Petition for Writ of Certiorari — Singh v. Drexel Burnham Lambert Inc.

— Poe a he Se

58-1012 |

Supreme Court,’U.S. &

FILED ‘p

|

No. 88- ! DEC 15 1988

| JOSEPH F. SPANIOL, JR.

—"

IN THE

‘!

Supreme Court of the United States

OCTOBER TERM, 1988

GULSHAN B. SINGH, M.D. and DALJIT SINGH, INDIVIDUALLY

AND AS TRUSTEES FOR THE GULSHAN B. SINGH, M.D., P.A.

PROFIT SHARING PLAN, DEFINED BENEFIT PENSION PLAN

AND MONEY PURCHASE PENSION PLAN,

Petitioners,

VS.

DREXEL BURNHAM LAMBERT INCORPORATED,

DAVID PINES and GREGORY YANKWITT,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

FOURTH DISTRICT COURT OF APPEAL

OF THE STATE OF FLORIDA

Michael R. Casey

Suite 1500

500 East Broward Boulevard

Fort Lauderdale, FL 33394-3099

(305) 527-1000

Attorney for Petitioners

Counsel of Record

QUESTION PRESENTED

Whether claims brought under Section 12(2) of the Securities

Act of 1933 are subject to predispute arbitration agreements?

TABLE OF CONTENTS

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Broward County, Florida, Circuit Court Order .............. Al

Decision of Florida Fourth District Court of Appeal ...... A2

Order of Florida Fourth District Court of Appeal

Denying Motion for Rehearing .......................c::cccesseeeeeeeees A3

Order of Supreme Court of Florida

Dismissing Petition for Review ....................ccsccseseeeeeeeeeeees A4

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TABLE OF AUTHORITIES

CASES:

Rodriguez de Quijas v. Shearson/American Express, Inc.,

845 F.2d 1296 (5th Cir. 1988), cert. granted,

57 U.S.L.W. 3343 (U.S. Nov. 15, 1988) (No. 88-385) .........00..e. 6

Shearson/American Express, Inc. v. McMahon,

482 US. ,107 S.Ct. 2332, 96 L.Ed.2d 185 (1987)............ 5,6

Wilko v. Swan, 346 U.S. 427 (1953) ..............scsscsccssecseesseessereeeee 5,6

FEDERAL STATUTES:

United States Arbitration Act, Section 2, 9 U.S.C. §2 ......00......... 3

Securities Act of 1933, Section 12(2)

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Securities Act of 1933, Section 14,

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Securities Exchange Act of 1934, Section 10(b)

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No. 88-

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

GULSHAN B. SINGH, M.D. and DALJIT SINGH, INDIVIDUALLY

AND AS TRUSTEES FOR THE GULSHAN B. SINGH, M.D., P.A.

PROFIT SHARING PLAN, DEFINED BENEFIT PENSION PLAN

AND MONEY PURCHASE PENSION PLAN,

Petitioners,

vs.

DREXEL BURNHAM LAMBERT INCORPORATED,

DAVID PINES and GREGORY YANKWITT,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

FOURTH DISTRICT COURT OF APPEAL

OF THE STATE OF FLORIDA

OPINIONS BELOW

The Order of the trial court is reprinted in the Appendix as

Al. The decision of the Florida Fourth District Court of Appeal

and that Court’s subsequent order denying a Motion for Re-

hearing are reprinted in the Appendix as A2 and A3, respec-

tively. The Order of the Supreme Court of Florida dismissing a

Petition for Review is reprinted in the Appendix as A4.

JURISDICTION

The decision of the Florida Fourth District Court of Appeal

was entered on August 10, 1988 and the denial of the Motion for

Rehearing was entered on September 14, 1988. A petition for

review by certiorari to the Supreme Court of Florida was

dismissed for lack of jurisdiction on October 21, 1988. This

Petition for a Writ of Certiorari was filed within ninety (90) days

of either September 14, 1988 or October 21, 1988. This Court has

jurisdiction pursuant to 28 U.S.C. §1257(3) or 28 U.S.C. §1257(a).

