Deputy, Doris v. Lehman Brothers Inc

In the

United States Court of Appeals

For the Seventh Circuit

____________

Nos. 02-4305 & 03-1155

DORIS DEPUTY,

Plaintiff-Appellee,

v.

LEHMAN BROTHERS, INC.,

Defendant-Appellant.

____________

Appeals from the United States District Court

for the Eastern District of Wisconsin.

No. 02 C 718—Charles N. Clevert, Jr., Judge.

____________

ARGUED APRIL 17, 2003—DECIDED SEPTEMBER 29, 2003

____________

Before BAUER, MANION, and EVANS, Circuit Judges.

MANION, Circuit Judge. Doris Deputy sued Lehman

Brothers, Inc., SG Cowen Securities Corporation, and

Cowen & Company, alleging various state law claims stem-

ming from the securities fraud allegedly perpetrated by one

of the defendants’ brokers. Lehman Brothers moved to stay

the action and compel arbitration based on an arbitration

clause contained in its Client Agreement with Deputy. The

district court denied that motion, finding that Deputy had

not signed the Client Agreement and that in any event the

arbitration clause was against public policy. Lehman

Brothers appeals. Because we conclude that the arbitration

clause does not violate public policy and because the dis-

2 Nos. 02-4305 & 03-1155

trict court did not adequately consider the validity of the

signature, we reverse and remand.

I.

Doris Deputy has been a client of Lehman Brothers, SG

Cowen Securities Corporation and Cowen & Company since

1989. During this time, Deputy’s investment advisor was

Frank Gruttadauria; the now infamous Gruttadauria

pleaded guilty in 2002 to federal securities fraud, bank

fraud, wire fraud and identity theft, and he has been de-

scribed as having perpetrated one of the “largest scam[s] of

retail investors ever [committed] by an individual broker.”

After learning of Gruttadauria’s fraud, Deputy filed suit

against Lehman Brothers, Inc., SG Cowen Securities Corpo-

ration and Cowen & Company, alleging various Wisconsin

state law claims, including fraud, negligent and strict

liability misrepresentation, negligent supervision, breach of

fiduciary duty, and various other Wisconsin statutory

causes of action. Lehman Brothers responded by filing a

Motion to Stay Pending Arbitration or to Dismiss. In its

motion, Lehman Brothers contended that Deputy’s claims

were subject to arbitration based on an arbitration clause

contained in its Client Agreement with Deputy. Deputy

argued in response that she had not signed the Client

Agreement and thus had not agreed to arbitration.

The district court scheduled a hearing for November 21,

2002 on Lehman Brothers’ Motion to Stay or Dismiss. Prior

to this hearing, Lehman Brothers obtained an expert opinion

from handwriting expert Diane Marsh. Marsh concluded

that the Client Agreements of April 26, 2001 and July 26,

2001 contained the genuine signatures of Deputy. Con-

versely, in an affidavit presented to the court, Deputy

maintained that she did not sign the Client Agreements.

Both Marsh’s expert report and Deputy’s affidavit were

submitted along with briefing on Lehman Brothers’ Motion

to Stay or Dismiss prior to the November 21, 2002 hearing,

and the district court reviewed both prior to the hearing.

Nos. 02-4305 & 03-1155 3

What actually transpired during the November 21, 2002

hearing, however, turned out to be much more significant

than the briefing. We therefore excerpt at length from the

hearing transcript, beginning with the district court’s initial

comments on convening court:

I’d like to commence the hearing by telling you what I

expect to look at today and consider and to give you a

preliminary view of how I have viewed the matters as

submitted up to this point. . . . With regard to arbi-

tration and whether this matter should be stayed, at this

point I’m inclined to deny the request to stay and would

1

like to hear from Lehman Brothers and Cowen as to

why I should not come down with that decision. I’ve

read your submissions. I’ve looked at the cases and

have paid special attention to the decisions that were

rendered in California and Ohio with respect to similar

cases. I’ve also taken note of Miss Marsh’s report and

some of the requirements for considering opinion tes-

timony, particularly the need to identify the basis for

certain opinions and the absence of certain information

underlying the opinion. I’m mindful of this Court’s

obligation as a doorkeeper with respect to opinion

evidence and the need for parties offering opinion tes-

timony to show that a particular discipline has been

adhered to and that there is an objective slash scientific

basis for certain types of opinion evidence. I’m also

mindful of the terms that were utilized in the opinion

evidence and the factual basis for the opinion offered by

Miss Marsh, that being a review of a photocopy, the

1

Although the district court noted that it would like to hear

from both Lehman Brothers and Cowen on the issue, only

Lehman Brothers sought a stay pending arbitration, as Cowen

did not claim that Deputy had agreed to arbitrate her claims.

Accordingly, this interlocutory appeal concerns only Lehman

Brothers’ Motion to Stay or Dismiss pending arbitration.

4 Nos. 02-4305 & 03-1155

authenticity of which was not addressed, and the ab-

sence of any certification by Lehman Brothers that its

document person knew anything about the authenticity

of the photocopy or the circumstances in connection

with which it was created.

I’m mindful that the submission[s] do not show that the

so-called arbitration agreement was prepared by anyone

operating in the ordinary course of business or that it

was within, the person was operating within the scope

of his or her authority when they created the so-called

arbitration agreements. Having said all that I’d like to

hear from Lehman Brothers and SG Cowen as to why

this case should be stayed.

In response to the district court’s expressed concerns as to

Lehman Brothers’ expert report, Lehman Brothers explained

that “we have Miss Marsh here and prepared to testify and

I believe, and very briefly, and I believe the testimony will

address a number of the issues that Your Honor has raised

with respect to the forgery, whether or not it is a forgery as

raised by the claimant [Deputy].” At this point, Deputy’s

attorney objected to evidence being taken, stating “[t]his is

a motion to dismiss. Such evidence is beyond obviously the

written record. The parties had an opportunity to submit

affidavits and so on. Miss Marsh’s affidavit was submitted.

We did not have an opportunity to submit an affidavit. We

did not hire an expert.” Deputy’s attorney then noted that

by taking evidence, the hearing was seemingly turning into

a motion for summary judgment.

The district court then responded:

Well, I think you’re accurate in saying that it does

smack of a motion for summary judgment. You’re also

equally accurate that it’s well beyond the usual scope of

a motion to dismiss. And with those acknowledgments

on the record I will give to Lehman Brothers and Cowen

an opportunity to present this testimony. I am not going

to preclude you, however, from offering whatever

Nos. 02-4305 & 03-1155 5

evidence you have. And if it is your desire to present

expert testimony to counter that offered here today, we

may certainly have the opportunity to hear that expert

testimony. I know that this case is in an unusual posture

and I know also that if the issue concerning arbitration

is played out to its fullest in this forum we may in

essence have what constitutes a trial on the issue as to

whether or not the parties were, had a valid arbitration

agreement. And so in a sense we’re putting a little of the

trial first as opposed to somewhere near the end. And I

will tell you, Lehman Brothers and SG Cowen will not

have two kicks at this portion of the cat. . . . So if they’re

presenting their testimony now they’re not going to

bootstrap it later.

The hearing then continued with Lehman Brothers calling

Marsh to the stand. After introducing herself, Marsh

testified that she was a forensic document examiner, that

she had been involved in this profession for 21 years, that

she belonged to the World Association of Document

Examiners, the Independent Association of Questioned

Document Examiners, and that she was a diplomat of the

American Board of Forensic Examiners. Marsh then further

elaborated on her experience, stating that she had testified

in state or federal court as a forensic document examiner

approximately 115 times. Lehman Brothers’ attorney then

asked Marsh whether “any court refused to accept you as an

expert witness in this subject matter?” Marsh responded:

“No.”

