The opinion of the court was delivered by: ASPEN
MARVIN E. ASPEN, UNITED STATES DISTRICT JUDGE
Bear Stearns & Co., Inc. has brought a petition for an order directing N.H. Karol & Associates, Ltd., Nathaniel H. Karol and Liliane L. Karol ("Karols") to arbitrate before the National Association of Securities Dealers ("NASD"). The Karols have responded by filing a motion to stay any proceedings related to Bear Stearns' petition. For the reasons given below, we deny the Karols' motion and order the parties to submit their dispute to arbitration before the NASD.
On November 25, 1987, the Karols filed an action in this court charging Bear Stearns with violations of, inter alia, the Securities and Exchange Act of 1934. Bear Stearns argued that the "Customer Agreement" signed by both parties granted it the right to arbitrate these claims. The arbitration clause in the parties' "Customer Agreement" provides that:
Any controversy arising out of or relating to your account in connection with transactions between us or pursuant 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., the Board of Governors of the New York Stock Exchange, Inc., or the Board of Governors of the American Stock Exchange, Inc. as you may elect. . . .
(Bear Stearns, Ex. A). The agreement also provides that Bear Stearns could elect arbitration if the Karols do not do so within five days after a demand by Bear Stearns.
In a letter dated December 18, 1987, Bear Stearns requested that the Karols make an arbitration election pursuant to the Customer Agreement. (Bear Stearns, Ex. B) The Karols responded on December 23, 1987. Their letter stated that, "without diminishing or waiving their rights to void any such agreements to arbitrate, the Karols hereby elect to have all controversies settled in accordance with the current rules of the National Association of Securities Dealers, should any controversy be submitted to arbitration pursuant to court order, subsequent agreement of the parties or otherwise." (Bear Stearns, Ex. C)
Bear Stearns filed a motion to compel arbitration after the Karols moved to add a jury demand to the original counts of their complaint. On February 24, 1989, we ordered the parties to immediately proceed with arbitration, and dismissed the Karols' action with prejudice. Karol v. Bear Stearns & Co., Inc., 708 F. Supp. 199 (N.D.Ill. 1989).
On April 27, 1989, Bear Stearns received a demand to arbitrate the Karols' claims before the American Arbitration Association ("AAA"). Bear Stearns then filed a motion to stay the proceedings before the AAA and to compel arbitration before the NASD. Because we had dismissed the Karols' action with prejudice, we issued an order explaining that we lacked jurisdiction over this motion to compel. (Minute Order of August 31, 1989, Case No. 87 C 10176)
Bear Stearns contends that the AAA is an inappropriate forum for arbitration under the Customer Agreement. Although the Karols dispute Bear Stearns' interpretation of the contract, the Karols contend that we should not reach this issue. According to the Karols, the issue of whether they have chosen a proper forum for arbitration is an issue properly decided by the arbitrator rather than the court. However, we find that this issue is appropriate for judicial consideration.
The mandate of prior judicial interpretation of the scope of an arbitrator's power compels this conclusion. In AT & T Tech., Inc. v. Communications Workers, 475 U.S. 643, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986), the Supreme Court discussed the breadth of an arbitrator's power in the context of a dispute over whether a collective bargaining agreement provided for arbitration of certain employment grievances. The Court explained that arbitration is a matter of contract. Id. at 1418. Therefore, the sole source of the arbitrator's power is the agreement of the parties to submit a ...