Opposition Brief — Zosky v. Boyer

Supreme Court, U.S.

FILED

?) pec 30 1908 =f

JOSEPH F. SPANIOL, JR.

No. 88-906 CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1988

DOROTHY ZOSKY,

Petitioner

Vv.

DANIEL BOYER AND

BOENNING & SCATTERGOOD, INC.,

Respondents

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Third Circuit

BRIEF FOR RESPONDENTS

DANIEL BOYER AND

BOENNING & SCATTERGOOD, INC.

Tom P. Monteverde

Jean C. Hemphill

Monteverde, Hemphill,

Maschmeyer & Obert

2230 The Fidelity Building

123 South Broad Street

Philadelphia, PA 19109-1022

(215) 735-1900

Attorneys For Respondents

Daniel B. Boyer, III and

Boenning & Scattergood, Inc.

TABLE OF AUTHORITIES..........

COUNTERSTATEMENT OF QUESTION

pe ks : Sry ere Tre Tee

OPINIONS tk rrr Pre a ee

JURLBUEGCE Bocce ceesecdsececneeec

COUNTERSTATEMENT OF THE CASE..

REASONS FOR DENYING THE WRIT..

I.

THE DECISION OF THE

THIRD CIRCUIT COURT OF

APPEALS IN THIS MATTER

PROPERLY FOLLOWED THE

LONG-STANDING PRECEDENTS

OF BOTH THIS COURT AND

THE THIRD CIRCUIT.........

A. BACKGROUND AND

SUMMARY OF ARGUMENT.......

B. PETITIONER'S

COMPLAINT WITH THE

DECISION OF THE COURT

OF APPEALS DOES NOT

CHALLENGE THE

CORRECTNESS OF THE LAW

APPLIED BUT RATHER THE

FACTUAL CONCLUSIONS OF

THE COURT UPON

APPLICATION OF THE LAW....

11

..& :

Page

C. THIS COURT'S DECISION

IN GULFSTREAM AEROSPACE

CORP. v. MAYACAMAS CORP.

DID NOT ALTER THE PRE-

VAILING LAW IN THE THIRD

CIRCUIT WITH RESPECT TO

THE APPEALABILITY OF

FINAL DECISIONS UNDER

SECTION 129l.ccccesscesess 16

D. THE GULFSTREAM

DECISION ONLY AFFECTS

THE LAW UNDER SECTION

1292(a)(1) AND THE

THIRD CIRCUIT DID NOT

BASE ITS DECISION HERE

ON SECTION 1292(a)(1)..... 18

E. THE THIRD CIRCUIT

COURT OF APPEALS

DECISION IS CONSISTENT

WITH ESTABLISHED POLICY

OF THIS COURT. ccccccccsccee 21

CONCLUSION..... Coe eeeecesccces 22

aije

’

324 U.S. 229, 223, 65

S.Ct. 631, 633, 89 L.Ed.

911 CROSS) ccccccecccccccccccelslO

Corp., 337 U.S. 541, 69

S.Ct. 1221, 93 L.Ed.

DTT <5 bbeecs ce « isteaue

Denley _v. Shearson/

733 F.2d 39 (6th Cir.

B9BE) cccccscccccccccose re, fe fe © 15

Diematic Mfg. Corp. v.

516 F.2d 975 (2d Cir.),

cert. denied, 423 U.S.

913 C2975) ccccccces ere © eeeee#see#se« 15

Wee SID (3299S) cccccccccsecces 10,18,20

Ettelson v. Metropolitan

Life Insurance Co, 317

U.S. 188 (1842).............-10,18,20

Gavlik Construction Co.

v.H.F. Campbell Co.,

526 F.2d 777 (3d Cir.

a ee 19

Corp. v. Mayacamas Corp.,

U.S. , 108 S.Ct.

