Petition for Writ of Certiorari — Bird v. Shearson Lehman/American Express, Inc.

In The

Supreme Court of the United States

October Term, 1990

+

FRANK L. BIRD, Trustee of the FRANK L. BIRD

PROFIT SHARING TRUST, FRANK L. BIRD,

Individually, and JOAN SHEA,

Petitioners,

V.

SHEARSON LEHMAN/AMERICAN EXPRESS, INC.

and RAYMOND R. CLEMENTS,

Respondents.

>

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

cinciniohesiiaa

DONALD R. HOLTMAN

Katz & SELIGMAN

130 Washington Street

Hartford, CT 06106

(203) 547-1857

Counsel of Record for Petitioners

Printed by

Brescia's Printing Services. Inc

66 Connecticut Boulevard

Fast Hartford, CT 06108

528-4254

QUESTION PRESENTED

Whether participants in a qualified Employee Retire-

ment Income Security Act of 1974 (ERISA) plan may be

compelled to arbitrate claims of statutory violations

asserted against a plan fiduciary, where a provision in an

agreement between the employer and a plan fiduciary

calls for compulsory arbitration of all claims.

TABLE OF CONTENTS

QUESTION PRESENTED .......-.50055e5ivi ee oee

SRE OP BAT he de ta ee

k. Spe eeenteee GOEAIO 2 ok. sb ew a eee

EE. FASURReMG EIEN ws vo ee eR eee

ii. STATUTES INVOLVED .... 2.00.65 ess ese

IV. STATEMENT OF THE CASE .........5 4.553

V. REASONS FOR ALLOWING THE WRIT.......

Pg gh ob ae Werner USE pe oth

eT UREN a ev os he ee ee

PEPE UO Be a ow se a re ee

TABLE OF AUTHORITIES

CASES PAGE(S)

Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974)... .. 5

Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923 (3rd

ae ey og oes x vk wb els gos bole we 4

Bird v. Shearson Lehman/American Express, Inc., 871 F.2d

292 (2nd Cir. 1985), vacated 110 S.Ct. 225 (1989)... ... 3

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101

GOES Fey Sf

Mc Donald y. City of West Branch, Michigan, 466 U.S. 284

ee ect ees: 5

Nicholson v. CPC International, Inc., 877 F.2d 221 (3rd

EE 6, 7

Pilot’ Life Insurance Co. v. Dedeaux, 481 U.S. 41

ee ini dcecssdavess 5,7

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

490 U.S. 477 (1989) ................... .....4,5,6

Shearson/American Express, Inc. v. McMahon, 482 U.S.

220 (1987) rehg denied 483 U.S. 1056 (1987) ..... 3, 4,5

Shearson Lehman/American Express, Inc. v. Bird, 110 S.Ct.

See Me wl

Sulit v. Dean Witter Reynolds, Inc., 847 F.2d 475

ee SA ree

Utley vy. Goldman Sachs & Co., 883 F.2d 184 (Ist Cir. 1989)

cert. denied 110 S.Ct. 842 (1990)... 0.0000... ees

iv

TABLE OF AUTHORITIES — Continued

STATUTES PAGE\S)

Employee Retirement Income Security Act (ERISA)

29 U.SC. §§ 1001 (b), 1104, 1132 and 1144 .........2,§

UW

Federal Arbitration Act

es er ae hc, is he ee ber we Se ee oe 2

Labor Management Relations Act (LMRA)

Bo UR, Be ce cv ce aan .)

Securities Exchange Act of 1934

15 USC. § 78) | 5

No.

In The

Supreme Court of the United States

October Term, 1990

4

FRANK L. BIRD, Trustee of the FRANK L. BIRD

PROFIT SHARING TRUST, FRANK L. BIRD,

Individually, and JOAN SHEA,

Petitioners

y

SHEARSON LEHMAN/AMERICAN EXPRESS, INC.

and RAYMOND R. CLEMENTS

Respondents

¢

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

1. OPINION BELOW

The judgment and opinion of the United States Court

of Appeals for the Second Circuit of which review is

sought is reported at 926 F.2d 116. The unreported deci-

sion of the United States District Court for the District

of Connecticut reversed by the cited decision is

reproduced at Appendix A. A prior opinion by the United

States Court of Appeals for the Second Circuit in the same

case and on the same issue is reported at 871 F.2d 292.

In that prior decision, the Court of Appeals affirmed an

earlier unreported oral decision of the District Court, a

transcript of which is reproduced at Appendix B.