The district court then inquired: “I’m curious Miss Marsh,

did you testify in Leon S. Malachinski versus Commissioner

of Internal Revenue Service?” Marsh responded, “I don’t, it

doesn’t sound familiar,” and that since she had testified

over 115 times she would have to check her list and see.

After the district court gave Marsh the legal citations to that

case, Marsh responded, “it doesn’t sound familiar, but I still

can’t say.” The district court then told Marsh that the case

6 Nos. 02-4305 & 03-1155

involved a Dr. Malachinski and his ex-wife who had filed

joint federal income tax returns in 1980 and 1981 and asked

whether that sounded at all familiar. Marsh once again

responded, “I’m sorry. It doesn’t sound familiar but I don’t,

what, it doesn’t sound familiar but—” The district court

then broke in and stated, “Well, I have a copy of the deci-

sion and in this case it indicates that Dr. Malachinski

introduced an expert report of Diane Marsh.” Marsh

responded, “Well, then apparently I must have been

involved in some way,” to which the district court stated

that “if you are the same person it says that the court

rejected your expert report.” Marsh rejoined: “I’m not fami-

liar with that.” At this point the district court said, “I’ll hear

what you have to say,” and Marsh then continued with her

testimony concerning the disputed issue, namely whether

the signatures on the Client Agreements were Deputy’s.

In this regard, Marsh testified that Lehman Brothers had

provided her with four documents containing a “Doris

Deputy” signature for her review. These documents, iden-

tified as Q1, Q2, Q3, and Q4, were, respectively, an Option

Approval Form and Agreement dated February 20, 1993; a

Client Agreement dated April 26, 2001; a Client Agreement

dated June 4, 2001; and a Client Agreement dated July 26,

2001. Marsh explained that she compared these questionable

signatures with the signature contained in Exhibit 4, which

was a copy of a letter Lehman Brothers provided her as an

2

authentic example of Doris Deputy’s signature, but that she

was unable to determine the validity of the Q1-Q4 signa-

tures based on just one exemplar. Specifically, in a Septem-

ber 20, 2002 report, Marsh stated:

2

During the hearing, Deputy’s attorney argued that Lehman

Brothers had failed to authenticate the signature contained in

Exhibit 4. Lehman Brothers offered to establish its authenticity,

but the question became moot when the district court rejected

Marsh’s testimony in whole.

Nos. 02-4305 & 03-1155 7

In this examination, I had only one (1) known stand-

ard to compare with the four (4) questioned signatures.

After a complete examination, I have concluded that

the one (1) standard signature of Doris A. Deputy is not

sufficient to be able to reach an opinion as to whether

Doris A. Deputy signed the four (4) documents in

question. Before a conclusion can be reached, additional

samples of the genuine signature of Doris A. Deputy

need to be submitted for examination. Since the ques-

tioned documents span a time period of February 20,

1993, through July 26, 2001, it would be advisable to

have known standards covering this time frame.

After receiving this report, Lehman Brothers provided

Marsh with a second sample of Deputy’s signature, namely

a facsimile copy of Deputy’s signature from the affidavit she

had filed with the district court in this pending litigation.

Marsh explained that although she was unable to reach a

conclusion as to the validity of the signatures contained in

Q1-Q4 based solely on the sample contained in Exhibit 4,

when considered along with the additional sample, she was

able to render an expert opinion as to the validity of the

signatures contained in Q2 and Q4 (which were the Client

Agreements dated April 26, 2001 and July 26, 2001, respec-

tively) and that those signatures were genuine. However,

Marsh stated that she was still unable to determine the

validity of the signatures contained in Q1 and Q3.

During the hearing, Marsh further explained the basis

of her conclusion that the signatures on the April and July

Client Agreements were valid. Marsh noted that she first

examined the signatures with the naked eye and then under

a magnifying glass and microscope. Marsh then explained

that in doing so she was looking for any indication of a pen

lift, a tremor in the signature, or the possibility of the

signature being a cut and paste. As to the Q2 signature,

Marsh then explained:

The questioned signature compares favorably with

the two known signatures, standard one and standard

8 Nos. 02-4305 & 03-1155

two. There’s agreement in beginning strokes, ending

strokes, letter formations, T crossings, spacing, relative

proportions, closeness of the letters. And on the origi-

nal, the Lehman Brothers agreement I looked at under

microscope and there’s fine beginnings and fine end-

ings. There’s no pen lifts where the signature was

patched together. Everything was made in a fluent

smooth matter, so I arrived at the conclusion that all

three of the signatures were written by the same indivi-

dual, the questioned signature and the two standards.

Marsh further detailed her handwriting analysis by ex-

plaining that:

I did the complete analysis and there were, there’s

comparisons, favorable comparisons in the letter

formations, in the beginning strokes, in the ending

strokes, the T formations, how the T is crossed, how the

Y is ended. And I also with the original that I had I

looked at it under a microscope and it had fine begin-

nings and fine endings. And when signatures are forged

the forger will put the pen down on the paper and then

start drawing the signature and there will be tremors

and they will end with blunt beginnings and blunt

endings. And this original signature had fine begin-

nings and fine tapered endings. And my opinion is that

it is not a forgery.

On cross-examination, Deputy’s attorney asked Marsh

about differences in the signatures and Marsh acknowl-

edged that the signatures were not identical, but also ex-

plained that “[a] person always has, they have what we call

variations,” “when a person signs their name they never

sign their name exactly the same way because a person is

not a machine.” Deputy’s attorney also questioned Marsh

about the fact that the Client Agreements contained Dep-

uty’s middle initial, whereas her genuine signature on the

affidavit did not. Marsh stated that in her experience the

same individual did not always use a middle initial and that

Nos. 02-4305 & 03-1155 9

“[i]n document examination the middle initial, the addition

or subtraction of a middle initial is not considered a funda-

mental difference in determining if two signatures were

written by the same individual.” Deputy’s attorney further

asked Marsh about differences in the look of the “D” in

Doris, which Marsh acknowledged but discounted as minor

variations.

Marsh faced additional questions concerning her use of a

copy to compare the signatures and Marsh explained that it

is “better to have the original whenever it’s available,” but

then stated that “when the original is not available if we

have a good photocopy then a photocopy can be used.”

Marsh also acknowledged that the exemplar contained in

Exhibit 4 was faded in part and missing the top portion of

part of Deputy’s signature. But Marsh testified that that

exhibit allowed her to “see the letter formations and then I

had the affidavit,” and that together with the affidavit

she was able to form an expert opinion. Marsh also admit-

ted that it is difficult to tell if there are fine beginnings and

fine endings from copies, such as the one she looked at in

Exhibit 4. However, Marsh reaffirmed that based on the two

comparisons—the one original and the copy—she was able

to conclude that the two signatures contained on the Client

Agreements were genuine. Additionally, on cross-examina-

tion Marsh admitted that she had originally provided an

expert opinion that the signatures on the Client Agreements

were valid based solely on photocopies, but she explained

that she had qualified her opinion as being based on copies.

Specifically, in her opinion letter Marsh stated: “This

opinion is qualified as my examination was made from

photocopies. However, if it can be assumed that the photo-

copies accurately reflect the appearance of the originals,

there is little likelihood that the findings would be changed

or modified by such reexamination.” At the hearing, Marsh

then explained that the copies “were good copies” and were

sufficient to form an opinion. Marsh further noted that

while her opinion was originally qualified, she had since

10 Nos. 02-4305 & 03-1155

seen the original and that her opinion that the signatures on

the two Client Agreements were genuine was now unquali-

fied.