1133, 99 L.Ed.2d 296 (1988)..9,10,16,

eoccccccccccccssccseccccccccceitt,18,20,21

Limbach Co. v. Gevyn

Constructio -

544 F.2d 1104, cert.

denied, 430 U.S. 916

(lst cir. Bev ebaeecoceasciaceead

Matter of Chicago,

Milwaukee, St. Paul

& Pacific R. Co., 784

F.2d 831 (7th Cir.

1986)...... i aed ain win a a 15

New Englan ower Co.

v. Asiati oleum

Corp., 426 F. 183 (list

Gees M6 666 46646460 0400%08 14,15

Quinn v. CGR, 828 F.2d 1463

(10th Cir. 1987) .cccrvcase eeeeel5S

Rogers v. Schering Corp.,

262 F.2d 180 (3d Cir.),

cert. denied, 359 U.S.

991, 79 $.Ct. 1121, 3

Recs m WOO CAPER) cc cacsccice 11,19,20

Shearson/American Express,

Inc. v. McMahon, U.S.

, 107 S.Ct. 2332, 96

~~ %& SF 2, | eae 4, 5

-iv-

Cases (Cont'd.):

Stateside Machinery Co.

: v. Alperin, 526 F.2d 480

(3d cir. BPPOpcacceccec e*eee#eee 15

N

Wr2n v. Sletten Const.

Co., 654 F.2d 529 (9th

) ee ae ae 15

; Statutes:

| 9 U.S.C. Section 10...........14

9 U.S.C. Section: 12s 660is.s00024

. 28 U.S.C. Section 1254(1)..... 2

i; --* 28°U.8.C. Section 1291........ 11,16,17

28 U.S.C. Section 1292(a)(1)..18

Rules:

; F.R.App.P. 42(b)..... OSes 7

| U.S. Supreme Court Rule 17....2,8

i

i

-

P

-V=

3

This Brief is filed on behalf of

respondents Daniel Boyer and Boenning &

Scattergood, Inc.’

COUNTERSTATEMENT OF QUESTION INVOLVED

Was the Court of Appeals correct in

dismissing Petitioner's appeal of the

district court's order staying a federal

court securities fraud action and

compelling industry arbitration of the

Claims pursuant to the agreement of the

parties on the basis that it was an

. unappealable interlocutory order?

OPINIONS BELOW

A reproduction cf the Third Circuit

Court of Appeals opinion below is

provided in the Appendix to Petition for

Writ of Certiorari ("P-App."). The Court

Boenning & Scattergood, Inc.

("Boenning") is a privately owned

Pennsylvania corporation.

-l-

OT

of Appeals decision is now published at

856 F.2d 554 (3d Cir. 1988).

JURISDICTION

The Petition for Writ of Certiorari

states that jurisdiction of this Court

rests upon 28 U.S.C. Section 1241(1) and

Rule 17 of this Court. There being no

such section, respondents believe

petitioner meant to state that

jurisdiction of this Court rests upon 28

U.S.C. Section 1254(1).

COUNTERSTATEMENT OF THE CASE

Respondent Boenning and Scattergood,

Inc. ("Boenning") is a regional

securities brokerage firm and a member of

the National Association of Securities

Dealers ("NASD"). Daniel B. Boyer, III

("Boyer"), a registered securities

representative employed by Boenning, was

Petitioner's broker having followed him

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to Boenning from his previous brokerage

firm. At the commencement of her

business relationship with Boenning,

petitioner signed a Customer Agreement

agreeing, inter alia, "to submit to

arbitration any controversy between us

arising out of your business or this

agreement" (P-App. 71-72). Petitioner

made several investments in her account

at Boenning. One investment of twenty

thowsand dollars in a small start-up

computer company was lost, however, when

the company failed. Petitioner then sued

the firm and her broker alleging

misrepresentation and fraud based on

respondents' sale of an allegedly

unsuitable investment.

