No. 8 5 - 4 5 9
IN THE SUPREME COURT OF THE STATE OF MONTANA
1986
LARRY W. PASSAGE; NEVA M. PAGGAGE,
individually and as custodian for
ALLISON PASSAGE and TOD PASSAGE,
minors; and TWILA PASSAGE,
Plaintiffs and Respondents,
PRUDENTIAL-BACHE SECURITIES, INC.,
a Delaware corporation; G.T. MURRAY
COMPANY, a Montana corporation;
RICHARD DOBBINS; WILLIAM CROWLEY;
and G.T. MURRAY,
Defendants and Appellants.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis & Clark,
The Honorable Gordon Bennett, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Daniel J. Shea argued for Prudential-Bache, Helena,
Montana
Luxan & Murfitt; Michael J. Mulroney argued for G.T.
Murray, et al., Helena, Montana
For Respondent:
W. W. Leaphart argued, Helena, Montana
Submitted: June 17, 1986
Decided: August 26, 1986
AUG 2 6 1986
Filed:
Mr. Justice Fred J. Weber delivered the Opinion of the Court.
In this case, all parties appeal portions of an order of
the District Court for Lewis and Clark County which held that
claims on some of the Passages' accounts with defendants were
subject to valid arbitration clauses. We affirm in part and
reverse in part.
The issues are:
1. Did the District Court correctly determine that it
had jurisdiction to order arbitration of the Passages' claims
under the Federal Arbitration Act?
2. Are the arbitration agreements in this case adhesion
contracts, and if so, are they unenforceable?
3. Did the District Court err in directing that arbi-
tration be conducted under the rules of the American Arbitra-
tion Association as elected by the Passages?
4. Which parties are entitled to benefit of the arbi-
tration agreement?
5 Did the District Court properly stay the claims of
the children pending arbitration of their parents' claims?
Prudential-Bache Securities, Inc. (Prudential) is the
New York correspondent of G. T. Murray Company. The other
three defendants are or were officers or employees of G. T.
Murray Company. Beginning in 1983, the Passages opened
several accounts at the G. T. Murray office in Helena, Mon-
tana. The accounts included two "target accounts" and two
regular accounts, with total deposits of $429,403.30. Neva
Passage also opened accounts for each of their two children
with total deposits valued at $13,440.97. Larry Passage
opened an account for Twila Passage, his mother, with total
deposits valued at $27,187.51. When they opened their
regular and target accounts, Larry and Neva Passage signed
customer agreement forms, a copy of which is appended to this
opinion. Twila Passage also signed a customer agreement
form. The customer agreement forms included arbitration
clauses providing as follows:
Any controversy arising out of or relating to my
account, to transactions with or for me or to this
Agreement or the breach thereof, . . .shall be
settled by arbitration in accordance with the rules
then obtaining of either the American Arbitration
Association or the Board of Governors of the New
York Stock Exchange as I may elect. If I do not
make such election by registered mail addressed to
you at your main office within five (5) days after
demand by you that I make such election, then you
may make such election.
In February 1985, the Passages filed suit in the Dis-
trict Court for Lewis and Clark County, charging defendants
with various violations of state securities laws and duties
in handling their accounts. The complaint alleged losses in
the regular and target accounts of $320,104.82, losses in the
children's accounts of $4,770, and loss in the Twila Passage
account of $10,210.15. Defendants filed demands for arbitra-
tion. The District Court found that the accounts, except for
the children's accounts, were subject to valid arbitration
clauses and granted the motion of defendant Prudential to
compel arbitration. It denied the motion of defendants G. T.
Murray Company, Richard C. Dobbins, William Crowley, and G.
T. Murray (the Murray defendants) to compel arbitration. It
held that there was a question of whether the Murray defen-
dants had standing to demand arbitration, but stated that
this was immaterial since Prudential undisputedly had the
necessary standing. The court also held that the client
agreements containing the arbitration clauses did not apply
to the accounts opened in the names of the Passage children,
but it stayed judicial proceedings on the children's claims
until arbitration is completed on the other claims. Each of
the parties has appealed on portions of the judgment which
are unfavorable to it.
