Petition for Writ of Certiorari — Edward D. Jones & Co. v. Carter

()) | ¥ Wapreme Court, U.S.

nr 7 1 AOo ' FILED

0. At MAY 13 1992

A

} me

\ orrice OF THE CLERK

+

IN THE

Ocroser TERM, 1991

Epwarp D. Jongs & Co., L.P.,

Petitioner,

Vv.

STEVEN W. and LinpaA K. CARTER,

Wiipur E. and Caro Frusuovur,

Larry E. and NorMa B. LEWELLEN,

FLoyp C. and Norma J. SICKLER,

and EuGene W. and Donna L. Smrru,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE COURT OF APPEALS OF INDIANA,

THIRD DISTRICT

THOMAS C, WALSH (Counsel of Record)

JOHN MICHAEL CLEAR

Lgo J. ASARO

One Metropolitan Square

211 North Broadway, Suite 3600

St. Louis, Missouri 63102

STANLEY C, FICKLE

1313 Merchants Bank Building

11 South Meridian Street

Indianapolis, Indiana 46204

BRYAN CAVE

BARNES & THORNBURG

Of Counsel

St. Louis Law Printing,Inc. 13307 ManchesterRd. St. Louis, MO 63131 314-231-4477

QUESTIONS PRESENTED

Does the Federal Arbitration Act preempt a state statute

which prohibits enforcement of an agreement to arbitrate

unless it contains certain prescribed language?

Should this Court review the opinion of an Indiana appel-

late court holding that a Missouri statute which invalidates

certain agreements to arbitrate is not preempted by the

Federal Arbitration Act when the Missouri Supreme Court

and the Eighth Circuit have expressly ruled to the contrary?

Did the Indiana court disregard the precedents of this Court

and contravene the letter and spirit of the Federal Arbitra-

tion Act by ruling as a matter of state law that the parties’

agreement to arbitrate should be construed against the

draftsman rather than in favor of arbitrability?

pe am

STATEMENT PURSUANT TO RULE 14.1(b)

The following persons were parties to this case in the Indiana

state trial court, but were not involved in the appeal to the Indiana

Court of Appeals and are not parties in this Court:

Thurman D. &

Garnett R. Albright

Mrs. Gladys Anderson

Raybon Benson

Edith Bessignano

Larry & Therese Bowers

Loren D. & Alene Brown

Ray & Bonnie Brumbaugh

Mrs. Janet P. Carter

Bradley Haines

Mrs. Elizabeth R. Hillis

Samuel & Leticia Huff

Willis R. Kesling

Jay M. King

Thomas E. & Nellie Knight

Paul E. & Doris A. Mays

James H. &

Carlis J. McCauley

Mrs. Louise M. McDowell

Curtis B. & Mary M. Melton

Robert E. & Betty E. Murphy

Samuel L. & Barbara A. Nelson

Lloyd E. & Lorraine K. Pinney

Mrs. Lucy C. Powlen

Robert E. & Frances E. Ross

Mrs. Imogene R. Sharp

Henry S. & Eleanor D. Stephan

Gerald D. & Edith L. Stoughton

Merlin & Patricia Studebaker

Robert G. Swigert

Mrs. Janet K. Szewcyzk

Nicholas J. Vojtasek

Marvin E. &

Clara A. Whisler

Chester B. Wilson

Hubert E. &

Maurine B. Wilson

Ralph E. & Betty Wilson

Cletus Wittenbrink

Robert E. &

Dorothy E. Woodling

and

David M. Housworth

— ili—-

TABLE OF CONTENTS

Page

CITING FIOIIIT ocnseseceseresseesecesscscscsscsessncosessoonsesesccs i

Statement Pursuant to Rule 14.1(b)...................ccceeeeeeees li

TED GE FAMIIITIIIOS ...ccrccccsserccccsseseccscocecscesovesesecsssosenses iv

CII TRIO oeeeceeccernsscacecccesssesececszesecosscossonsossnsosesess l

PIII sicisussnnshiniseoasinnesnvionursaseiensesensnnsonsieninieasonennnen> 2

Statutes and Constitutional Provision Involved ............ 2

UG GE GAO oss enccsiensscssnensececssvnazasenecccencsnvecesenee 4

Reasons Why the Writ Should Be Granted ................... 7

BIE snncaisicscnsccccscnsnsrsasesonsisncnnsssnabsnentnsononnsossonenaseese 14

Appendix

A — Order of Fulton County, Indiana, Circuit

Court, dated February 15, 1990............. A-1

B — _ Opinion of Court of Appeals of Indiana,

Third District, dated May 30, 1991 ....... A-3

C -- Orderof Indiana Supreme Court denying

Petition for Transfer, dated February 27,

I etecttnncticeansieinnscinenininarintinannennninemene A-12

D — Memorandum in Support of Defendant’s

Motion to Compel Arbitration and to

Stay Claims Asserted by Plaintiffs, filed

SE NG CII vicchrneneanseiteneniniesiennessanes A-14

—

TABLE OF AUTHORITIES

Page

Cases

AT&T Technologies, Inc. vy. Communications Workers

of America, 475 U.S. 643 (1986) ...........ccssseeeees 13

Ackerberg v. Johnson, 892 F.2d 1328 (8th Cir.

SI aiisiibicinuisicslaia ciciaiciaseiieg sc enusiadadbiinalihdidletbiciinanticasiiens 9

Albright v. Edward D. Jones & Co., 571 N.E.2d 1329

i: FI SP iaehcintdinitestcicchecatvtiinciiiainiiiatistciniiaii 2,5,6,7,11.

Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693

Pe I Ge Fe Gtk BUD sscennnsrsissencereinnsnionicnnsese 12

Bunge Corp. v. Perryville Feed & Produce, Inc., 685

S.W.2d 837 (Mo. banc 1985) ...........ccsceereeeeeeeees 6,10

Clark v. Kidder, Peabody & Co., 636 F. Supp. 195

Ns EE dairesieiechintciensrnnichesitinenisicinbivnilisinetnmnannes 12

Commonwealth Edison Co. v. Gulf Oil Corp., 541 F.2d

SG TE cihtncicnnniniasansacniiantinntieiccinmsans 9

David L. Threlkeld & Co. v. Metallgesellschaft Ltd.,

923 F.2d 245 (2d Cir.), cert. dismissed, i12 S.Ct. 17

AIEEE seensinsnactadlansiatiiscniaesiieniqnitptiicatibsenteinnaiitebiemneiiesiiess 10

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213

SRD Sitch hininicaiteiieiticianlainlihinitenindhanscaieniheiincinndsiiiie 13

Gilmore v. Shearson/American Express, Inc., 668 F.

Re. : | RT 12

Frates v. Edward D. Jones & Co., 760 P.2d 748 (Mont.

ARI CN eT EOE een CE 11

Local 2, IBEW v. Anderson Underground Construction,

Inc., 907 F.2d 74 (8th Cir. 1990)................ccccsseseee 5,10

Mamlin v. Susan Thomas, Inc., 490 S.W.2d 634 (Tex.