After Marsh had explained her opinion and the process by

which she had formed her opinion, the district court asked,

“Miss Marsh, you described your work as a science, is that

correct?” After responding in the affirmative, the district

court asked why she described it as a science, to which

Marsh responded:

Well, it is considered a science but it’s not an exact

science like mathematics. I believe mathematics is the

only exact science. But it is considered a science. Scien-

tific instruments were used for the examination. For

example, the microscope, those are all, and looking, if

I check for anything on ink comparisons or any mea-

surements, that’s all considered a scientific examination.

So it is considered a scientific science.

Upon further inquiry from the court Marsh explained:

Well, I have other instruments. I have what is called

an ESDA, electrostatic detection device and that de-

termines differences in ink. The abbreviation is ESDA.

Electrostatic detection apparatus. I also have an infrared

video spectra scanner which differentiates between inks.

The ESDA picks up indentations. It determines if there’s

indentations on a document. I have an ultraviolet lamp

which can be used to determine differences in paper.

And all that is considered a scientific examination.

The district court then stated: “Well, let me get at what is

the heart of my questioning. Is there a set of principles or

rules coupled with techniques and the use of instruments

utilized in document examinations?” The court also in-

quired as to whether “there [are] any principles that govern

document examination by you and others who engage in

your profession?” Marsh then explained:

[T]here are principles. When we attend the seminars,

they teach how to go through to examine a document.

Nos. 02-4305 & 03-1155 11

And so there are principles. You compare the letter

formations and such. When you’re comparing two

signatures the way you compare is by the letter forma-

tions, by the beginning strokes, ending strokes, relative

proportions, height of the taller letters, length of the

extenders, the closeness of the letters, whether it’s on

the line, the alignment to the line, whether it’s off the

line, whether it’s written on a slant upward or a slant

downward.

So there are various principles that you go through

and you check when you’re comparing one signature to

another. And then we’re taught what variations are.

Variations is, because a person never signs their name

exactly the same way twice. They can have variations in

their signatures. So we learn what variations are. And

we learn what fundamental differences are. And varia-

tions is, well, for example, a person who has a Y in their

name, they may make the length of the down stroke on

the Y, it may vary in length from time to time. It won’t

be exactly the same length from time to time. It won’t be

exactly the same length all the time.

A fundamental difference is a stroke that is entirely

different. Like a letter may be started in a totally differ-

ent way than what the exemplars are. And if that’s in

the evidence then that can be a fundamental difference.

But of course, you need, you know, the signatures for

the comparison to point out the fundamental differ-

ences.

The district court then asked: “Is there a particular set

of variations, fundamental differences or other characteris-

tics that must be seen or eliminated in order to arrive at an

opinion?” Marsh explained that “[t]here is not a particular

set that’s set up. . . . I have never seen a made up list. Other

than what I have already gone through where when you’re

making comparisons you make up, you make comparisons,

like as I said, in the beginning stroke, ending strokes, align-

ment, letter formations. . .” but that there are no particular

12 Nos. 02-4305 & 03-1155

number of points of comparisons. Rather, as an expert,

Marsh explained, she must determine if there is a funda-

mental difference because “in order to determine that two

signatures were not written by the same individual you only

need one fundamental difference.” Marsh then elaborated,

noting that she relies on printed works common in the

profession which detail fundamental differences, and that

she used several books common in the profession to reach

her expert conclusions.

Following this testimony, the district court asked the

parties how much additional time they would need for

argument. Lehman Brothers began by noting that it would

first be necessary to present a witness “with respect to the

business record aspect of these documents,” likely meaning

that Lehman Brothers would present a witness able to au-

thenticate Exhibit 4. The district court apparently believed

such testimony unnecessary and instead ruled:

I will tell you right now I am rejecting this testimony. So

we proceed based upon that determination. I’ll set forth

in some greater detail my reasoning in rejecting the

testimony as the gatekeeper in the matter, and clearly

one of the reasons is that Lehman Brothers has not

demonstrated that this testimony is based upon any

fundamental set of principles. Just because someone has

an opinion it doesn’t mean that that opinion is valid.

Just because someone has experience, it doesn’t mean

that experience warrants receipt of the opinion.

And as noted at the inception of this witness’s testi-

mony, she has failed to accurately recount her creden-

tials, and in particular, the fact that her testimony has

been previously rejected in court. If you would like for

me to catalog, list, itemize, set forth in particularity the

other reasons why I’m rejecting this testimony I can

certainly do that at a later time. But in fairness to my

reporter and in consideration of the hour which is now

5:19 p.m. we will adjourn for today. I can take up this

matter at 10:30 tomorrow morning and will do so.

Nos. 02-4305 & 03-1155 13

At the hearing the next morning, Lehman Brothers, in

summarizing its position, began by noting that the district

court had ruled that expert testimony was inappropriate on

the issue of the validity of the signature. The district court

broke in to clarify, stating:

I didn’t rule that expert testimony was inappropriate. So

that should be clear. I ruled that the expert testimony

that you offered should be rejected and that the testi-

mony of your witness in particular was not admissible

as expert testimony. Number two, that she was not

credible. In fact, I rejected her for a variety of reasons

which I did not describe completely and I indicated to

you yesterday that if you wanted further explanation or

further reasons why I was rejecting her testimony I

would provide that to you today. You may proceed.

Lehman Brothers then continued, noting that it had not

meant to mischaracterize the district court’s ruling, but that

it merely meant that the district court’s “ruling yesterday

with respect to the expert testimony that was offered by

Lehman Brothers” does not end the inquiry. Rather,

Lehman Brothers explained, it believed a fact issue as to

whether Deputy had in fact signed the arbitration agree-

ment still needed to be decided, which would require the

court to consider on its own the various samples provided

to determine their validity. Additionally, Lehman Brothers

stated that it needed limited discovery so as to depose those

familiar with Deputy’s signature in order to present testi-

mony supporting the validity of the signature contained on

the Client Agreements. Lehman Brothers further noted the

need for a full hearing to determine the ultimate question as

to whether Deputy signed the arbitration agreements.

Deputy’s attorney objected to any further discovery or

hearing, and the district court “agree[d] 100 percent,” stat-

ing:

Yesterday when we commenced the hearing [Deputy’s

attorney] expressed his concern that Lehman Brothers

had consulted with an expert and had brought that ex-

14 Nos. 02-4305 & 03-1155

pert here to testify. He underscored his lack of prepara-

tion for the hearing and lack of notice that the defense

expert would appear. During the course of the hearing

it became apparent that the defense expert—and I use

that term loosely in this case because I did not find her

to be an expert qualified to testify here—had been given

a number of documents starting in August of this year

and had rendered two opinions, only one of which had

been proffered and made known to the plaintiff and the

Court prior to yesterday.

As [Deputy’ attorney] noted during the course of his

remarks, I stated yesterday that there would be but one

kick at the cat. The request of Lehman to conduct dis-

covery on an issue that it has already explored is little

more than a thinly disguised attempt to revisit the issue

that we considered yesterday. We will not go down that

path again. The request for delay is denied. Moreover,

the request for further discovery on this issue prior to

the Court ruling is denied.

Later during the hearing, the district court once again

commented on its ruling barring Marsh’s testimony, stating:

I do want to just note that in reference to Rule 702 an

expert may testify if the testimony is based upon suf-

ficient facts or data and the testimony is the product

of reliable principles and methods and the witness

has applied the principles and methods reliably to

the facts of the case. I did emphasize yesterday during

my inquiry of Miss Marsh that there was a need for her

to tell me what scientific principles or methods or reli-

able principles and methods she had applied. None was

forthcoming. She mentioned that handwriting analysis

or documentary examination was a science. And all that

she could tell me about her science, about the scientific

aspect of her work was that she used a magnifying

glass, microscope and presumably a ruler in reaching

the conclusion after looking at facsimile copies of

documents that she was told were authentic.