Did the District Court correctly determine that it had
jurisdiction to order arbitration of the Passages' claims
under the Federal Arbitration Act?
This area of the law is undergoing rapid and comprehen-
sive change as a result of recent U.S. Supreme Court deci-
sions. That Court's decision in Southland Corp. v. Keating
(1984), 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1, conclusively
answers this question. In that case, Southland Corporation,
the owner and franchisor of 7-Eleven convenience stores, was
charged by 7-Eleven franchisees with fraud, oral misrepresen-
tation, breach of contract, breach of fiduciary duty, and
violation of state disclosure requirements in its franchise
agreements. Southland Corporation appealed the decision of
the California Court of Appeals that arbitration clauses in
Southland's contracts with its franchisees were rendered void
by California's Franchise Investment Law, which required
judicial consideration of claims brought under it. The
Supreme Court reversed. It held that, as interpreted, the
California Franchise Investment Law conflicted with the
Federal Arbitration Act and violated the Supremacy Clause.
The Court reasoned:
In enacting 2 of the federal Act, Congress de-
clared 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 arbi-
tration ...
Congress has thus mandated the enforcement of
arbitration agreements.
Southland, 465 U.S. at 10. In answer to the argument that
claims brought in state court are not subject to the Arbitra-
tion Act, the Court stated:
... it is clear beyond question that if this suit
had been brought as a diversity action in a federal
district court, the arbitration clause would have
been enforceable. [citation omitted. ] The inter-
pretation given to the Arbitration Act by the
California Supreme Court would therefore encourage
and reward forum shopping. We are unwilling to
attribute to Congress the intent, in drawing on the
comprehensive powers of the Commerce Clause, to
create a right to enforce an arbitration contract
and yet make the right dependent for its enforce-
ment on the particular forum in which it is assert-
ed. And since the overwhelming proportion of all
civil litigation in this country is in the state
courts, we cannot believe Congress intended to
limit the Arbitration Act to disputes subject only
to federal-court jurisdiction. Such an interpreta-
tion would frustrate congressional intent to place
" [a]n arbitration agreement . . . upon the same
footing as other contracts, where it belongs." H.R.
Rep. No. 96, 68th Cong., 1st Sess., 1 (1924).
In creating a substantive rule applicable in state
as well as federal courts, Congress intended to
foreclose state legislative attempts to undercut
the enforceability of arbitration agreements.
Southland, 465 U.S. at 15-16. Under Southland, a state court
clearly has jurisdiction order arbitration under the
Federal Arbitration Act.
We affirm the District Court as to this issue.
Are the arbitration agreements in this case adhesion
contracts, and if so, are they unenforceable?
The customer agreement forms signed by the Passages are
one-page documents, but they contain a number of complex and
technical agreements and promises on the parts of both par-
ties. The arbitration clause, paragraph 14, is printed in
the same typeface as the rest of the form. It is one of the
longer provisions in the agreement. The Passages invested a
significant amount of money with defendants, and there has
been no suggestion that they require protection because they
are in any way improvident persons.
The Southland opinion does not mandate that all arbitra-
tion clauses are enforceable:
We discern only two limitations on the
enforceability of arbitration provisions governed
by the Federal Arbitration Act: they must be part
of a written maritime contract or a contract "evi-
dencing a transaction involving commerce" and such
clauses may be revoked upon "grounds as exist at
law or in equity for the revocation of any
contract."
Southland, 465 U.S. at 10-11. The agreement between the
Passages and Prudential clearly involves interstate commerce,
since its object was purchase and sale of securities through
a public stock exchange.
The Passages contend that the agreement should be de-
clared unenforceable upon "grounds as exist at law or in
equity for the revocation of any contract." The Passages
argue that this clause is revocable because it appears in a
contract of adhesion. They have cited post-Southland cases
in which state courts have declared void arbitration clauses
in contracts of adhesion. However, the factual and legal
situations in those cases were different from the one here.