Re TA TI Oe inicsii tabi talilaehanccsniisncieieiiaecmenniinins 9

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

BU Ee Ces Oe ID Wetihictninhninisnieeniternainnes 8,13

Moses H. Cone Memorial Hospital v. Mercury Con-

struction Corp., 460 U.S. 1 (1983) ...... 8

Perry v. Thomas, 482 U.S. 483 (1987)..........:ccssccssseeees 8

Pinkis v. Network Cinema Corp., 512 P.2d 751 (Wash.

PAI, TORU D souicsscsinistisiidssdatiecanicaanianihciadianiaaainninnies 9

Rand Bond of North America, Inc. v. Saul Stone & Co.,

726 F. Supp. 684 (N.D. Ill. 1989) wo... eeeeeees 12

Raytheon Co. v. Automated Business Systems, Inc., 882

PG CER Ge, TIO cctectcsnecnerntinsmnionetmnventnnntsicien 9

Securities Industry Ass’n v. Connolly, 883 F.2d 1114

(1st Cir. 1989), cert. denied, 495 U.S. 956

(RIED scsescensisinesovucihishinsiedionsiidiaceanapaaaaaaiinlaibnaies 10

Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974)..... 13

Southland Corp. v. Keating, 465 U.S. 1 (1984) ............ 8

Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F.2d

NE Gls ED sivvessscnienasichasinaaneaniiesitintaniiennsis 9

Volt Information Sciences, Inc. v. Board of Trustees of

Leland Stanford Junior University, 489 U.S. 468

EPIITITD sscunsenitceunciesicnsdnsininntedpisniseatanilaatiiaiamainaiiks 5,7,13

Webb v. R. Rowland & Co., 800 F.2d 803 (8th Cir.

PE La cessssncsieshsichiasleialiphaibetidadiceeidenbaccdtliadsaaanati 9

Statutes

Be Visas MRR sonivsnssuicinllniaebinacaniniaiiabaainanianiditaaiai 2

Federal Arbitration Act, 9 U.S.C. § 1, et seq. ............04 passim

Missouri Uniform Arbitration Act, § 435.460 (Mo. Rev.

UGE; TTIID ance csssstnvhitsinesistaiheladdimeaiiinataiainiitpbiinasiii 3

Other Authorities

a. CL, BE Oe to ttc 2

No.

IN THE

Supreme Court of the United States

OcToBER TERM, 1991

Epwarbp D. Jones & Co., L.P.,

Petitioner,

Vv.

STEVEN W. and LINDA K. CARTER,

Witpur E. and Caroi FrusHour,

Larry E. and Norma B. LEWELLEN,

FLoyp C. and Norma J. SICKLER,

and EuGeng W. and Donna L. Smrru,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE COURT OF APPEALS OF INDIANA,

THIRD DISTRICT

Edward D. Jones & Co., L.P., defendant in the action below,

respectfully prays that a writ of certiorari issue to review the

judgment of the Court of Appeals of Indiana, Third District, filed

on May 30, 1991, as supplemented by the Indiana Supreme

Court’s denial of a Petition to Transfer on February 27, 1992.

OPINIONS BELOW

The February 15, 1990, Order of the Fulton County, Indiana,

Circuit Court, Judge Douglas Morton, granting defendant’s

motion to compel arbitration with respect to the present respon-

dents is reproduced in Appendix A. The opinion of the Court of

=

Appeals of Indiana, Third District, filed May 30, 1991, reversing

that Order and remanding the action for trial is reproduced in

Appendix B and reported as Thurman D. Albright, et al. v.

Edward D. Jones & Co., 571 N.E.2d 1329.' The February 27,

1992, Order of the Indiana Supreme Court denying defendant’s

timely Petition for Transfer is reproduced in Appendix C.

JURISDICTION

The judgment of the Indiana Court of Appeals was entered on

May 30, 1991, and a timely petition for transfer was denied by

the Indiana Supreme Court on February 27, 1992 (Appendix C).

This petition was filed within 90 days of February 27, 1992.

Jurisdiction of this Court is founded upon 28 U.S.C. § 1257(a).

STATUTES AND CONSTITUTIONAL PROVISION

INVOLVED

U.S. CONST. art. VI, cl.2:

“This constitution and the laws of the United States,

which shall be made in pursuance thereof, and all treaties

made or which shall be made under the authority of the

United States, shall be the supreme law of the land; and the

judges in every state shall be bound thereby, anything in the

constitution or laws of any state to the contrary notwith-

standing.”

‘Mr. Albright, his wife, and 54 other individuals were joined with

respondents as plaintiffs in the Fulton County action from which this dispute

arose, but only the respondents named in the caption appealed to the Indiana

Court of Appeals from the trial court’s order compelling arbitration.

a, an

9 U.S.C. (FEDERAL ARBITRATION ACT) § 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 agreement 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.”

MO. REV. STAT. § 435.460 (1986):

“Each contract subject to the provisions of [the Missouri

Uniform Arbitration Act] shall include adjacent to, or

above, the space provided for signatures a statement, in ten

point capital letters, which read substantially as follows:

‘THIS CONTRACT CONTAINS A BINDING ARBI-

TRATION PROVISION WHICH MAY BE ENFORCED

BY THE PARTIES.’ ”

ti a

STATEMENT OF THE CASE

Plaintiffs-Respondents brought suit in Indiana state court

against Petitioner Edward D. Jones & Company, L.P. (“peti-

tioner” or “Jones”’), arising out of their purchases through Jones

of interests in certain gas and oil limited partnerships. After the

purchase transactions, but before this action was commenced,

respondents executed “Full Service Account” agreements

(“Agreements”) with petitioner, each of which contained a

provision calling for arbitration of disputes between the parties.

The Agreements generally provide that, with the exception of

claims arising under the federal securities laws, “[a]ny other

controversy arising out of [respondent’s] accounts shall be

settled by arbitration.” (Record (“R.”) 39, 41, 43, 45, 47.)

Based on these arbitration provisions, the Federal Arbitration

Act (“FAA”) and the federal case law, petitioner moved the trial

court to compel arbitration of respondents’ claims.’ The trial

? The full text of a typical arbitration provision reads as follows:

“In the event [of] any claim or controversy between you and the

undersigned arising under federal securities laws, you have the

right to submit such matter before a judicial forum. Any other

controversy arising out of or relating to my accounts shall be settled by

arbitration in accordance with the rules, then in effect, of the National

Association of Securities Dealers, Inc. or the Board of Directors of the

New York Stock Exchange, Inc., and/or the American Stock Exchange,

Inc., as I may elect. If I do not make such election by registered mail

addressed to you at your main office within 5 days after demand by you

that I make such election, then you may make such election. Judgment

MANO es mene: a plated aaa

having jurisdiction thereof.”

veaniscdlinaiddhienninibinaiteeeneiintsaibiibiinceiiidi ities

securities laws.

