Petition for Writ of Certiorari — Dean Witter Reynolds Inc. v. Coffey
Supreme Court brief1990
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89-1584 | wR mm
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In The
Supreme Court of the United States
October Term 1989
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DEAN WITTER REYNOLDS INC. and
JEFFREY HINES,
Petitioners,
FLORABELLE COFFEY,
Respondent.
>
4
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
—
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WituraM G. Imic
Counsel of Record for
Petitioners
NEAL S. COHEN
IRELAND, STAPLETON, PRYOR &
Pascog, P.C.
1675 Broadway, Suite 2600
Denver, Colorado 80202
(303) 623-2700
Attorneys for Petitioners
COCKLE LAW BRIEF PRINTING CO., (800) 225-6964
OR CALL COLLECT (402) 342-2831
JOSEPH F. SPANIOL, JR.
CLERK
QUESTION PRESENTED
Does rescinded Securities and Exchange Commission
Rule 15c2-2 invalidate an otherwise enforceable arbitra-
tion agreement?
‘
A.
RULE 29.1 LIST
Parent Companies
Dean Witter Reynolds Inc. is a wholly owned subsid-
iary of Dean Witter Financial Services Inc., which is a
wholly owned subsidiary of Dean Witter Financia]
Services Group Inc., which is a wholly owned sub-
sidiary of Sears, Roebuck and Co.
Subsidiaries (Except Wholly Owned Subsidiaries)
All Dean Witter Reynolds Inc. subsidiaries are wholly
owned.
iii
TABLE OF CONTENTS
Page
Se ee 6g oo 1) 0 er i
i eres se seg hess sherry ceNadeseeteenes li
pe ae Spy, 8 49 0 |. ee Vv
reese k tes sees ened enine cues 2
ee ere 2
Drees ree Bye INVOLVED...... 62.05.0000: 2
eg ae ie) Sy | eee 3
ARGUMENT FOR GRANTING THE WRIT......... 5
I. THE DECISION OF THE MAJORITY, WHILE IN
AGREEMENT WITH DECISIONS OF THE
THIRD AND NINTH CIRCUITS, IS IN CON-
FLICT WITH DECISIONS OF THE FOURTH,
FIFTH AND ELEVENTH CIRCUITS........... 7
Il. THE DECISION OF THE MAJORITY CON-
FLICTS WITH DECISIONS OF THIS COURT... 10
eee ia sae c ba ccs ene sed akWi neve 13
APPENDIX
Order of Court of Appeals of January 11, 1990... A-1
Opinion of Court of Appeals of December 5,
Ta EE Se ee eer A-3
EG ee ee A-19
LS ee A-20
ee ee A-22
Order of Court of Appeals of June 26, 1987..... A-23
TABLE OF CONTENTS - Continued
1986
United States Code, Title 9, § 2 (1988)
Code of Federal Regulations, Title 17,
Be eo ay ree
TABLE OF AUTHORITIES
Adrian v. Smith Barney, Harris, Upham & Co., Inc.,
B41 F.2d 1G58 CRUG Re Pole ccc ce edetinecess
Ahrberg v. Colton, [1988-1989 Transfer Binder] Fed.
Sec. L. Rep. (CCH) 993,910 (W.D. Okla. June 21,
1988)
Amodio v. Blinder, Robinson & Co., 715 F. Supp. 32
(D. Conn. 1989)
Antinoph v. Laverell Reynolds Securities, Inc., No.
88-3664 (E.D. Pa. Sept. 5, 1989) (LEXIS, Genfed
CRE, TIE Ties os ivi caucenersseseueeewennes
Ballay v. Legg Mason Wood Walker, Inc., 878 F.2d 729
(3d. Cir. 1989)
Berning v. A.G. Edwards & Sons, Inc., No. 89 C 6483
(N.D. Ul. Dec. 29, 1989) (LEXIS, Genfed library,
Dist file)
Church v. Gruntal & Co., Inc., 698 F. Supp. 465
(S.D.N.Y. 1988)
Dale v. Prudential-Bache Securities Inc., 719 F. Supp.
1164 (E.D.N.Y. 1989)
Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213
(1985)
DeKuyper v. A.G. Edwards & Sons, Inc., 695 F. Supp.
a7 )) Comm. 90)... eee ee
DiNatale v. Shearson Lehman Hutton, Inc., [Current]
Fed. Sec. L. Rep. (CCH) 994,956 (S.D.N.Y. Feb.
15, 1990)
Saveescee ae P06 + Oo 2S e oF SA SS OPC EO OO. 6 ES 2 4A. OES T.F.9 8 2 2
eG eee OPCe see CHOP RSC ECR BEEBE EO Y. 2B Be
ee ee oe oe a a ea Oe ee ee ee ee ae ee we ee ae
Latter ta et 2 eee ee ee ee i a er er ee ee ee ee ee ee ee ey er ee
vl
TABLE OF AUTHORITIES - Continued
Page
Esposito v. Hyer, Bikson & Hinsen, Inc., 709 F. Supp.
Cee te TO. TRUE 0 sess canes eee 7
Federal Ins. Co. v. Mallardi, 696 F. Supp. 875
GON. 8 POE 6 svn On veees¥evensareutineie 7
Giles v. Blunt, Ellis & Loewi, Inc., 845 F.2d 131 (7th
SM SUE ks vaeeneas eeceesns5'seest2 ee 10
Gonick v. Drexel Burnham Lambert, Inc., 711 F.
supp. O61 CNB. el, FOUR ce cccdistevisten cies 6
Gooding v. Shearson Lehman Bros. Inc., 878 F.2d 281
CHa SO WOE os cee as ccna encubeeeeweneeenscureees 9
Gugliotta v. Evans & Co., Inc., 690 F. Supp. 144
LEEAIG. Wy FORE cv ixcyunanabaresweneases Selena eenl 7
Haver v. B. C. Christopher Securities Co., No.
88-1194-K (D. Kan. Mar. 7, 1989) (LEXIS, Genfed
BUUREN, COME TEND os sco sv nrc cde aceeeeuneareinencie 6
lacono, M.D., Inc. v. Drexel Burnham Lambert, Inc.,
Fis ©. Sepp. 16 CRE. Oe cbse cae eeceseusaeuese 6
Ingels v. PaineWebber Inc., No. 88-2466 (D. Kan.
Mar. 20, 1989) (LEXIS, Genfed library, Dist file) ..... 6
Jeske v. Brooks, 875 F.2d 71 (4th Cir. 1989) .......... 8, 9
Kadow v. A.G. Edwards & Sons, Inc., 721 F. Supp.
Spe SWNAM GER, TOP 8000 6s pe kace eee en eenee eens 6
Karol v. Bear Stearns & Co., Inc., 708 F. Supp. 199
AUNGP. EE, TOOOP s+ isa ven hue S kau eee ee an eaeane eer 6
Kayne v. PaineWebber Inc., 703 F. Supp. 1334 (N.D.
Si: SEE 3.6 Vda wabs ons one oe gears ene Ea 6
Kazan v. Legg Mason Wood Walker, Inc., No. 88-4085
(E.D. Pa. Dec. 9, 1988) (LEXIS, Genfed library,
SPMe TONED svn dns epee anee eee ee Ree eee eee 6
Ketchum v. Almahurst Bloodstock IV, 685 F. Supp.
Faw UA FR. TR a kos eves ae etek eon eee 7
vii
TABLE OF AUTHORITIES - Continued
Page
McCowan v. Dean Witter Reynolds, Inc., 682 F. Supp.
FEL. GRE DVO vckcbacasvnresusereer ieee 7
Mignocchi v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 707 F. Supp. 140 G.D.N.Y. 1909) ....02 60 eeeess 6
Ottenritter v. Shearson Lehman Hutton, Inc., 727 F.
Supp. 960 (D. DAG. 1909)... 6 ccc cececvveceneseceses 6
Paulson v. Dean Witter Reynolds, Inc., 708 F. Supp.
LEGS Gy GR Wo oc cde cevessnversvesvavusisxess 6
Peoples Fed. Savings & Loan Assn. v. Mortgage Govt.
Securities, Inc., No. 87-3859 (E.D. La. May 4,
1988) (LEXIS, Genfed library, Dist file)............. 7
Peterson v. Shearson/American Express, Inc., 849 F.2d
S66 CHOU COE, FOOD. ix cece vin needs se basdnn toxseee's 8
Reed v. Bear, Stearns & Co., 698 F. Supp. 835 (D.
Rate: TO oun cas venedcceesesccsanausehaeeatsares 7
Rodriguez de Quijas v. Shearson/American Express,
fac.. 100 SAX. TOUT CIPRGD... oo eecneceisves S, @ Tt, ta
Scher v. Bear Stearns & Co., Inc., 723 F. Supp. 211
CS.DiPLY. SOG os vac vce savcsnvpbesvavvess esters tes 6
Seres v. Drexel Burnham Lambert Inc., No.
CV88-0628-PA (D. Or. Oct. 31, 1988) (LEXIS,
Genfed library, Dist file)... .....cccccessuceveresess 6
Shearson/American Express Inc. v. McMahon, 482
CF See COMO cc eetseulaevsaeseevneees 438 01,2
Shirl v. Drexel Burnham Lambert Inc., [1989 Transfer
Binder] Fed. Sec. L. Rep. (CCH) 994,467 (D
Minn. May 26, T1908). 2... ..scesnccvcsescsescevesess 6
Stander v. Financial Clearing & Services Corp., 718 F.
