Opinion
86-1362.
December 4, 1987.
Petition for Writ of Mandamus.
John P. Scott, Jr., of Balch Bingham, Birmingham, for petitioners.
Andrew P. Campbell and S. Lynne Stephens of Leitman, Siegal, Payne Campbell, Birmingham, and William R. Hovater of Stolsworth Hovater, Tuscumbia, for respondent.
Writ granted on the authority of Ex parte McKinney, 515 So.2d 693 (Ala. 1987).
WRIT GRANTED.
MADDOX, BEATTY, ADAMS and HOUSTON, JJ., concur.
TORBERT, C.J., concurs specially, with opinion.
JONES, SHORES and STEAGALL, JJ., dissent, with opinion by JONES, J.
ALMON, J., not sitting.
I agree that the plaintiff's claim is subject to arbitration and therefore that the writ of mandamus is due to be granted. Our decision in Ex parte McKinney, 515 So.2d 693 (Ala. 1987), applies the decisional law construing the Federal Arbitration Act. That body of law now expands, rather than constricts, the role of arbitration. Shearson/American Express, Inc. v. McMahon, ___ U.S. ___, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), cited in McKinney, represented another step in the development of this body of law by holding that claims brought under § 10(b) of the Securities Exchange Act of 1934 and the Racketeer Influenced and Corrupt Organizations Act (RICO) are subject to arbitration. Certiorari was granted in Shearson "to resolve the conflict among the Courts of Appeals regarding the arbitrability of § 10(b) and RICO claims." Id., ___ U.S. at ___, 107 S.Ct. at 2336.
This case does not involve a question of whether as a matter of federal law a federal securities law claim can be arbitrated. Therefore, Shearson does not directly control. The question presented is whether the state law claims presented by the plaintiff "arise out of the federal securities laws," and that question is not addressed in Shearson. That question arises in this case only because the arbitration agreement at issue did not provide for arbitration of claims arising out of federal securities ties law. Petitioners discuss Shearson only to explain why the arbitration agreement did not purport to compel arbitration of claims arising out of the federal securities law. According to petitioners, prior to Shearson they believed arbitration of such claims could not be compelled. Shearson did not abolish the distinction between claims brought pursuant to federal securities laws and claims brought pursuant to state law in the sense that the dissenting opinion in the present case suggests. As I read the dissenting opinion, it implies that the U.S. Supreme Court now holds that virtually all claims between clients and securities dealers "arise out of the federal securities laws." As previously stated, all Shearson said is that federal security law claims are arbitrable. It reaches that conclusion by examining the provisions of the Securities Exchange Act of 1934 and the Federal Arbitration Act, not by holding that federal security law claims are the same as state law claims.
See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), where the issue was whether pendent state law claims were subject to arbitration where federal securities law claims were to be tried in federal district court. Justice Marshall noted that Dean Witter Reynolds did not seek arbitration of the federal securities law claims because of its belief that the claims were not arbitrable. The Court did not address that question in that case, but resolved it in Shearson.
Simply put, the issue is whether the plaintiff's state law claims "arise out of the federal securities laws." Notwithstanding the fact that the state law claims involve acts that might also give rise to a claim under federal securities law, such federal law claims were not brought. The fact the state law claims and potential federal law claims might arise from the same transaction would seem to be of little significance with respect to whether the state law claims are arbitrable, in light of the decision in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). There the Court rejected the "doctrine of intertwining" and held that state law claims were arbitrable even if intertwined with the federal securities law claims. In light of Byrd and the general policy favoring arbitration, I see no reason to broadly interpret the phrase "[arising] out of the federal securities laws" so as defeat arbitration in this case.
In footnote 1 of Shearson, the Court cited a list of cases that presented some of the conflicting decisions from the Circuit Courts of Appeal. In all but one of those cases the facts show that both state law claims and federal securities law claims were brought. Without exception, the state law claims were submitted to arbitration.
I respectfully disagree with the majority's conclusion that this case is controlled by Ex parte McKinney, 515 So.2d 693 (Ala. 1987).
