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WHISLER v. H.J. MEYERS & CO.

December 23, 1996

CURTIS WHISLER and MICHELE WHISLER, Plaintiffs,
v.
H.J. MEYERS & CO., INC., THOMAS JAMES ASSOCIATES, INC., and WILLIAM ROBINSON, Defendants.



The opinion of the court was delivered by: BUCKLO

 The plaintiffs, Curtis and Michele Whisler, brought suit against the defendants, H. J. Meyers & Company, Thomas James Associates, and William Robinson (collectively "the defendants"), alleging, inter alia, violations of various federal and state securities laws. The Whislers claim that the defendants mishandled their securities brokerage account for over two years. The defendants have moved this Court to stay its proceedings and compel the Whislers to arbitrate their dispute according to the terms of their account agreement with the defendants. The Whislers request that the Court stay its decision on this motion and grant them leave to depose two of H.J. Meyers' employees. For the reasons set forth below, the defendants' motion is granted, and the plaintiffs' motion is denied.

 Background

 In May, 1993 Mr. Robinson, an employee of H.J. Meyers ("Meyers"), *fn1" contacted Curtis Whisler to discuss investment opportunities. As a result of that conversation, Mr. Whisler agreed to purchase securities through Mr. Robinson, and Mr. Robinson opened a brokerage account on behalf of the Whislers. Mr. Robinson became the broker-dealer for the Whislers, and Meyers served as the introducing broker. Meyers did not perform the actual trades. It contracted with another company, Cowen & Company ("Cowen"), to serve as the clearing broker for the processing and placement of the securities transactions.

 At this point, the evidence is unclear whether the Whislers received an introductory packet, which included the Cowen account agreement, from Meyers. Rex Carlson, a current employee of Meyers, and Mr. Robinson swear that such packets are sent to new customers in the ordinary course of business and that the packet, in fact, was sent to the Whislers. Robinson Aff. P 6; Carlson Aff. PP 5-6. Messrs. Carlson and Robinson also state that when the Whislers failed to return the account agreement within thirty days, a computer report was generated which notified them concerning which customers had not returned an account agreement. Robinson Aff. PP 6-7; Carlson Aff. PP 7-8. *fn2" As a result, Mr. Robinson sent the Whislers additional copies of the account agreement on more than one occasion. Robinson Aff. P 8.

 The Whislers, however, deny receiving this packet. They assert that they did not receive any introductory materials and that they did not receive the account agreement from Cowen until January, 1994. C. Whisler Aff. P 3; M. Whisler Aff. P 3. The Whislers claim that, until February 3, 1994 when they signed the account agreement, they had an oral agreement with the defendants to conduct trades on their behalf. In that time period, the defendants executed approximately twelve stock purchases and six stock sales on behalf of the Whislers. C. Whisler Aff. P 1; M. Whisler Aff. P 1. The Whislers contend that this oral agreement does not require them to submit any disputes about these trades to arbitration. C. Whisler Aff. P 2; M. Whisler Aff. P 2.

 The account agreement signed by the Whislers on February 3, 1994 governs their respective rights and obligations concerning the sale and purchase of securities. The account agreement contains the following arbitration clause:

 
Any controversy arising out of or relating to any of my accounts, to transactions with you for me, or to this or any other agreement or the construction, performance or breach thereof, shall be settled by arbitration only before the NASD or the New York Stock Exchange, Inc. or the American Stock Exchange Inc. as I may elect. . . . Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The provisions of this paragraph shall also apply to any such controversy involving any agent or employee of yours.

 According to Paragraph 12 of the account agreement, the words "I," "me," and "my," refer to the party or parties who signed the agreement, which in this case is the Whislers. The words "you," and "your," refer to Cowen. Furthermore, the account agreement also states that:

 
if my account has been introduced to you by arrangement with another broker-dealer, you are authorized to accept from such other broker-dealer, without inquiry or investigation by you, (i) orders for the purchase or sale of securities or other property for my account, on margin or otherwise, and (ii) any other instructions concerning my account. I understand and agree that such other broker-dealer is not your agent and that you shall have no responsibility or liability to me for any acts or omissions of such other broker-dealer, its officers, employees or agents. The terms and conditions of this agreement, including the arbitration provision, shall be applicable to all matters between such other broker-dealer and me. (emphasis added).

 The issue is the applicability of these provisions to the parties' dispute.

 Applicability of the Arbitration Clause

 The touchstone of a motion to compel arbitration is an agreement between the parties to arbitrate their dispute. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985). To determine whether a valid arbitration agreement exists, I must look to state contract law, which in this case is the law of New York. *fn3" See Ziegler v. Whale Securities Co., 786 F. Supp. 739, 741-42 (N.D. Ind. 1992) (applying New York law). Under New York law, a valid arbitration agreement must be in writing, but a party may be bound by the agreement without signing it. N.Y. Civ. Prac. L. & R. § 7501 (McKinney 1980); Lester v. Basner, 676 F. Supp. 481, 483 (S.D.N.Y. 1987). In the present case, the account agreement is in writing, and the Whislers signed it. Hence, the arbitration provision is valid.

 The issue now becomes whether the defendants, who did not sign the account agreement and were not parties to it, may enforce its provisions. A broker-dealer and an introducing broker "may enforce an arbitration agreement between a client and a clearing broker in two situations," either through an agency relationship or as a third-party beneficiary to the contract. Ziegler, 786 F. Supp. at 742. No agency relationship exists here. The account agreement specifically disclaims any such relationship, and the defendants do not claim ...


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