Il. JURISDICTION

The judgment sought to be reviewed was dated and

entered on January 17, 1991. This Court has jurisdiction

pursuant to 28 U.S.C. § 1254 (1).

—_—_—_—_—_@—______

Ill. STATUTES INVOLVED

The statutes involved are the Federal Arbitration Act,

specifically 9 U.S.C. §§ 2 and 3 and the Employee Retire-

ment Income Security Act of 1974, specifically 29 U.S.C.

$§ 1001(b), 1104, 1132 and 1144. The text of these provi-

sions is reproduced at Appendix C hereto.

IV. STATEMENT OF THE CASE

The Petitioners commenced this action on July 21,

1987, in the United States District Court for the District

of Connecticut seeking relief for claimed violations of

fiduciary duties under ERISA (29 U.SC. § 1001 et seg.) and

churning" in violation of the Securities Exchange Act of

1934 (15 U.SC. § 78)), asserting pendent state claims as

well. The complaint alleges that Petitioner Bird is a trustee

of, participant in and beneficiary of, and that Petitioner

Shea is a participant in, an ERISA qualified profit sharing

plan and that the Respondents, a stock brokerage firm

and a stock broker respectively, who invested and

managed the fund under a standard broker's customer's

agreement with Bird, dissipated the fund by “churning”

the account. The Respondents are further alleged to be

plan fiduciaries within the meanings of ERISA. Jurisdic-

tion of the District Court was invoked under 29 U.SC.

§ 1132 (f), 15 U.S.C. § 78aa, 28 U.S.C. § 1331 and 28 U.SC.

§ 1332 (a)(1).

The customer agreement signed by Petitioner Bird con-

tained a clause providing for arbitration of disputes arising

thereunder. Relying on the decision of this Court in

Shearson Lehman Brothers, Inc. v. McMahon, 482 U.S. 220

(1987) reh'g denied 483 U.S. 1056 (1987), on motion of the

Respondents, the District Court ordered a stay of the

claims of churning in violation of the Securities Exchange

Act of 1934 and the pendent state claims but declined to

do so as to the claims of breach of fiduciary responsibility

under ERISA.

Respondents appealed the trial court's decision

denying the stay as to the ERISA claims under 28 U.S.C.

§ 1292 (b). In Bird v. Shearson Lehman/American Express,

Inc., 871 F.2d 292 (2nd Cir. 1985), the United States Court

of Appeals for the Second Circuit affirmed the trial court.

Following a denial of Respondent's petition for rehearing,

the Respondents petitioned this Court for a writ of cer-

tiorari. This Court by summary order on October 10,

1989, vacated the judgment in the Second Circuit,

4

remanding the case for further consideration in light of

Rodriguez de Quijas v. Shearson/American Express, Inc., 490

U.S. 477 (1987). Shearson Lehman/American Express, Inc.

v. Bird, 110 S.Ct. 225 (1989). On January 19, 1990, the

United States Court of Appeals for the Second Circuit

remanded the matter to the District Court with directions

to proceed in accordance with the mandate of this Court.

After reconsideration, the District Court reaffirmed

its initial decision that claims of breach of fiduciary duties

under ERISA were not compulsorily arbitrable under a

predispute arbitration agreement. Respondents again

appealed and the United States Court of Appeals for the

Second Circuit, on that appeal, reversed the District Court.

It is this latter judgment on appeal of which review is

sought.

»

V. REASONS FOR ALLOWING THE WRIT

Petitioners respectfully submit that, in the opinion

sought to be reviewed, the United States Court of Appeals

for the Second Circuit has decided an important question

of federal law which has not been, but should be, settled

by this Court and that this is an appropriate case for the

granting of this petition under Rule 17.1.(c} of the Rules

of the United States Supreme Court.

Additionally, the United States Court of Appeals for

the Third Circuit has held, in Barrowclough v. Kidder, Pea-

body & Co., 752 F.2d 923 (3rd Cir. 1985) (albeit a decision

prior in time to the decisions of this Court in

Shearson/American Express, Inc. v. McMahon, 482 U.S. 220

7)

(1987), and Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477 (1989)) that ERISA claims such

as those asserted in this action cannot be compulsorily

arbitrated pursuant to predispute arbitration clauses in

brokers’ customer agreements. The only other Court of

Appeal to have considered the issue is that of the Eighth

Circuit in Sulit v. Dean Witter Reynolds, Inc., 847 F.2d 475

(1988), a case decided subsequent to McMahon but prior

to Rodriguez de Quijas, holding that such claims are com-

pulsorily arbitrable. Thus, the Circuit Courts are now in

conflict on this issue, justifying the granting of this peti-

tion under Rule 17.1.(a) of the Rules of the Supreme Court.