In their answer to the Complaint,

respondents alleged as a defense the

arbitration agreement and, at the same

time, asked petitioner's counsel to

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Peete te Le.

submit the claim to arbitration, which

request was refused by petitioner. No

motion to enforce the arbitration

agreement was filed because such

agreements were viewed as unenforceable

by the Third Circuit Court of Appeals in

investor securities fraud complaints at

that time. See Opinion of the Court of

Appeals (P-App. 26-27 and n.2).

Accordingly, the case proceeded to

Federal Court arbitration and the

arbitrators entered an award in favor of

respondents on October 24, 1986, which

was appealed, de novo, by petitioner.

Shortly before the matter was to be

tried, by consent, before the United

States Magistrate, with direct right of

appeal to the Court of Appeals, this

Court filed its decision in

Shearson/American Express, Inc. v.

McMahon, U.S. , 107 S.Ct. 2332, 96

-4=-

L.Ed.2d 185 (1987), confirming the

enforceability of customer/broker

arbitration agreements even in cases

alleging violations of the anti-fraud

provisions of at least some of the

federal securities laws. Immediately

thereafter, respondents prepared and

filed a Motion to Compel Arbitration,

which petitioner opposed. On September

4, 1987, Magistrate Leomporra denied

respondents' Motion to Compel

Arbitration. The respondents filed a

Notice of Appeal of the Order in the

Third Circuit Court of Appeals.

Magistrate Leomporra requested

further argument on the Motion to Compel

Arbitration stating at the time that

Since an appeal had been filed he had no

authority to alter his Order but he

wished to hear further regarding the

parties' legal positions in connection

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with his preparation of an Opinion for

review by the Court of Appeals. The

Magistrate also requested further

memoranda with respect to the issues

raised in the Motion to Compel

Arbitration. On October 13, 1987, Judge

Leomporra issued a Memorandum Opinion in

which he concluded that his decision |

denying the Motion to Compel Arbitration

was erroneous. The Magistrate did not

vacate the Order, however, acknowledging

that he had no authority to do so because

of the pending appeal, but he suggested

that the respondents might withdraw their

appeal so that the case would be returned

to him for revision of the Order.

Based on that suggestion,

respondents filed a Praecipe to withdraw

the appeal on or about November 5, 1987

and the Clerk of the United States Court

of Appeals of the Third Circuit dismissed

the appeal under the authority conferred

upon the Clerk by Rule 42(b) of the

Federal Rules of Appellate Procedure on

November 17, 1987.

On November 25, 1987, respondents

filed a Motion for Reconsideration of the

Order denying their motion to compel

arbitration and after receipt of an

answer by petitioner, Magistrate

Leomporra, on December 1, 1987, granted

the Motion to Compel Arbitration and

directed the appellant to proceed to

arbitration before the NASD or the

Philadelphia Stock Exchange. On December

17, 1987, petitioner filed a Notice of

Appeal in the Court of Appeals of the

Third Circuit of the Magistrate's

December 1, 1987 decision.

On September 8, 1988, the Court of

Appeals for the Third Circuit dismissed

the appeal for lack of appellate

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jurisdiction holding that a district

court order compelling arbitration was

interlocutory and, therefore, not

immediately appealable. On September 30,

1988, the Court of Appeals denied the

petitioner's Petition for Rehearing. On

December 1, 1988, petitioner filed the

subject Petition for Writ of Certiorari.

R F ' . The writ

Rule 17 of this Court provides:

A review on Writ of Certiorari

is not a matter of right, but

of judicial discretion, and

will be granted only where

there are special and important

reasons therefor.

The Rule goes on to describe "the

character of the reasons" the court will

consider in passing upon a Petition for

Writ of Certiorari, such as (1) conflicts

and decisions between federal courts of

appeals on the same issue; (2) wide

departures by a federal court of appeals

=-8-

from the “accepted and usual course of

judicial proceedings"; and (3) a decision

by a federal court of appeals on an

important question of federal law which

has not been, but should be, settled by

this Court, or which has been decided in

a way in conflict with applicable

decisions of this Court.

When measured by the foregoing

standards, the present Petition is

clearly want of merit.