STATUTES INVOLVED

Section 14 of the Securities Act of 1933, 15 U.S.C. §77n, pro-

vides in pertinent part that:

Any condition, stipulation or provision binding any person

acquiring any security to waive compliance with any provi-

sion of this subchapter or of the rules and regulations of the

Commission shall be void.

Section 12(2) of the Securities Act of 1933, 15 U.S.C. §771(2),

provides in pertinent part that:

Any person who—

(2) offers or sells a security (whether or not exempted

by the provisions of section 77c of this title, other than

paragraph (2) of subsection (a) of said section), by the use

of any means or instruments of transportation or com-

munication in interstate commerce or of the mails, by

means of a prospectus or oral communication, which in-

cludes an untrue statement of a material fact or omits to

state a material fact in order to make the statements, in

the light of the circumstances under which they were

OE

3

made, not misleading (the purchaser not knowing of

such untruth or omission), and who shall not sustain

the burden of proof that he did not know, and in the

exercise of reasonable care could not have known, of

such untruth or omission,

shall be liable to the person purchasing such security from

him, who may sue either at law or in equity in any court of

competeut jurisdiction...

The United States Arbitration Act, 9 U.S.C. §2, provides in

pertinent part that:

...an agreement in writing to submit to arbitration an exist-

ing controversy arising out of such a contract, transaction

or refusal shall be valid, irrevocable, and enforceable save

upon such grounds as exist at law or in equity for the revo-

cation of any contract.

STATEMENT OF THE CASE

Petitioners, Gulshan B. Singh and Daljit Singh (hereinafter

the "Singhs"), at all times mentioned herein, were husband

and wife and also served as trustees for the Gulshan B. Singh,

M.D., P.A. Profit Sharing Plan, Defined Benefit Pension Plan

and Money Purchase Pension Plan (hereinafter collectively the

"Plans").

The Singhs’ investment objectives, both as individuals and

as trustees of the Plans, were safety of principal and long term

growth. Respondent, Gregory Yankwitt (hereinafter “Yank-

witt") served as the Singhs’ account executive/customer repre-

sentative at Dean Witter Reynolds, Inc. When Yankwitt left

Dean Witter to join Respondent, Drexel Burnham Lambert In-

corporated (hereinafter "Drexel"), he prevailed on the Singhs to |

move their accounts to that firm. At the time the accounts were |

opened at Drexzl, the Singhs signed various agreements, the

most recent of which contained the following arbitration

clause:

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+

Any controversy between you and the undersigned

arising out of said account or relating to the contract

or the breach thereof, shall be settled by arbitration in

accordance with the rules, then obtaining, of the

American Arbitration Association, the New York

Stock Exchange, Inc. or the National Association of

Securities Dealers, Inc., as the undersigned may

elect.

Thereafter, utilizing the relationship of confidence and trust

he had developed, Yankwitt made fraudulent misrepresenta-

tions and omissions to the Singhs to induce them to invest in an

options trading program that was totally contrary to their in-

vestment objectives, which program resulted in substantial

losses to their accounts.

The Singhs filed suit against Drexel, Yankwitt and David

Pines, the Branch Office Manager at Drexel (hereinafter collec-

tively "Defendants") in the Circuit Court of the Seventeenth Ju-

dicial Circuit in and for Broward County, Florida, alleging vio-

lations of Section 12(2) of the Securities Act of 1933 and 18 U.S.C.

§1962 (hereinafter "Federal RICO").

Upon Petition of the Defendants, the suit was removed to the

United States District Court for the Southern District of Florida.

Defendants filed an "Answer and Affirmative Defenses” and

thereafter filed a "Motion to Stay Action and Compel Arbitra-

tion”.

