Zosky v. Boyer

• Citation: 856 F.2d 554
• Decision Date: 30 September 1988
• Docket Number: No. 87-1782,87-1782
• Parties: , Fed. Sec. L. Rep. P 94,008 Dorothy ZOSKY, Appellant, v. Daniel BOYER and Boenning and Scattergood.
• Court: U.S. Court of Appeals — Third Circuit

Page 554

856 F.2d 554

57 USLW 2149, Fed. Sec. L. Rep. P 94,008

Dorothy ZOSKY, Appellant, v. Daniel BOYER and Boenning and Scattergood.

No. 87-1782.

United States Court of Appeals, Third Circuit.

Argued May 31, 1988.

Decided Sept. 8, 1988.

Rehearing and Rehearing In Banc Denied Sept. 30, 1988.

Richard J. Orloski (argued), Orloski & Hinga, Allentown, Pa., for appellant.

Jean C. Hemphill (argued), Monteverde, Hemphill, Maschmeyer & Obert, Philadelphia, Pa., for appellees.

Before SEITZ, SLOVITER, and HUTCHINSON, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

This appeal from a magistrate's order compelling the parties to arbitrate their securities dispute presents us with an important question of appellate jurisdiction.

I. Facts

A brief account of the underlying events suffices for purposes of this appeal. Dorothy Zosky, an investor complaining of certain unsuccessful investments, filed this suit against Boenning and Scattergood, a regional securities brokerage firm which is a member of the National Association of Securities Dealers, and Daniel Boyer III, a registered broker employed by Boenning, alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and common law negligence. The defendants' answer asserted, inter alia, that plaintiff's claim was subject to an arbitration agreement and that plaintiff must be compelled to proceed in that manner. ¹ Zosky Following a period of discovery, ³ the parties agreed that the matter could be referred to a magistrate for trial. Thereafter, the Supreme Court issued its opinion in Shearson/American Express, Inc. v. McMahon, --- U.S. ----, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), holding that agreements to arbitrate disputes under the Securities Exchange Act are judicially enforceable. Because this court's contrary authority was no longer viable, see Jacobson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 797 F.2d 1197 (3d Cir.1986), vacated, --- U.S. ---- 107 S.Ct. 3204, 96 L.Ed.2d 691 (1987), defendants then filed a motion to compel arbitration. Although the magistrate originally denied the motion and defendants filed a notice of appeal, the magistrate allowed further argument and briefing. After defendants withdrew their pending appeal at his invitation, he entered the order granting defendants' motion to compel arbitration.

refused defendants' request that the dispute be submitted to arbitration. As defendants' counsel subsequently explained, she did not file a motion to enforce arbitration at that time in view of the status of the law in the Third Circuit on the subject of the arbitrability of investor securities fraud complaints. ²

Zosky appeals, contending that the law of the case doctrine renders improper the magistrate's reversal of his original order after defendants had taken and subsequently withdrawn their appeal; that defendants waived their right to arbitrate; that the arbitration clause in the Customer Agreement did not constitute a binding contract; that the arbitration agreement did not cover the dispute with Boyer; and that one of the relevant trades was not transacted through the customer account and was, therefore, not subject to the arbitration agreement.

II. Discussion

We cannot reach the merits of this appeal unless we are satisfied of this court's jurisdiction, an issue we are obliged to consider sua sponte. The parties in their briefs asserted our jurisdiction under 28 U.S.C. Sec. 1292(a), citing our opinion in Gavlik Constr. Co. v. H.F. Campbell Co., 526 F.2d 777 (3d Cir.1975), which in turn relied on, inter alia, the Enelow-Ettleson doctrine. See Gavlik, 526 F.2d at 782. At the time the briefs were filed in this court, the Enelow-Ettleson doctrine, under which certain orders staying or refusing to stay judicial proceedings were treated as appealable injunctions, was an accepted feature of the law of appellate jurisdiction, see, e.g., Osterneck v. Merrill Lynch, Pierce, Fenner & Smith, 841 F.2d 508, 509-10 (3d Cir.1988), although the doctrine was subject to unconcealed cricitism, see, e.g., Olson v. Paine Webber, Jackson & Curtis, Inc., 806 F.2d 731, 734 (7th Cir.1986) ("doctrine is arbitrary, mischievous, and devoid of contemporary utlity"); H.C. Lawton, Jr., Inc. v. Truck Drivers, Chauffeurs and Helpers Local Union No. 384, 755 F.2d 324, 327 n. 2 (3d Cir.1985) ("rule ... lack[s] a rational basis").

