Fla. L. Weekly D2491 Robert WYLIE and Beverly Wylie, Appellants, v. INVESTMENT MANAGEMENT AND RESEARCH INC., and James A. Jenkins, Appellees.
• Court: Florida District Court of Appeals

Page 898

629 So.2d 898

Fed. Sec. L. Rep. P 98,009, 18 Fla. L. Weekly D2491

Robert WYLIE and Beverly Wylie, Appellants, v. INVESTMENT MANAGEMENT AND RESEARCH INC., and James A Jenkins, Appellees.

No. 92-3256.

District Court of Appeal of Florida,

Fourth District.

Nov. 24, 1993.

Rehearing En Banc and Clarification Denied Jan. 25, 1994.

Russell L. Forkey, Russell L. Forkey, P.A., Deerfield Beach, for appellants.

Jeffrey A. Winikoff, Stein, Rosenberg & Winikoff, P.A., Fort Lauderdale, for appellees.

EN BANC

FARMER, Judge.

The issue presented in this nonfinal appeal is, in a case where a right to arbitration of a claim is protected by the United States Arbitration Act [USAA], 9 U.S.C. sections 1-16 (1991), whether it is for the court or the arbitrators to determine a defense of a statute of limitations. To provide a definitive answer to this question, we have decided on our own motion to hear this case en banc and thus resolve any possible conflict among the decisions of this court relating to the issue. Our decision today makes clear that--in this kind of case--it is the arbitrators who should determine this issue.

First the salient facts. In 1985 and 1986, appellants Wylie [customer] maintained an investment account with appellee Investment Management & Research [dealer], a securities broker doing business in Palm Beach County. Dealer is a member of the National Association of Securities Dealers [NASD]. In the account agreement between dealer and customer, the parties agreed to be bound by the NASD Code of Arbitration Procedure [NASD Code] and to arbitrate any claim covered by the NASD Code. NASD Code Sec. 12 provides that:

"[a]ny dispute, claim, or controversy eligible for submission under Part I of this Code between a customer and a member and/or associated person arising in connection with the business of such member or in connection with the activities of such associated persons shall be arbitrated under this Code, as provided by any duly executed and enforceable written agreement or upon the demand of the customer."

NASD Code Sec. 1 defines matters eligible for submission to include any claim--"between or among members and public customers"--arising out of the business of any member. NASD Code Sec. 15 provides as follows:

"Time Limitation on Submission

Sec. 15. No dispute, claim, or controversy shall be eligible for submission to arbitration under this Code where six (6) years 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."

The transactions in customer's account were all made between October 31, 1985, and December 23, 1986. Customer submitted a claim to NASD on September 9, 1991.

Dealer responded to the claim by asking the arbitrators to dismiss it as time barred under section 15 of the NASD Code. That request was declined without prejudice to argue the subject again at the final arbitration hearing. In April 1992, the arbitrators scheduled a final hearing to be held in December 1992. In June 1992, however, dealer filed a complaint in the circuit court in Palm Beach County seeking a judicial declaration that the claim is outside the scope of arbitration because it is time barred under NASD Code Sec. 15 and under applicable Florida law. The dealer also sought a stay of arbitration on the grounds that the parties had not agreed to arbitrate claims which had become stale under section 15. The trial court heard the stay application in October 1992 and temporarily enjoined the arbitration proceedings. This appeal timely followed.

Because the arbitration agreement is a "contract evidencing a transaction involving commerce," it is covered by the USAA. See USAA Sec. 1. USAA has been definitively construed as:

"establish[ing] that, as a matter of federal law, any doubts concerning the scope of arbitrable issues 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).

When a state appellate court is asked to decide a federal question as to which there is no Supreme Court authority directly on point, and the Circuit Courts of Appeal are divided, there is no established rule to guide such a state court. One mechanical method might be to add up the federal circuits and go with the weight of decisions. Another arguable method is to accord unusual weight to a decision on the issue, if there is one, of the federal circuit in which the state is located. This latter approach has the virtue of establishing that the issue will be uniformly decided by both federal and state courts in the geographic area in which the state is located, thus discouraging forum shopping. In the end, the state court is very much like an Erie-bound federal court deciding uncertain state law; it must guess how the highest court is likely to decide the issue. This is such a case.