In Victoria v. Superior Court (Cal. 1985), 710 P.2d 833
(patient was sexually assaulted by an orderly), the holding
that the arbitration clause would be set aside was based on
the court's determinations that the scope of the arbitration
clause was unclear, its ambiguity should be interpreted
against the hospital-drafter, and it was unlikely that the
parties intended the arbitration clause to apply in these
circumstances. In Obstetrics and Gynecologists v. Pepper
(Nev. 1985), 693 P.2d 1259 (gynecology clinic patient suf-
fered cerebral incident while on oral contraceptives), the
appellate court upheld the district court's setting aside of
an arbitration clause. The appellate court stated the dis-
trict court had not made findings and conclusions but rea-
soned that the district court could have found the agreement
was an adhesion contract and was not knowingly entered.
The Passages also argue that this Court's opinions in
Anderson v. Baker (1982), 196 Mont. 494, 641 P.2d 1035 (adhe-
sion contracts construed against the drafter), and
Transamerica Ins. Co. v. Royle (1983), 202 Mont. 173, 656
P.2d 820 (insurance policy clause examined using consumer
approach), should be extended so that the enforceability of
this arbitration clause would be examined from a consumer
approach. They contend that under the consumer approach the
provision for arbitration should be stricken, since it was
not clearly established that the Passages were put on notice
of the arbitration clauses.
In contrast, the federal courts have held arbitration
clauses in brokerage agreements enforceable:
Contracts of adhesion arise when a standardized
form of agreement, usually drafted by the party
having superior bargaining power, is presented to a
party, whose choice is either to accept or reject
the contract without the opportunity to negotiate
its terms. [citation omitted. ] Here, the investor
is faced with an industry wide practice of includ-
ing Arbitration Clauses in standardized brokerage
contracts. As the investor faces the possibility
of being excluded from the securities market unless
he accepts a contract with such an agreement to
arbitrate, such clauses come within the adhesion
doctrine. However, mere inequality in bargaining
power does not render a contract unenforcible ,
[citation omitted] nor are all standardized con-
tracts unenforcible. [citations omitted. ] As a
consequence of current commercial realities, form
forum clauses will control, absent a strong showing
it should be set aside. [citation omitted.] For
such a contract or clause to be void, it must fall
within judicially imposed limits of enforcement.
It will not be enforced against the weaker party
when it is: (1) not within the reasonable expecta-
tions of said party or (2) within the reasonable
expectations of the party, but, when considered in
its context, is unduly oppressive, unconscionable
or against public policy. [citations omitted.]
Such pre-dispute arbitration agreements are not
outside the reasonable expectations of the inves-
tor. [citation omitted.] Nor are they contrary to
public policy, as indicated by the judicial and
legislative presumption favoring the arbitration of
such disputes. [citation omitted.]
Finkle and Ross v. A.G. Becker Paribas, Inc. (D.C.N.Y. 1985),
There nothing the record indicate that the
arbitration clause in the client agreement form was not
within the parties1 reasonable expectations. Nor is there
any evidence that the clause is oppressive or unconscionable.
The federal caselaw demonstrates that arbitration clauses are
common, and may be universal, in brokerage agreements. In
Southland, which like the present case involved allegations
of fraud and misrepresentation, the public policy of enforce-
ment of arbitration clauses was forcefully stated. We con-
clude that even if the customer agreement form is an adhesion
contract, there is nothing in the record and no compelling
law to prevent enforcement of the arbitration clause. We
affirm the District Court's holding that the arbitration
clause is enforceable.
Did the District Court err in directing that arbitration
be conducted under the rules of the American Arbitration
Association as elected by the Passages?
The Murray defendants argue that the Passages' election
of arbitration rules should not be honored, since they did
not consent to arbitration. The Passages' April 16, 1985
election of the American Arbitration Association was made
within the 5 days allowed from the date of demand for arbi-
tration, as required in paragraph 14 of the customer agree-
ment form. The selection complied in all respects with the
requirements of the contract, but was made contingent upon
arbitration being compelled by the court. We conclude that
the District Court properly honored the Passages' election of
arbitration rules, once it determined that arbitration was
proper.
IV
Which parties are entitled to benefit of the arbitration
agreement?
The District Court found the Murray defendants were not
signatories to the customer agreement forms. It therefore
denied the Murray defendants' motion to compel arbitration.