* Jones specifically relied on the FAA and cases interpreting it in initially

requesting the trial court to compel arbitration and stay respondents’ claims

on October 20, 1989. (See Appendix D, Memorandum in Support of

Defendant's Motion to Compel Arbitration and to Stay Claims Asserted by

Plaintiffs, at 3-6.)

a

— =

court granted petitioner’s motion and stayed the litigation of

respondents’ claims pending completion of arbitration (Apdx.

A). The Court of Appeals, however, reversed that judgment

(Apdx. B).

The heart of the Court of Appeals’ decision was its determi-

nation that the FAA did not govern the arbitrability issue in this

case. The court rejected petitioner’s reliance on federal law and

concluded that Missouri law controlled. That determination was

based on a general choice-of-law clause in the Agreements

providing that the “agreement and its enforcement shall be

governed by the laws of the State of Missouri.” 571 N.E.2d at

1332. The court interpreted Volt Information Sciences, Inc. v.

Board of Trustees of Leland Stanford Junior University, 489

U.S. 468 (1989), to hold that “state law [is] not pre-empted by the

Federal Arbitration Act where the parties have agreed that their

arbitration agreement will be governed by state law.” 571

N.E.2d at 1332-33. The court said it would therefore “look to

Missouri law in our construction of the contracts.” Jd. at 1333.

The court then held that the arbitration clauses in the Agree-

ments violated Mo. Rev. Stat. § 435.460, which requires that

contracts subject to Missouri’s version of the Uniform Arbitra-

tion Act contain “a statement, in ten point capital letters, which

read[s] substantially as follows: ‘THIS CONTRACT CON-

TAINS A BINDING ARBITRATION PROVISION WHICH

MAY BE ENFORCED BY THE PARTIES.’ ” /d. at 1333. The

Agreements had no such provision.

The court reached its conclusion despite its express

acknowledgement that both the Missouri Supreme Court and the

Eighth Circuit have held that the requirement of this notice

provision is preempted by federal law land thus inapplicable to

transactions involving interstate commerce. /d. (citing Local 2,

Int'l Brotherhood of Elec. Workers v. Anderson Underground

Construction, Inc., 907 F.2d 74 (8th Cir. 1990); and Bunge Corp.

ay ae

v. Perryville Feed & Produce, Inc., 685 S.W.2d 837 (Mo. banc

1985)).* The court distinguished those cases on the grounds that

they did not involve a “choice-of-law clause, so their pre-

emption analysis would not apply in this case.” 571 N.E.2d at

1333.

The court noted that the appropriate remedy for a violation of

the Missouri statute would be a remand to the trial court to

determine whether the adverse parties had “actual notice” of the

arbitration clauses (571 N.E.2d at 1333), but ruled that this step

was unnecessary because, under Missouri law, the arbitration

clauses would not be construed to encompass respondents’

claims in any event.

Rejecting as merely “persuasive” the federal cases (id. at 1334

n.5) and relying on a case from Montana, the court held the

arbitration provisions inapplicable to respondents’ claims be-

cause they arose out of transactions consummated before the

Agreements were executed. The court reasoned that “any

ambiguity would be construed strictly against Jones as the

drafter of the contract,” and stated its opinion that “the Missouri

courts would not apply the arbitration clauses retroactively.” /d.

at 1333-34. Consequently, the court reversed the trial court’s

order compelling arbitration and remanded the action for a trial

on the merits. Jd. at 1334.

Jones timely petitioned for transfer of the action to the Indiana

Supreme Court, but on February 27, 1992, that court declined to

accept transfer (Apdx. C).

“Petitioner is headquartered in Missouri. Respondents are residents of

Indiana, and the limited partnerships whose securities are the subject of this

action are located in Denver, Colorado. Respondents have never disputed the

fact that the transactions in question involved interstate commerce.

— a

REASONS WHY THE WRIT SHOULD BE GRANTED

I. The Indiana Court of Appeals’ Holding That State Law

Governs the Enforceability of the Arbitration Provision

Violates the Supremacy Clause, Misinterprets this

Court’s Precedent, and Creates a Conflict Among the

States and with Several Federal Circuits.

The Indiana court refused to enforce the arbitration agreement

between the parties, holding that Missouri law, rather than

federal law, governs the issue of arbitrability. It construed this

Court’s opinion in Volt Information Sciences, Inc. v. Board of

Trustees, 489 U.S. 468 (1989), to mean:

“ . . . that state law was not pre-empted by the Federal

Arbitration Act where the parties have agreed that their

arbitration agreement will be governed by state law.” 571

N.E.2d at 1332-33.

This interpretation reflects a total misunderstanding of the hold-

ing in Volt and doubtless will be cited for the global proposition

that any contract containing a choice-of-state-law provision is

not subject to the FAA. Neither Volt nor any other ruling from

this Court supports such a principle.

Volt held only that parties can choose state rules to control the

procedural aspects of an arbitration, but it reiterated the well-

established precept that enforceability of an arbitration provi-

sion arising out of interstate commerce must be governed by the

FAA. While permitting certain procedural matters to be con-

trolled by state law, the Court in Volt emphasized that the sub-

stantive issue of enforceability is a matter of federal law. “. .

[T]he FAA therefore pre-empts application of state laws which

render arbitration agreements unenforceable . . . . [T]he federal

policy is simply to ensure the enforceability, according to their

terms, of private agreements to arbitrate.” 489 U.S. at 472, 476.

ae ee

Volt did not, therefore, represent a departure from the line of

cases holding that the FAA reflects a liberal federal policy

favoring arbitration agreements to the exclusion of contrary state

law. See Moses H. Cone Memorial Hospital v. Mercury Con-

struction Corp., 460 U.S. 1 (1983); Southland Corporation v.

Keating, 465 U.S. 1 (1984); Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614 (1985). In Perry v.

Thomas, 482 U.S. 483 (1987), the Court held preempted by the

FAA aprovision of California law permitting lawsuits for wages

to be litigated “without regard to the existence of any private

agreement to arbitrate.” Citing and quoting Moses H. Cone and

Keating, the Court summarized the applicable principles:

“Section 2 is a congressional declaration of a liberal federal

policy favoring arbitration agreements, notwithstanding

any State substantive or procedural policies to the contrary.

The effect of the section is to create a body of federal sub-

stantive law of arbitrability, applicable to any arbitration

agreement within the coverage of the Act... . As we stated

in Keating, ‘in enacting section 2 of the federal Act, Con-

gress declared a national policy favoring arbitration and

withdrew the power of the states to require a judicial forum

for the resolution of claims which the contracting parties

agreed to resolve by arbitration.’ [465 U.S.] at 10. “Con-

gress intended to foreclose state legislative attempts to un-

dercut the enforceability of arbitration agreements’ . . . .

“We see nothing in the Act indicating that the broad prin-

ciple of enforceability is subject to any additional limita-

tions under state law.’ ” 482 U.S. at 489-90.