Nos. 02-4305 & 03-1155 15

After again rejecting Marsh’s testimony, and based on

Deputy’s affidavit in which she denied signing the arbitra-

tion agreements, the district court concluded that “this

Court is not persuaded from what has been submitted that

a valid arbitration agreement is in force and should require

and requires that this case be stayed to allow arbitration to

proceed.” The court continued:

Also, and this is not the central, this is not central to my

decision. As a matter of public policy to stay this case

would be inappropriate. The activities engaged in or

allegedly engaged in here were tortious and it’s difficult

to see how if at all they would have been contemplated

by the arbitration agreement Lehman Brothers claims

Miss Deputy executed. Mr. Gruttadauria allegedly stole

from Miss Deputy over an extended period of time and

continued unabated for approximately twelve years. For

all of that to be folded into an arbitration agreement

executed in 2001 as to preclude Miss Deputy from

proceeding in a court of law is wrong. So taking all of

that together, the motion to stay will be denied and the

Court will not direct that this case proceed to arbitration

as requested by the defense.

Lehman Brothers then responded, stating that the “ruling

points out why there’s a need for a full evidentiary hear-

ing.” For instance, Lehman Brothers noted that the district

court had based its ruling in part on Deputy’s affidavit,

yet it had not had an opportunity to cross-examine her.

The district court responded that since Lehman Brothers

had not indicated a desire for this testimony, it would “deny

your request to supplement the record because that’s

essentially what you’re asking at this stage now that I’ve

ruled.” Lehman Brothers then further explained that had the

district court allowed a full evidentiary hearing, it would

have presented evidence that Gruttadauria had told Dep-

uty’s attorneys that he had not forged her signature and that

he believed Deputy’s signature genuine. After hearing from

Lehman Brothers, the district court reaffirmed its ruling

16 Nos. 02-4305 & 03-1155

denying Lehman Brothers’ requests for further discovery, an

evidentiary hearing and to stay pending arbitration.

About a month later, the district court issued a written

decision and order denying Lehman Brothers’ Motion to

Stay Pending Arbitration or to Dismiss. In this written

order, the district court reiterated its oral ruling, noting that

it had “concluded that, at least in this case, Marsh’s testi-

mony is inadmissible under the standards of Daubert and

did not credibly refute the affidavit testimony of Deputy.”

The district court explained the basis for this conclusion,

noting that “[a]t the outset, Marsh could not identify a set of

scientific principles or standards that she applied in this

case. Nor could she explain satisfactorily the inconsistencies

in her reasoning process, which led to her conclusion that

Deputy’s signatures were genuine.” The district court also

noted that Marsh’s report stated “that she was able to

conclude that the July 26, 2001 (Q-4) signature was genuine

but adds that she could not reach a conclusion as to the July

26, 2001 (Q-4) signature.” Marsh, however, had explained

during the hearing that the report contained a typographical

error and that the report should have stated that “she could

not reach a conclusion as to the June 4, 2001 (Q-3) signature.

The district court further expanded on its rationale,

stating:

More importantly, once in court, Marsh admitted that

she did not ask to see the original documents in forming

her opinion and that she received and used facsimile

copies. In her own words, photocopies and facsimiles

are “less than optimal examples.” She further admitted

that on September 20, 2002, she could not render an

opinion on the four documents referred to in her report,

but changed her mind on September 24, 2002, after

seeing the Deputy affidavit (or one additional signa-

ture). On cross-examination, Marsh acknowledged the

absence of Deputy’s middle initial in one of the docu-

ments as well as variations in the name “Deputy.”

Nos. 02-4305 & 03-1155 17

Finally, the court found Marsh less than candid regard-

ing her testimony in Malachinski v. C.I.R., 268 F.3d 497

(7th Cir. 2001), a case which is listed on her record of

court testimony. In that case, the court found Marsh’s

report did not adequately set forth the facts and reasons

supporting Marsh’s conclusions.

After rejecting Marsh’s testimony, the district court con-

cluded that based on Deputy’s affidavit, in which she

attested that she had not signed the Client Agreements, “the

court was satisfied that the parties did not agree to arbitrate

their dispute.” The district court added that “[a]lthough this

record at this stage does not demonstrate that Deputy

signed the Client Agreements dated April 26 and July 26,

2001, assuming she did raises significant public policy

concerns. Deputy would have been asked to sign the

Agreements in 2001 or twelve years after the onset of the

fraud.” For these reasons, the court denied Lehman Broth-

ers’ Motion to Stay or Dismiss pending arbitration. Lehman

Brothers appeals from this ruling.

I.

On appeal, Lehman Brothers contends that the district

court erred in several ways. First, Lehman Brothers claims

that the district court erred in excluding Marsh’s expert

testimony by failing to properly apply Daubert and by mis-

reading the Malachinski case in which Marsh previously

testified as an expert. Next, Lehman Brothers argues that the

district court erred by refusing to compare the various

samples of Deputy’s handwriting with the disputed signa-

tures contained on the Client Agreements. Lehman Brothers

asserts that had the district court made this comparison, the

similarities between the signatures would have necessitated

a full evidentiary hearing to determine if Deputy had signed

the two client agreements at issue. And Lehman Brothers

maintains that the district court’s failure to hold such an

evidentiary hearing also constitutes reversible error. Addi-

tionally, Lehman Brothers maintains that the district court

18 Nos. 02-4305 & 03-1155

wrongly refused its request for additional discovery in

preparation for a full evidentiary hearing. We consider each

issue in turn.

A. Marsh’s Proffered Expert Testimony

Lehman Brothers first challenges the district court’s re-

jection of Marsh’s proffered expert testimony. Federal Rule

of Civil Procedure 702 allows for expert testimony, provid-

ing:

If scientific, technical, or other specialized knowledge

will assist the trier of fact to understand the evidence or

to determine a fact in issue, a witness qualified as an

expert by knowledge, skill, experience, training, or ed-

ucation, may testify thereto in the form of an opinion or

otherwise, if (1) the testimony is based upon sufficient

facts or data, (2) the testimony is the product of reliable

principles and methods, and (3) the witness has applied

the principles and methods reliably to the facts of the

case.

Fed. R. Civ. P. 702.

In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579

(1993), the Supreme Court held that the district court must

perform a gatekeeping function to determine whether

expert scientific evidence is admissible under Rule 702. Id.

at 593-95. See also Kumho Tire Co., Ltd. v. Carmichael, 526 U.S.

137, 141 (1999) (extending Daubert to other non-scientific

types of expert testimony). To determine admissibility

under Rule 702, the Daubert Court announced five factors

that may be used in assessing the relevancy and reliability

of expert testimony: (1) whether the particular scientific

theory “can be (and has been) tested”; (2) whether the

theory “has been subjected to peer review and publication”;

(3) the “known or potential rate of error”; (4) the “existence

and maintenance of standards controlling the technique’s

operation”; and (5) whether the technique has achieved

“general acceptance” in the relevant scientific or expert

community. Daubert, 509 U.S. at 593-94. However, as the

Court clarified in Kumho, this list is neither definitive nor

Nos. 02-4305 & 03-1155 19

exhaustive, but rather flexible to account for the various

types of potentially appropriate expert testimony. Kumho,

526 U.S. at 141. In reviewing the district court’s decision

concerning the admissibility of an expert’s testimony, we

review de novo whether the district court properly followed

the Daubert framework. Walker v. Soo Line R. Co., 208 F.3d

581, 590 (7th Cir. 2000). And if the district court properly

applied Daubert, we review the “court’s decision to admit or

exclude expert testimony only for an abuse of discretion.”