I. e isi e) j ircuit

Court Of Appeals In This Matter ,

Properly Followed The Long-Standing

Precedents Of Both This Court And

The Third Ci x

Bie dad Summa Of

Argument

Prior to this Court's decision in

Gulfstream Aerospace Corp. v. Mayacamas

Corp., U.S. , 108 S.Ct. 1133, 99

L.Ed.2d 296 (1988), the Third Circuit

routinely accepted jurisdiction over

-93-

interlocutory appeals from orders

granting or denying motions to compel

arbitration under the Enelow-Ettelson’

rule. Following that rule's abrogation

in Gulfstream, the present case prompted

the Third Circuit Court of Appeals to re-

review the Court's jurisdiction over such

orders under 28 U.S.C. Sections 1291 and

1292.

The Court of Appeals correctly

concluded that neither Section 1291 nor

Section 1292 provided a basis for

interlocutory review of the Magistrate's

Order. The Court's decision is solidly

grounded in the established precedent of

this Court in Catlin v. United States,

324 U.S. 229, 223, 65 S.Ct. 631, 633, 89

L.Ed. 911 (1945) and the Third Circuit in

Enelow v. New York Life Insurance

Company, 293 U.S. 379 (1935); Ettelson v.

Metropolitan Life Insurance Co., 317 U.S.

188 (1842).

-10-

Rogers v. Schering Corp., 262 F.2d 180

(3d Cir.), cert. denied, 359 U.S. 991, 79

S.Ct. 1121, 3 L.Ed.2d 980 (1959).

In its decision in this case, the

Court of Appeals for the Third Circuit

followed the leading case in the Circuit,

Rogers v. Schering Corp., 262 F.2d 180

‘(3d Cir.), cert. denied, 359 U.S. 991, 79

S.Ct. 1121, 3 L.Ed.2d 980 (1959). In

Rogers, the Third Circuit Court of

Appeals, en banc, established the

following guidelines to determine when an

order staying a proceeding pending

arbitration or compelling arbitration is

a final order under Section 1291:

An order requiring arbitration

is appealable as final under 28

U.S.C. Section 1291 'where it

-ll-

is not merely a step in the

judicial enforcement of a claim

nor auxiliary to the main

proceeding but is the full

relief sought' .... Such cases

are to be distinguished from

those in which an order for

arbitration is made in the

course of a continuing suit for

other relief. (Citations

omitted.) Id., 262 F.2d at

182.

In her Brief, Petitioner concedes

that Rogers is the controlling case

(Petitioner's Brief, pp. 10-11).

Petitioner and the Court of Appeals part

company, however, on the application of

Rogers to this case. In that connection,

the Third Circuit made the following

factual analysis:

This case, in which the

defendant in a suit for

statutory and common law

damages has moved to compel

arbitration, would appear to

fall clearly withir. the rule of

Rogers that orders arising out

of a lawsuit, 'such as a suit

for damages', are interlocutory

and not appealable as final

orders. Arbitration is not the

full relief sought by the

plaintiff; indeed, the

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plaintiff opposes arbitration.

The magistrate retains

jurisdiction and may be

expected in the ordinary course

of proceedings to issue the

further orders necessary to

effectuate the result of

arbitration. When a final

order is entered in this case,

the issue of whether or not the

magistrate properly ordered

arbitration will be ripe for

review. (P-App. 44-45)

Petitioner, on the other hand,

argues:

If the order compelling

arbitration stands and the

parties carry out an

arbitration, the arbitration

award will not require judicial

approval or a court decree to

put it into effect. The

decision of the arbitrators

will be binding. Therefore,

unless petitioner now has a

right to appeal from the order

compelling arbitration, she

will, in all probability, never

be able to secure an appellate

review of that order.