Neither McMahon nor Rodriguez de Quijas speaks

directly to the issue in this case. Indeed, neither dealt with

the enforceability of predispute arbitration clauses in

agreements to which the persons intended to be protected

by comprehensive legislative schemes like ERISA are cus-

tomarily not party. The closest analogy to ERISA claims

like those asserted here is not the commercial disputes

of which McMahon and Rodriguez de Quijas are represen-

tative but the labor cases where this Court has consis-

tently allowed claimants to vindicate their statutory rights

in the judicial forum provided. See Alexander v. Gardner-

Denver Co., 415 U.S. 36 (1974); McDonald v. City of West

Branch, Michigan, 466 U.S. 284 (1984). This Court itself

has recognized the striking parallels between the reme-

dies and forum for realization of them provided under

the Labor Management Relations Act, 29 U.S.C. § 1985

and § 1132(a) of ERISA. Pilot Life Insurance Co. v. Dedeaux

481 U.S. 41 (1987); Firestone Tire & Rubber Co. v. Bruch,

489 U.S. 101 (1989).

To similar effect, the Third Circuit, in a post-Rodriguez

de Quijas case, held claims arising under the Age Discrimi-

nation in Employment Act, 29 U.S.C. § 2121, not subject

to compulsory arbitration, Nicholson v. CPC International,

Inc., 877 F.2d 221 (3rd Cir. 1989). As the Third Circuit

in Nicholson aptly noted, “{t]he dissent relies on cases

arising in a business context. The closest analogous

Supreme Court cases dealing with employees’ statutory

rights point in the other direction.’ Nicholson, p. 231. Also

following the lead of the Supreme Court in its solicitous-

ness for the integrity of statutory programs protective of

the worker, the First Circuit, again post-Rodriguez de

Quijas, has held Title VII claims not compulsorily arbi-

trable even outside the collective bargaining context. Utley

v. Goldman Sachs & Co., 883 F.2d 184 (1989), cert. denied

110 S.Ct. 842 (1990).

Respondents reported in their petition for certiorari

seeking review of the first decision of the Second Circuit

in this case that “there are millions of ERISA accounts

maintained with brokerage firms nationwide.” (Respon-

dent's Petition for Writ of Certiorari dated August 7, 1989,

page 19.) Thus multiples of those millions, the workers

whom ERISA was intended to protect, will be affected

by this Court's disposition of this petition. The issue is

a narrow but difficult one, reflected in the fact that each

of the decisions in this case in the Second Circuit was

accompanied by a dissent. To paraphrase Nicholson, if the

employers arbitration agreement effectively precludes an

employee from bringing claims of breach of fiduciary

responsibility under ERISA in the judicial forum, it may

be assumed that many employers will execute similar

agreements, thereby shifting enforcement of ERISA away

from the Secretary of Labor and away from the courts

to arbitration. “If this is a result desired by Congress, we

should wait for Congress to explicitly so state” Nicholson,

p. 231. It is not only the workers in that case who will

lose access to the federal courts; the very development

of a federal common-law of employee benefits which

ERISA was intended to promote will be thwarted. Pilot

Life In-urance Co. v. Dedeaux, 481 U.S. 41 (1987); Firestone

Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989).

For these reasons, the Petitioners respectfully urge that

this petition be granted.

Hartford, Connecticut

April 12, 1991

DONALD R. HOLTMAN

KATZ & SELIGMAN

130 Washington Street

Hartford, CT 06106

(203) 547-1857

Counsel of Re, ord for P. fifioners

.

In The

Supreme Court of the United States

October Term, 1990

.

FRANK L. BIRD, Trustee of the FRANK L. BIRD

PROFIT SHARING TRUST, FRANK L. BIRD

Individually, and JOAN SHEA

Petitioners

SHEARSON LEHMAN/AMERICAN EXPRESS, INC

and RAYMOND R. CLEMENTS

Respondents

7

APPENDIX

+

1A

APPENDIX A

FILED

UNITED STATES DISTRICT COURT JUL 16 3:59 PM ‘90

DISTRICT OF CONNECTICUT U.S. DISTRICT COURT

NEW HAVEN, CONN.

