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Weiss v. Waterhouse Securities

November 26, 2002


Circuit Court of Cook County. Honorable Aaron Jaffe, Judge Presiding.

The opinion of the court was delivered by: Justice Cerda


In January 1999, plaintiff, Mark Weiss, individually and on behalf of all others similarly situated, filed a class action lawsuit against defendant, Waterhouse Securities, Inc. (Waterhouse), a discount securities brokerage firm, alleging fraud and breach of contract in connection with Waterhouse's solicitation and administration of web-based brokerage accounts between January 1, 1999 and the present. Waterhouse, assertedly pursuant to section 2-801 of the Code of Civil Procedure (Code) (735 ILCS 5/2-801 (West 1998)), filed a "Motion to Strike Class Allegations and To Compel Arbitration" of plaintiff's claims.

Waterhouse's motion specifically first sought to strike the class allegations of plaintiff's complaint and then to compel the arbitration of the remaining individual claims in accordance with the terms of plaintiff's account agreement with the company (the "Account Agreement"). The circuit court denied Waterhouse's motion to strike and compel, purportedly finding plaintiff's factual allegations are sufficient to meet the class action prerequisites set forth in section 2-801 of the Code of Civil Procedure (Code) (735 ILCS 5/2-801 (West 1998)). Waterhouse followed by seeking review of the court's interlocutory rulings pursuant to Supreme Court Rule 307(a)(1) (177 Ill. 2d R. 307(a)(1)).

In an unpublished opinion issued December 12, 2001, we found appellate jurisdiction lacking over that portion of the circuit court's order denying Waterhouse's motion to strike and, accordingly, dismissed that portion of Waterhouse's appeal. In dismissing Waterhouse's appeal in part, we declined to address Waterhouse's contention that the circuit court erred in denying its motion to strike plaintiff's class action allegations. Finding jurisdiction over the remaining portion of the court's order, we affirmed the denial of Waterhouse's motion to compel plaintiff's claims to arbitration. Weiss v. Waterhouse Securities, Inc., No. 1-01-0680 (December 12, 2001).

On April 9, 2002, the Illinois Supreme Court entered a supervisory order directing this court to vacate our December 12 opinion and "to reconsider its judgment, including the propriety of the trial court's order denying defendant's motion to strike class allegations." Weiss v. Waterhouse, No. 93090 (April 9, 2002). Upon reconsideration of the issues and our original decision, we now find jurisdiction to review Waterhouse's entire appeal and reverse and remand for further proceedings consistent with this opinion.

Waterhouse is a New York corporation engaged in the business of providing discount brokerage services to the investing public. One of the services offered by Waterhouse is an on-line brokerage account, known as webBroker, that allowed customers to engage in trading of securities through their personal computers, by telephone, or through an assigned Waterhouse broker. At all relevant times, plaintiff maintained a webBroker account with Waterhouse.

Plaintiff brings the instant class action complaint individually and on behalf of all Waterhouse customers who had webBroker trading accounts with Waterhouse between January 1, 1999, to the present. The complaint generally alleges that Waterhouse represented to plaintiff and the class members that, if they opened trading accounts with Waterhouse, they could obtain instant access to their accounts in order to buy and sell securities through their personal computers and/or their assigned brokers. However, plaintiff and the class members were unable to access their trading accounts via either their personal computers or assigned brokers during the class period in order to execute their desired security transactions. The complaint further contains allegations of the statutory prerequisites for the maintenance of a class action lawsuit.

Plaintiff's complaint asserts claims for: deceptive and unfair practices under the Illinois Consumer Fraud and Deceptive Business Practices Act, and the Uniform Deceptive Trade Practices Act, as well as like statutes found in the states where the class members reside (count I); breaches of contract and the implied covenant of good faith and fair dealing predicated on Waterhouse's customer account contracts entered into by plaintiff and the class members (count II); and common law fraud based on Waterhouse's pre-account representations (count III). The complaint alleges plaintiff and the class members have been "irreparably harmed and damaged in an amount to be determined at the trial of this action," and specifically seeks an award of compensatory and punitive damages, legal costs and expenses, and extraordinary, equitable, and/or injunctive relief including the imposition of a constructive trust upon certain funds charged and retained by Waterhouse in its administration of the trading accounts.

After unsuccessfully attempting to remove the matter to federal court and moving to dismiss plaintiff's complaint pursuant to section 2-619 of the Code, Waterhouse filed the instant motion to strike plaintiff's class action allegations and, thereafter, to compel plaintiff's individual claims to arbitration. In moving to strike the class allegations, Waterhouse assertedly moved pursuant to section 2-801 of the Code, which sets forth the statutory prerequisites for class certification and, in relevant part, requires any alleged class claim to present "questions of fact or law common to the class, which common questions predominate over any questions affecting only individual members." 735 ILCS 5/2-801(2) (West 1998). According to Waterhouse's motion, plaintiff's claims are not certifiable because it is clear from the complaint's class action allegations that individualized issues of fact and law predominate.

Under the Account Agreement, plaintiff agreed to arbitrate any controversy arising between him and Waterhouse in relation to any account he held with the company. In this regard, the Account Agreement expressly provides, in pertinent part, that "[no person shall *** seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action *** until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the customer is excluded from the class by the court." Because dismissal of the class allegations would leave plaintiff only with his individual claims, Waterhouse asserted plaintiff's claims would then have to be submitted to arbitration in accordance with the terms of the agreement.

Following a hearing on Waterhouse's motion, the circuit court entered an order stating:

"The Court finds that commons questions of law and fact predominate over questions involving individual class members so that the class allegations as set forth by the plaintiff are sufficient as a matter of law. Therefore, it is hereby ADJUDGED, ORDERED and DECREED that Defendant's Motion to Strike Class Allegations and Compel Arbitration is DENIED."

We initially discuss the nature of Waterhouse's motion and our jurisdiction to hear the instant appeal. Waterhouse's motion sought to compel the arbitration of plaintiff's claims by having the circuit court find plaintiff's class allegations insufficient as a matter of law. Essentially, Waterhouse attempted to bring plaintiff's claims within the arbitration clause of ...

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