In response, the Singhs filed their "Reply Memorandum in

Opposition to Defendants’ Motion to Stay Action and Compel

Arbitration". Without ruling on the Motion to Compe! Arbitra-

tion, the United States District Court remanded the action to

state court. -

After remand, Defendants filed a "Renewed Motion to Stay

Action and Compel Arbitration". The Defendants argued in

their Motion that, in the recent decision of Shearson/American

Express, Inc. v. McMahon, 482 U.S. , 107 S.Ct. 2332, 96

L.Ed.2d 185 (1987), the Supreme Court had effectively overruled

Wilko v. Swan, 346 U.S. 427 (1953), and that the trial court

should compel arbitration of the Singhs’ claims under Section

12(2) of the Securities Act of 1933. In response, the Singhs

+)

filed a "Reply Memorandum in Opposition to Defendants’ Re-

newed Motion to Stay Action and Compel Arbitration".

On October 17, 1987, after oral argument, the trial court

granted Defendants’ Motion and entered its Order compelling

arbitration of both the federal RICO and the Section 12(2)

claims. Based on the McMahon decision, the Singhs conceded

the arbitrability of the Federal RICO claim.

Thereafter, the Singhs appealed the Order of the trial court

to the Florida Fourth District Court of Appeal. In their Briefs

on Appeal, the Singhs argued that the Supreme Court's deci-

sion in McMahon dealt with claims under Section l(b) of the

Exchange Act of 1934 and did not overrule the Court's earlier

decision in Wilko v. Swan, holding that claims arising under

Section 12(2) of the Securities Act of 1933 are not subject to pre-

dispute arbitration agreements.

On August 10, 1988, the Fourth District Court of Appeal af-

firmed the order of the tril court compelling arbitration, citing

McMahon. Rehearing was denied on September 13, 1987 and a

Petition for Review to the Supreme Court of Florida was dis-

missed for lack of jurisdiction on October 21, 1988.

REASONS FOR GRANTING THE WRIT

1. The decision of the Florida Fourth District Court of Ap-

peal conflicts with the Supreme Court's decision in Wilko v.

Swan, 346 U.S. 427 (1953), which held that claims under section

12(2) of the Securities Act of 1933 are not subject to arbitration

pursuant to predispute arbitration agreements.

The Fourth District's reliance on Shearson/American Ex-

press, Inc. v. McMahon, 482 U.S.___, 107 S.Ct. 2332, 96

L.Ed.2d 185 (1987), in affirming the trial court's order compe!-

ling arbitration of the 12(2) claims, is misplaced. The McMa-

hon holding involved claims under Section l|(b) of the Exchange

Act of 1934 and, on the grounds of stare decisis, the Supreme

Court there expressly declined to reverse its holding in Wilko

that claims under Section 12(2) of the Securities Act of 1933 are

subject to predispute avbitration agreements.

EE

6

The other decisions cited by the Fourth District as authority

for its affirmance emanate from lower federa! courts that also

construed McMahon as overruling Wilko.

2. On November 14, 1988, this Court granted a petition for a

writ of certiorari in the case of Rodriguez de Quijas v. Shear-

son/American Express, Inc., 845 F.2d 1296 (5th Cir. 1988), cert.

granted, 57 U.S.L.W. 3343 (U.S. Nov. 15, 1988XNo. 88-385). The

basic question presented in that petition, to wit: "Are claims

under Section 12(2) of the 1933 Securities Act now arbitrable un-

der predispute broker contracts?" is identical to the question

presented in this case.

CONCLUSION

For the foregoing reasons, the Petition for a Writ of Certiora-

ri should be granted.

Respectfully submitted,

Michael R. Casey

Suite 1500

500 East Broward Boulevard

Fort Lauderdale, FL 33394-3099

(305) 527-1000

Counsel of Record

Attorney for Petitioners

APPENDIX

Al

IN THE CIRCUIT COURT OF THE

SEVENTEENTH JUDICIAL CIRCUIT

IN AND FOR BROWARD COUNTY, FLORIDA

CASE NO. 86-16132 CS

Paul M. Marko III, Circuit Judge

GULSHAN B. SINGH, M.D. and DALJIT SINGH, INDIVIDUALLY

AND AS TRUSTEES FOR THE GULSHAN B. SINGH, M.D., P.A.

PROFIT SHARING PLAN, DEFINED BENEFIT PENSION PLAN

AND MONEY PURCHASE PENSION PLAN,

Petitioners,

vs.