FRANK L. BIRD, Trustee of the Frank L. Bird :

Profit Sharing ‘Trust, FRANK L. Bird, Individu-

ally, and JOAN SHEA

v. : Civ. No. H-87-530 (JAC)

SHEARSON LEHMAN/AMERICAN EXPRESS

INC., AND RAYMOND R. CLEMENTS

APPEARANCES:

DONALD R. HOLTMAN

(Katz & Seligman)

Hartford, CT

For Plaintiffs

WILLIAM S. ROGERS

(Tyler Cooper & Alcorn)

Hartford, CT

THEODORE A. KREBSBACH

JEFFREY L. FRIEDMAN

(Office of the General Counsel

Shearson Lehman Hutton, Inc.|

New York, NY

For Defendants

ROBERT J. HIGGINS

GEORGE KAUFMAN

MARCUS C. MIGLIORE

\Dickstein, Shapiro & Morin}

Washington, DC

For Amici Curiae, New York State Teamsters Council Health and Hospital

Fund, Upstate New York Teamsters Pension and Retirement Fund and

New York Teamsters Conference Pension and Retirement Fund

2A

RULING ON REMAND FROM THE

COURT OF APPEALS

JOSE A. CABRANES, District Judge:

This case has been remanded by the Court of Appeals

for the limited purpose of reconsidering the issue of

whether a fiduciary responsibility claim under the

Employee Retirement Income Security Act (ERISA) is sub-

ject to com )ulsory arbitration in light of the Supreme

Court’s decision in Rodriguez de Qutjas_ v.

Shearson/American Express, Inc., 109 S.Ct. 1917 (1989)

(“Rodriguez”). Because Rodriguez is consistent with the

Supreme Court's other recent rulings on arbitration and

therefore does not significantly change the legal landscape

in which this issue was originally considered, I continue

to hold that fiduciary responsibility claims' under ERISA

are not subject to compulsory arbitration.

Procedural History

This case was originally filed on July 21, 1987. Plain-

tiffs Frank L. Bird, a trustee and beneficiary of the Frank

L. Bird Profit Sharing Trust ("the Plan’), and Joan Shea,

'The Court of Appeals’ decision recognized a distinction

between “purely contractual claims” and “fiduciary claims’ —

that is, “claims created as part of a comprehensive federal

scheme protecting the rights of indiv:dual participants and

beneficiaries: The same distinction is drawn by the statute,

which allows contractual claims to be heard in state court, but

gives federal courts exclusive jurisdiction over fiduciary claims.

See 29 USC. § 1122(e). The Court of Appeals stressed that its

holding did not cover contractual claims. “We do not suggest

that arbitration of purely contractual claims asserted pursuant

to ERISA cannot be compelled.” 871 F.2d at 298.

3A

a beneficiary of the Plan, allege, inter alia, that defendants’

handling of the Plan's funds constituted a breach of

fiduciary duties under ERISA, 29 U.S.C. § 1104. Plaintiffs

assert that defendants, an investment firm and its vice

president, solicitated the management of the Plan's

account and were aware of its conservative investment

objectives. After twenty-two months and fifty-five trans-

actions, the $62,205.56 from the Plan invested with defen-

dants was reduced to $13,427.53, and plaintiffs claim that

many of the investments made on their behalf were

improperly risky.

On August 18, 1987, the defendants filed a motion to

compel arbitration and to stay the action pending arbitra-

tion. At a hearing on April 4, 1988, I held that an enforce-

able arbitration agreement existed and that the motion

should be granted as to the securities claims, but that the

ERISA claims were not subject to compulsory arbitration.

On August 23, 1988 the defendants filed a notice of appeal

as to the ruling on the ERISA claims, and on March 28,

1989, the Court of Appeals for the Second Circuit affirmed

that ruling, having considered the issue de novo, 871 F.2d

292, 294 n. 4 ("A denial of a motion to compel arbitration

is subject to de novo review. [citation omitted]"). The

Supreme Court, on October 10, 1989, vacated by sum-

mary order the Court of Appeals’ judgment and remanded

the cause for reconsideration in light of Rodriguez. 110

S.Ct. 225 (1989). On January 19, 1990, the Court of

Appeals, in turn, remanded the case to this court “with

directions to proceed in accordance with the mandate of

the Supreme Court.’