An examination of the customer agreements reveals that Pru-
dential was not a signatory either, although its name or the
name of its predecessor in interest was printed at the top of
each of the forms. The customer agreement form does not
clearly indicate the identity of the party or parties with
whom the Passages were contracting; it refers to "you", with
no explanation of who "you" is. The District Court granted
Prudential's motion to compel arbitration.
All of the claims in the Passages' complaint relate to
mishandling or unwise management of the Passages' accounts
opened at the G. T. Murray office. It is our conclusion
that since the claims against Prudential and against the
Murray defendants arise out of the same facts and the same
actions, to separate the claims as to the defendants would be
inappropriate. There is support for this conclusion:
Ross [the investor] argues that her claims should
not be arbitrated for several reasons. First, she
argues that the claims against Mathis [the broker]
should not be arbitrated because he is not a party
to the agreement. Although Mathis did not sign the
agreement, the causes of action against him may be
arbitrated. Every allegation against him arises
out of his handling of Ross' account as a Bear
Stearns employee. Her damages are predicated on
Mathis' alleged breach of a myriad of state and
federal duties concerning her account at Bear
Stearns. Ross' assertions based upon her trust in
Mathis due to their relationship do not change this
fact. Any breach of trust dealt with Mathis'
actions regarding Ross' accounts with Bear Stearns.
Thus, her case against Mathis is based solely on
her account, which the arbitration agreement
covers.
Ross v. Mathis (N.D.Ga. 1985), 624 F.Supp 110, 113-14. That
court held that the claims against broker Mr. Mathis were
arbitrable.
We hold that the Passages' claims against all of the
defendants are arbitrable.
Did the District Court properly stay the claims of the
children pending arbitration of their parents' claims?
Both Prudential and the Passages object to the District
Court's order staying the claims on the Passage children's
accounts pending arbitration of the other claims. Prudential
argues that the claims on the Passage children's accounts are
subject to arbitration along with the other claims. The
Passages argue that the District Court was correct in finding
the children's accounts were not included under the terms of
the client agreement forms. They contend, however, that it
is unjust to stay court action on the children's claims.
Neva Passage opened the accounts in the names of the
children and deposited all funds into them. The children are
teenagers, and the daughter has attained the age of majority
during the course of this action. The amounts deposited in
the children's accounts are not large in comparison with the
deposits to the other accounts. There is nothing in the
record to conclusively establish the nature of these ac-
counts, whether as completed gifts, funds held in trust, or
otherwise. The Passages' complaint states that Larry and
Neva Passage are 'guardians' of their children but no facts
are known as to the technical or legal aspects of the guardi-
an status. We conclude that a factual question remains as to
whether Larry and Neva Passage have an interest in the chil-
dren's accounts, subjecting the accounts to the arbitration
agreement.
Issues which go to the formation of the contract as a
whole may properly be decided by an arbitrator. Merrill
Lynch, Pierce, Fenner, etc. v. Haydu (5th Cir. 1981), 637
F.2d 391, 398. We have here an issue of whether the chil-
dren's accounts are covered by the customer agreement forms.
We reverse the order of the District Court on this issue.
The District Court shall enter an order submitting this issue
to arbitration.
Affirmed in part and reversed in part.
We Concur:
Chief Justice
. .
t.5'y!*:l,$ ,? ogrww o,sldlowg kith nspret to all of my accounts: in whkh I hov; on interest olon: or with othen, whkh I hove opened or open h the futuie, with you
v-.,- t
jC ~I+VQI ds+ of murities ond commoditbst
2.1 bn,d MI q)e and n p n u n t that Iam not an employee of ony exchonge or of o Member Flrm of any Exchange or the NASD, or of o bonk, tr st company,
.
.',> ~ ~ M 9 0 * n p a n y m d thot,t will promptly notlfy you H I become so employed.