In the present case the Indiana court mistakenly construed

Volt— which concerned the way arbitration was to be conducted

— to mean that state law could determine whether arbitration

would be conducted. It is beyond question that where, as here,

interstate commerce is involved, the enforceability of an arbitra-

tion clause is a federal question, and nothing in Volt suggests

otherwise.

——

The Indiana court attempted to justify its departure from

established doctrine by pointing out that the contract at issue in

this case contained a choice-of-law provision selecting Missouri

law to govern the parties’ rights. It read Volt as creating a large

loophole in the preemption doctrine in any case involving any

contract containing a choice-of-law provision. This reading was

simply wrong. All federal circuits after Volt, when faced with a

choice-of-state-law clause, have adhered to the rule that federal

law displaces state law insofar as the determination of arbitrability

is concerned. See Todd Shipyards Corp. v. Cunard Line, Ltd.,

943 F.2d 1056, 1062 (9th Cir. 1991); Ackerberg v. Johnson, 892

F.2d 1328, 1334 (8th Cir. 1989); Raytheon Co. v. Automated

Business Systems, Inc., 882 F.2d 6, 11 n.5 (1st Cir. 1989). The

same result had been reached before Volt in Commonwealth

Edison Co. v. Gulf Oil Corp., 541 F.2d 1263 (7th Cir. 1976), and

Webb v. R. Rowland & Co., 800 F.2d 803 (8th Cir. 1986).5

The precise reach of Volt was perhaps best explained by the

Eighth Circuit in Ackerberg, 892 F.2d at 1334, where the parties

had agreed that Minnesota law would govern:

“Volt thus holds that the parties to an arbitration agreement

can agree that state rules concerning arbitration will govern

their proceedings. It clearly does not hold that state law can

determine whether any given claim is arbitrable under the

Federal Arbitration Act. Whether a claim is arbitrable

under federal law is not a procedural question, and Volt

clearly relies on this distinction ... .”

The lower court’s misapplication of these precedents was

egregious enough, but its opinion became truly inexplicable

* State court decisions rejecting the Indiana rationale and applying federal

law despite the parties’ choice of state law include Yates v. Doctor's

Associates, Inc., 549 N.E.2d 1010 (Ill. App. 1990); Pinkis v. Network Cinema

Corp., 512 P.2d 751 (Wash. App. 1973); and Mamlin v. Susan Thomas, Inc.,

490 S.W.2d 634 (Tex. Civ. App. 1973).

aac

when in purported to apply the Missouri law that the parties had

supposedly chosen. It flatly disregarded a controlling decision

of the Missouri Supreme Court and rulings by the Eighth Circuit

both before and after Volt plainly holding that the notice provi-

sion of § 435.460 of the Missouri statues (which requires notice

of arbitration to be set forth expressly in capital letters) does not

apply to contracts involving interstate commerce. In Bunge

Corp. v. Perryville Feed & Produce , Inc.,685 S.W.2d 837 (Mo.

banc 1985), the Missouri Supreme Court held that the notice

requirement of § 435.460 was inconsistent with the FAA and

could not be applied to an interstate transaction. The court said:

“It is clear that § 435.460, if applied to this case, seeks to

impose a requirement for contracts to arbitrate which is in

addition to the requirements of the Federal Arbitration Act.

All that is apparently required under that act is contractual

language and format sufficient for an ordinarily written

contract. . . . If the Missouri statute applies, then a commer-

cial contract sufficient under federal law would be in

violation.

“There is a manifest violation of the supremacy clause if our

statute is so applied.” Jd. at 839.

The Eighth Circuit, applying Missouri law, reached precisely the

same result in Webb, 800 F.2d at 806-07, and Local 2, IBEW v.

Anderson Underground Construction, Inc., 907 F.2d 74, 76 (8th

Cir. 1990).°

* These decisions holding the Missouri notice provision to be preempted

are consistent with cases from other circuits in which state statutes imposing

special notice requirements on arbitration agreements have been held to be

preempted. See, e.g., Securities Industry Ass'n v. Connolly, 883 F.2d 1114,

1117-20(1st Cir. 1989), cert. denied,495 U.S. 956 (1990); David L. Threlkeld

& Co. v. Metallgesellschaft Lid., 923 F.2d 245, 249-50 (2d Cir.), cert.

dismissed, 112 S. Ct. 17 (1991).

pe

The court below once again attempted to explain its departure

from Bunge and Local 2 on the grounds that “[nJeither of these

cases involved a choice-of-law clause.” 571 N.E.2d at 1333.

This reasoning was defective because, as recognized by the

federal circuits, the choice-of-law provision in the contract

cannot override the supremacy of federal law.

The Indiana court’s disregard of federal law was indefensible.

The rationale of this decision and its misinterpretation of Volt

threaten to clog court dockets with cases that the parties agreed

to arbitrate. The ruling below stands squarely in the path of

enforcement of the liberal federal policy favoring arbitration.

This Court should therefore grant review to prevent further

erosion of that policy.

Ii. The Indiana Court of Appeals’ Holding That the Agree-

ment To Arbitrate Did Not Encompass Preexisting

Transactions Violated the Federal Policy That Such

Agreements Should Be Interpreted in Favor of

Arbitrability.

After holding that state, not federal law governed arbitrability,

the Indiana court, purporting to apply Missouri law, relied solely

on a case from the Montana Supreme Court to support its view

that, even if the notice provisions of § 435.460 did not bar

arbitration, this dispute was still not arbitrable. The court cited

Frates v. Edward D. Jones & Co., 760 P.2d 748 (Mont. 1988),

for the proposition that ambiguities should be resolved against

the drafter (petitioner) and held that the agreement to arbitrate

could not be applied “retroactively.” Once more, the court’s

analysis was seriously off target and out of line with the spirit and

lettet of the FAA and prevailing case law.

The arbitration provision at issue here stipulated that, except

for claims arising under the federal securities laws, “... any other

controversy arising out of or relating to my accounts shall be

settled by arbitration . . .’ Properly analyzed, the question

presented is not one of “retroactivity” in any sense. Since the

arbitration provision refers to the resolution of a “controversy,”

there is no issue of retroactivity because all of the “controver-

sies” arose after the agreement was signed. Rather, the issue

posed is merely whether the parties agreed to arbitrate disputes

that might arise in the future out of already-completed transac-

tions. A plain reading of the simple language of the agreement

compels an affirmative answer.

Not surprisingly, in cases governed by the FAA a number of

courts have interpreted virtually identical arbitration language to

encompass controversies arising out of transactions that oc-

curred before the agreement to arbitrate was signed. See, e.g.,

Belke v. Merrill Lynch, Pierce , Fenner & Smith, 693 F.2d 1023,

1028 (11th Cir. 1982) (“any controversy between us arising out

of your business”); Rand Bond of North America, Inc. v. Saul

Stone & Co., 726 F. Supp. 684, 687 (N.D. Ill. 1989) (“any

controversy or claim arising out of or relating to your accounts’’);

Gilmore v. Shearson/American Express, Inc., 668 F. Supp. 314,

320 (S.D.N.Y. 1987) (“any controversy arising out of or relating

to the account of [plaintiff]’””); Clark v. Kidder, Peabody & Co.,

636 F. Supp. 195, 197 (S.D.N.Y. 1986) (“all disputes arising out

of or relating to accounts of or transactions with or for me or to

this agreement or the breach thereof’). The Indiana ruling

conflicts with all these holdings.