Petitioner/Defendant, Thomson McKinnon Securities, Inc., is a foreign corporation qualified to do business in Alabama and alleged to be doing business by agent in Colbert County. Petitioner/Defendant Carle B. Jackson is an adult resident of Alabama who is alleged to have done business in Colbert County as agent for Thomson McKinnon. Respondent/Plaintiff, Donna Stolsworth, is a resident citizen of Colbert County who made investments through Thomson McKinnon during 1984 and 1985. Stolsworth signed a Thomson McKinnon account agreement, containing the following arbitration clause:
"It is agreed that any dispute, claim or controversy between [the customer] and your firm which does not arise out of the federal securities laws shall be resolved by arbitration under the Constitution and Rules of the New York Stock Exchange, Inc., or under the Code of Arbitration Procedures of the National Association of Securities Dealers, Inc., at [the customer's] election. Disputes, claims or controversies arising under the federal securities laws may, at [the customer's] election, be resolved either by arbitration or through litigation in the courts."
On March 31, 1987, Stolsworth sued Thomson McKinnon and Jackson in the Colbert County Circuit Court, seeking compensatory and punitive damages, for mis-handling Stolsworth's investments, specifically, for fraud, breach of fiduciary duty, deceit, suppression of material fact, conspiracy, and reckless infliction of emotional distress — all of which claims were brought under Alabama state law. Stolsworth, contend the petitioners, made no claims pursuant to any federal securities law or regulation.
Thomson McKinnon and Jackson moved for a stay and an order compelling arbitration pursuant to the terms of the account agreement. The trial court overruled the motion on two grounds: 1) The fraud count is brought under Code 1975, § 8-6-17, which is virtually identical to Rule 10(b)(5) of the Securities and Exchange Commission, and, therefore, Stolsworth's claims "arise out of" federal securities law and are not subject to compulsory arbitration; and 2) the "compulsory" arbitration clause is not enforceable. Thomson McKinnon's and Jackson's motion for reconsideration was denied.
Filing a petition for writ of mandamus, they present two issues:
1. Did the trial court err in refusing to enforce and in holding invalid the arbitration clause (which calls for arbitration of all claims not brought pursuant to federal securities law) merely because one or more of Stolsworth's state law claims could have been alleged as Rule 10(b)(5) claims?
2. Did the trial court err in finding that the provision in the arbitration clause providing for selection by the customer of either arbitration or litigation of claims arising under federal securities law is unenforceable?
The relief they seek is for this Court to grant their petition and to direct the trial court to order arbitration of these claims and to stay the civil action pending resolution of these claims by arbitration.
As authority for their position, petitioners cite Ex parte McKinney, supra. That case involved the trial court's interpretation of an arbitration clause. This Court, on the authority of Shearson American/Express, Inc. v. McMahon, ___ U.S. ___, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987); Ex parte Merrill Lynch, Pierce, Fenner Smith, Inc., 494 So.2d 1 (Ala. 1986); and Ex parte Costa Head (Atrium), Ltd., 486 So.2d 1272 (Ala. 1986), held: "This Court now follows the rule that when there is an agreement to arbitrate a dispute under the provisions of the Federal Arbitration Act, this Court will enforce that agreement, in accordance with the federal policy as expressed in the Federal Arbitration Act and court decisions construing that Act."
I would deny the writ on the basis of the difference in the language in the arbitration clause in Shearson (this Court's authority for McKinney) and the language in the arbitration clause in the case at issue. The Shearson language is:
"Any controversy arising out of or relating to my accounts, to transactions with you for me or to this agreement or the breach thereof, 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."
The pertinent arbitration language here in issue ("which does not arise out of the federal securities laws") does not appear in the Shearson and McKinney agreements. The ultimate question, then, is whether Stolsworth's state law claims are claims that "arise out of" the federal securities laws.
Petitioners argue that the case law applicable to the distinction between claims brought pursuant to the federal securities laws and those brought pursuant to state law would make Stolsworth's claims "not arise out of federal securities laws." Shearson, however, abolishes this distinction. In other words, petitioners claim that, if we interpret the agreement in light of the law applicable at the time of the execution of the account agreement in this case, they win. If, on the other hand, we give effect to the broadened concept of "federal securities laws," evidenced in Shearson, the term "federal securities laws" embraces Stolsworth's claims; I think we should give effect to the broadened concept, and, therefore, that the arbitration clause here in question does not embrace Stolsworth's claims and the petition for writ of mandamus is due to be denied.
SHORES and STEAGALL, JJ., concur.