The opinion of the court was delivered by: Amy J. St. Eve, District Judge.
MEMORANDUM OPINION AND ORDER
Defendants Balis, Lewittes & Coleman, Inc., David Doerge, and David
Doerge d/b/a Doerge Capital Management Company petition, pursuant to
9 U.S.C. § 1, et seq., for an order compelling Plaintiff Avery J.
Stone, as trustee of the Anita M. Stone Family Trust and Avery J. Stone
Trust, to arbitrate the issues in Stone's pending complaint against
Defendants and to dismiss or stay the instant litigation. For the reasons
set forth below, Defendants' petition is denied.
Plaintiff Avery J. Stone serves as the trustee for two brokerage
accounts opened with Bear Stearns Securities Corporation ("Bear Stearns")
in January 1995: the Anita M. Stone Family Trust and the Avery J. Stone
Trust (collectively, the "Stone Trusts"). Avery Stone, as trustee,
executed Professional Account Agreements with Bear Stearns for each of
the Stone Trusts. Defendant Balis, Lewittes & Coleman, Inc. ("BLC")
served as the introducing broker for these accounts, and Bear Stearns
acted at the clearing agent for BLC. Defendant David Doerge was an
employee of BLC who acted as an investment adviser to the Stone Trusts.
Further, Doerge Capital Management is a division of BLC.
In addition to serving as an investment advisor to the Stone Trusts,
purchasing and selling securities which were processed and held by Bear
Stearns as a clearing agent, Doerge also sold the Stone Trusts private
investments involving various limited partnerships or limited liability
companies. Bear Stearns did not serve as the clearing agent for these
private investment transactions. It is the sale of these private
investments that gives rise to this lawsuit.
Stone executed two Professional Account Agreements ("the Account
Agreements") with Bear Stearns. The Account Agreements note that each
"sets forth the terms and conditions under which subsidiaries of The Bear
Stearns Companies Inc. will open and maintain account(s) in your name and
otherwise transact business with you." (See R. 8-1, Pet. to Compel
Arbitration and to Dismiss or Stay Litigation, at Ex. B.) Each Account
Agreement mandates arbitration of "controversies arising between you and
any Bear Stearns entity or any broker for which Bear Stearns acts as
clearing agent . . ." (Id. at ¶ 24 (emphasis added).) Finally, the
Account Agreements provide the "broker and its employees are third-party
beneficiaries of this Agreement and that the terms and conditions
hereof, including the arbitration provision, shall be applicable to all
matters between or among any of you, your broker and its employees and
Bear Stearns and its employees." (Id. at ¶ 9 (emphasis added)).
Defendants petitioned the court to compel arbitration and stay the
pending litigation. On July 31, 2002, Judge Lefkow denied the petition to
compel and stayed the petition to stay the proceedings. Because the
Defendants chose New York under the Account Agreements' forum selection
clause and because only a court in the district of the forum where the
arbitration will occur can compel arbitration, Judge Lefkow concluded
that she could not compel arbitration. Judge Lefkow, however, granted
Defendants' petition for a stay, staying the lawsuit until October 1,
Defendants argue that the Account Agreements require the Plaintiffs to
arbitrate the present controversy. Defendants seek to compel the
Plaintiff to proceed in arbitration and to stay the lawsuit pursuant to
the Federal Arbitration Act ("FAA").
A. The Applicable Standard
The FAA reflects a "strong federal policy favoring arbitration as a
means of dispute resolution." Morrie & Shirlee Mages Foundation v.
Thrifty Corp., 916 F.2d 402, 405 (7th Cir. 1990); see also Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26, 105
S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985) ("`The preeminent concern of
Congress in passing the [FAA] was to enforce private agreements into
which parties had entered,' a concern which `requires that we rigorously
enforce agreements to arbitrate.'") (citations omitted). Accordingly,
"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, or a
like defense to arbitrability." Moses H. Cone Memorial Hospital v.
Mercury Construct. Corp., 460 U.S. 1, 24-25 (1983).
Even though federal policy favors arbitration, an enforceable agreement
to arbitrate must first exist between the parties before the courts can
compel arbitration. Adamovic v. METME Corp., 961 F.2d 652, 654 (7th
Cir. 1992); Graphic Communications Union, Local No. 2 v. Chicago
Tribune, 794 F.2d 1222, 1225 (7th Cir. 1986) ("[I]t is equally clear
that, since the duty to arbitrate is a contractual obligation, federal
courts lack the authority to compel a party to arbitrate in the absence
of an agreement to do so."); see also AT&T Technologies, Inc. v.
Communications Workers of America, 475 U.S. 643, 648-49 106 S.Ct. 1415,
1418, 89 L.Ed.2d 648 (1986) ("[A]rbitrators derive their authority to
resolve disputes only because the parties have agreed in advance to
submit such grievances to arbitration.").
When deciding whether to compel arbitration, the court must determine
that (1) there is a "valid agreement to arbitrate"; and (2) the "specific
dispute falls within the substantive scope of that agreement." Grundstadt
v. Ritt, No. 96 C 1857, 1996 WL 2197000, at *2 (N.D. Ill. April 26, 1996)
(citing AT&T Technologies, 475 U.S. at 649, 106 S.Ct. at 1418-19). The
interpretation of the contract is a question of law determined by the
court. Florida East Coast Ry. v. CSX Transp. Inc., 42 F.3d 1125, 1128
(7th Cir. 1994). In order to determine whether a binding arbitration
agreement exists, the court looks to state contract law principles. See
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