Supp. 1204 G.DN.Y. 1909). ..6. cc cccwseaestensestens 6
viii
TABLE OF AUTHORITIES —- Continued
Page
Van Ness Townhouses v. Mar Industries Corp., 862
F.2d 754 (9th Cir. 1989)........ 4 A arr ee 9
Villa Garcia v. Merrill Lynch, Pierce, Fenner & Smith
Inc., G33-F.2a S45 Gite Cie. W9G7).. eee cc cer eves . 8
Wehe v. Montgomery, 711 F. Supp. 1035 (D. Or.
SEER RED ern SPE Sh rT errr rrr Ty 6
Wilkerson v. J.C. Bradford & Co., {1989 Transfer
Binder] Fed. Sec. L. Rep. (CCH) 994,519 (W.D.
Ry. Ape. 6, THOR) occ cccccccscccvereensesssveruces 6
Wilko v. Swan, 346 U.S. 427 (1953)...........505-- 11, 12
STATUTES AND RULES
fit fal 2 RE eer eer Ty Trent crn pee 2
Leis Same & | ht | eeereerereer rere er reece 2
2B USA. © TRG) Cae 6 koe co ve devtcereseceses tess 2
y RE oe eo rere er Terr errr re 4
Rule 15¢c2-2, 17 C.FR. § 240.15c2-2 (1987), res-
cinded, 52 Fed. Reg. 39,216 (effective October 21,
gy NR RI Op Papa pee ey are Se MP er ee ae passim
Rule 10b-5, 17 C.F.R. § 240.10b-5 (1989)............ 2, 4
S2 Fed. Rew: FI216 (IGG) 6 ccc ec ccccccsesaracetenss 2
ADDITIONAL AUTHORITIES
Recourse to the Courts Notwithstanding Arbitra-
tion Clauses in Broker-Dealer Customer Agree-
ments, Exchange Act Release No. 20,397
[1983-1984 Transfer Binder] Fed. Sec. L. Rep.
(CCH) 783,452 (November 18, 1983) ............ , 1
No.
y%
vw
In The
Supreme Court of the United States
October Term 1989
4
bf
DEAN WITTER REYNOLDS INC. and
JEFFREY HINES,
Petitioners,
FLORABELLE COFFEY,
Respondent.
,
———
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
a
» 4
Dean Witter Reynolds Inc. and Jeffrey Hines (“Dean
Witter”) respectfully request that a writ of certiorari be
issued to review a decision of the United States Court of
Appeals for the Tenth Circuit, entered on December 5,
1989 and modified on January 11, 1990. Over a strong
dissent, the majority opinion reversed the Order of the
United States District Court for the District of Colorado
confirming an arbitration award in favor of Dean Witter
and against Florabelle Coffey (“Coffey”). Pursuant to an
arbitration agreement between the parties, the District
Court had previously ordered arbitration of Coffey’s
claim under § 10(b) of the Securities Exchange Act of
1934, 15 U.S.C. § 78j(b) (1982), and Securities and Ex-
change Commission (“SEC”) Rule 10b-5, 17 C.F.R.
240.10b-5 (1989).
y™
—
OPINIONS BELOW
The opinion of the United States Court of Appeals for
the Tenth Circuit is reported at 891 F.2d 261 (10th Cir.
1989), and is reproduced in the Appendix at A-3. The
orders of the United States District Court for the District
of Colorado are not reported and are reproduced in the
Appendix at A-19 and A-22.
a
7
JURISDICTION
The judgment of the Court of Appeals was entered
on December 5, 1989. (Appendix A-3.) Upon Dean Wit
ter’s Petition for Rehearing, the modifying order of the
Court of Appeals was entered on January 11, 1990
pendix A-1.) This Court’s jurisdiction is invoked under 28
U.S.C. § 1254(1) (1982).
,
4
STATUTE AND RULE INVOLVED
Section 2 of the Federal Arbitration Act, 9 U.S.¢
(1989), and SEC Rule 15c2-2, 17 C.F.R. § 240.15c2-2 (1987
rescinded, 52 Fed. Reg. 39,216 (effective October 21, 1
are reproduced in the Appendix at A-31.
—— &»
i
STATEMENT OF THE CASE
On April 28, 1983, Coffey executed a Customer’s
Agreement with Dean Witter which provided for the
arbitration of any controversy arising out of or relating to
any securities account opened by Coffey with Dean Wit-
r. The agreement provided, in part:
2. Whenever any rule or regulation shall be
proscribed or promulgated by . . . the Federal
Securities and Exchange Commission . . . which
shall affect in any manner or be inconsistent
with any of the provisions hereof, the provisions
of this agreement so affected shall be modified
or superseded, as the case may be, by such
.. rule or regulation, and all other provisions of
the agreement and the provisions as so modified
or superseded, shall in all respects continue to
be in full force and effect.
* * *
16. Any controversy between [Dean Witter]
and the undersigned arising out of or relating to
this contract or the breach thereof, shall be set-
tled by arbitration...
On November 18, 1983, the SEC announced its adop-
1 of 17 C_F.R. 240.15c2-2 (1987). Recourse to the Courts
twithstanding Arbitration Clauses in Broker-Dealer
stomer Agreements, Exchange Act Release No. 20,397
83-1984 Transfer Binder] Fed. Sec. L. Rep. (CCH)
“ 83,452 (Nov. 18, 1983). Rule 15c2-2 required broker-
dealers to disclose to public customers that arbitration
A
igreements do not preclude judicial recourse for federal
securities law claims.
On September 4, 1984, Coffey and her husband
Opened a joint securities account with Dean Witter. A
dispute arose, and, on October 15, 1985, Coffey filed her
Complaint in the United States District Court for the
District of Colorado asserting a Rule 10b-5 claim and five
pendent state law claims. The District Court’s jurisdiction
over Coffey’s Rule 10b-5 claim was based on 28 U.S.C.
§ 1331 (1982). The District Court dismissed the pendent
state law claims, and denied Dean Witter’s motion to
compel arbitration of the Rule 10b-5 claim. (Appendix
A-24.) Dean Witter appealed the denial of the motion to
compel arbitration to the United States Court of Appeals
_ for the Tenth Circuit.
While that appeal was pending, this Court decided
Shearson/American Express Inc. v. McMahon, 482 U.S. 220
(1987). The Court of Appeals granted Dean Witter’s mo-
tion to remand the case to the District Court for recon-
sideration of the motion to compel arbitration of the Rule
10b-5 claim. (Appendix A-23.) On July 7, 1987, relying on
McMahon, the District Court ordered the claim to arbitra-
tion. (Appendix A-22.)
As a result of the McMahon decision, the SEC res-
cinded Rule 15c2-2 effective October 21, 1987. 52 Fed.
Reg. 39,216.
On June 8, 1988, following the arbitration of Coffey’s
claims, an arbitration award issued in favor of Dean
Witter. On July 27, 1988, the United States District Court
confirmed the award, denied Coffey’s motions to vacate,
and entered judgment against Coffey. (Appendix A-19.)
On August 24, 1988, Coffey appealed the District
Court’s decision to the United States Court of Appeals for
the Tenth Circuit. On December 5, 1989, the Court of
Appeals reversed the decision of the District Court. (Ap-
pendix A-3.) On January 11, 1990, upon Dean Witter’s
Petition for Rehearing, the Court of Appeals modified its
opinion to state that the Court did not address the state
law claims which were also arbitrated. (Appendix A-1.)
hp
-_
ARGUMENT FOR GRANTING THE WRIT
The Tenth Circuit decision invokes SEC Rule 15c2-2
to invalidate the otherwise enforceable arbitration agree-
ment between the parties. The decision relies on holdings
of the Third and Ninth Circuits, which directly conflict
with decisions of the Fourth, Fifth and Eleventh Circuits,
as well as with decisions of this Court. The majority
opinion ignores the strong Congressional and judicial
policy which favors arbitration. The decision permits an
investor who signed an arbitration agreement either prior
to or during the pendency of Rule 15c2-2 to void the
agreement, notwithstanding that the rule was rescinded
by the SEC because it was contrary to a decision of this
Court.
The majority opinion reflects an outdated judicial
mistrust of arbitration. This case presents the Court with
the opportunity to resolve significant and recurring ques-
tions regarding the effect of the promulgation and rescis-
sion of Rule 15c2-2 on the arbitrability of federal
securities law claims. These questions, left open in Shear-
son/American Express Inc. v. McMahon, 482 U.S. 220 (1987)
and Rodriguez de Quijas v. Shearson/American Express, Inc.,
109 S.Ct. 1917 (1989), have divided the federal circuits
and the district courts. The issue is uf the utmost impor-
tance because it is consuming significant judicial time, as
evidenced by at least 32 United States District Court
decisions which, since the rescission of Rule 15c2-2, have
wrestled with its effect on arbitration agreements.’ A writ
1 See DiNatale v. Shearson Lehman Hutton, Inc., [Current]
Fed. Sec. L. Rep. (CCH) ] 94,956 (S.D.N.Y. Feb. 15, 1990);
Berning v. A.G. Edwards & Sons, Inc., No. 89 C 6483 (N.D. Ill.