DREXEL BURNHAM LAMBERT INCORPORATED,

DAVID PINES and GREGORY YANKWITT,

Respondents.

ORDER

THIS CAUSE having come on to be heard on Defendants’

Motion to Stay Action and Compel Arbitration and the Court

having heard argument of counsel, and being otherwise ad-

vised in the Premises, it is hereupon,

ORDERED AND ADJUDGED that said Motion be, and same

is hereby GRANTED.

DONE AND ORDERED in Chambers, at Fort Lauderdale,

Broward County, Florida, this 27th day of October, 1987.

/s/PAUL M. MARKO III

Circuit Judge

}

A2

IN THE DISTRICT COURT OF APPEAL

OF THE STATE OF FLORIDA FOURTH DISTRICT

CASE NO. 87-2963

GULSHAN B. SINGH, M.D. and DALJIT SINGH,

Appellants

vs.

DREXEL BURNHAM LAMBERT INCORPORATED,

DAVID PINES and GREGORY YANKWITT,

Appellees.

OPINION FILED AUGUST 10, 1988

NOT FINAL UNTIL TIME EXPIRES TO FILE

REHEARING MOTION AND, IF FILED, DISPOSED OF

Appeal of a non-final order from the Circuit Court

for Broward County; Paul M. Marko III, Judge

Michael R. Casey

Fort Lauderdale, for Appellants

Lloyd R. Schwed of Fowler, White, Burnett, Hurley,

Banick & Strickroot, P.A., Miami, for Appellees

PER CURIAM.

AFFIRMED on the authority of Shearson/American Ex-

press, Inc. v. McMahon, 482 U.S. , 107 S.Ct. 2332, 96 L.

Ed.2d 185 (1987); Kavouras v. Visual Products Systems, Inc.,

680 F.Supp. 205, 207-08 (W.D. Pa. 1988); Aronson v. Dean Witter

Reynolds, Inc., 675 F.Supp. 1324, 1326 (S.D. Fla. 1987); Staiman

v. Merrill Lynch, Pearce, Fenner & Smith, 673 F.Supp. 1009,

1011 (C.D. Cal. 1987).

LETTS, DELL and WALDEN, JJ., concur.

IN THE DISTRICT COURT OF APPEAL OF

THE STATE OF FLORIDA FOURTH DISTRICT

CASE NO. 87-2963

GULSHAN B. SINGH, M.D. and DALJIT SINGH,

Appellants,

vs.

DREXEL BURNHAM LAMBERT INCORPORATED,

DAVID PINES and GREGORY YANKWIT,

Appellees.

September 14, 1988

BY ORDER OF THE COURT:

ORDERED that Appellants’ August 22, 1988 Motion for Re-

hearing is denied.

I hereby certify the foregoing is a

true copy of the original court order.

/s/CLYDE L. HEATH,

Clerk

cc: Kathleen Molchan, Esq.

Lloyd R. Schwed, Esq.

A4

SUPREME COURT OF FLORIDA

FRIDAY, OCTOBER 21, 1988

CASE NO. 73,182

DISTRICT COURT OF

FOURTH DISTRICT - NO. 87-2963

GULSHAN B. SINGH, M.D. and DALJIT SINGH,

Petitioners,

vs.

DREXEL BURNHAM LAMBERT INCORPORATED,

DAVID PINES and GREGORY YANKWIT,

Respondents.

It appearing to the Court that it is without jurisdiction,the

Petition for Review is hereby dismissed. Dodi Publishing Co. v.

Editorial America, S.A., 385 So.2d 1369 (Fla. 1980).

A TRUE COPY

TEST:

Sid J. White

Clerk, Supreme Court cc: Hon. Clyde L. Heath, Clerk

Hon. Robert E. Lockwood, Clerk

Hon. Paul M. Marko III, Judge

(seal) Supreme Court of the Michael R. Casey, Esquire

State of Florida Lloyd R. Schwed, Esquire

/s/Phyllis Bamburg

Deputy Clerk

i = sete