Id.

In this case, in rejecting Marsh’s testimony during the

November 21, 2002 hearing, the district court provided only

two reasons: (1) that “Lehman Brothers has not demon-

strated that this testimony is based upon any fundamental

set of principles;” and (2) that Marsh “has failed to ac-

curately recount her credentials, and in particular, the fact

that her testimony has been previously rejected in court.”

However, the district court also stated that it would “set

forth in particularity the other reasons why [the court was]

rejecting this testimony.” The district court did that in its

later-issued written order, listing seven reasons: (1) Marsh

could not identify a set of scientific principles or standards

that she applied in this case; (2) she did not adequately

explain the inconsistencies in her reasoning process, which

led to her conclusion that Deputy’s signatures were genu-

ine; (3) Marsh’s report stated that she was able to conclude

that the July 26, 2001 signature was genuine, while at the

same time stating “she could not reach a conclusion as to

the July 26, 2001 signature”; (4) “Marsh admitted that she

did not ask to see the original documents in forming her

opinion and that she received and used facsimile copies”;

(5) she admitted on September 20, 2002 that she could not

render an opinion on the four documents, but changed her

mind on September 24, 2002, after seeing Deputy’s affidavit;

(6) Marsh acknowledged the absence of Deputy’s middle

initial in one of the document as well as variations in the

name “Deputy”; (7) “Marsh [was] less than candid regard-

ing her testimony in Malachinski v. C.I.R., 268 F.3d 497 (7th

20 Nos. 02-4305 & 03-1155

Cir. 2001), a case which is listed on her record of court

testimony. . . . [in which] the court found Marsh’s report did

not adequately set forth the facts and reasons supporting

Marsh’s conclusions.”

Most of these seven stated reasons concerned issues

of credibility and persuasiveness, but such considerations

are relevant only in valuing the testimony, not in deter-

mining its admissibility. As we explained in Smith v. Ford

Motor Co., 215 F.3d 713, 719 (7th Cir. 2000), “[i]t is not the

trial court’s role to decide whether an expert’s opinion is

correct. The trial court is limited to determining whether ex-

pert testimony is pertinent to an issue in the case and

whether the methodology underlying that testimony is

sound.” See also, id. (whether an expert’s theory is correct is

a factual question for the jury to determine). For instance, as

its third reason for rejecting Marsh’s testimony the district

court noted that Marsh’s expert report contradictorily stated

that the July 26, 2001 signature was genuine, but in the same

report stated that her analysis was inconclusive as to the

July 26, 2001 signature. At the hearing, however, Marsh

explained that the inconsistency was merely a typographical

error, and that the report should have stated that the review

of the June 4, 2001 statement was inconclusive. A typo-

graphical error appearing in an expert report might lead a

fact-finder to conclude that the expert is sloppy, but it does

not render an expert’s opinion unreliable and thus inadmis-

sible.

The next rationale offered by the district court concerned

Marsh’s reliance on facsimile copies. Contrary to the district

court’s statement that Marsh had not asked to see the

originals, Marsh had testified that she always requests the

originals. Additionally, Marsh testified that she had qual-

ified her original report on the basis that she did not have

access to the originals, but that she had since had an op-

portunity to view the original and her conclusion remained

unchanged. Thus, contrary to the district court’s statement,

Marsh’s expert opinion was not based solely on facsimiles.

However, even if it were, the district court did not ade-

quately explore whether experts in the field believe it pos-

Nos. 02-4305 & 03-1155 21

sible to form an opinion solely from a facsimile, or in this

case on the basis of one facsimile and one original copy.

Although Marsh testified that facsimiles are less than ideal,

and that an original is preferable, she also testified that a

handwriting expert could reach a conclusion on the basis of

the two samples provided. Whether or not experts in the

field would agree, however, is unclear from the record, and

that should have been the district court’s focus.

Similarly, the district court rejected Marsh’s testimony

because on September 20, 2002, she stated that she could not

render an opinion on the four documents, but then changed

her mind on September 24, 2002, after seeing Deputy’s

affidavit. Again, the district court went beyond determining

admissibility and focused on credibility. This was error

because “the focus of the district court’s Daubert inquiry

must be solely on principles and methodology, not on the

conclusions they generate.” Cummins v. Lyle Indust., 93 F.3d

362, 368 (7th Cir. 1996). Thus, the district court’s inquiry

should have been on whether professionals in the field of

handwriting analysis agree that the addition of a second

sample allows for a conclusion as to the validity of the

signature at issue. The only testimony before the district

court was Marsh’s, and she stated that two samples were

sufficient in her field to render an opinion. Rather than

explore this issue further, the district court in effect found

Marsh not credible because she had changed her opinion

3

after obtaining only one additional sample.

The court’s next rationale regarding Marsh’s acknowl-

edgment of Deputy’s missing middle initial in one of the

documents, as well as variations in the name “Deputy” has

no bearing on the Daubert analysis because it merely calls

3

Similarly, on appeal, Deputy argues that Marsh’s testimony

was not credible because she did not disclose her initial Septem-

ber 20 inconclusive opinion, implying that Marsh was in some

way trying to hide that fact. Although it might be appropriate for

a fact-finder to consider this fact in assessing credibility, it is in-

appropriate to rely on this non-disclosure as a basis for rejecting

Marsh’s expert opinion.

22 Nos. 02-4305 & 03-1155

into question the persuasiveness of her opinion, not whether

she applied the appropriate expert standards in reviewing

the signatures. See United States v. Mooney, 315 F.3d 54, 63

(1st Cir. 2002) (“Once a trial judge determines the reliability

of the proffered expert’s methodology and the validity of

his reasoning, the expert should be permitted to testify as to

the inferences and conclusions he draws from it, and any

flaws in his opinion may be exposed through cross-exami-

nation or competing expert testimony. . . .”). Moreover, in

this case Marsh provided an explanation as to these differ-

ences, stating that the exclusion of a middle initial is typical

and does not indicate that a signature is not genuine.

Similarly, Marsh explained that variations exist in every-

one’s signatures, and that those appearing in the various

“Deputy” signatures were minor variations. A finder of fact

might not accept those explanations, but that is a different

issue from whether the testimony is admissible in the first

instance. See Smith, 215 F.3d at 719.

Another reason the district court offered was that “Marsh

[was] less than candid regarding her testimony in Mala-

chinski v. C.I.R., 268 F.3d 497 (7th Cir. 2001), a case which is

listed on her record of court testimony. . . . [in which] the

court found Marsh’s report did not adequately set forth the

facts and reasons supporting Marsh’s conclusions.” In this

regard, the district court doubly erred. First, the district

court misread the Malachinski case. In that case, Marsh pre-

sented an expert report as to the genuineness of a signature

appearing on a tax return, and then at trial was called as a

witness. Malachinski v. C.I.R., 1999 WL 349342 (Tax Ct.