Dec. 29, 1989) (LEXIS, Genfed library, Dist file); Ottenritter v.
Shearson Lehman Hutton, Inc., 727 F. Supp. 980 (D. Md. 1989);
Scher v. Bear Stearns & Co., Inc., 723 F. Supp. 211 (S.D.N.Y.
1989); Kadow v. A.G. Edwards & Sons, Inc., 721 F. Supp. 201
(W.D. Ark. 1989); Antinoph v. Laverell Reynolds Securities, Inc.,
No. 88-3664 (E.D. Pa. Sept. 5, 1989) (LEXIS, Genfed library, Dist
file); Dale v. Prudential-Bache Securities Inc., 719 F. Supp. 1164
(E.D.N.Y. 1989); Stander v. Financial Clearing & Services Corp.,
718 F. Supp. 1204 (S.D.N.Y. 1989); Amodio v. Blinder, Robinson &
Co., 715 F. Supp. 32 (D. Conn. 1989); Iacono, M.D., Inc. v. Drexel
Burnham Lambert, Inc., 715 F. Supp. 18 (D.R.I. 1989); Shirl v.
Drexel Burnham Lambert Inc., [1989 Transfer Binder] Fed. Sec. L.
Rep. (CCH) {| 94,467 (D. Minn. May 24, 1989); Wilkerson v. J.C.
Bradford & Co., [1989 Transfer Binder], Fed. Sec. L. Rep. (CCH)
{| 94,519 (W.D. Ky. Apr. 6, 1989); Ingels v. PaineWebber Inc., No.
88-2466 (D. Kan. Mar. 20, 1989) (LEXIS, Genfed library, Dist
file); Haver v. B. C. Christopher Securities Co., 88-1194-K (D. Kan.
Mar. 7, 1989) (LEXIS, Genfed library, Dist file); Paulson v. Dean
Witter Reynolds, Inc., 708 F. Supp. 1163 (D. Or. 1989); Karol v.
Bear Stearns & Co., Inc., 708 F. Supp. 199 (N.D. Ill. 1989);
Mignocchi v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 707 F.
Supp. 140 (S.D.N.Y. 1989); Wehe-v. Montgomery, 711 F. Supp.
1035 (D. Or. 1989); Kayne v. PaineWebber Inc., 703 F. Supp. 1334
(N.D. Ill. 1989); Gonick v. Drexel Burnham Lambert, Inc., 711 F.
Supp. 981 (N.D. Cal. 1988); Kazan v. Legg Mason Wood Walker,
Inc., No. 88-4085 (E.D. Pa. Dec. 9, 1988) (LEXIS, Genfed library,
Dist file); Seres v. Drexel Burnham Lambert Inc.,
(Continued on following page)
should issue to enable this Court to resolve these conflicts
and questions.
I. THE DECISION OF THE MAJORITY, WHILE IN
AGREEMENT WITH DECISIONS OF THE THIRD
AND NINTH CIRCUITS, IS IN CONFLICT WITH
DECISIONS OF THE FOURTH, FIFTH AND ELEV-
ENTH CIRCUITS.
The Tenth Circuit opinion recognizes that Dean Wit-
ter and Coffey intended that Coffey’s claims be arbi-
trated. (Appendix A-7.) The majority opinion nonetheless
invalidates the arbitration agreement by concluding that
Coffey had a “reasonable expectation, based on the clear,
unequivocal language of the Rule 15c2-2-mandated mod-
ification of the arbitration clause, that she could litigate
federal securities law claims under the joint account.”
(Appendix A-12.) In so concluding, the majority rejects
the decisions of three other federal circuits.
(Continued from previous page)
No. CV88-0628-PA (D. Or. Oct. 31, 1988) (LEXIS, Genfed li-
brary, Dist file); Church v. Gruntal & Co., Inc., 698 F. Supp. 465
(S.D.N.Y. 1988); Esposito v. Hyer, Bikson & Hinsen, Inc., 709 F.
Supp. 1020 (D. Kan. 1988); Reed v. Bear, Stearns & Co., 698 F.
Supp. 835 (D. Kan. 1988); Federal Ins. Co. v. Mallardi, 696 F.
Supp. 875 (S.D.N.Y. 1988); Ahrberg v. Colton, [1988-1989 Trans-
fer Binder] Fed. Sec. L. Rep. (CCH) ¥ 93,910 (W.D. Okla. June
21, 1988); Gugliotta v. Evans & Co., Inc., 690 F. Supp. 144
(E.D.N.Y. 1988); Peoples Fed. Savings & Loan Assn. v. Mortgage
Govt. Securities, Inc., No. 87-3859 (E.D. La. May 4, 1988) (LEXIS,
Genfed library, Dist file); Ketchum v. Almahurst Bloodstock IV,
685 F. Supp. 786 (D. Kan. 1988); McCowan v. Dean Witter Re-
ynolds, Inc., 682 F. Supp. 741 (S.D.N.Y. 1987); DeKuyper v. A.G.
Edwards & Sons, Inc., 695 F. Supp. 1367 (D. Conn. 1987).
In Villa Garcia v. Merrill Lynch, Pierce, Fenner & Smith
Inc., 833 F.2d 545, 547 (5th Cir. 1987), the Fifth Circuit
recognized that enforcement of agreements to arbitrate
does not undermine any substantive rights afforded by
the federal securities laws. Accordingly, it applied the
rescission of Rule 15c2-2 retroactively under “the usual
rule that federal cases should be decided in accordance
with the law as it exists at the time of the decision.”* This
Court employed the same rule of review in holding that
its decision in Rodriguez de Quijas v. Shearson/American
Express, Inc. applied retroactively to the facts of that
case.3
The decisions in Adrian v. Smith Barney, Harris, Upham
& Co., Inc., 841 F.2d 1059 (11th Cir. 1988) and Jeske v.
Brooks, 875 F.2d 71 (4th Cir. 1989) followed Villa Garcia. In
Jeske, the court concluded that application of the usual
rule of retroactivity did not disrupt the customer’s course
of conduct or reasonable expectations because he could
not have relied on Rule 15c2-2. Like Coffey, Jeske signed
the Customer’s Agreement before the rule was enacted.
The court found that there was no evidence that the
customer would not have signed the agreement if he
foresaw that all federal securities law claims would be
arbitrable. Moreover, it concluded, as did this Court, that
2 Another panel of the Tenth Circuit recognized the appli-
cation of the general rule to questions concerning the arbitra-
tion of federal securities law claims in Peterson v. Shearson/
American Express, Inc., 849 F.2d 464 (10th Cir. 1988). That panel
held that this Court’s decision in McMahon should be retroac-
tively applied to require arbitration of the plaintiff’s Rule 10b-5
claim.
3 Rodriguez de Quijas, 109 S.Ct. 1917, 1922 (1989).
a party’s preference for litigation over arbitration “ ‘does
not rise to the level of a substantive right.’ “4 Likewise,
the dissenting Tenth Circuit opinion in this case con-
cludes that “[t]here is nothing in the record to support
this court’s decision that plaintiff-appellant has a reason-
able expectation in the continued application of a now
incorrect view of tho law.” (Appendix A-16.)
The majority opinion in this case relies on the deci-
sions of the Third and Ninth Circuits.5 (Appendix A-12.)
Those decisions upheld a customer’s right to litigate rath-
er than arbitrate federal securities law claims. They relied
on the language of the arbitration agreements involved in
those cases which expressly precluded arbitration of fed-
eral securities law claims.® In each of those cases, the
arbitration provisions were drafted and executed after
4 Jeske, 875 F.2d at 75.
5 Ballay v. Legg Mason Wood Walker, Inc., 878 F.2d 729 (3d
Cir. 1989); Gooding v. Shearson Lehman Bros., Inc., 878 F.2d 281
(9th Cir. 1989); and Van Ness Townhouses v. Mar Industries Corp.,
862 F.2d 754 (9th Cir. 1989).
6 The arbitration provision at issue in Ballay included the
following sentence: “However, I am aware that this arbitration
is not binding upon me in any dispute or controversy that
arises under the federal securities laws, and, in such cases, |
may seek resolution through litigation in the courts.” 878 F.2d
at 731, n.1. In Gooding, the arbitration provision included a
slightly different exclusionary provision. “This agreement to
arbitrate does not apply to any controversy with a public
customer for which a remedy may exist pursuant to an express
or implied right of action under certain of the federal securities
laws.” 878 F.2d at 283. The identical sentence was part of the
arbitration agreement in Van Ness Townhouses, 862 F.2d at 756.
10
Rule 15c2-2 was enacted and contained language which
comports with the Rule.”
While the arbitration provision at issue in this case
does not contain exclusionary language, the majority
opinion finds that “from a private contractual rather than
a public regulatory perspective” (Appendix A-10), the
arbitration agreement was modified by the rule because
the “notice required by Rule 15c2-2 added a new para-
graph to the parties’ contract.” (Appendix A-12.) How-
ever, if such analysis is correct, then the agreement was
modified again when the rule was rescinded.
While the Fourth, Fifth and Eleventh Circuits give
retroactive effect to the rescission of the rule on the
ground that no substantive rights are prejudiced, the
Third, Ninth and Tenth Circuits conclude that customers
have the contractual right to litigate federal securities law
claims by virtue of either the language of the arbitration
agreement or the rule-mandated modification.