(Petitioner's Brief, 10-11)

Petitioner's statements are

incorrect. If the parties proceed to

arbitration, petitioner would not lose

-13-

her right to a review of the propriety of

the referral to arbitration at the

conclusion of the suit--the lower court

could review not only that issue, but any

other issue which would be the

appropriate subject of review by a court

after an arbitration proceeding.°

Nor is petitioner irreparably harmed

by the denial of the interlocutory

appeal. The only prejudice to petitioner

is the expense and delay arising out of

an arbitration on the merits in the

arbitration forum. The Third Circuit

correctly noted that such expense and

delay has never been a valid reason for

an immediate appeal of an interlocutory

order. New England Power Co. v. Asiatic

Petroleum Corp., 426 F. 183 (1st Cir.

. The Federal Arbitration Act, 9

U.S.C. Sections 10 and 11, outlines the

power of the court, following the

arbitration hearing, to vacate, modify or

confirm an arbitration award.

-14-

1972); Stateside Machinery Co. v.

Alperin, 526 F.2d 480 (3d Cir. 1975).

The Third Circuit's conclusion that

the instant order was not a final order

appealable under 28 U.S.C.S. Section 1291

is also consistent with decisions in most

other circuits. Quinn v. CGR, 828 F.2d

1463 (10th Cir. 1987); Matter of Chicago,

Milwaukee, St. Paul & Pacific R. Co., 784

F.2d 831 (7th Cir. 1986); Denley v.

Shearson/American Express, Inc., 733 F.2d

39 (6th Cir. 1984); Wren v. Sletten

Const. Co., 654 F.2d 529 (9th Cir. 1981);

imba Vv Vv ucti orp.,

544 F.2d 1104, cert. denied, 430 U.S. 916

(lst Cir. 1976); Diematic Mfg. Corp. v.

Packaging Industries, Inc., 516 F.2d 975

(2d Cir.), cert. denied, 423 U.S. 913

(1975).

This Court, in Gulfstream Aerospace

Corp. v. Mayacamas Corp., ____—sU.S. ___,

108 S.Ct. 1133, 99 L.Ed.2d 296 (1988),

reaffirmed the well established general

rule which is the foundation of the

Rogers decision, namely, *:

* In the Gulfstream case, this Court

further opined that the order there was

also not reviewable under the "small class

of exceptions" carved out of Section 1291

by the Court in Cohen v. Beneficial Loan

Corp., 337 U.S. 541, 69 S.Ct. 1221, 93

L.Ed. 1528 (1949) (the "collateral order

doctrine"). The Gulfstream decision

repeated the three requirements of the

Cohen collateral order exception to the

finality rule:

The order must’_ conclusively

determine the disputed question;

resolve an important '§ issue

completely separate from the

merits of the action; and be

effectively unreviewable on

appeal from a final judgment.

The Court found that the Gulfstream

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A district court's decision is

appealable under Section 1291

only when the decision ends the

litigation on the merits and

leaves nothing for the court to

do but execute the judgment.

Quoting

States, 324 U.S. 229, 233, 65

S.Ct. 631, 633, 89 L.Ed. 911

(1945).

Thus, the Petitioner is correct when

she states that Gulfstream did not alter

the clearly established precedents under

Section 1291. As stated above, however,

the Court of Appeals did not find that

Gulfstream changed Section 1291 and it

did not depart from the established

precedents under that Section.

——

Order did not "conclusively determine the

disputed question" and thus failed the

first prong of the collateral order

exception test. Here, the Court of

Appeals found no basis for applying the

collateral order rule (P-App. 54-55) and

Petitioner has not’ challenged that

finding.

-l17-

In the second portion of its Opinion

in Gulfstream, this Court found that the

district court order was not appealable

under Section 1292(a)(1). In doing so,

this Court expressly overruled its

earlier decisions in Enelow v. New York

Life Insurance Company, 293 U.S. 379

(1935) and Ettelson v. Metropolitan Life

Insurance Co., 317 U.S. 188 (1942) (the

so called "Enelow-Ettelson rule") and

held that orders granting or denying

stays of "legal" proceedings on

"equitable" grounds were not

automatically appealable under 28 U.S.C.