Buteven if, arguendo, the arbitration agreement is ambiguous

concerning its applicability to controversies spawned by prior

transactions, the proper approach under the FAA is to construe

the clause liberally in favor of arbitration and not — as did the

Indiana court — to construe it against the draftsman. “[D]ue

regard must be given to the federal policy favoring arbitration,

and ambiguities as to the scope of the arbitration clause itself

7 None of the underlying claims arise under the federal securities laws.

a

resolved in favor of arbitration.” Volt, 489 U.S. at 476. In

Mitsubishi, 473 U.S. at 626, the Court said:

“[A]s with any other contract, the parties’ intentions con-

trol, but those intentions are generously construed as to

issues of arbitrability.”

In Volt, the Court, quoting Moses H. Cone, 460 U.S. at 424-25,

emphasized that the FAA:

“* |. . create(s) a body of federal substantive law of

arbitrability, applicable to any arbitration agreement within

the coverage of the Act,’ which requires that ‘questions of

arbitrability . . . be addressed with a healthy regard for the

federal policy favoring arbitration,’ and that ‘any doubts

concerning the scope of arbitrable issues . . . be resolved in

favor of arbitration.’ ” 489 U.S. at 475.

Finally, in AT&T Technologies, Inc. v. Communications

Workers of America, 475 U.S. 643, 650 (1986), the Court

reinforced this rule of construction:

“In the absence of any express provision excluding a

particular grievance from arbitration, we think only the

most forceful evidence of a purpose to exclude the claim

from arbitration can prevail.”

The Indiana court’s refusal to enforce the plain language

calling for arbitration, coupled with its resort to state law to

construe any supposed ambiguity against the draftsman, com-

pletely flouts federal policy and contravenes numerous deci-

sions of this Court. The judicial antipathy toward arbitration

evidenced by the lower court’s opinion is a throwback to the

antagonism rampant under the common law, which the FAA was

specifically designed to overcome. See Dean Witter Reynolds,

Inc. v. Byrd, 470 U.S. 213, 219-20 & n.4 (1985); Scherk v.

Alberto-Culver Co., 417 U.S. 506, 510-11 & n.4 (1974). The

opinion below, and its underlying philosophy based upon a

a

distortion of Volt, wili doubtless be cited by foot-dragging

litigants to avoid arbitration agreements any time the contract

contains a choice-of-law provision. Because of its manifestly

flawed reasoning, its conflict with many other decisions and its

propensity for subverting an important federal policy, the opin-

ion below should be reviewed by this Court.

CONCLUSION

For the reasons stated, the Petition for Writ of Certiorari

should be granted.

Respectfully submitted,

THOMAS C. WALSH (Counsel of Record)

JOHN MICHAEL CLEAR

Leo J. ASARO

One Metropolitan Square

211 North Broadway, Suite 3600

St. Louis, Missouri 63102

STANLEY C. FICKLE

1313 Merchants Bank Building

11 South Meridian Street

Indianapolis, Indiana 46204

BRYAN CAVE

BARNES & THORNBURG

Of Counsel

May 1992

APPENDIX

APPENDIX A

IN THE FULTON CIRCUIT COURT

1990 TERM

CAUSE NO. 25C01-8908-CP-260

STATE OF INDIANA _)

) SS:

COUNTY OF FULTON )

THURMAN D. ALBRIGHT, et al,

Plaintiffs

VS

EDWARD D. JONES & COMPANY

Defendant and Third-Party Plaintiff

VS

DAVID M. HOUSWORTH

Third-Party Defendant

ORDER UPON ARBITRATION ISSUES

This cause was heard in open court on the 27th day of

December, 1989 at oral argument upon various pending mo-

tions. Upon the issue of defendant’s Motion to Compel Arbitra-

tion and to Stay Claims Asserted by certain plaintiffs, the Court

now rules as follows:

1. The defendant’s Motion is GRANTED.

2. The Court now deems the claims of Steven W. & Linda K.

Carter, Wilbur E. & Carol Frushour, Elizabeth R. Hillis, Larry E.

& Norma B. Lewellen, Floyd C. & Norma J. Sickler, and Eugene

W. & Donna L. Smith to be subject to arbitration. Accordingly,

this cause is stayed pending completion of arbitration for each of

these plaintiffs.

Pe eat

3. In so ruling, the Court deems that both the compensatory

damage and punitive damage remedies that Indiana plaintiffs are

entitled to pursue are available through the arbitration process.

SO ORDERED this 15 day of February, 1990.

/s/ Douglas B. Morton

Douglas B. Morton, Judge

Fulton Circuit Court

= =, a

APPENDIX B

IN THE

COURT OF APPEALS OF INDIANA

THIRD DISTRICT

No. 25A03-9011-CV-496

THURMAN D. ALBRIGHT, et al.,

Appellant (Plaintiffs Below),

v

EDWARD D. JONES & CO.,

Appellee (Defendant Below).

APPEAL FROM THE FULTON CIRCUIT COURT

The Honorable Douglas B. Morton, Judge

Cause No. 25C01-8908-CP-260

STATON, J.

Appellants bring this appeal from the entry of an order

compelling arbitration, raising the issue of whether the arbitra-

tion clauses in agreements between appellants and appellee

Edward D. Jones & Company (Jones) require arbitration of the

controversy presently being litigated. As an additional issue,

Jones challenges the appropriateness of the trial court’s certifi-

cation of the order compelling arbitration as a final appealable

order pursuant to Indiana Rules of Procedure, Trial Rule 54(B).

We reverse.

A brief review of the facts of the underlying dispute serves to

place this appeal in context. The appellants (hereinafter the

“Account Agreement Plaintiffs”) are ten of a number of plain-

tiffs who allegedly purchased interests in certain oil and gas

limited partnerships in Petro-Lewis Corporation through Jones,

who touted itself as a brokerage firm who catered to the small-

town “conservative investor,” specializing in “peace of mind

a

investments.” After each investor took a substantial loss on his

investment, this action was brought against Jones. The action

was based on actual fraud, constructive fraud, violation of the

Indiana Securities Act,' and violation of the Indiana RICO

statute.” In support of the action, the Account Agreement Plain-

tiffs alleged that their losses were due to their reliance on various

misrepresentation by Jones, including assertions that the Petro-

Lewis investment was “conservative,” “safe,” and “decidedly

low risk,” when in fact the investments were risky and nearly

impossible to liquidate.