Il. THE DECISION OF THE MAJORITY CONFLICTS
WITH DECISIONS OF THIS COURT.
Rule 15c2-2, entitled “Disclosure regarding recourse
to the courts notwithstanding arbitration clauses in
broker-dealer customer agreements,” was a disclosure
regulation requiring broker-dealers to disclose to their
7 See also Giles v. Blunt, Ellis & Loewi, Inc., 845 F.2d 131 (7th
Cir. 1988) (where the Seventh Circuit affirmed the lower
court’s denial of a motion to compel arbitration because the
language of the arbitration provision expressly excluded
claims based solely on federal securities laws).
11
public customers that they had a right to litigate federal
securities law claims notwithstanding predispute arbitra-
tion agreements. The SEC stated that the purpose of the
rule was “to ensure that public customers are not misled
concerning such recourse.”® The Rule was “ ‘premised on
the Commission’s assumption, based on court of appeals
decisions following [Wilko v. Swan, 346 U.S. 427
(1953)] .. . that agreements to arbitrate Rule 10b-5 claims
were not, in fact, enforceable.’ “9 The SEC’s assumption,
however, was incorrect.
Beginning with Dean Witter Reynolds Inc. v. Byrd, 470
U.S. 213 (1985), this Court has consistently upheld agree-
ments to arbitrate securities claims. The Court recognized
that the “competence of arbitral tribunals” and the “de-
sirability of arbitration” can no longer be questioned.!°
After the McMahon decision, the SEC recognized that
Rule 15c2-2 conflicted with the intent of Congress and
decisions of this Court. Accordingly, it rescinded the rule.
This Court subsequently reversed Wilko and upheld the
arbitrability of all federal securities law claims.'! “To the
8 Recourse to the Courts Notwithstanding Arbitration
Clauses in Broker-Dealer Customer Agreements, Exchange Act
Release No. 20,397 [1983-1984 Transfer Binder] Fed. Sec. L.
Rep. (CCH) 4 83,452 at 86,356 (Nov. 18, 1983) (emphasis ad-
ded).
9 Shearson/American Express Inc. v. McMahon, 482 U.S. 220,
234 n.3 (1987).
10 Id. at 226.
'! Rodriguez de Quijas v. Shearson/American Express, Inc.,
109 S.Ct. 1917 (1989).
12
extent that Wilko rested on suspicion of arbitration as a
method of weakening the protections afforded in the
substantive law to would-be complainants, it has fallen
far out of step with our current strong endorsement of the
federal statutes favoring this method of resolving dis-
putes.” 12
The decision reflected in the Tenth Circuit majority
opinion is in conflict with this Court’s decisions uphold-
ing arbitration as an acceptable alternative to a judicial
forum. The majority’s opinion holds that even “if Dean
Witter never sent the required notice, its action constitut-
ed a violation of Rule 15c2-2 and We will not allow it to
profit from its transgression.” (Appendix A-13.) As this
Court has stated,
[t]he mistrust of arbitration that formed the ba-
sis 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, most certainly they
do not hold true today for arbitration pro-
cedures subject to the SEC’s oversight authori-
ty. 13
Moreover, in Rodriguez de Quijas, this Court said that
“‘Ibly agreeing to arbitrate a statutory claim, a party
does not forgo the substantive rights afforded by the
statute; it only submits to their resolution in an arbitral,
rather than a judicial, forum.’ ”'4 Thus, under this Court's
12 Id. at 1920.
13, McMahon, 482 U.S. at 233.
14 Rodriguez de Quijas, 109 S.Ct. at 1920.
13
decisions, Coffey had a right to the protection of the
federal securities laws, but she did not have a statutory
right to have her claims determined exclusively in a
judicial forum. Accordingly, there is simply no basis for
the majority’s conclusion that Coffey had a “reasonable
expectation” that she could litigate federal securities law
claims. (Appendix A-12.)
é,
os
CONCLUSION
The Tenth Circuit’s majority decision resurrects not
only Rule 15c2-2, but also a mistrust of arbitration. This
Court and Congress have cleared away old doubts about
arbitration. The Tenth Circuit’s rejection of the jurispru-
dence established by this Court places a new cloud over
the arbitration process. This Court’s guidance is essential
to resolve the conflict among the Courts of Appeals and
to maintain the healthy environment created by this
Court’s unswerving commitment to enforce arbitration
agreements. For these reasons, a writ of certiorari should
issue to review the judgment and decision of the Court of
Appeals.
Respectfully submitted this 10th day of April, 1990.
Wituam G. Imic
Counsel of Record
for Petitioners
NeAL S. COHEN
IRELAND, STAPLETON, PRYOR
& Pascoeg, P.C.
1675 Broadway, Suite 2600
Denver, Colorado 80202
Telephone: (303) 623-2700
Attorneys for Petitioner
A-1
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
FLORABELLE COFFEY,
Plaintiff — Appellant,
V.
DEAN WITTER REYNOLDS, INC.,
a Delaware corporation;
JEFFREY HINES, an individual,
Defendants — Appellees,
L. IRVING COFFEY,
Third-party-defendant.
No. 88-2286
ORDER
Filed January 11, 1990
Before HOLLOWAY, Chief Judge, McKAY, LOGAN,
_SEYMOUR, MOORE, ANDERSON, TACHA, BALDOCK,
BRORBY and EBEL, Circuit Judges.
This matter comes on for consideration of appellees’
petition for rehearing and suggestion for rehearing en
banc.
Upon consideration whereof, the court’s opinion is
modified by adding the following sentence at the end of
footnote one: “The arbitration of state law issues is not
before us, and we express no opinion on that matter.”
The petition for rehearing is denied by the hearing
panel. Judge Baldock would grant rehearing.
A-2
In accordance with Rule 35(b) of the Federal Rules of
Appellate Procedure, the petition for rehearing and sug-
gestion for rehearing en banc were transmitted to all the
judges of the court in regular active service. No member
of the hearing -anel and no judge in regular active ser-
vice on the court naving requested that the court be
polled on rehearing en banc, Rule 35, Federal Rules of
Appellate Procedure, the suggestion for rehearing en
banc is denied.
Entered for the Court
/s/ Robert L. Hoecker,
ROBERT L. HOECKER, Clerk
A-3
PUBLISH
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
FLORABELLE COFFEY,
Plaintiff-Appellant,
V.
DEAN WITTER REYNOLDS, INC.,
a, Delaware corporation,
No. 88-2286
Defendant-Appellee,
JEFFREY HINES, an individual,
Defendant-Appellee,
V.
L. IRVING COFFEY,
Third-Party-Defendant.
ee a ee a a
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 85-M-2256)
Submitted on the briefs:
Richard K. Rufner and Sergiu L. Herscovici, Denver, Col-
orado, for Plaintiff-Appellant.
William G. Imig and Neal S. Cohen of Ireland, Stapleton,
Pryor & Pascoe, Denver, Colorado, for Defendant-A ppel-
lee.
Before LOGAN, SEYMOUR, and BALDOCK, Circuit
Judges.
A-4
LOGAN, Circuit Judge.
Plaintiff Florabelle Coffey brought suit under § 10(b)
of the Securities Exchange Act of 1934 (Exchange Act), 15
U.S.C. § 78j(b), and SEC Rule 10b-5 promulgated there-
under, 17 C.E.R. § 240.10b-5, against defendants Dean
Witter Reynolds, Inc. (Dean Witter) and Jeffrey Hines, a
Dean Witter account executive.1 Defendants moved to
compel arbitration of the federal claims, but the trial
court denied the motion based on Wilko v. Swan, 346 U.S.
427 (1953) (agreements to arbitrate federal securities
claims void under Securities Act of 1933), overruled,
Rodriguez de Quijas v. Shearson/American Express, Inc., 57
U.S.L.W. 4539 (U.S. May 15, 1989); and Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Moore, 590 F.2d 823 (10th Cir.
1978) (agreements to arbitrate federal securities claims
also void under Exchange Act). Defendants then appeal-
ed to this court. We remanded the case to the trial court
for reconsideration in light of the Supreme Court’s inter-
vening decision in Shearson/American Express, Inc. v.
McMahon, 482 U.S. 220 (1987), which overruled Moore and
upheld agreements to arbitrate federal securities claims
under the Exchange Act.
1 Coffey also brought several pendent state law claims that
were dismissed by the trial court.
2 After examining the briefs and appellate record, this
panel has determined unanimously that oral argument wouid
not materially assist the determination of this appeal. See Fed.
R. App. P. 34(a); 10th Cir. R. 34.1.9. The cause is therefore
ordered submitted without oral argument.
A-5
On remand, the district court compelled arbitration
of Coffey’s 10b-5 claims and subsequently confirmed an
arbitral award in favor of both defendants. Coffey ap-
peals from this order and asserts in the alternative that
(1) no agreement to arbitrate existed between the parties,
and (2) if an arbitration agreement existed, it was mod-
ified by operation of SEC Rule 15c2-2, 17 C.F.R.
§ 240.15c2-2, rescinded, 52 Fed. Reg. 39,216 (effective Octo-
ber 21, 1987).