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. 3. AH hmsadbns fo; my occeunt shall be su~ectto the constitution, rules, regulations, customs ond usoges, oa the tame m q be constituted from tlme M tkm,
$iof,the m u h g or m e e t (and b d e w h g hbuu, H any) where executed.
xcmr
*r*i ' + ' w l m d dl cid . H bdmcn, wcuritbs, commoditbs or controcts relating thereto, ond 011 other property of whakoever khd belonging to me or in whkh I
a m q h m a h t t n H held by p u or carrbd for my occounts shall be subiect to o generol lien for the discharge of my obligotbns to you (including unmotured and
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!'conthgent obllgatbnc) howwer a h h g m d wHhovt ragord to whether or not you hove mode odvonces with respect to such property and withovt notke to me m q be
,,,cmkd h'yw gonerd bans md all ucurlbs m q be pledged, repledged, hypothecoted or re-hypothecated, separately or in common with other securitbs or any
'-other p r o m , for the sum d w to u thereon or fot o greater sum and without retaining in your possessbn ond control for delivery o like amount of rimlor securitbt
.or a h r t r o p r y . At m y tlmr m f i r o m tlme to tlme you may, In your discretbn, without notke to me, apply and/or hansfer on7 securities, commodities, controcts
: n l a t h g : ~ n t o ,tmh or m y other property therein, Interchangeably between any of my accounts, whether lndividud or klnt or from any of my acounts to any
omunt gu&mtaed by me. You are specHkdly outhorlxed to transfer to my cosh account on the settlement day following o purchase mode In that account, excess
,' funds avofable h m y of my other occounts, including but not limited to ony free bolonces in any margin occount or in any non-regulated commoditbc acount,
$b . ~ y h purchau, I agree that any debit occurring In any of my occounh m q be trmrferred by you at your optbn to my margh
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wffkknt tod~akr.fullpo)*nr*.of
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5. Iwfl mohtoh twh morghs OS'~OUm q h your discretbn require from tlme to time ond will p q on demand ony debit bolonce owing with resped to any
0 f . v oaountl. Whenever h your dhcretbn you deem it deslroble for your profectbn, (and without the necessity of o morgin call) including but not limited to on
.hstmcr whwa a petitbn h bonkwpky or for t h i appointment of o receiver k filed by or ogalnst me, or an dachment h levied against my acount, or In the event
of notk. of my dedh or h c o p ~ , l t ~ , . o ~
h,compllance with the orders of ony Exchonge, you m q , without prbr demand, tender, a d without any notke of the tlme
. or plar of ad*, dl of whkh are expressly woived, ull ony or all securities, or commodities or contracts reldlng thereto whkh m q be in your possessbn, or whkh you
,,may k t q h g for me, or buy m y ucurhbs, or commoditbs or contracts relating thereto of whkh my acount or accounts may be short, in order to clow out In
, ,whole or h part m y commitment h my behalf or you may place stop orders with respects to such securitbs or commoditbs and such tole or purchme m q be mode
at your dbcretbn on ony Exchange or other morket where such business Is then tronsocted, or ot puMk ouctbn or private sale, with or without odverthlng a d neither
,my demands, tdls, tenders or notkes whkh you may moke or give in any one or more Instances nor any prbr coune of conduct or deolings between us sholl in-
vdldoh thr afonsakl woken on my port. You shall hovr ?heright to purehdw for your own account ony or dl of the oforesoM property at any such sde, dhchaged
of m rbht of redemption, whkh h hereby waived.
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:* 6 A l arden for the purchow or sole of commoditbs for future delivery m q be closed out by you as and when authorized or required by the Exchange where
.
. made. Agahrt a "long" positbn h m y commodiy controct, prbr to matur'q thereof, ond at least five business d q s before the first notke d q of the delivery month,
Iw l l g k hstructbns to Ilquklatr, or ploce you in suffkbnt funds to toke delivery1 ond in default thereof, or In the event such liquidating hstructbns connot b e
r&ed under pmvoilhg condlbncj you may, without notice or demand, close out the contracts or take delivery ond dispose of the commod'v upon any terms a d
by any d a d whkh m q br frolible. Against o "short" positbn In ony commodity contract, prior to maturity thereof, ond d least five business d o y ~ before the
lad hodhg duy of the delivery month, I will g h you instructions to cover, or furnish you with all necessary delivery documentsr and In defwlt thereof, you m q with-
out damand or notke, cover the conhoch, or H orden to buy in such contracts, cannot be executed under prevatling conditions, you m q procure the ahrd commodity
md moke drlinry thrrwf upon any terms and by any method whkh m q be feasible.