4A

Discussion

Rodriguez does not alter the basic framework, set out

in Shearson/American Express, Inc. v. McMahon, 107 S.Ct.

2332 (1987), within which issues of arbitrability are deter-

mined. “The Federal Arbitration Act, 9 U.S.C. § 1 et seq.,

provides the starting point . . . [and t]he burden is on

the party opposing arbitration . . . to show that Congress

intended to dreclude a waiver of judicial remedies. . .

Id. at 2337. Such congressional intent “ ‘will be deducible

from [the statute's] text or legislative history; or from an

inherent conflict between arbitration and the statute's

underlying purposes.” Id. (citations omitted; brackets in

original).

This court has been authorized and directed only to

reconsider its decision in this case in light of Rodriguez.

While Rodriguez overruled Wilko v. Swan, 346 U.S. 427

(1953), it confirmed, rather than departed from, the

Court's other recent decisions about arbitrability. Wilko

had found claims under the Securities Act of 1933 not to

be subject to compulsory arbitration. During the last

decade, the Court has recognized arbitration as a legiti-

mate alternative to formal litigation and has been less

willing to find federal statutory rights exempt from

arbitration agreements. As the Court noted in Rodriguez,

[t]he shift in the Court's views on arbitration away

from those adopted in Wilko is shown by the flat

statement in Mitsubishi [Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)]:

"By agreeing to arbitrate a statutory claim, a party

does not forego the substantive rights afforded by

the statute; it only submits to their resolution in

an arbitral, rather than a judicial, forum.’

5A

109 S.Ct. at 1920. Other cases besides Mitsubishi con-

firmed this change in perspective. See Moses H. Cone

Memorial Hospital v. Mercury Construction Corp., 460 U.S.

1, 24 (1983); Dean Witter Reynolds Inc. v. Byrd, 470 U.S.

213, 221 (1985).

While Wilko was not formally overruled until

Rodriguez, the anti-arbitration perspective underlying

Wilko had been discredited by McMahon, supra. In

McMahon, the Court explained that changing conditions

cast doubt on the earlier decision:

(T]he mistrust of arbitration that formed the basis

for the Wilko opinion in 1953 is difficult to square

with the assessment of arbitration that has

prevailed since that time. .. . Even if Wilko's

assumptions regarding arbitration were valid at the

time Wilko was decided, mos! certainly they do not

hoid true today for arbitration procedures subject

to the SEC's oversight authority.

107 S.Ct. at 2341. In fact, the Court explicitly noted that

it was limiting Wilko and disapproved of that case's

holding, “While stare decisis concerns may counsel against

upsetting Wilko's [result] under the Securities Act, we

refuse to extend Wilko's reasoning to the Exchange Act

in light of these intervening regulatory developments.’ /d.

Given how strongly Wilko was already disfavored at

the time the instant case was first considered, I am not

persuaded that a different result should be reached in light

of Rodriguez. The first prong of the analysis under

McMahon, whether the text and legislative history of

ERISA preclude arbitration, is not significantly affected

by Rodriguez. In holding that ERISA claims for breach of

6A

fiduciary duty are not arbitrable, the Court of Appeals

found ERISA’s generous provisions for access to the fed-

eral courts “persuasive evidence that Congress intended

disputes under the statute to be resolved in a federal judi-

cial forum.” Bird, 871 F.2d at 297. Rodriguez arguably

makes that evidence somewhat less persuasive, because

the 1933 Act — which Rodriguez found arbitrable — con-

tains similar provisions to preserve access to federal

courts.” However, at least two other statutes with provi-

sions for increased access to the federal courts, the Secu-

rities Exchange Act of 1934 and the antitrust laws,’ had

already been found arbitrable, so the impact of Rodriguez

is only marginal. That decision does not disturb the Court

of Appeals’ assessment that "Federal court access for pen-

sion claimants and beneficiaries was explicitly included

[by Congress] as a key ingredient of [ERISA.|" 871 F.2d

at 297.

Turning to the second prong of the McMahon test, the

overruling of Wilko does not alter the Court of Appeals’

basic assessment that ERISA — when used to ensure

fiduciary duties as opposed to enforcing the provisions

of a specific plan — is a “remedial statute designed to curb

* See 15 U.SC. § 77v{a} (1933 Act provisions) and 29 U.S.C

§ 1132 (ERISA provisions).