In this instance, the Eleventh Circuit--which includes Florida--is aligned with the Second, Fourth, Eighth, Ninth and District of Columbia Circuits, a majority, in concluding under USAA that arbitrators rather than courts should decide the limitations issue. See Miller v. Prudential Bache Securities Inc., 884 F.2d 128 (4th Cir.1989), cert. denied, 497 U.S. 1004, 110 S.Ct. 3240, 111 L.Ed.2d 751 (1990); Automotive, Petroleum and Allied Industries v. Town and Country Ford, 709 F.2d 509 (8th Cir.1983); Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023 (11th Cir.1982), partially abrogated on other grounds, Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); O'Neel v. National Association of Securities Dealers, Inc., 667 F.2d 804 (9th Cir.1982); Conticommodity Services Inc. v. Philipp & Lion, 613 F.2d 1222 (2nd Cir.1980); and Hanes Corp. v. Millard, 531 F.2d 585 (D.C.Cir.1976). Arrayed against that majority are the Third, Sixth and Seventh Circuits. See PaineWebber Inc. v. Hartmann, 921 F.2d 507 (3rd Cir.1990); Roney & Co. v. Kassab, 981 F.2d 894 (6th Cir.1992); and Edward D. Jones & Co. v. Sorrells, 957 F.2d 509 (7th Cir.1992).

The rationale of the Seventh Circuit in Sorrells illustrates the thinking of the courts that require judges rather than arbitrators to determine limitations defenses. Sorrells concluded that NASD Code Sec. 15 is an eligibility, or scope of arbitration, provision; therefore claims older than 6 years are simply outside the scope of the arbitration agreement, and the arbitration panel lacks "subject matter" jurisdiction to consider them. Of course, one way of viewing the Sorrells rationale is that it is not so much against arbitrators deciding limitations issues as it is enforcing the parties' agreement that the scope of arbitration does not extend to time-barred claims.

Conticommodity is the leading case holding that USAA does not require judges to decide limitations defenses in arbitrable controversies. There the Second Circuit focused on USAA Sec. 4, which provides in relevant part:

"A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court * * * for an order directing that such arbitration proceed in the manner provided for in such agreement. * * * The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. * * * If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to trial thereof. * * * "

9 U.S.C. Sec. 4. The Second Circuit concluded from this statutory text that in this setting there are only two issues for the court to decide: (1) whether there is an agreement to arbitrate, and (2) whether a party to such an agreement has refused to arbitrate.

If both of these issues are determined in the affirmative, then under USAA the court is limited to directing the parties to arbitration. All remaining issues, including limitations, are for the arbitrators to decide. 613 F.2d at 1226. The contrary conclusion--permitting the judge to decide the "rightfulness" of the party's refusal to arbitrate because of a limitations defense--"would be at odds with the limited scope of judicial inquiry authorized by [USAA] section 4." 613 F.2d at 1227. We cannot help but note that, in deciding that arbitrators should decide limitations issues, the Eleventh Circuit expressly followed Conticommodity and its rationale.

At the same time, some of the courts deciding that only arbitrators should determine a limitations defense generally conclude that limitations defenses are typically viewed as procedural bars, rather than substantive defenses. See FSC Securities Corp. v. Freel, 811 F.Supp. 439 (D.Minn.1993). Indeed, as we have already seen, NASD Code Sec. 15 is itself entitled "Time Limitation on Submission," thereby suggesting a procedural cast rather than a clear border on the agreed scope of arbitration. The Supreme Court has certainly held that procedural questions arising from an arbitrable controversy are for the arbitrators to decide. John Wiley & Sons Inc. v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964).

At best, the case for the substantive limit on the scope of arbitration is no greater, and certainly no more plausible, than the case for the procedural limitation. With the contrary readings in equipoise, we are left with the Supreme Court's admonition that all doubts be resolved in...