I
Our threshold inquiry is whether the parties agreed
to arbitrate the claims at issue. Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). An
agreement to arbitrate is nothing more than a contract
fashioned by the parties in accordance with their inten-
tions. If the parties intended to arbitrate the relevant
claims, we must enforce the agreement under the Federal
Arbitration Act, 9 U.S.C. §§ 1-14, unless “legal constraints
external to the parties’ agreement foreclose[] the arbitra-
tion of those claims.” Mitsubishi, 473 U.S. at 628.
In conducting this inquiry, we are mindful that under
the Federal Arbitration Act “any doubts concerning the
scope of arbitrable issues should be resolved in favor of
arbitration, whether the problem at hand is the construc-
tion of the contract language itself or an allegation of
waiver, delay, or a like defense to arbitrability.” Moses H.
Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24-25 (1983) (footnote omitted). The Act, however, “does
not require parties to arbitrate when they have not agreed
to do so, nor does it prevent parties who do agree to
A-6
arbitrate from excluding certain claims from the scope of
their arbitration agreement.” Volt Information Sciences, Inc.
v. Board of Trustees, 57 U.S.L.W. 4295, 4298 (U.S. March 6,
1989) (citations omitted).
On April 28, 1983, Coffey executed a Customer’s
Agreement in connection with a Dean Witter commodity
account, which provided in relevant part as follows:
“16. Any controversy between you [Dean
Witter] and the undersigned [Coffey] arising out
of or relating to this contract or the breach there-
of, shall be settled by arbitration. .. .
17. This agreement... and its provisions
shall be continuous; shall cover individually and
collectively all accounts which the undersigned
may open or re-open with you... .”
Pl. ex. 3 at 1.
On October 3, 1984, Coffey and her husband exe-
cuted a Joint Account Agreement With Right of Survivor-
ship (“Joint Account Agreement”) in connection with a
differently numbered stock account. The Joint Account
Agreement did not contain an arbitration clause, and
Coffey did not sign a new Customer’s Agreement. The
Joint Account Agreement is not inconsistent with the
Customer’s Agreement Coffey had already signed, which
treats many aspects not covered by the Joint Account
Agreement. Indeed, the Customer’s Agreement expressly
contemplates that it will apply whether the securities are
carried “either individually or jointly with others.” Id.
5. And the Joint Account Agreement provides that “[ilf
the undersigned [Coffey and her husband] sign and de-
liver to you [Dean Witter] a Customer’s Agreement... ,
[it is] intended to cover, in addition to the provisions
A-7
hereof, the terms on which the joint account is to be
carried.” Pl. ex. 2. Because Coffey already had signed a
Customer’s Agreement that covered “all accounts” she
might thereafter open, no new agreement was necessary
to bind her.3 Thus, because we have no evidence to the
contrary, we hold that Coffey and Dean Witter intended
the arbitration clause in the Customer’s Agreement to
apply to claims by Coffey arising under the joint account.
II
Coffey next argues that even if the arbitration clause
in her Customer’s Agreement applies to claims under the
joint account, SEC Rule 15c2-2 modified the agreement to
arbitrate. Paragraph 2 of the Customer’s Agreement pro-
vides that “whenever any rule or regulation shall be
prescribed or promulgated by . . . the Federal Securities
and Exchange Commission, . . . which shall affect in any
manner or be inconsistent with any of the provisions
hereof, the provisions of this agreement so affected shall
be deemed modified or superseded.”
Rule 15c2-2 provided as follows:
“(a) It shall be a fraudulent, manipulative or
deceptive act or practice for a broker or dealer
to enter into an agreement with any public cus-
tomer which purports to bind the customer to
the arbitration of future disputes between them
3 Nothing in the record indicates whether Coffey’s hus-
band, who was joined by Dean Witter and Hines as a third
party defendant, signed a Customer’s Agreement as well. De-
fendant’s Third Party Complaint against Coffey’s husband was
dismissed with the rest of the action in the district court’s final
order of July 27, 1988.-I R. tab 17.
A-8
arising under the Federal securities laws, or to
have in effect such an agreement, pursuant to
which it effects transactions with or for a cus-
tomer.
(b) Notwithstanding paragraph (a) of this
section, until December 31, 1984 a broker or
dealer may use existing supplies of customer
agreement forms if all such agreements entered
into with public customers after December 28,
1983 are accompanied by the separate written
disclosure:
Although you have signed a customer
agreement form with FIRM NAME that
states that you are required to arbitrate any
future dispute or controversy that may arise
between us, you are not required to arbi-
trate any dispute or controversy that arises
under the Federal securities laws but in-
stead can resolve any such dispute or con-
troversy through litigation in the courts.
(c) A broker or dealer shall not be in viola-
tion of paragraph (a) of this section with respect
to any agreement entered into with a public
customer prior to December 28, 1983 if:
(1) Any such public customer for whom
the broker or dealer has after July 1, 1983 (i)
carried a free credit balance, or (ii) held securi-
ties for safekeeping or as collateral, or (iii) effec-
ted a securities transaction is sent, no later than
December 31, 1984, the disclosure prescribed in
paragraph (b) of this section; or
(2) Any other public customer is sent upon
the completion of his next transaction pursuant
to such agreement, the disclosure prescribed in
paragraph (b) of this section.”
Under this rule, Dean Witter was required to send a
written disclosure to Coffey informing her of the right to
A-9
a judicial forum for adjudication of any federal securities
claims in spite of the arbitration clause in the Customer’s
Agreement. The question, then, is whether this written
disclosure, although based on a view of the law that no
longer prevails, precludes arbitration of Coffey’s Ex-
change Act claims over her objection. Relevant to our
decision is that Rule 15c2-2 was rescinded after the in-
stant suit was filed but before the district court’s decision
on remand.
We recognize that some circuits have applied the
rescission of Rule 15c2-2 retroactively, paying little or no
attention to the contractual modifications and resultant
changed expectations effected during the life of the Rule.
See Jeske v. Brooks, 875 F.2d 71 (4th Cir. 1989); Adrian v.
Smith Barney, Harris, Upham & Co., 841 F.2d 1059 (11th Cir.
1988); Villa Garcia v. Merrill Lynch, Pierce, Fenner and Smith
Inc., 833 F.2d 545 (5th Cir. 1987). The strongest argument
in support of these decisions appears to be “the usual
rule that ‘federal cases should be decided in accordance
with the law existing at the time of the decision,’ ” Jeske,
875 F.2d at 75 (quoting Saint Francis College v. Al-Kharzraji,
481 U.S. 604, 608 (1987)), unless “injustice” would result
thereby, id.; see also Villa Garcia, 833 F.2d at 548 (“manifest
injustice” would justify an exception to the “usual rule of
retroactivity”). In Jeske, the court concluded that no injus-
tice would result from retroactive application of the rule’s
rescission because (1) the plaintiff signed the customer
agreement at issue before the SEC’s adoption of the rule,
and so could not have relied on the rule in signing the
agreement; and (2) the court found no evidence to
A-10
indicate that the plaintiff “would not have signed the
agreement if he had foreseen that his securities claims
would be arbitrable.” Id.
Both of the Jeske court’s observations are equally
applicable to the Customer Agreement that Coffey signed
in October 1983, the arbitration provision of which ap-
plies to the Joint Account Agreement under which Coffey
now sites. But that arbitration provision did not comply
with Rule 15c2-2, and Dean Witter was therefore required
to notify Coffey of her right to litigate federal securities
law claims. Because the rule required explicit modifica-
tion of the parties’ contract, narrow focus on Coffey’s
expectations at the time the Customer’s Agreement or the
Joint Account Agreement was signed is insufficient.
We are more persuaded by the reasoning of those
courts which have treated the effect of Rule 15c2-2’s
requirements, and of the rule’s rescission, from a private
contractual rather than a public regulatory perspective.
See Ballay v. Legg Mason Wood Walker, Inc., 878 F.2d 729 (3d
Cir. 1989); Gooding v. Shearson Lehman Bros., Inc., 878 F.2d
281 (9th Cir. 1989). In Ballay, plaintiffs signed customer
agreements with Legg Mason that contained a broad arbi-
tration provision and the qualification that “this arbitra-
tion provision is not binding upon me in any dispute or
controversy that arises under the federal securities laws,
and, in such cases, I may seek resolution through litiga-
tion in the courts.” Id. at 731 nl.
Legg Mason argued that this clause “did not reflect a
bargained-for term of the contract but rather was includ-
ed merely to comply with SEC [Rule 15c2-2].” Id. at 734.
In response, the court concluded that
A-11
“the unequivocal exclusionary language in
plaintiffs’ arbitration agreements creates a con-
tractual right to litigate plaintiffs’ [federal secu-
rities law] claims. The language admits of no
justification for looking beyond it to the regula-
tory history surrounding its inclusion. In any
event, even if we were to look at the regulatory
background we see no reason in it for rejecting
customers’ reasonable expectations. A customer
reading the exclusionary language could not be
expected to be aware of the regulatory back-
ground or to understand that the language may
become meaningless with the winds of change
in the law. Legg Mason, if it truly did not intend
to be bound by the contractual language it draft-
ed, should have challenged Rule 15c2-2 or reex-
ecuted the arbitration agreements in accordance
with its intent after rescission of the Rule.”
Id.