* See McMahon, supra, and Mitsubishi supra; see generall)

Shell, “ERISA and Other Federal Employment Statutes: When

Is Commercial Arbitration an Adequate Substitute for the

Courts?” 68 Texas Law Review 509, 557 (1990) ("The special

procedural protections ERISA provides claimants are not

unique to the statute and do not answer the question of

arbitrability. . . ").

7A

abuses of employee pension and welfare benefit

plans by establishing minimum federal standards: " 871

F.2d at 296-97 (relying on statutory language).

Rodriguez also does not alter the Court of Appeals’

proper reliance on Alexander v. Gardner-Denver Co., 415

U.S. 36 (1974) and McDonald v. City of West Branch, 466

U.S. 284 (1984) for the proposition that “[w]hen enacting

remedial legislation, Congress has limited or prohibited

waiver of a judicial forum. Most often these injunctions

occur in statutes designed to provide minimum substan-

tive guarantees’ Id. at 295. Finally, because Rodriguez does

not alter the character of ERISA or the general rule that

such federal minimum substantive guarantees are not

suitable for arbitration, it does not alter the conclusion

that ERISA claims for breach of fiduciary duty (as opposed

to ERISA claims for benefits under the provisions of a par-

ticular plan) are not subject to compulsory arbitration.

CONCLUSION

Accordingly, this court finds that the ERISA claims are

not subject to compulsory arbitration and the Motion for

an Order Staying Proceedings Pending Arbitration 1s

DENIED.

It is so ordered.

Dated at New Haven, Connecticut this 16th day of

July, 1990.

S Jose A. Cabran: —

Jose A Cabrane ~

United States District Judge

8A

APPENDIX B

THE COURT: Thank you. Please be seated.

The Court is prepared to rule now on the pending

Motion to Compel Arbitration, based upon a consideration

of the full record in this case, including the arguments

of counsel at today's hearing.

In Shearson/American Express, Inc. v. McMahon, 107

S.Ct. 2332 (1987), the Supreme Court reaffirmed that The

Federal Arbitration Act, 9 U.S.C. sections 1 et seq.,

“standing alone, mandates enforcement of agreements to

arbitrate statutory claims.’ Id. at 2337.

Our Court of Appeals has set forth the issues to be

addressed by a district court upon a motion to compel

arbitration: “first, (the court) must determine whether the

parties agreed to arbitrate . . .; second, it must deter-

mine the scope of that agreement; third, if federal statu-

tory claims are asserted, it must consider whether

Congress intended those claims to be nonarbitrable . . .;

and fourth, if the court concludes that some, but not all,

of the claims in the case are arbitrable, it must then deter-

mine whether to stay the balance of the proceedings

pending arbitration.’ Genesco, Inc. v. T. Kakiuchi & Co.,

Ltd., 815 F.2d 840, 844 (2d Cir. 1987).

As to the first factor — whether the parties agreed to

arbitrate — plaintiffs contend that, as Trust participants

and beneficiaries, they did not sign the Customer Agree-

ment and thus were not parties to the arbitration

agreement.

9A

As Trustee, however, Frank L. Bird had the authority

to bind the participants and beneficiaries to arbitration

of ‘any controversy arising out of or relating to’ the Trust

Account. See Barrowclough v. Kidder, Peabody & Co., Inc.,

752 F.2d 923, 938 (3d Cir. 1985) (observing that "a variety

of non-signatories of arbitration agreements have been

held to be bound by such agreements under ordinary

common law contract and agency principles"); Fisser v.

International Bank, 282 F.2d 231, 233-34 (2d Cir. 1960);

Steinberg v. Illinois Co., Inc., 635 F.Supp. 615, 617 (N.D.

Ill. 1986).

The Court finds, therefore, that plaintiffs agreed to

arbitrate.

The second issue to be addressed is the scope of the

agreement. The final sentence of the arbitration provi-

sion reads:

“This agreement to arbitrate does not apply to any con-

troversy with a public customer for which a remedy may

exist pursuant to an expressed or implied right of action

under certain of the federal securities laws

Relying on this final sentence, plaintiffs contend that

their claims brought under the federal securities laws,

namely section 10(b) of the Securities Exchange Act of

1934, 15 U.S.C. section 78) and Rule 10b-5 of the Securt-

ties and Exchange Commission, 17 C.F.R. section

240-10b-5, are not within the scope of the agreement.