7. All tonrations h mynof my occounts ore to be pold for or required morgin deposited no later than 2100 p.m. on the wnlemont date.
: t . 8. I o g m to p q hterest and u w k e charges upon my accounts monthly at the prevailing rate as determined by you.
' 9. I o g m hat, h g k h g orders to seI1~ all "short" sale orders will be deslgnded 01 "short" and all "long" sde orders will be deslgnded ol "long" a d
thd the h i g n o t b n of b sell order o "long" h a representdbn on my par! that I own the securiy ond, H the ucurity b not h your poswsskn that I b not then.
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poulble to d d k r ( . crcurhy k you forthwith ond Iwill deliver it on or before the wttlament date.
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rw 10. ~ e p i m . o fthe executbn of orden and rtdemenk of my occount shall be conclusive H not oqeded to in writing within f h d q a ond ten dqa, respectively,
afbr trmrmind to ma by ma9 or otherwhe. . .....
' .' 11. All mmmunkatbnc including margin calls m q be sent to me at my address given you, or at such other oddress as I m q hereafter give you h writing, m d
'.dlcommunkatbns w unt, whether h writing or othewhe, sholl be deemed given to me persondly, whether octuolly received or not.
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.'I : . 12:Nd w of m y p p v k b n of thh ogrwment h a l l be deemed o woiver of any other provkbn, nor a continuing waiver of the provhbn or provhbns SO.
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. . 13. 1 understand that no provkbn of thk ogreement con be omended or woived except in writing signed by on offker of your Company, a d that thh agreement
hdl conthw h force until H tdrmhatbn by me b acknowledged in writing by oh officer of your Componyj or untl written notke of termhatbn by you hdl have
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boon moiled t me @ my oddresi last given you.
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14. Thh controcl shdl be governed by the lows of the State of New York, and sholl inure to the benefit of your successors a d osslgns, and sholl be bhding on
a the undmlgnod, h h heks, executors, odministrotors ond asslgns. Any controversy arising out of or relating to my account, to tronstxtbns with or for me or to thh
Agreement or the breah thereof, and whether executed or to be executbd within or outside of the United States, except for any controversy orbing out of or reldlng
t honsoclbns h commoditbs or contracts related thereto executed on or subject to the rules of o contrtxt morket designated as such under the Commod'v Exchange
o
Act, oa ommded, shdl be wttled by arbithion In occordonce with the rules then obtaining of either the Amerkon Arbitration Assoclotbn or the Boord of Gowrnon
of the New,York St& Exchange as I moy elect. If I do not make such election by regittered moil addressed to you crt your mob, office withh five (5) duys after
demand by p u that I make such electbn, then you may moke such election. Notke preliminary to, In con/unctbn with, or incMent to such orbitrdbn proceeding, may
be sent to rr* by m o l and penond wwka h hereby woived. Judgment upon ony oword rendered by the arbitraton mey be entered in m y court h w h g jurhdidbn
thereof, wihoul hotke to me. ' .
'.' " IS. If m y provhbn hereof h or ot any time should become inconsistent with ony presew?or future law, rule or regulation of ony wcurities or commodities exchange
!"or of any wverelgn government or a reguloto+ body thereof and if any of these bodies hove iurlsdktion over the subfect matter of thk agreement, sold provkbn
. .hall ba:d.rmad k br wparwd.drd or modified to conform to such low, rule or regulatbn, but in all other respsctr thb ogrwmmt shall continue ond rem-full
I :
. , #
CLlENflS SIGNATURE
:2
. . LENDING AGREEMENT
YOU A N 6 . M FIRM
SUCCEEDING TO YOUR FIRM ARE HEREBY AUTHORIZED FROM TIME TO TIME TO LEND SEPARATELY O TOGETHER WITH THE PROPERTY
R
OF OTHERS EITHER TO YOURSELVES OR TO OTHERS ANY PROPERM WHICH YOU MAY B CARRYING FOR ME ON MARGIN. THlS AUTHORlZATiON SHALL APPLY
E
TO ALL ACCOUNTS CARRIED B YOU FOR ME AND SHALL REMAIN IN FULL FORCE UNTIL WRITTEN NOTICE OF REVOCATION IS RECEIVED B YOU AT YOUR
Y Y
.