In Gooding, the arbitration provision at issue was
limited by a clause excluding arbitration of “any contro-
versy ... for which a remedy may exist pursuant to an
express or implied right of action under certain of the
federal securities laws.” 878 F.2d at 283. The broker urged
that since this language “was placed in the... . agreement
to satisfy Rule 15c2-2, it should not be enforced because
the rule has been rescinded.” Id. Relying on its earlier
decision in Van Ness Townhouses v. Mar Industries Corp.,
862 F.2d 754, 758 (9th Cir. 1989), which found that “such
an express exclusion from arbitration is an express grant
of the right to litigate those claims,” the court rejected the
broker’s argument. “Under the contract, [the broker]
agreed that [the customer] had the option of seeking a
judicial determination of his federal securities law
A-12
claims... ,” id. at 284, and “[bJoth parties must abide by
the terms of the contract,” id.
We find the reasoning of Ballay and Gooding persua-
sive and applicable to the case at bar. Although the record
does not disclose whether Dean Witter actually sent the
required notice to Coffey, that uncertainty does not affect
our disposition of the case. If the notice was sent, it
became part of the parties’ contract, creating a new (albeit
unbargained-for) contractual right to litigate federal secu-
rities law claims. See also Wehe v. Montgomery, 711 F. Supp.
1035 (D. Or. 1989) (notice sent to customer in compliance
with Rule 15c2-2 modified unconditional arbitration
clause; thus, customer’s Exchange Act claims not subject
to arbitration even after rule’s rescission).
In this situation, like the Ballay court, we see no
reason to defeat Coffey’s reasonable expectation, based
on the clear, unequivocal language of the Rule 15c2-2-
mandated modification of the arbitration clause, that she
could litigate federal securities law claims under the joint
account. At the time Coffey commenced the instant litiga-
tion Rule 15c2-2 was in effect. The notice required by
Rule 15c2-2 added a new paragraph to the parties’ con-
tract. This substitute paragraph does not declare that it is
effective only until such claims are held to be arbitrable.
The substitute language does not automatically become
ineffective when the Supreme Court changes its view of
the law on securities arbitrations nor, we believe, upon
repeal of the rule which dictated the substitute language,
A-13
absent a new agreement between Dean Witter and Cof-
fey.*
If Dean Witter never sent the required notice, its
action constituted a violation of Rule 15c2-2 and we will
not allow it to profit from its transgression. See Paulson v.
Dean Witter Reynolds, Inc., 708 F. Supp. 1163, 1167 (D. Or.
1989) (“[A]ny provision executed while Rule 15c2-2 was
in effect and which purports to bind a customer to arbi-
tration of federal securities claims is unenforceable.” );
Wehe v. Montgomery, 711 F. Supp. 1035, 1039 (D. Or. 1989)
(same); Gugliotta v. Evans & Co., 690 F. Supp. 144, 147-49
(E.D.N.Y. 1988) (arbitration clause which violated Rule
15c2-2 when rule was in effect would not be enforced
after rule’s rescission; “[o]n the contrary, ‘an agreement
that is illegal by statute or on the grounds of public
policy when made is not rendered legal by repeal of the
statute or change in the public or legislative policy.’ Pal-
misano v. United States Brewing Co., 131 F.2d 272, 273 (10th
Cir. 1942)”). We reject those cases which, by retroactive
application of Rule 15c2-2’s rescission, have immunized
brokers from responsibility for possible violations of the
rule while it was-in effect. See, e.g., Adrian, 841 F.2d at
1061-62 (court did not consider plaintiffs’ argument that
arbitration clause violated Rule 15c2-2 because “whatever
4 Certainly an arbitration provision could have been draft-
ed that would have complied with Rule 15c2-2 and that would
have mandated arbitration of federal securities law claims in
the event they were held to be arbitrable. See, e.g., Reed v. Bear,
Stearns & Co., 698 F. Supp. 835, 840-41 & n.2 (D. Kan. 1988)
(court construed language in arbitration clause, “likely includ-
ed so that the clause would comply with Rule 15c2-2,” to mean
that “federal securities law claims must be submitted to arbi-
tration when such arbitration is permitted by federal law.”)
A-14
effect Rule 15c2-2 may have had before its rescission, it
can no longer be used as a defense to arbitration”); Villa
Garcia, 833 F.2d at 548 (“[S]ince the rescission of the Rule
should be applied retroactively, we have no occasion to
consider whether Merrill Lynch did or did not violate the
Rule as Villa contends.”).5
The approach which we adopt today does not ignore
violation of valid regulations, and protects customers’
reasonable expectations based on explicit contractual pro-
visions.
> In Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 288
(9th Cir. 1988), a panel of the Ninth Circuit summarily conclud-
ed that, because Rule 15c2-2 had been rescinded, the argument
that an arbitration provision was unenforceable because it
violated the rule while the rule was in effect was “without
foundation.” If Cohen was intended as a holding contrary to
our contract approach it has not been followed in the Ninth
Circuit. In Van Ness Townhouses v. Mar Industries Corp., 862 F.2d
754 (9th Cir. 1989), a different panel found that “[i]t cannot be
doubted that Rule 15c2-2 was intended to prohibit predispute
agreements to arbitrate securities claims ... ,” id. at 757, and
that exclusionary clauses included to comply with the rule
constitute “an express grant of the right to litigate those
claims,” id. at 758. Although Van Ness did not specifically
address arbitration agreements which violated Rule 15c2-2,
two district courts in the Ninth Circuit have relied on the case
to determine that, despite Cohen, “any provision executed
while Rule 15c2-2 was in effect and which purports to bind a
customer to arbitration of federal securities claims is
unenforceable.” Paulson v. Dean Witter Reynolds, Inc., 708 F.
Supp. 1163, 1167 (D. Or. 1989) (Frye, J.). Accord Wehe v. Mont-
gomery, 711 F. Supp. 1035, 1039 (D. Or. 1989) (Redden, J.). Van
Ness, Paulson and Wehe, as well as Gooding, discussed ante at 9,
are all in accord with the approach we adopt today.
A-15
Thus, we REVERSE the district court’s order confirm-
ing the arbitral award and dismissing the case and RE-
MAND for further proceedings not inconsistent with this
decision.
No. 88-2286, Florabelle Coffey v. Dean Witter Reynolds,
Inc., et al.
BALDOCK, Circuit Judge, concurring in part and dissent-
ing in part.
I concur with the court’s decision that the parties
agreed to arbitrate the claims at issue, but I differ with
the court concerning whether plaintiff-appellant may
avoid that agreement based upon Rule 15c2-2, 17 C.FR.
§ 240.15c2-2 (1987).
First, Rule 15c2-2 was a disclosure provision de-
signed to inform customers that under the then-current
law, federal securities claims could be litigated despite a
predispute agreement to arbitrate. Recourse to the Courts
Notwithstanding Arbitration Clauses in Broker-Dealer
Customer Agreements, Exchange Act Release No. 20,397,
Nov. 18, 1983, 48 Fed. Reg. 53,404 (1983). As explained by
the SEC:
The Commission is adopting a rule that pro-
hibits broker-dealers from using predispute ar-
bitration clauses in customer agreements that
purport to bind public customers to the arbitra-
tion of claims arising under the federal securi-
ties laws. The rule also requires broker-dealers
to disclose to existing public customers that they
are not precluded by such clauses from judicial
recourse with respect to those claims. The pur-
pose of this rule is to ensure that public custom-
ers are not misled concerning such recourse.
rs es
A-16
Id. The rationale for the rule was that “[t]he federal
securities laws ... provide that broker-dealer agreements
purporting to bind public customers to the arbitration of
disputes arising in the future are void and unenforceable
as applied to those laws.” Id. (citing Wilko v. Swan, 346
U.S. 427 (1953)). Thus, Rule 15c2-2 did not purport to
create a new substantive right barring waiver of the right
to litigate federal securities law claims. See Finkle & Ross
v. A.G. Becker Paribas, Inc., 622 F. Supp. 1505, 1510
(S.D.N.Y. 1985). Instead, it merely required disclosure of
the then-current state of the law to public customers. That
exposition of the law concerning the 1934 Act was re-
jected in Shearson/American Express v. McMahon, 482 U.S.
220 (1987), and the SEC promptly rescinded its rule,
believing that “Rule 15c2-2 is no longer appropriate or
accurate and, accordingly, should be rescinded.” Recis-
sion of Rule Governing Use of Predispute Arbitration
Clauses in Broker-Dealer Customer Agreements, Ex-
change Act Release No. 25,034, Oct. 15, 1987, 52 Fed. Reg.
39,216-17 (1987). The Supreme Court subsequently ex-
tended McMahon to the 1933 Act and overruled Wilko v.
Swan. Rodriguez de Quijas v. Shearson/American Express,
109 S. Ct. 1917, 1920-21 (1989). There is nothing in the
record to support this court’s decision that plaintiff-ap-
pellant has a reasonable expectation in the continued
application of a now incorrect view of the law.