The Court finds, however, that this provision of the

arbitration agreement was simply a disclosure statement

mandated by Rule 15c2-2 of the Securities and Exchange

Commission, 17 C.E.R. section 240.15c2-2. See Fisher v.

10A

Prudential-Bache Securities, Inc., 635 F.Supp. 234, 236-37

(D. Md. 1986); Finkle and Ross v. AG. Becker Paribas

Inc., 622 F.Supp. 1505, 1510 (S.D.N-Y. 1985).

The third factor to be considered is whether Congress

intended plaintiffs claims under section 10(b) and ERISA

to be nonarbitrable.

The United States Arbitration Act, 9 U.S.C. sections

1-14, consticutes “a congressional declaration of a liberal

federal policy favoring arbitration agreements.’ Moses H.

Cone Memorial Hospital v. Mercury Construction Corp.

460 US. 1, 24 (1983).

To override the Arbitration Act, the party opposing

arbitration must “show that Congress intended to preclude

a waiver of judicial remedies for the statutory rights at

issue.” McMahon, 107 S.Ct. at 2337. Such an intent may

be deduced from the statute's text or legislative history

or from an inherent conflict between arbitration and the

statute's underlying purpose. See id. The Supreme Court

has resolved the issue with respect to section 10(b) by

holding that agreements to arbitrate claims under that

Statute are enforceable. See id. at 2343.

With respect to statutory claims under ERISA

however, this Court comes to a different conclusion.

While recognizing that ‘any doubts concerning the scope

of arbitrable issues should be resolved in favor of arbitra-

bility, Moses H. Cone Memorial Hospital, 460 U.S. at

24-25, the Court nevertheless concludes that access to

a federal judicial forum is central to ERISA’ underlying

purpose to provide maximum protection to plan partici

pants and beneficiaries. See 29 USC. section 1001(b)

11A

(stating congressional policy to provide “ready access to

the Federal courts”); see aiso Borrowclough, 752 F.2d at

936 (holding that statutory claims are not arbitrable under

ERISA); Lewis v. Merrill Lynch, 431 FSupp. 271, 276

(E.D.Pa. 1977) (finding that “in passing ERISA Congress

intended to protect plan participants from arbitration and

similar agreements, often unilaterally imposed, which

‘snip and whittle’ at federally granted rights’).

This policy of “ready access” can also be discerned in

ERISA‘s provision for exclusive federal court jurisdiction

over claims alleging statutory violations and its liberal

rules governing service of process, venue, attorney fees

and statutes of limitation. See Murphy, The Impact of

ERISA on Arbitration, 32 Arb. J. 123, 129 (1977); see also

Schneider, Surviving ERISA Preemption: Pension Arbitra-

tion in the 1980's, 16 Columbia Journal of Law and Soc.

Prob. 193, 284-85 (1980).

Similar agreements to arbitrate have been held unen-

forceable under the antitrust laws, see American Safety

Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2d

Cir. 1968), and Title VII of the Civil Rights Act of 1964,

see Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974).

Accordingly, the Court holds that statutory claims

brought to enforce the fiduciary responsibility provisions

of ERISA are not subject to arbitration.

Finally, because the section 10(b) claims are subject

to arbitration and the ERISA claims are not, the Court

must determine whether to stay the federal proceedings

pending arbitration.

12A

In the interest of a speedy resolution to this con-

troversy, and because the section 10(b) and the ERISA

claims are not clearly identical and neither have any

necessary temporal priority over the other, the Court con-

cludes that the arbitration and the lawsuit should each

proceed in its normal course. See Dean Witter Reynolds,

Inc. v. Byrd, 470 U.S. 213, 221 (1985); Dimenstien v.

Whiteman, 759 F.2d 1514, 1517 (11th Cir. 1985); Stein-

berg, 735 F.Supp. at 620.

Accordingly, for the reasons already stated, defendants

motion to compel the section 10(b) claims is granted.

Defendants’ motion to compel the ERISA claims is

denied. The Motion to Stay Action Pending Arbitration

is also denied.

Finally, based upon a consideration of the full record

of this case, plaintiffs’ oral application for costs pursuant

to Federal Rules of Civil Procedure 11 is denied.

It is so ordered

We are adjourned.

>

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APPENDIX C

STATUTORY PROVISIONS INVOLVED

United States Arbitration Act

9 U.SC. § 2:

A written provision in any maritime transaction or a

contract evidencing a transaction involving commerce

to settle by arbitration a controversy thereafter arising

out of such contract or transaction, or the refusal to

perform the whole or any part thereof, or an agree-

ment in writing to submit to arbitration an existing

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 revocation of any contract.