..
, I.
. : ..'.f
,
KINDLY SIGN THIS FORMIN THE TWO SIGNATURE SPACES INDICATED ABOVE. IN THE CASE O F ' J ~ I N TACCOUNTS, BOTH TENANI
BOTH SIONATURL SPACES, RETURN THlS ORIGINAL (WHITE) TO THE BACHE OFFICE WHI$H SERVICES YOUR ACCOUNT. THE DUPLICAT
RETAINED FOR YOUR PERSONAL RECORDS. '
, . ... . EXHIBIT
APPENDIX
Mr. Justice Frank B. Morrison, Jr., dissenting:
I dissent.
The majority opinion concludes that it is not necessary
to decide whether the contract is one of adhesion since there
is "no compelling law and nothing in the record to prevent
the clause from being enforced." I am at a loss to
understand what is being said.
First, it is necessary to decide whether the provision
is one of adhesion. Under the authority cited in the
majority opinion, the language is clearly one of adhesion
since the investor does face the possibility of being
excluded from the securities market unless he or she accepts
a contract with such an agreement to arbitrate.
Since this provision is one of adhesion the authorities
universally require that it not be enforced unless there is a
showing that: (1) the provision is within the reasonable
expectations of the parties and (2) is not unduly oppressive,
unconscionable or against public policy. Finkle and Ross v.
A.G. Becker Paribas, Inc. (D.C.N.Y. 1985), 622 F.Supp. 1505,
1511-12, cited in the majority opinion.
There has been no factual determination by the trial
court respecting the reasonable expectations of the parties
to this agreement. The adhesion provision provided:
Any controversy arising out of or relating to my
account, to transactions with or for me or to this
agreement or the breach thereof . . .
shall be
settled by arbitration in accordance with the rules
then obtaining of either the American Arbitration
Association or the Board of Governors of the New
York Stock Exchange as I may elect ...
First, the adhesion provision is not specifically
directed to anyone in particular. We do not know whether
Passages' intended for the arbitration agreement to apply to
Prudential-Bache, or G.T. Murray, or both. The District
Court found that the agreement applied to Prudential-Bache
but not to G.T. Murray. The majority finds that the District
Court erred in that it would be inappropriate to separate the
claims as to the defendants. This action is taken by the
majority with no reference to whether application of
arbitration to the Murray defendants was within "the
reasonable expectations" of the parties. This is a factual
determination that was not clearly addressed by the District
Court but, if it was addressed, the District Court must have
found that Passages did not expect the agreement to apply to
Murrays. There is no factual basis for this appellate court
to find that the record shows, as a matter of law, that the
parties intended the arbitration clause to run to Murrays who
are not mentioned in the agreement.
Secondly, there are no facts in the record respecting
whether Passages intended the arbitration provision to apply
to tort actions. Domke on Commercial Arbitration (Rev.~d.)
states at § 13:08 that:
Liability for tort will usually not be an
arbitrable issue since parties will hardly have
contemplated such occurrence when they made an
agreement containing an arbitration clause. Since
events of a tortious character are usually not
foreseen, such events will not be specifically
included in the arbitration agreement so as to
later come [sic] arbitrable issues.
Again, we have no factual determination by the trial
court about whether it was within the reasonable expectation
of the parties that tort claims would be submitted to
arbitration. As indicated by Domke such claims are usually
not embraced within arbitration agreements and there would
have to be evidence to the contrary showing that the parties
did in fact intend to include tort claims within the
arbitration provision.
The most amazing aspect of the majority opinion is the
position that the issue of whether childrens' accounts are
included within the arbitration provision is a fact to be
determined by arbitration. What a quantum leap in logic!
The children have a right to court access for resolution
of their claims unless they have validly relinquished that
right through executing an arbitration provision. Whether
such contractual consent existed is a factual determination
for the District Court. The District Court apparently held
the children had not relinquished their rights for court
access. The majority begins by denying court access in
allowing an arbitrator to decide a factual question that
necessarily requires court resolution first. How could the
childrens' rights be decided by an arbitrator unless they
first validly relinquished their right to a judicial
determination?
The case should be remanded for factual findings as
indicated.