1999). The Tax Court in that case held that Marsh’s live

testimony should be limited to the information provided

in her expert report based on Tax Court Rule 143(f). (Rule

143(f) prohibits expert testimony beyond that provided

prior to trial in an expert report.) On appeal, this court

affirmed. Malachinski, 268 F.3d 497. In doing so, although we

noted that Marsh’s report was conclusory and did not set

forth the facts supporting her opinion, this court did not

reject her expert testimony; rather we affirmed the Tax

Nos. 02-4305 & 03-1155 23

Court’s application of its rule limiting her testimony to the

content of her report. Id. at 501-02. Simply put, Marsh’s

testimony was not rejected as unreliable under Daubert

in Malachinski. Id. Thus, factually the district court clearly

erred. Legally, the district court also erred, because its view

that Marsh “was less than candid regarding her testimony,”

4

even if true, at best went to Marsh’s credibility and not the

admissibility of her expert opinion.

The other two reasons given by the district court were that

Marsh did not adequately explain the inconsistencies in her

reasoning process and that “Lehman Brothers has not

demonstrated that this testimony is based upon any funda-

mental set of principles.” It is unclear what the district court

meant by inconsistencies in Marsh’s reasoning process, and

in any event, inconsistencies tend to concern credibility. If

by “inconsistencies in her reasoning process” the district

court meant that Marsh failed to follow the proper stan-

dards required of handwriting experts, that was an appro-

priate inquiry under Daubert. Marsh did, however, present

evidence as to the methodology used by handwriting

experts and which she used in this case, and no evidence

was presented to dispute her testimony. But in any event,

the more fundamental problem in this case is that too much

of the district court’s analysis involved factors not appropri-

ate under Daubert. The transcript demonstrates that the

overriding factor driving the district court’s decision was its

incorrect reading of Malachinski, and its negative view of

Marsh based on its belief that the court in Malachinski had

rejected her as an expert and that Marsh had misrepresented

4

Moreover, even had the court in Malachinski rejected Marsh’s

testimony, after reading the transcript in its entirety, we would

be hard pressed to affirm the district court’s finding that Marsh

had been less than candid about her role in that case. Marsh

clearly stated several times that she did not recall that case and

was not familiar with the court’s holding. She had testified in

over 100 cases and was candid about not recalling that case.

24 Nos. 02-4305 & 03-1155

that fact to the district court. By incorrectly focusing on

5

Malachinski and other issues relating to credibility, the

district court did not properly assess whether handwriting

analysis in general, or Marsh’s expert opinion in particular,

is admissible under Rule 702. Therefore, we must reverse.

Cf. Chapman v. Maytag Corp., 297 F.3d 682, 688 (7th Cir. 2002)

(“the record in this case reveals that the district court

conducted virtually no Daubert analysis of [the expert’s]

qualifications in light of these factors,” and therefore it erred

in admitting the expert’s testimony).

That does not mean, however, that Marsh’s testimony

must be admitted. Rather, on remand, the district court

must properly function as a gatekeeper pursuant to Daubert

and determine whether testimony concerning the genuine-

ness of a signature is properly the subject of expert opinion.

This circuit has yet to rule on that issue post-Daubert. Sev-

eral other circuits and district courts have considered the

issue. Every circuit that has considered the issue has al-

lowed expert testimony on handwriting analysis. United

States v. Crisp, 324 F.3d 261, 270 (4th Cir. 2003); United States

v. Jolivet, 224 F.3d 902, 906 (8th Cir. 2000); United States v.

Paul, 175 F.3d 906, 911 (11th Cir. 1999); United States v. Jones,

107 F.3d 1147, 1161 (6th Cir. 1997); United States v. Velasquez,

64 F.3d 844, 848-49 (3d Cir. 1995). Several district courts,

however, have rejected handwriting analysis, finding it

lacks scientific reliability. United States v. Hines, 55

5

On appeal, in arguing that the district court properly excluded

Marsh’s testimony, Deputy points to the fact that Marsh did not

charge Lehman Brothers an additional fee for providing a second

opinion. Deputy insinuates that this shows that Marsh did not

perform any additional tests, or that her additional analysis was

superficial and thus not worthy of belief. However, like the dis-

trict court, Deputy is confusing issues of credibility with issues of

admissibility. The fact that Marsh did not charge Lehman

Brothers an additional fee is irrelevant to the question of whether

Deputy’s opinion is admissible under Rule 702 and Daubert.

Nos. 02-4305 & 03-1155 25

F.Supp.2d 62, 68 (D. Mass. 1999); United States v. Saelee, 162

F.Supp.2d 1097, 1102-03 (D. Alaska 2001); United States v.

Lewis, 220 F.Supp.2d 548, 555 (S.D.W.Va. 2002); United States

v. Brewer, 2002 WL 596365 (N.D. Ill. 2002).

Thus, there appears to be some divergence of opinion as

to the soundness of handwriting analysis. However, given

that the hearing in this case improperly focused on issues

related to credibility, and not the principles and methodol-

ogy of handwriting analysis, we leave the question of the

propriety of such testimony for further review on remand.

And after remand, assuming the court properly applies the

Daubert standards, any review in this court will be for an

abuse of discretion. Walker, 208 F.3d at 581.

B. Evidentiary Hearing

Lehman Brothers also contends that the district court

erred in refusing to hold a full evidentiary hearing to allow

it, among other things: to present testimony from lay

6

witnesses as to the validity of the “Deputy” signature; to

question Deputy about her affidavit and statement that she

did not sign the Client Agreements; and to present evidence

concerning whether or not Gruttadauria claimed to have

forged Deputy’s signatures. In support of its position,

Lehman Brothers cites to Section 4 of the Federal Arbitration

Act, which provides that:

The court shall hear the parties, and upon being satis-

fied that the making of the agreement for arbitration or

the failure to comply therewith is not in issue, the court

6

The Federal Rules of Evidence permit lay testimony concerning

disputed handwriting samples. See United States v. Tipton, 964

F.2d 650 (7th Cir. 1992). In Tipton, this court also upheld the use

of expert testimony to establish the validity of a handwriting

sample, id. at 654, but that case predates Daubert, and therefore is

not controlling.

26 Nos. 02-4305 & 03-1155

shall make an order directing the parties to proceed to

arbitration in accordance with the terms of the agree-

ment. . . . 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 the trial

7

thereof.

9 U.S.C. § 4.

Section 4 thus required the court to hold a trial if the

making of the arbitration agreement was in issue. That was

the case here: The evidence before the district court in this

case was sufficient under Section 4 to mandate a trial on the

issue of the genuineness of the “Deputy” signature and to

allow Lehman Brothers to present additional evidence, as

identified above. Specifically, the district court had before

it Deputy’s affidavit stating that she had not signed the

Client Agreements, while sample signatures of Deputy’s

greatly resembled the disputed Client Agreement signa-

tures. This created a factual issue as to the validity of

Deputy’s signatures. Although Deputy maintains that the

7

Section 4 continues: “If no jury trial be demanded by the party

alleged to be in default, or if the matter in dispute is within ad-

miralty jurisdiction, the court shall hear and determine such

issue. Where such an issue is raised, the party alleged to be in

default may, except in cases of admiralty, on or before the return

day of the notice of application, demand a jury trial of such issue,

and upon such demand the court shall make an order referring

the issue or issues to a jury in the manner provided by the

Federal Rules of Civil Procedure, or may specially call a jury for

that purpose. If the jury finds that no agreement in writing for

arbitration was made or that there is no default in proceeding

thereunder, the proceeding shall be dismissed. If the jury finds

that an agreement for arbitration was made in writing and that

there is a default in proceeding thereunder, the court shall make

an order summarily directing the parties to proceed with the

arbitration in accordance with the terms thereof.” 9 U.S.C. § 4.

Nos. 02-4305 & 03-1155 27

district court was not required to grab a magnifying glass

and compare the proffered samples to the contested signa-

tures, that response is misplaced. The various handwriting

samples constituted relevant evidence as to the question of

whether Deputy had in fact signed the Client Agreements.

