Rocz v. Drexel Burnham Lambert, Inc.

743 P.2d 971, 154 Ariz. 462, 1987 Ariz. App. LEXIS 531
CourtCourt of Appeals of Arizona
DecidedSeptember 29, 1987
Docket1 CA-CIV 8883
StatusPublished
Cited by14 cases

This text of 743 P.2d 971 (Rocz v. Drexel Burnham Lambert, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Arizona primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rocz v. Drexel Burnham Lambert, Inc., 743 P.2d 971, 154 Ariz. 462, 1987 Ariz. App. LEXIS 531 (Ark. Ct. App. 1987).

Opinion

OPINION

CORCORAN, Judge.

We consider whether the superior court properly denied the motion by Drexel Bum-ham Lambert, Incorporated (Drexel) to compel arbitration of the federal-securities, state-statutory, and common-law claims of appellee Susan Ward Rocz (Rocz).

In light of the Supreme Court’s recent decision in Shearson/American Express, Inc. v. McMahon, 482 U.S.-, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), we reverse as to both the federal and state law claims.

1. Facts

Rocz opened an account with Drexel to purchase and sell securities. Rocz agreed that any controversy arising out of her securities account with Drexel would be settled by arbitration, pursuant to 1116 of Drexel’s standardized Customer’s Agreement:

Any controversy between [Drexel and Rocz] arising out of said account or relating to this contract or the breach thereof, shall be settled by arbitration, in accordance with the rules, then obtaining, of the American Arbitration Association, the New York Stock Exchange, Inc., the American Stock Exchange, Inc., or the *464 National Association of Securities Dealers, Inc. as [Rocz] may elect.

Section 8 of the Security Option Agreement between Drexel and Rocz contained a similar provision. The arbitration clauses of the Customer and Security Option Agreements are written in standard contractual boilerplate language.

Rocz sued Drexel, alleging that she lost $33,000 in 7 months as a result of Drexel engaging in excessive trading of her $300,000 securities account. Specifically, Rocz alleged that the trading constituted a device, scheme, or artifice to defraud, in violation of § 17(a) of the Securities Act of 1933,15 U.S.C. § 77q, and in violation of the Investment Company Act of 1940 and the Investment Advisers Act of 1940, 15 U.S.C. §§ 80a-l, et seq. and 80b-l, et seq. Rocz also alleged that Drexel was liable for fraud, breach of contract, negligent hiring and supervision, breach of fiduciary duty, violation of state securities laws, consumer fraud, and racketeering. Drexel moved to compel arbitration of all the claims in Rocz’s complaint pursuant to the quoted provisions and the Federal Arbitration Act. 1 9 U.S.C. §§ 1, et seq. After oral argument, the trial court denied Drexel’s motion without comment. Drexel timely appealed that order. Denial of a motion to compel arbitration is substantively appeal-able. A.R.S. § 12-2101.01; U.S. Insulation, Inc. v. Hilro Constr. Co., 146 Ariz. 250, 705 P.2d 490 (App.1985).

2. The Applicability of McMahon

The McMahon court considered whether a claim under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, 17 C.F.R. § 240.10b-5 (1986), was arbitrable. Relying on Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), the Second Circuit had held the claim nonarbitrable. McMahon, 788 F.2d 94, 98 (2d Cir.1986); see C. Katsoris, The Arbitration of a Public Securities Dispute, 53 Fordham L.Rev. 279 (1984). The Supreme Court held that Wilko applies only in cases where arbitration proceedings are inadequate to protect a claimant’s substantive rights—and that as it is now conducted, arbitration adequately protects a claimant’s rights under the federal securities laws. McMahon, 482 U.S. at-, 107 S.Ct. at 2338, 98 L.Ed.2d at 194.

The McMahon plaintiffs made essentially the same arguments as Rocz. First, the McMahons, like the Wilko plaintiffs, argued that § 29(a) of the Securities Exchange Act of 1934, the non-waiver provision, barred enforcement of their promise to arbitrate. The McMahon court held that the non-waiver provision “only prohibits waiver of the substantive obligations imposed by the Exchange Act.” 482 U.S. at -, 107 S.Ct. at 2338, 96 L.Ed.2d at 194. Because the right to a judicial—as opposed to an arbitral—forum is not a substantive right, the Court held that the non-waiver provision is not implicated by an agreement to arbitrate: “Ordinarily, ‘[b]y agreeing to arbitrate a statutory claim, a party does not forego the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.’ ” 482 U.S. at-, 107 S.Ct. at 2339, 96 L.Ed.2d at 196, quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3355, 87 L.Ed.2d 444, 456 (1985).

The McMahon court acknowledged that Wilko, decided in 1953, was predicated on “a general suspicion of the desirability of arbitration and the competence of arbitral tribunals,” but that the reasons for such judicial mistrust of the arbitral process “have been rejected subsequently by the Court as a basis for holding claims to be nonarbitrable.” 482 U.S. at-, 107 S.Ct. at 2340, 96 L.Ed.2d at 197. See also Moses *465 H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765, 779 (1983).

The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Federal Arbitration Act, 9 U.S.C. § 2; McMahon. The Court discussed those decisions subsequent to Wilko that held that arbitral tribunals can competently handle cases involving legal and factual complexities, that the streamlined procedures of arbitration do not entail any consequential restriction of substantive rights, and that judicial review is sufficient to ensure arbitral compliance with the statutes under which claims are brought. The Court concluded: “It is difficult to reconcile Wilko’s mistrust of the arbitral process with this Court’s subsequent decisions involving the Arbitration Act.” 482 U.S. at -, 107 S.Ct. at 2340, 96 L.Ed.2d at 185.

The McMahon Court’s conclusions about arbitration generally, and about the Federal Arbitration Act specifically, require reversal of the trial court’s denial of Drexel’s motion to compel arbitration of Rocz’s claims.

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Bluebook (online)
743 P.2d 971, 154 Ariz. 462, 1987 Ariz. App. LEXIS 531, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rocz-v-drexel-burnham-lambert-inc-arizctapp-1987.