Jones moved to compel arbitration of the claims and to stay the

claims asserted by the Account Agreement Plaintiffs on the basis

of arbitration clauses contained in “Full Service Account” agree-

ments with Jones executed after the transactions which are the

subject of this litigation. Jones asserted that the language in the

arbitration agreements applied retroactively as well as prospec-

tively to require that all disputes between the parties to the

agreement were to be settled by arbitration. The accounts in

question were all opened prior to the execution of the agreements

upon which Jones relies. The trial court granted Jones’s motion,

entering an order compelling arbitration. The order was certified

pursuant to Trial Rule 54(B) and this appeal ensued.*

We address first the procedural issue raised by Jones.

'IND.CODE 23-2-1-1 et seq.

2IC 35-45-6-1 et seq.

> Although the order pertained to the claims of eleven of the plaintiffs in the

action, only ten of the plaintiffs are parties to this appeal. The claims of

Elizabeth R. Hillis have been voluntarily dismissed.

a cieaineeiinneatniaeemeeete

=

L

Certification of Order

Jones argues that this appeal should be dismissed because the

trial court erroneously certified the order compelling arbitration.

It contends that the order compelling arbitration did not termi-

nate all proceedings in the trial court, as it merely stayed the

claims pending arbitration and did not resolve any issue raised in

the complaint. Moreover, it notes that the order only required

eleven of the numerous plaintiffs to submit to arbitration. Thus,

it argues that certification was improper.

Jones’s contention leads us to an examination of Trial Rule

54(B). Since Trial Rule 54(B) follows the federal rule, we have

found it instructive to examine federal authorities on issues

involving the rule where Indiana precedent is lacking. Legg v.

O’ Connor (1990), Ind. App., 557 N.E.2d 675. Federal Rule of

Civil Procedure 54(b) permits the trial court to certify an order

as appealable if it finds that is possesses the requisite degree of

finality and disposes of at least a single substantive claims. /d.

Generally, the standard for determining what constitutes finality

under the federal rule is the same as that utilized in 28 U.S.C. §

1291. Wright, Miller & Kane, Federal Practice & Procedure:

Civil 2d § 2656 at 51-52.

Prior to its legislative resolution in the federal system,‘ the

issue of whether an order enforcing or refusing to enforce an

arbitration agreement was appealable was aptly characterized as

“baffling.” Id., § 3914 at 556. While it was settled that an order

compelling arbitration or refusing to compel arbitration was

“In 1988, Congress amended the Federal Arbitration Act, adding a new

appeals provision which establishes whether certain orders regarding arbitra-

tion may be appealed. Under the new section, orders compelling arbitration

are not appealable. 9 U.S.C. § 15. This action is not governed by the Federal

Act — see section II of this opinion, infra.

=

final if the sole object of the suit was to compel arbitration, the

cases were split as to whether an order compelling arbitration

was final when it arose out of a lawsuit where other relief was

demanded as well. /d., § 3914.34 at 413-414. At least one

commentator expressed the opinion, however, that finality could

be established through certification pursuant to F.R.C.P. 54(b) if

the arbitration issue is “genuinely separate” from the other

issues. Id., §§ 3914 at 556, n. 54; 3914.34 at 414-415.

Our First District addressed the question of whether an order

compelling arbitration is appealable in Evansville-Vanderburgh

Sch. Corp. v. Evansville Teachers Assoc. (1986), Ind.App., 494

N.E.2d 321. The court stated the settled federal rule that an order

compelling arbitration is an appealable final order in an action

solely for that purpose. However, it cited a Federal case which

held that an order which both compels arbitration and stays

proceedings pending arbitration, although not technically final,

fulfills the finality requirement for purposes of appeal. Cincin-

nati Gas & Elec. Co. v. Benjamin F. Shaw Co.. (6th Cir. 1983),

706 F.2d 155, 158. It also cited Merrill Lynch, Pierce, Fenner

& Smith Inc. v. Griesenbeck (1967), 21 N. Y.2d 688, 234 N.E.2d

456, which held that the mere fact that the motion to compel

arbitration was made in the course of a pending action did not

impair its finality. The complaint in Evansville-Vanderburgh

also involved a second count seeking enforcement of the con-

tract and damages. While the Evansville-Vanderburgh court

found that the order compelling arbitration was appealable

because jurisdiction of the interlocutory appeal had been ac-

cepted pursuant to Appellate Rule 4(B )(6), the court intimated

that the order would have been appealable as a final order if the

trial judge had certified it pursuant to Trial Rule 54(B). 494

N.E.2d at 324.

Our examination of the foregoing authorities leads us to hold

that an order compelling arbitration, when properly certified by

the trial court, is a final appealable order despite the existence of

§

;

—s, pon

other claims in the lawsuit if the arbitration order is severable

from the rest of the claims in the lawsuit. In the present case, the

trial court, citing Evansville-Vanderburgh, found:

that this Court’s Order Upon Arbitration Issues entered

February 15, 1990, disposes of a distinct definite branch of

this case, namely the request for an order compelling

arbitration, leaving no further question to be determined as

to that issue, that the effect of the Court’s Order Upon

Arbitration Issues entered February 15, 1990, is to compel

certain Plaintiffs to arbitrate their claims precluding their

right to participate in the trial against Defendant which is

scheduled in March, 1991, that withholding the right to

appeal and compelling the parties to go through useless

arbitration is counter-productive, and that there is no just

reason for the delay of an appeal of the Order Upon

Arbitration Issues entered February 15, 1990.

Record, p. 302. The trial court did not err in certifying the order

for appeal.

Il.

Arbitration Agreements

A. Choice-of-Law

Initially, there is some disagreement as to what law applies in

the construction of the arbitration agreements in question. Jones

argues that federal law applies, and cites considerable federal

precedent favoring its contention that arbitration is required.

The Account Agreement Plaintiffs, on the other hand, argue that

the choice-of-law clause in the account agreements should

control. The agreements executed by the Account Agreement

Plaintiffs, clearly drafted by Jones, are not all identical — there

are three different variations. However, each contained the

following clause:

— A-8 —

This agreement and its enforcement shall be governed by

the laws of the State of Missouri and its provisions shall be

continuous; shall cover individually and collectively all

accounts which the undersigned may open or reopen with

you, and shall insure [sic] to the benefit of your present

organization, and any successor organization, irrespective

of any change or changes at any time in the personnel

thereof, for any cause whatsoever, and of the assigns of

your present organization, or any successor organization,

and shall be binding upon the undersigned, and/or estate,

executors, administrators and assigns of the undersigned.

Jones argues that the Account Agreement Plaintiffs waived

any argument as to the applicability of Missouri law by failing to

raise the argument at the trial court level. Although the Account

Agreement Plaintiffs did not cite the specific principles of

Missouri law upon which they rely on appeal, they did note the

choice-of-law provision in a memorandum of law to the trial

court and argued that choice-of-law problems were inappropri-

ate for settlement in arbitration. Moreover, the Account Agree-

ment Plaintiffs are not raising a new issue on appeal. They

merely are advancing a new legal argument in support of the

original issue raised at the trial court level — the propriety of

compelling arbitration under the contract. Thus we will address

their contentions with respect to Missouri law.