Second, to the extent the arbitration provision in the
Customer’s Agreement was modified to comply with
Rule 15c2-2, the modified provision was again modified
when the SEC rescinded the rule. Reliance upon the
court’s private contractual approach to the arbitration
A-17
provision would yield the same result. Paragraph 2 of the
Customer’s Agreement provides in pertinent part:
Whenever any statute shall be enacted
which shall effect in any manner or be inconsis-
tent with any of the provisions hereof, or when-
ever any rule or regulation shall be proscribed
or promulgated by .. . the Federal Securities
and Exchange Commission . . . which shall effect
in any manner or be inconsistent with any of the
provisions hereof, the provisions of this agree-
ment so affected shall be modified or super-
seded, as the case may be, by such statute, rule
or regulation, and all other provisions of the
agreement and the provisions as so modified or
superseded, shall in all respects continue to be
in full force and effect.
Rec. vol. I, doc. 15, ex. 3. This paragraph resulted in the
incorporation of Rule 15c2-2 into the contract on the
effective date of the rule, December 28, 1983. See Rel. No.
20,397, 48 Fed. Reg. 53,407. On October 21, 1987, the
SEC’s final rule rescinding Rule 15c2-2 became effective.
Rel. No. 25,034, 52 Fed. Reg. 39,216. This final rule, pro-
mulgated by the SEC, clearly affected the arbitration pro-
vision of the contract as previously amended by the
required language of Rule 15c2-2. Once again the arbitra-
tion provision was modified, but this time back to its
original state and all claims were subject to arbitration.
Given the strong federal policy in favor of arbitration
and the highly regulated nature of securities markets, the
rescission of Rule 15c2-2 should be applied to the contract
and the district court’s order confirming the arbitral
award should be confirmed. See Jeske v. Brooks, 875 F.2d
71, 74-75 (4th. Cir. 1989); Adrian v. Smith Barney, Harris,
Upham & Co., 841 F.2d 1059, 1061-62 (11th Cir. 1988);
A-18
Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 288 (9th
Cir. 1988); Villa Garcia v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 833 F.2d 545, 547-48 (5th Cir. 1987); contra
Ballay v. Legg Mason Wood Walker, Inc., 878 F.2d 729, 733-34
(3d Cir. 1989); Gooding v. Shearson Lehman Bros., 878 F.2d
281, 284 (9th Cir. 1989); Van Ness Townhouses v. Mar Indus-
tries Corp., 862 F.2d 754, 758 (9th Cir. 1989); Leicht v.
Bateman, Eichler, Hill, Richards, Inc., 848 F.2d 130, 133-34
(9th Cir. 1988). I respectfully dissent from that part of this
court’s opinion which holds otherwise.
A-19
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 85-M-2256
FLORABELLE COFFEY,
Plaintiff,
V.
DEAN WITTER REYNOLDS, INC. and
JEFFREY HINES,
Defendants.
ORDER CONFIRMING ARBITRATION AWARD
AND DISMISSING ACTION
On June 30, 1988, the plaintiff filed a motion to vacate
arbitration award, seeking an order of this court to vacate
the award of the American Arbitration Association Panel
of Arbitrators, dated June 8, 1988, attached as Exhibit A
to that motion. On July 20, 1988, the defendants filed an
application for confirmation of that arbitration award and
for dismissal of this civil action, including the third party
complaint. The plaintiff’s motion to vacate is an attempt
to re-litigate this court’s order of July 7, 1987, which
granted the defendants’ motion to compel arbitration of
the federal claim in this case. The state law claims in this
case were previously dismissed by order of July 16, 1986.
It appearing to the court that the only issues which would
be within the jurisdiction of this court have been resolved
by the arbitration proceedings, it is now
ORDERED that the arbitration award of June 8, 1988,
is confirmed and it is
A-20
FURTHER ORDERED that the third party complaint
is dismissed and this civil action is dismissed.
Dated: July 27, 1988
BY THE COURT:
/s/ Richard P. Matsch
Richard P. Matsch, Judge
ENTERED
ON THE DOCKET
JUL 27 1983
BY JAMES R. MANSPEAKER
CLERK
FILED
JUL 27 1988
UNITED STATES DISTRICT COURT
DISTRICT OF COLORADO
FLORABELLE COFFEY, JUDGMENT IN A
eae CIVIL CASE
Plaintiff,
V. CASE NUMBER:
DEAN WITTER REYNOLDS, INC. 85-M-2256
and JEFFREY HINES,
Defendants.
{ ] Jury Verdict. This action came before the Court fora
trial by jury. The issues have been tried and the jury
has rendered its verdict.
[X]_ Decision by Court. This action came to trial or hear-
ing before the Court. The issues have been tried or
A-21
heard and a decision has been rendered. Pursuant to
order confirming arbitration award and dismissing
action, entered by Judge Richard P. Matsch on July
27, 1988,
IT IS ORDERED AND ADJUDGED that the arbitra-
tion award of June 8, 1988, is confirmed and it is
FURTHER ORDERED that the third party complaint
is dismissed and this civil action is dismissed.
ENTERED
ON THE DOCKET
JUL 27 1983
BY JAMES R. MANSPEAKER
CLERK
July 27, 1988 JAMES R. MANSPEAKER
Date
Clerk
/s/ Norma Hatcher
(By) Deputy Clerk
A-22
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
FILED
JUL - 7 1987
CIVIL ACTION NO. 85-K-2256
FLORABELLE COFFEY,
Plaintiff,
vs.
DEAN WITTER REYNOLDS, INC., et ai.,
Defendants.
ORDER
IT IS ORDERED that the motion to arbitrate is
granted.
DATED at Denver, Colorado this 7th day of July,
1987. :
/s/ John L. Kane Jr.
UNITED STATES
DISTRICT JUDGE
A-23
MAY TERM - June 26, 1987
Before Honorable John P. Moore and Honorable Bobby R.
Baldock, Circuit Judges
FLORABELLE COFFEY,
Plaintiff-Appellee,
VS.
DEAN WITTER REYNOLDS, INC., No. 86-2074
a Delaware corporation, and
JEFFREY HINES, an individual, (D.C. No.
Defendants-Appellants. 85-K-2256)
ee eee eee ee”
Appellants’ unopposed motion for immediate re-
mand for consideration of arbitrability is granted. The
appeal is dismissed.
ROBERT L. HOECKER
Clerk
By:/s/ Patrick Fisher
Patrick Fisher
Chief Deputy Clerk
A-24
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 85-K-2256
FLORABELLE COFFEY,
Plaintiff,
VS.
DEAN WITTER REYNOLDS, INC., et al.,
MEMORANDUM OPINION AND ORDER
Kane, J.
On April 28, 1983, plaintiff Florabelle Coffey opened
a commodities futures account, # 47697-4, with defen-
dants Dean Witter Reynolds, Inc. and Jeffrey Hines. On
September 4, 1984, plaintiff opened a stock trading ac-
count, # 053343, with defendants. She now brings suit
against defendants alleging (1) violation of Section 10b of
the Securities Exchange Act of 1934 [15 U.S.C. § 78(j)] and
Rule 10b-5 [17 C.F.R. § 240.10b-5]; (2) breach of fiduciary
duties; (3) negligence; (4) violation of the Colorado Secu-
rities Act, 1973 C.R.S. §§ 11-51-123 and 11-51-125(2); (5)
intentional infliction of emotional distress; and (6) negli-
gent supervision. She asserts defendants’ alleged conduct
was attended by circumstances of fraud, malice or insult,
intentional misconduct, or a wanton and reckless disre-
gard of her rights and feelings so as to merit an award of
punitive damages. These claims are all brought with re-
spect to the stock trading account only.
A-25
In regard to the federal securities claim, jurisdiction
lies under 15 U.S.C. § 78(a) and 28 U.S.C. § 1331. Jurisdic-
tion over the remaining state or statutory common law
claims is invoked pursuant to the doctrine of pendent
jurisdiction.1 Venue is proper under 28 U.S.C. § 1391(b).
This matter is now before me on defendants’ motion
to dismiss plaintiffs’ [sic] state claims pursuant to
Fed.R.Civ.P. 12(b)(1) and for an order compelling arbitra-
tion and staying disposition of the federal securities claim
pursuant to 9 U.S.C. §§ 3 and 4, (The Arbitration Act). For
the reasons set forth below, I deny arbitration and dismiss
plaintiff's state law claims. —
Motion to Compel Arbitration / Stay
The commodities futures account contains, inter alia,
the following provisions:
16. Any controversy between [Dean Witter]
and the undersigned arising out of or relating to
this Contract or the breach thereof, shall be set-
tled by arbitration, in accordance with the rules,
then obtaining, of either the Arbitration Com-
mittee of the Chamber of Commerce of the State
of New York, or the American Arbitration Asso-
ciation, or the Board of Arbitration of the New
York Stock Exchange, as the undersigned may
qect.. ..
17. This agreement and its enforcement shall
be governed by the laws of the State of New
York and its provisions shall be continuous;
shall cover individually and collectively all ac-
counts which the undersigned may open or re-
open with [Dean Witter] . . .
The stock account is void of reference to arbitration.
eT
A-26
Defendants contend that the commodities account
arbitration clause is a valid agreement to arbitrate dis-
putes arising under the stock account. Defendants argue
that, considered with federal statutues and policy favor-
ing arbitration, the arbitration clause requires me to com-
pel arbitration and stay this suit.