1292(a) (1). |

In the present case, the Third

Circuit Court of Appeals noted that:

At the time the briefs were

filed in this court, the

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.

(Citations omitted.) (P-App.

at 29-30)

After further analysis, the Court of

Appeals concluded:

In the wake of Gulfstream's

abrogation of the Enelow-

Ettelson doctrine, it will once

again be imperative to analyze

appealability of orders

effecting arbitration under the

various sources of appellate

jurisdiction. (P-App. at 37-

38)

In the analysis that followed, the

Third Circuit distinguished its earlier

decision in Gavlick Construction Co. v.

H. F. Campbell Co., 526 F.2d 777 (3d Cir.

1975), to the extent that it is

inconsistent with the Rogers decision,

with the following note:

5. We note however that

because the stay portion of

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Gavlick was appealable under

= , the

distinction made between the

stay and the order compelling

arbitration was unnecessary.

For example, in Formigli Corp.

v. Alcar Builders, Inc., 329

F.2d 79, 80 (3d Cir. 1964),

this court, faced with the same

situation, treated an order

both compelling arbitration and

staying proceedings as an

interlocutory stay order. The

entire order in Gavlick was

interlocutory in nature and was

entirely appealable at the time

under the then prevailing

precedent. We could thus

regard Gavlick's Section 1291

rationale as dictum had it not

spawned a following of its own.

(P-App. 47)

Thus, the only consideration given

to the Gulfstream decision by the Third

Circuit Court of Appeals in this case was

its effect on the Enelow-Ettelson

doctrine. The remainder of the analysis

by the Third Circuit related entirely to

its own precedent in Rogers and other

authorities. Accordingly, petitioner's

discussions regarding the distinctions

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between this case and the Gulfstream case

are misplaced and unnecessary.

E. The Third Circuit Court Of

As noted by the Court of Appeals,

the result reached in this case is

consistent with the policy considerations

articulated by this Court relating to

limiting the appealability of

interlocutory orders. The Court of

Appeals reasoned:

Although we are not makers

cf policy, we cannot avoid

consideration of the practical

effect of our decision that

orders staying proceedings or

compelling the parties in an

ongoing lawsuit to arbitrate

are nonappealable interlocutory

orders. Arbitration is an

expeditious and inexpensive

mode of alternative dispute

resolution. Allowing

interlocutory appeals of such

orders would defeat the

attractiveness of arbitration

by imposing delay and

additional expense. Immediate

appealability would thus

-21i-

SS SEE

detract from the broad federal

policy in favor of arbitration,

emphasized repeatedly by the

Supreme Court.

Our holding is also

consistent with the Supreme

Court's limitation of

appealability of interlocutory

orders in other contexts. As

the Court has stated,

permitting wholesale appeals of

orders entered in the course of

proceedings ‘would constitute

an unjustified waste of scarce

judicial resources' *** We are

thus satisifed that our holding

is supported by important

policy concerns about the

allocation of judicial business

between district courts and the

court of appeals. (Citations

omitted.) (P-App. 56-57)

CONCLUSION

The Court of Appeals decision in

this case is consistent with the

precedents of this Court and the Courts

of Appeals and in no way departs from the

accepted and usual course of judicial

proceedings.

The Court of Appeals decision in no

way conflicts with the applicable

-22<

decisions of this Court and does not

involve an unresolved question of federal

law which requires the review of this

Honorable Court. Accordingly,

respondents respectfully request the

Court to deny Petitioner's Writ of

Certiorari.

nt as”

TOM P. MONTEVERDE

JEAN C. HEMPHILL

Attorneys For Respondents,

Daniel Boyer and Boenning

& Scattergood, Inc.

OF COUNSEL:

MONTEVERDE, HEMPHILL, MASCHMEYER & OBERT

Suite 2230, The Fidelity Building

123 South Broad Street

Philadelphia, PA 19109-1022

(215) 735-1900

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