In support of their argument that the choice-of-law clause in

the agreements controls, the Account Agreement Plaintiffs cite

Volt Information Sciences Inc. v. Board of Trustees (1989), 489

U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 480. In Volt, the Supreme

Court held that state law was not pre-empted by the Federal

Arbitration Act where the parties have agreed that their arbitra-

tion agreement will be governed by state law. Jones cites

numerous lower court cases which either support this proposi-

tion or were decided before Volt. As we find Volt controlling, we

will look to Missouri law in our construction of the contracts.

—s oe

B. The Missouri Notice Statute

The Account Agreement Plaintiffs contend that the arbitration

agreements failed to comply with Missouri Revised Statutes §

435.460, enacted in 1980. That statute provides:

Each contract subject to the provisions of [the Missouri

Uniform Arbitration Act] shall include adjac=nt to, or

above, the space provided for signatures a statement, in ten

point capital letters, which read [sic] substantially as fol-

lows: “THIS CONTRACT CONTAINS A BINDING

ARBITRATION PROVISION WHICH MAY BE EN-

FORCED BY THE PARTIES.”

The logical purpose of this section is to notify parties that their

contract includes a provision for arbitration. State ex rel. Tri-

City Const. Co. v.Marsh(1984), Mo.App., 668 S.W.2d 148, 153.

It evinces a legislative concern that the voluntary nature of

arbitration agreements be assured. Hefele v. Catanzaro (1987),

Mo.App., 727 S.W.2d 475, 476. The statute applies only to

agreements made subsequent to August 13, 1980, the effective

date of the Act. Jd.; Mo.Rev.Stat. § 435.445. This provision has

been applied by the Missouri courts to render an arbitration

clause unenforceable where the contract did not contain the

requisite statement. Hefele, supra.

An examination of the agreements in question reveals an

absence of the requisite language, despite the fact that each was

executed after 1990. In addition, the arbitration clauses are in

normal type, and are not set off in any way in the contracts to call

attention to them. Thus, the arbitration clauses would not be

enforceable under Missouri law.

Jones cites Bunge Corp. v. Perryville Feed and Produce, Inc.

(1985), Mo., 685 S.W.2d 837 and Local 2, Int’ Brotherhood of

Elec. Workers v. Anderson Underground Const. Inc. (8th Cir.

1990), 907 F.2d 74 in support of its contention that the Statute

— A-10 —

does not extend to arbitration agreements which are within

interstate commerce. Neither of these cases involved a choice-

of-law clause, so their pre-emption analysis would not apply in

this case. Volt, supra.

Having concluded that the agreement is not in compliance

with the Missouri statute, the proper remedy under Missouri law

appears to be to remand for a hearing to determine whether the

Account Agreement Plaintiffs had actual notice of the arbitration

clauses. Forest Hills Country Club v. Weber (1985), Mo.App.,

691 S.W.2d 361, transfer denied. But see Hefele, supra (re-

versed order compelling arbitration without remand for hearing

to determine actual notice). However, we find a hearing unnec-

essary in this case, since we agree with the Account Agreement

Plaintiff’s contention that the terms of the agreements do not

include the transactions which are the subject of this lawsuit.

C. Terms of the Agreement

Jones argues that the terms of the agreement indicate that the

arbitration clause is to be applied retroactively. This precise

issue was resolved against Jones in Frates v. Edward D. Jones &

Co (1988), Mont., 760 P.2d 748. In Frates, the plaintiff filed a

complaint against Jones containing nearly identical allegations

as the instant case regarding the sale of Petro-Lewis and NRM

securities. The trial court denied Jones’ motion to stay litigation

and to compel arbitration and Jones appealed. The Supreme

Court of Montana affirmed, holding that the trial court properly

found that the language in the agreement was prospective only,

-and did not apply to the transactions in question, which were

entered before the execution of the agreement. As in this case,

the contract states, “[t]his agreement .. shall cover... all

accounts which the undersigned may open or reopen with you .

...” Id. at 751. The court also noted that any ambiguity would

be construed strictly against Jones as the drafter of the contract.

Id. at 752. The court distinguished federal authority permitting

the retroactive application of an arbitration agreement.

Ol

< et en

— A-11—

We agree with the Supreme Court of Montana’s conclusion in

Frates that the clear language of the agreement requires prospec-

tive application of the arbitration clauses. Jones contends that

Frates is an anomaly, and cites numerous federal cases, each of

which involved language which evinced an intent that the

agreement was to be applied retroactively.’ Such is not the case

here. We are of the opinion that the Missouri courts would not

apply the arbitration clause retroactively.

Accordingly, we reverse the decision of the trial court compel-

ling arbitration and staying the pendin g litigation and remand for

a trial on the merits.

HOFFMAN, P. J., and MILLER, J., CONCUR.

—_—_

*Missouri law, not federal law, is governing here. See section II(A) of this

Opinion, supra. Thus federal cases construing the Federal Arbitration Act are

persuasive, not binding authority.

— A-12 —

APPENDIX C

STATE OF INDIANA

CLERK OF THE SUPREME COURT

COURT OF APPEALS AND TAX COURT

INDIANAPOLIS, 46204

TELEPHONE 317-232-1930

DWAYNE M. BROWN, CLERK

217 STATE HOUSE

[SEAL]

Cause Number

25A03-901 1-CV-00496

LOWER CAUSE

25C018908CP260

JOHN MICHAEL CLEAR

BRUCE C. OETTER, L. ASARO

500 N. BROADWAY

ST. LOUIS, MO 63102-0000

ALBRIGHT, THURMAN -V- COMPANY, EDWARD D.

JONES &

You are hereby notified that the Supreme Court has on this day

2/27/92

APPELLEE’S PETITION FOR ORAL ARGUMENT IS

HEREBY DENIED.

RANDALL T. SHEPARD, CHIEF JUSTICE

ALL JUSTICES CONCUR.

APPELLEE’S PETITION TO TRANSFER IS HEREBY DE-

NIED. RANDALL T. SHEPARD, CHIEF JUSTICE

ALL JUSTICES CONCUR.

— A-13 —

WITNESS my name and the seal of said Court,

this 27th day of FEBRUARY, 1992

/s/ Dwayne Brown

Clerk Supreme Court,

Court of Appeals and Tax Court

—_*)

APPENDIX D

IN THE FULTON CIRCUIT COURT

1989 TERM

CAUSE NO. 25C01-8908-CP-00260

[Filed October 20, 1989]

STATE OF INDIANA _)

) SS:

COUNTY OF FULTON )

THURMAN D. ALBRIGHT, et al.,

Plaintiffs,

Vv.

EDWARD D. JONES & CO., et al.,

Defendants.