Federal policy favoring arbitration is reflected in the
federal Arbitration Act, 9 U.S.C. §§ 1-14, which provides
in § 2 that an arbitration agreement “shall be valid, irrev-
ocable, and enforceable, save upon which grounds as
exist at law or in equity for the revocation of any con-
tract”. Section 3 of the Act provides that in the absence of
default by a party seeking arbitration, the court “shall on
application of one of the parties stay the trial of the action
until such arbitration has been had in accordance with
the terms of the agreement”. Section 4 of the Act provides
that if a party refuses to arbitrate in contravention of a
written agreement, the court “shall make an order direct-
ing the parties to proceed to arbitration in accordance
with the terms of the agreement”.
Notwithstanding the seemingly mandatory language
of the Arbitration Act, judicial exceptions have been
carved out of its applicability to claims brought under the
federal securities laws. In Wilko v. Swan, 346 U.S. 427, 74
S.Ct. 182. 98 L.Ed. 168 (1953), the United States Supreme
Court held that a pre-dispute agreement to arbitrate
claims arising under the Securities Act of 1933, 15 U.S.C.
§ 771(2) is unenforceable. Section 22 of the ‘33 Act, 15
U.S.C. § 77(v), affords the federal securities plaintiff reso-
lution of his claim by a federal judicial forum, with a
broad choice of venue and concomittant [sic] nationwide
service. Section 14(6) of the ‘33 Act, 15 U.S.C. § 77n hoids
A-27
that “[aJny condition, stipulation, or provision binding
any person acquiring any security to waive compliance
with any provision of this subchapter or of rules and
regulations of the commission shall be void”. The Wilko
court considered the arbitration agreement to be a “stipu-
lation” which was “void” as it attempted to “waive”
compliance with the “provision” affording the federal
securities plaintiff access to the federal courts.
The rationale behind the Wilko courts’ subordination
of the Arbitration Act to the Securities Act of 1933 was
that the latter was extraordinary legislation protecting
disadvantaged securities purchasers which could be en-
tirely circumvented if arbitration clauses would be given
effect.
Employing the notion that the securities laws protect
a purchaser in a market historically rife with abuses,
courts since Wilko have expanded the Wilko doctrine to
actions, such as the present one, under the Securities
Exchange Act of 1934. In Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Moore, 590 F.2d 823 (10th Cir. 1978), the 10th
Circuit Court of Appeals held that arbitration agreements
in cases involving § 10 and Rule 10b-5 of the 34 Act are
void as they seek to waive the jurisdictional provisions of
that Act.
Defendants rely on Justice White’s solo concurrence
in Dean Witter Reynolds, Inc. v. Byrd, ___ U.S. __, 105 S.Ct.
1238, 1244, 84 L.Ed2d 158 (1985), to assert that the contin-
ued viability of the 10th Circuit’s extension of Wilko to ’34
Act claims in Moore is “a matter of substantial doubt” .?
Justice White’s dicta is not law. The unanimous majority
specifically declined to address the arbitrability of ’34 Act
ieee nie
A-28
claims. Until the majority of the Court decides this issue I
am bound by the decision in Moore.
Accordingly, the portion of defendants’ motion seek-
ing an order compelling arbitration of the plaintiff’s fed-
etal claims arising under the ‘34 Act is hereby denied.?
Motion to Dismiss Pendent Claims
Defendants contend that this court should deny its
discretionary exercise of pendent jurisdiction over plain-
tiff’s state law claims as there is no independent federal
jurisdiction.
The doctrine of pendent jurisdiction permits a district
court to decide all questions that the case presents. The
Supreme Court in United Mine Workers of America v. Gibbs,
383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218
(1966) ruled that the power to entertain pendent claims
exists when the state and federal claims “derive from a
common nucleus of operative fact”. See, Hackbart v. Cin-
cinnati Bengals, 601 F.2d 516 (10th Cir. 1979) cert. denied
444 U.S. 931, 100 S.Ct. 275, 62 L.Ed.2d 188. The doctrine is
discretionary and not a matter of right. Gibbs, 383 U.S. at
726.
For the reasons detailed by Judge Matsch in Kerby v.
Commodity Resources, Inc, 395 FSupp. 786 (D. Colo 1975), I
decline pendent jurisdiction of all state law claims. Asser-
tion of such claims in the context of this suit only serves
to expand improperly the coverage and remedies pro-
vided under federal securities laws. Moreover, submis-
sion of similar but distinct state and federal securities
statutes will tend to confuse a jury. The convenience of ©
A-29
plaintiff, see Noland V. Gurley, 566 F.Supp 210, 219
(D.Colo. 1983), is insufficient to militate in favor of pen-
dent jurisdiction. Accordingly, defendants’ motion to dis-
miss plaintiff’s state law claims, Counts 2 through 6, is
granted.
It is hereby ORDERED that defendants’ motion to
1) cornpel arbitration and stay this suit is denied; and
2) dismiss plaintiff's pendent claims is granted.
It is FURTHER ORDERED that the parties shall com-
plete discovery by October 15, 1986 and shall submit a
stipulated pre-trial order by November 15, 1986.
DATED at Denver, Colorado, this 16th day of July,
1936.
/s/ John L. Kane Jr.
UNITED STATES
DISTRICT JUDGE
1. While plaintiff's complaint also asserts the parties’ diver-
sity of citizenship as grounds for jurisdiction under 28 U.S.C.
§ 1332, she fails to allege her own citizenship or that of defen-
dant Hines. She has not therefore, set forth “a short and plain
statement of the grounds upon which the court’s jurisdiction
depends” as required by Fed.R.Civ.P. 8(a)(1). Defendants spe-
cifically raise this point in their brief supporting the instant
motion. They claim that plaintiff and defendant Hines are, in
fact, both citizens of Colorado. This assertion is inferentially
supported by the complaint which states that plaintiff is a
Colorado resident and that Defendant Hines is an employee of
Dean Witter in its downtown Denver office. Further, in her
defense to this motion plaintiff appears to have abandoned
diversity as a jurisdictional basis of her state claims, arguing
only for discretionary pendent jurisdiction.
A-30
2. Plaintiffs contend that the arbitration clause of the com-
modities account is not applicable to the stock account, not-
withstanding language to the opposite effect in the
commodities account agreement. Because I hold that the feder-
al securities claim is not arbitrable, in any event, I need not
address this issue.
3. In Dean Witter Reynolds, Inc. v. Byrd, __ U.S. __, 105 S.Ct.
1238, 84 L.Ed 2d 158 (1985) the Supreme Court rejected the
“doctrine of intertwining”. Before Byrd some jurisdictions held
that when arbitrable and non-arbitrable claims arise out of the
same transaction and are sufficiently intertwined factually and
legally the district court in its discretion may deny arbitration
of the otherwise arbitrable pendent state claims and try all the
claims together in federal court. Because I decline to exercise
pendent jurisdiction of the state claims, the Byrd court’s guid-
ance as to the arbitrability of such claims is of no present
import.
4. Plaintiff’s argue that 4 2 of the Customer’s Agreement,
Security Exchange Act Release no. 15 984, July 2, 1979 and
S.E.C. Rule 15c2-2 operate so as to preclude enforceability of
the arbitration clause. | need not address this argument, as I
find compelling arbitration of the 10b-5 claim prohibited by the
Moore extension of the Wilko doctrine.
A-31
Federal Arbitration Act, United States Code, Title 9
(1988).
§ 2. Validity, irrevocability, and enforcement of
agreements to arbitrate.
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 trans-
action, or the refusal to perform the whole or
any part thereof, of an agreement in writing to
submit to arbitration an existing controversy
arising out of such a contract, transaction, or
refusal, shall be valid, irrevocable, and enforce-
able, save upon such grounds as exist at law or
in equity for the revocation of any contract.
Code of Federal Regulations, Title 17 (1987).
§ 240.15c2-2. Disclosure regarding recourse to
the courts notwithstanding arbitration clauses in
broker-dealer customer agreements.
(a) It shall be a fraudulent, manipulative or
deceptive act or practice for a broker or dealer
to enter into an agreement with any public cus-
tomer which purports to bind the customer to
the arbitration of future disputes between them
arising under the federal securities laws, or to
have in effect such an agreement, pursuant to
which it effects transactions with or for a cus-
tomer.
(b) Notwithstanding paragraph (a) of this sec-
tion, until December 31, 1984 a broker or dealer
may use existing supplies of a customer agree-
ment forms if all such agreements entered into
A-32
with public customers after December 28, 1983
are accompanied by the separate written dis-
closure: :
Although you have signed a customer
agreement form with FIRM NAME that
states that you are required to arbitrate any
future dispute or controversy that may arise
between us, you are not required to arbi-
trate any dispute or controversy that arises
under the federal securities laws but instead
can resolve any such dispute or controversy
through litigation in the courts.
(c) A broker or dealer shall not be in violation
of paragraph (a) of this section with respect to
any agreement entered into with a public cus-
tomer prior to December 28, 1983 if:
(1) Any such public customer for whom
the broker or dealer has after July 1, 1983 (i)
carried a free credit balance, or (ii) held securi-
ties for safekeeping or as collateral, or (iii) effec-
ted a securities transaction is sent, no later than
December 31, 1984, the disclosure prescribed in
paragraph (b) of this section; or
(2) Any other public customer is sent upon
the completion of his next transaction pursuant
to such agreement, the disclosure prescribed in
paragraph (b) of this section.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.