Before this matter was argued, however, the Supreme Court handed down its opinion in Gulfstream Aerospace Corp. v. Mayacamas Corp., --- U.S. ----, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988), which held that a district court order denying a motion to stay or dismiss an action when a similar suit is pending in state court is not immediately appeable, and which expressly repudiated the Enelow-Ettleson doctrine as "deficient

                in utility and sense."   Id. at 1140.  We then requested the parties to brief and argue the appealability issue.  Our review reveals a somewhat inconsistent pattern in this court's treatment of the issue of appealability of arbitration orders
                

A. Arbitration Orders and Appealability: Prior Treatment

The Federal Arbitration Act (the Act), 9 U.S.C. Secs. 3-4, which was enacted in 1925 to eliminate the judicial rule that arbitration agreements were unenforceable in courts of admiralty and equity, see The Anaconda v. American Sugar Refining Co., 322 U.S. 42, 44, 64 S.Ct. 863, 864-65, 88 L.Ed. 1117 (1944), provides two principal enforcement routes for arbitration agreements in "contracts evidencing a transaction involving commerce," 9 U.S.C. Sec. 2 (1982). Under section 3, an arbitration agreement may be passively enforced in an ongoing proceeding by motion for a stay pending arbitration. This section "obviously envisages action in a court on a cause of action and does not oust the court's jurisdiction of the action, though the parties have agreed to arbitrate." The Anaconda, 322 U.S. at 44, 64 S.Ct. at 865. Under section 4, a party may bring an action whose sole purpose is to compel arbitration. "Provision is made for framing an issue and trying it as to whether the parties are bound to arbitrate and the entry of an order accordingly." Id. at 45, 64 S.Ct. at 865. ⁴

As has been recently explained, a section 4 motion to compel arbitration has often been filed in an ongoing proceeding, see Hartford Financial Systems, Inc. v. Florida Software Services, Inc., 712 F.2d 724, 728 (1st Cir.1983), thereby blurring the distinction established by the Arbitration Act between orders under section 3 staying ongoing proceedings and orders in independent proceedings to compel arbitration under section 4. However, it makes no practical difference whether the court enters an order in an ongoing suit compelling arbitration or merely stays its own proceedings. In either event, arbitration is the sine qua non before proceeding. Indeed, the Supreme Court long ago suggested that "power to grant a stay is enough without the power to order that the arbitration proceed, for, if a stay be granted, the plaintiff can never get relief unless he proceeds to arbitration." The Anaconda, 322 U.S. at 45, 64 S.Ct. at 865; accord Hartford Financial Systems, 712 F.2d at 728-29; see Metropolitan World Tanker Corp. v. P.N. Pertambangan Minjakdan Gas Bumi Nasional, 427 F.Supp. 2, 4 (S.D.N.Y.1975) (section 3 stay "clearly a remedy intended for a defendant who wants to compel plaintiff to arbitration"). Arbitration is also the next sequential step under the other route to compelling arbitration, a separate proceeding under section 4. The principal distinction between orders relating to arbitration in a separate proceeding and in an ongoing proceeding is that in the former there are essentially no proceedings to stay because the order re arbitration resolves the matter at issue.

Various bases were given for appellate jurisdiction over orders which in effect required arbitration. Stays of proceedings pending arbitration were early held to be interlocutory and hence appealable, if at all, under Enelow-Ettleson as injunctions. See, e.g., Baltimore Contractors, Inc. v. Bodinger, 348 U.S. 176, 177-85, 75 S.Ct. 249, 250-55, 99 L.Ed. 233 (1955); Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 451-52, 55 S.Ct. 313, 314-15, 79 L.Ed.2d 583 (1935); Kirschner v. West Co., 300 F.2d 133, 134-36 (3d Cir.1962). Orders compelling arbitration entered in separate proceedings brought for that purpose only, i.e., section 4 proceedings, despite some mixed signals from the Supreme Court, see, e.g., Schoenamsgruber v. Hamburg American Line, 294 U.S. 454, 456-57, 55 S.Ct. 475, 476-77, 79 L.Ed. 989 (1935) (characterizing orders While Enelow-Ettleson endured, the difference was functionally unimportant; no matter whether the order was one staying proceedings or compelling arbitration in an ongoing proceeding or one compelling arbitration in a separate proceeding filed for that purpose, a way was likely to be found for its appeal. Some courts based their analysis of appealability on the nature of the underlying proceedings (i.e., whether the suit was directed only at securing arbitration), see, e.g., Rogers, 262 F.2d at 180-82; see also Formigli Corp. v. Alcar Builders, Inc., 329 F.2d 79, 80 (3d Cir.1964), while others looked only to the order's label (i.e., whether it was styled as an order compelling arbitration or as a stay), see, e.g., Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 53 (3d Cir.1980); Gavlik, 526 F.2d at 782. See generally Hartford Financial Systems, 712 F.2d at 728 (summarizing varying approaches among the circuits). In recent years, this writer and other members of this court assumed such orders were appealable without extended discussion of the form of order or the nature of the proceeding in which it was entered. See, e.g., Osterneck, 841 F.2d at 509-10; Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923, 929 (3d Cir.1985); Goodwin v. Elkins, 730 F.2d 99, 101 n. 2 (3d Cir.), cert....