Memorandum In Support Of Defendant’s Motion To

Compel Arbitration And To Stay Claims

Asserted By Plaintiffs

x** * *

ARGUMENT

The transactions between the Arbitration plaintiffs and EDJ

were in interstate commerce and therefore their arbitration

agreements are governed by the Federal Arbitration Act, 9

U.S.C. §§ 1-14 (1982).? The Act and its underlying policy and

directive have been described by the Supreme Court as follows:

2 Indiana courts construing the Indiana Uniform Arbitration Act have held

that where the federal Arbitration Act is applicable, as here, the Indiana Act

is inapplicable. University Caseworks v. Bahre (1977), 172 Ind. App. 624,

362 N.E.2d 155, and Pathman Construction Co. v. Knox County Hospital

Assoc. (1975), 164 Ind. App. 121, 326 N.E.2d 844. In Southland Corp. v.

(Footnote 2 continued on next page)

j

2

:

§

3

— A-15 —

Federal law in terms of the Arbitration Act governs

[arbitrability of a dispute] in either state or federal court.

Section 2 is the primary substantive provision of the Act,

declaring that a written ugreement to arbitrate “in any

maritime transaction or a contract evidencing a transaction

involving commerce... . shall be valid, irrevocable, and

enforceable, save upon such grounds as exist at law or in

equity for the revocation of any contract.” 9 USC § 2.

Section 2 is a congressional declaration of a liberal federal

policy favoring arbitration agreements, notwithstanding

any state substantive or procedural policies to the contrary.

The effect of the section is to create a body of federal

substantive law of arbitrability, applicable to any arbitra-

tion agreement within the coverage of the Act. ... The

Arbitration Act establishes that, as a matter of federal law,

any doubts concerning the scope of arbitrable issues should

be resolved in favor of arbitration, whether the problem at

hand is the construction of the contract language itself or an

allegation of waiver, delay, ora like defense to arbitrability.

Moses H. Cone Hospital v. Mercury Const. Corp. (1983), 460

U.S. 1,24-25 (emphasis added). In recent decisions the Supreme

Court has applied the Arbitration Act and these principles to

agreements between securities brokers and customers, enforcing

arbitration agreements even as to claims under the federal

Securities laws. Rodiquez de Quijas v. Shearson/American

Express Inc. (1989), U.S., 57 U.S.L.W. 4539; Shearson/Ameri-

can Express Inc. v. McMahon (1987), 483 U.S. 1056; Dean

Witter Reynolds Inc. v. Byrd (1985), 470 U.S. 213, 221: “The

preeminent concern of Congress in passing the Act was to

enforce private agreements into which parties had entered, and

(Footnote 2 continued)

Keating (1994), 465 U.S. 1, the Supreme Court held that under the Supremacy

Clause, the federal Arbitration Act applied in state courts and applied to state

statutory liabilities in preemption of any contrary state law.

— A-16—

that concern requires that we vigorously enforce agreements to

arbitrate. ...”

The effect of the arbitration agreement signed by the Arbitra-

tion Plaintiffs with EDJ is the same regardless of whether the

agreement was signed before, after, or at the time of the particu-

lar transaction giving rise to the dispute.’ Agreements similar in

text to the EDJ Agreement have been held to apply to transac-

tions which occurred before the execution of the agreement. For

example, in Gilmore v. Shearson/American Express (1987),

S.D.N.Y., 668 F. Supp. 314, the broker-customer contract pro-

vided that “[a]ny controversy arising out of or relating to the

account of the undersigned . . . shall be arbitrated.” The court

rejected a contention that the contract did not apply to previous

transactions:

That some of the transactions may have preceded the date

of the agreement is not relevant. The arbitration clause, by

its terms, applied to any controversy relating to plaintiff’s

account.

668 F. Supp. at 320 n.10. Another decision found that the use of

the term “accounts,” as in the EDJ Agreement, further indicated

the intended coverage of pre-contract matters:

The plural references emphasized are broad enough on their

face to cover disputes regarding transactions in previously

established accounts between the same parties.

Bernstein v. Shearson/American Express Inc. (1987), S.D.N.Y.,

[1987 Transfer Binder] FED. SEC. L. REP. (CCH) § 93,392 at

97,051 (copy attached).

>The EDJ Agreements executed by the Arbitration Plaintiffs appear to

have been signed after the alleged dates of their Petro-Lewis purchases. The

EDJ Agreement signed by plaintiffs Eugene W. and Donna L. Smith, see fn.1

supra, states expressly that it applies to previous, concurrent, and subsequent

transactions, the intent implicit in the previous form of Agreement.

laine int:

AN cea |) PT Ee Tea at ER eS Nin APP Lo Be th Oca cance PSD Cette tia!

ph RANI. tip Tia

— A-17 —

Numerous other decisions have reached the same conclusion.

E.g., Belke v. Merrill Lunch, [sic] Pierce, Fenner & Smith

(1982), 11th Cir., 693 F.2d 1023: F utransky v. Shearson Lehman

Hutton Inc. (1988), N.D. Ill., [1988-1989 Transfer Binder] FED.

SEC. L. REP. (CCH) § 94,148 (copy attached); Western Hospi-

tals Credit Union v. E. F. Hutton & Co. (1988), N.D. Cal., 700

F. Supp. 1039; Clark v. Kidder, Peabody & Co.(1986),S.D.N.Y.,

636 F. Supp. 195; Shotto v. Laub (1986), D. Md., 632 F. Supp.

516.

The investments of the Arbitration Plaintiffs at issue here fall

squarely within the plain language of the arbitration Clause,

which applies to “any controversy.” If the clause were intended

to apply only to future investments or controversies, it would

have contained a provision limiting it to “any future controversy

or purchase.” See Coenen v. R.W. Pressprich & Co. (1972), 2d

Cir., 453 F.2d 1209, 1212, cert. denied, ( 1972) 406 U.S. 949.

In addition to mandating arbitration, the Federal Arbitration

Act and the policies behind it plainly require a stay of the claims

asserted by the Arbitration Plaintiffs pending the outcome of

arbitration. See 9 U.S.C. § 3 (1982). This is in accord with

Indiana practice, IND. CODE § 34-4-2-3(d) (1988). Thus, since

the Arbitration Plaintiffs must arbitrate, they must be precluded

from participating in this action by means of a stay, to avoid

duplicative proceedings.

— iba.

CONCLUSION

For the reasons stated above, Arbitration Plaintiffs should be

compelled to arbitrate all of their claims. The Court also should

stay the litigation of all claims asserted by the Arbitration

Plaintiffs herein pending the completion of the arbitration.

BARNES & THORNBURG

By /s/ Edward O. DeLaney

Edward O. Delaney

Stephen K. Smith

1313 Merchants Bank Building

11 South Meridian Street

Indianapolis, Indiana 46204

Telephone: (317) 638-1313

BRYAN, CAVE, McPHEETERS &

McROBERTS

By /s/ John Michael Clear

John Michael Clear

Bruce C. Oetter

Steven A. Nieters

500 North Broadway

St. Louis, Missouri 63102

Telephone: (314) 231-8600

Attorneys for Defendant

EDWARD D. JONES & CO.