A review of these signatures demonstrates a substantial

similarity between the samples and the signatures contained

in the Client Agreements, and these similarities created an

issue of fact as to whether Deputy in fact had signed the

Client Agreements. Because this evidence was relevant, the

district court erred in refusing to compare the exemplars of

Deputy’s signatures with those contained in the Client

Agreements. That does not mean that following a trial the

8

district court, as the fact finder, or a jury if one is requested,

will necessarily conclude that the “Deputy” signatures are

genuine. But the district court should have considered the

similarities to determine whether a trial on the issue was

necessary under Section 4.

We conclude that the similarities do create a genuine issue

of material fact as to the validity of the “Deputy” signatures.

Moreover, this factual dispute exists even without consider-

ing the proffered expert testimony which, as explained

above, is arguably admissible. Under these circumstances,

the district court was required to hold a trial to determine

the validity of the disputed signatures.

In response, Deputy seems to argue that Lehman Brothers

waived its right to a trial under Section 4 because, before it

presented Marsh’s testimony, the district court warned it

that it would have but “one kick at the cat.” Although a

vivid caution, it is unclear from this statement exactly what

the district court meant, and in light of the procedural

posture of the case, coupled with the other errors discussed

above, we conclude that Lehman Brothers did not waive its

8

Section 4 of the Arbitration Act authorizes a jury trial, so it may

be that on remand the district court will not determine the valid-

ity of the signature.

28 Nos. 02-4305 & 03-1155

right to present further evidence concerning the validity of

Deputy’s signature at a trial. First, it is important to recog-

nize that the one-kick hearing under way addressed

Lehman Brothers’ Motion to Stay Pending Arbitration or

Dismiss. That motion was based on the arbitration clause

contained in the Client Agreements. Such is the normal

procedure for seeking to enforce an arbitration agreement.

Deputy then responded to Lehman Brothers’ motion by

denying the validity of her signature.

It was Deputy’s denial that altered the normal course

of the proceedings, and what turned the scheduled Novem-

ber 21, 2002, hearing into something other than a hearing on

a motion to dismiss. And although Deputy claims she was

broadsided by Lehman Brothers showing up for the hearing

with Marsh as a witness, the hearing transcript demon-

strates that Lehman Brothers only called Marsh as a witness

in response to the district court’s opening salvo that it was

inclined to deny the Motion to Compel because it had

problems with her report. At that point, Deputy complained

that she had not expected Marsh to testify and that she did

not have an expert of her own available. It was in this

context that the district court made the “one kick at the cat”

comment. But that passing comment did not reasonably put

Lehman Brothers on notice that by presenting Marsh’s

testimony that day it would be barred from seeking a trial

under Section 4. Rather, it seems more appropriate to view

the November 21, 2002, hearing as an initial inquiry into

whether or not there was a genuine issue of fact concerning

the validity of the “Deputy” signature. The evidence

presented at that hearing demonstrated that there was in

fact a genuine issue of material fact as to the authenticity of

the signature. At that point, the district court should have

scheduled a trial on the issue, pursuant to 9 U.S.C. § 4.

But instead the district court ruled on the limited evidence

before it and made a factual finding that Deputy had not

signed the Client Agreements. Because Section 4 requires a

trial in cases where there is an issue as to the validity of the

arbitration agreement and because the district court refused

Nos. 02-4305 & 03-1155 29

to allow Lehman Brothers the opportunity to present other

relevant evidence concerning this issue, the district court’s

decision must be reversed and Lehman Brothers must be

given a Section 4 trial.

Additionally, Lehman Brothers must be given the oppor-

tunity to conduct limited discovery on the narrow issue

concerning the validity of Deputy’s signature. The district

court refused Lehman Brothers’ request for this discovery

based on its “one kick at the cat” ruling. But, as just noted,

that statement cannot be considered fair warning to Lehman

Brothers that if it presented Marsh at the November 21, 2002

hearing, it would be barred from a Section 4 trial or from

conducting discovery relevant to a trial on the issue of the

signature. Because discovery is clearly warranted and the

district court’s only stated rationale fails, it was an abuse of

discretion to deny Lehman Brothers’ request for limited

discovery.

C. Validity of the Arbitration Clause

In rejecting Lehman Brothers’ Motion to Stay Pending

Arbitration or to Dismiss, the district court noted in passing

that even if it had concluded that Deputy had signed the

Client Agreements containing the arbitration clauses, it

would be against public policy to enforce the arbitration

clause. The district court also reasoned that an enforceable

contract containing an arbitration clause never existed be-

tween Lehman Brothers and its client because Gruttadauria

never intended to perform his contractual obligations, and

thus “there was never any meeting of the minds . . . . ” 2002

WL 32121834 *3 (N.D. Ohio 2002). On appeal, Deputy

argues that even if the district court erred in other respects,

these alternative rationales require affirmance of the district

court’s denial of Lehman Brothers’ Motion to Stay Pending

Arbitration or to Dismiss. Because we can affirm on any

basis in the record, we consider each of these arguments in

turn. Rothner v. City of Chicago, 929 F.2d 297, 303 n.9 (7th Cir.

1991).

30 Nos. 02-4305 & 03-1155

Deputy first maintains that the Client Agreements, in

which the arbitration clauses are found, are not enforce-

able contracts because Gruttadauria never intended to per-

form his contractual obligations and thus there was no

“meeting of the minds.” Deputy relied on Fazio v. Lehman

Brothers, Inc., 268 F.Supp.2d 865 (N.D. Ohio 2002), to stand

for this proposition. However, Fazio was recently reversed

by the Sixth Circuit. Fazio v. Lehman Brothers, 340 F.3d 386

(6th Cir. 2003). Among other things, in reversing, the Sixth

Circuit rejected the idea that no agreement existed because

Gruttadauria had “no intention of acting as a true broker . . .

.” Id. at 394. Moreover, the district court’s decision in Fazio

represents a misunderstanding of the “meeting of the

minds” requirement, looking to the subjective intent of the

parties instead of applying the appropriate objective

9

standard. It is black letter contract law, and also the law of

the state of Wisconsin—the law governing the dispute in

this case—that mutual assent “does not mean that parties

must subjectively agree to the same interpretation at the

time of contracting . . . . ” Management Computer Serv., Inc. v.

Hawkins, Ash, Baptie & Co., 557 N.W.2d 67, 75 (Wis. 1996).

Rather, “mutual assent is judged by an objective standard,

looking to the express words the parties used in the con-

tract.” Id. at 76. Thus, it is irrelevant in this case that

Gruttadauria never subjectively intended to perform the

contractual obligations. The only question is whether, ob-

jectively, there was a meeting of the minds. Under Wiscon-

sin law, “[r]egardless of the parties’ actual intentions, their

execution of an unambiguous written contract establishes an

enforceable ‘meeting of the minds’ as a matter of law.”

Nauga, Inc. v. Westel Milwaukee Co., Inc., 576 N.W.2d 573, 577

(Wis. App. 1998). Thus, assuming Deputy signed the Client

Agreements, Gruttadauria’s execution established an

9

Similarly, the district court in FSP, Inc. v. Societe Generale, 2003

WL 124515, *3 n.1 (S.D.N.Y. 2003), misapplied a subjective stand-

ard to the meeting of the minds requirement.

Nos. 02-4305 & 03-1155 31

enforceable meetings of the minds. See also Sarantakis v.

Gruttadauria, 2003 WL 1338087 *4 (N.D. Ill. 2003) (rejecting

argument that Gruttadauria’s intent to commit fraud pre-

vented a meeting of the minds).