9 U.SC. § 3:

If any suit or proceeding be brought in any of the

courts of the United States upon any issue referable

to arbitration under an agreement in writing for such

arbitration, the court in which such suit is pending,

upon being satisfied that the issue involved in such

suit or proceeding is referable to arbitration under

such an agreement, shall on application of one of the

parties stay the trial of the action until such arbitra-

tion has been had in accordance with the terms of the

agreement, providing the applicant for the stay is not

in default in proceeding with such arbitration.

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Employee Retirement Income Security Act

29 USC. § 1001. Congressional findings and decla-

ration of policy

(b) Protection of interstate commerce and

beneficiaries by requiring disclosure and

reporting, setting standards of conduct,

etc., for fiduciaries

It is hereby declared to be the policy of this chapter

to protect interstate commerce and the interests of par-

ticipants in employee benefit plans and their beneficiaries,

by requiring the disclosure and reporting to participants

and beneficiaries of financial and other information with

respect thereto, by establishing standards of conduct,

responsibility, and obligation for fiduciaries of employee

benefit plans, and by providing for appropriate remedies,

sanctions, and ready access to the Federal courts.

29 USC. § 1104. Fiduciary duties

(a) Prudent man standard of care

(1) Subject to sections 1103(c) and (d), 1342, and 1344

of this title, a fiduciary shall discharge his duties with

respect to a plan solely in the interest of the participants

and beneficiaries and -

(A) for the exclusive purpose of:

(i) providing benefits to participants and

their beneficiaries; and

(ii) defraying reasonable expenses of

administering the plan;

15A

(B) with the care, skill, prudence, and dili-

gence under the circumstances then prevailing

that a prudent man acting in a like capacity and

familiar with such matters would use in the con-

duct of an enterprise of a like character and with

like aims;

(C) by diversifying the investments of the plan

so as to minimize the risk of large losses, unless

under the circumstances it is clearly prudent not

to do so; and

{D) in accordance with the documents and

instruments governing the plan insofar as such

documents and instruments are consistent with

the provisions of this subchapter or subchapter II]

of this chapter.

(2) In the case of an eligible individual account plan

(as defined in section 1107(d)(3)} of this title), the diver-

sification requirement of paragraph (1)(C) and the pru-

dence requirement (only to the extent that it requires

diversification) of paragraph (1)(B) is not violated by acqui-

sition or holding of qualifying employer real property or

qualifying employer securities (as defined in section

1107(d)(4) and (5) of this title).

(b) Indicia of ownership of assets outside

jurisdiction of district courts

Except as authorized by the Secretary by regulation,

no fiduciary may maintain the indicia of ownership of

any assets of a plan outside the jurisdiction of the dis-

trict courts of the United States.

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(c) Control over assets by participant or beneficiary

In the case of a pension plan which provides for indi-

vidual accounts and permits a participant or beneficiary

to exercise control over the assets in his account, if a par-

ticipant or beneficiary exercises control over the assets

in his account (as determined under regulations of the

Secretary) —

(1) such participant or beneficiary shall not be

deemed to be a fiduciary by reason of such exercise,

and

(2) no person who is otherwise a fiduciary shall

be liable under this part for any loss, or by reason of

any breach, which results from such participant's or

beneficiary's exercise of control.

29 USC. § 1132. Civil enforcement

(e) Jurisdiction

(1) Except for actions under subsection (a)(1}(B) of this

section, the district courts of the United States shall have

exclusive jurisdiction of civil actions under this sub-

chapter brought by the Secretary or by a participant, bene-

ficiary, or fiduciary. State courts of competent jurisdiction

and district courts of the United States shall have con-

current jurisdiction of actions under subsection (a)(1)(B)

of this section.

(2) Where an action under this subchapter is brought

in a district court of the United States, it may be brought

in the district where the plan is administered, where the

breach took place or where a defendant resides or may

17A

be found, and process may be served in any other dis-

trict where a defendant resides or may be found.

29 USC. § 1144. Other laws

(d) Alteration, amendment, modification,

invalidation, impairment, or supersedure

of any law of United States prohibited

Nothing in this subchapter shall be construed to alter,

amend, modify, invalidate, impair, or supersede any law

of the United States (except as provided in sections 1031

and 1137(b) of this title) or any rule or regulation issued

under any such law.