In response, Deputy contends that because “when the

agreements were allegedly ‘signed’ in 2001, she had no

‘understanding’ that she had been defrauded for the past

twelve years, and was still being defrauded, . . . there could

have been no ‘meeting of the minds’ nor any effective man-

ifestation of intent, and thus no contract.” But Deputy’s

subjective intent, like Gruttadauria’s, is irrelevant to the

10

question of whether a meeting of the minds occurred, and

therefore Deputy’s argument is misplaced.

Deputy next contends that the arbitration clause does not

cover her underlying claims because she did not contem-

plate Gruttadauria’s tortious conduct. In support of her

position, Deputy once again relied on the district court’s

decision in Fazio, wherein the court held that “tort claims

are not subject even to a broad arbitration clause if the

conduct at issue was beyond any reasonable foreseeability

or contemplation at the time the contract was executed.” Id.

at *6. The Sixth Circuit reversed this portion of Fazio as well,

holding that the claims at issue fell within the broad scope

of the arbitration clause. 340 F.3d at 396. Whether a claim is

subject to arbitration depends on the contractual language,

and in this case the arbitration clause did not limit its scope

to reasonably foreseeable claims. Rather, the arbitration

clause broadly covered:

Any controversy: (1) arising out of or relating to any

of my accounts with you, maintained individually

or jointly with any other party, in any capacity; or (2)

10

Of course, if Deputy had been fraudulently induced to enter

the contract, that is another matter, but “Deputy does not argue

that the Client Agreement is unenforceable as a fraudulently in-

duced contract . . . .”

32 Nos. 02-4305 & 03-1155

with respect to transactions of any kind executed by,

through or with you, your officers, directors, agents

and/or employees; or (3) relating to any transactions

or accounts with any of your predecessor firms by

merger, acquisition or other business combination from

that inception of such accounts; or (4) with respect to

this agreement or any other agreements entered into

with you relating to my accounts, or the breach there-

of, . . . .

Deputy’s claims clearly fell within the scope of this arbi-

tration clause because they all related to her “accounts,

transactions or agreements.” See Fazio, 340 F.3d at 396.

Although Deputy argues that her claims were not foresee-

able, the arbitration clause contains no such “foreseeability”

requirement. And thus assuming that Deputy signed the

agreement, her claims are subject to arbitration. J&K Cement

Constr., Inc. v. Montalbano Builders, Inc., 456 N.E.2d 889, 902

(Ill. App. 1983) (when parties agree to a broad arbitration

clause, it “encompass[es] disputes which are not foreseeable

at the time of contracting. . . . ”); Hilti, Inc. v. Oldach, 392

F.2d 368, 373 (1st Cir. 1968) (“The broad language of the

arbitration clause forces us to conclude that the parties

intended to arbitrate all disputes arising thereunder irre-

spective of whether they were foreseeable at the time of

agreement.”); Sarantakis, 2003 WL 1338087 *4 (N.D. Ill. 2002)

(holding broad arbitration clause covered claims based on

Gruttadauria’s alleged fraud).

Finally, Deputy argues that the arbitration clause is unen-

forceable because it is against public policy. Specifically,

Deputy claims that the clause should not be enforced

because the Wisconsin “legislature has expressed a clear

policy of protecting investors against untrue statements

made by, and fraudulent acts committed by securities

brokers and their employers.” Deputy further asserts that

because Gruttadauria’s false statements were entirely de-

liberate and because he pleaded guilty to fraud, theft and

other nefarious conduct, it would violate public policy to

enforce the arbitration clause. These arguments, however,

Nos. 02-4305 & 03-1155 33

are misplaced because there is no conflict between Wiscon-

sin’s policy of protecting investors and the enforcement

of an arbitration clause—the latter merely determines the

forum in which investors’ rights are protected. Kroog v. Mait,

712 F.2d 1148, 1153-54 (7th Cir. 1983) (rejecting district

court’s conclusion that enforcing an arbitration clause

violated Wisconsin’s security regulations). And the alleged

criminal nature of Gruttadauria’s conduct, while potentially

relevant for the issue of arbitrability depending on the

language of the arbitration clause (although the language in

this case, as explained above, does not consider the crimi-

nality of the alleged conduct), is entirely irrelevant from a

public policy perspective: the arbitration clause does not

prevent Deputy from obtaining a remedy for Gruttadauria’s

criminal conduct—it merely specifies the forum in which

that relief takes place. Cf. Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220, 240 (1987) (RICO’s criminal provi-

sions do not preclude arbitration of civil actions). In fact,

both of these arguments illustrate that Deputy’s position

assumes a false premise—that enforcing an arbitration

clause will deny Deputy recompense for the alleged wrongs

she suffered. That is clearly not the case; rather, it merely

means that Deputy’s claims will be resolved in a different

forum. And to the extent that Deputy believes that enforcing

arbitration provisions violates the public policy of giving

plaintiffs their day in court, that argument is misplaced as

Congress in passing the Federal Arbitration Act has made

clear that public policy favors arbitration. Moses H. Cone

Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).

As the Supreme Court explained in Gilmer v. Inter-

state/Johnson Lane Corp., 500 U.S. 20 (1991), the FAA seeks

“to reverse the longstanding judicial hostility to arbitration

agreements . . . and to place arbitration agreements upon the

same footing as other contracts.” Id. at 24. Thus, the Su-

preme Court has instructed lower courts to “rigorously

enforce agreements to arbitrate.” Dean Witter Reynolds, Inc.

v. Byrd, 470 U.S. 213, 221 (1985). These are the principles that

34 Nos. 02-4305 & 03-1155

must be applied here, assuming Deputy in fact signed the

11

Client Agreements containing the arbitration clause.

III.

In passing the Federal Arbitration Act, Congress codified

a federal policy in favor of arbitration. Although arbitration

cannot be forced on the parties, if they agreed to arbitration,

the arbitration agreement must be enforced and doing so

actually furthers, as opposed to contradicts, public policy.

In this case, however, that is a big “if,” as Deputy maintains

that she never signed the Client Agreements. The district

court agreed, but in the process made several errors. First,

the district court erred in applying Daubert to determine the

admissibility of Lehman’s proffered expert. That is not to

say that expert opinions on handwriting analysis are

categorically admissible; rather, on remand the district court

must assess the propriety of such testimony in light of

Daubert and this opinion. The district court also erred in

refusing to allow limited discovery for the purposes of

determining the genuineness of the “Deputy” signatures

and in prohibiting Lehman Brothers from presenting other

evidence, such as lay testimony, supporting its claim that

Deputy in fact signed the Client Agreements. For these and

the foregoing reasons, we REVERSE and REMAND. On

11

Deputy cites the unpublished order entered in Meyeroff v. S.G.

Cowen Sec., Inc., 02-CV-1084W (S.D. Cal. 2002), and Fazio v.

Lehman Bros., Inc., 268 F.Supp.2d 865, for the proposition that

arbitration clauses contained in Client Service Agreements like

the one at issue in this case are unenforceable as against public

policy. Fazio, however, was reversed on appeal. 340 F.3d 386. And

Meyeroff is not controlling, and in any event we find it unpersua-

sive. Compare with Sarantakis v. Gruttadauria, 2003 WL 1338087

(N.D. Ill. 2003) (enforcing arbitration clause contained in Lehman

Brothers’ Client Agreement in suit brought concerning

Gruttadauria’s alleged fraud).

Nos. 02-4305 & 03-1155 35

remand, Circuit Rule 36 shall apply and the district court

shall proceed in a manner consistent with this opinion.

A true Copy:

Teste:

_____________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—9-29-03