Opinion
98 Civ. 8364 (RWS)
January 21, 2000
RONALD PODOLSKY, ESQ., for Plaintiff.
HOWARD, SMITH LEVIN, By: P. BENJAMIN DUKE, ESQ. and GARY SVIRSKY, ESQ. Of Counsel, for Defendants.
OPINION
Defendants Bear, Stearns Securities Corp. and Bear, Stearns Co., Inc. ("Bear Stearns") have moved to compel plaintiffs Philip Konits ("Konits"), Ravi Anankrishnan ("Anankrishnan"), and Eutaw Oncology Associates, P.A. Profit Sharing Plan ("Eutaw") (collectively, "Plaintiffs") to arbitrate this dispute, or, in the alternative, to dismiss this action pursuant to Rules 9(b) and 12(b)(6), Fed.R.Civ.P. For the reasons set forth below, the motion will be granted, arbitration is compelled, and this action is dismissed with leave granted to reopen if necessary upon completion of the arbitration.
The Parties
Konits and Anankrishnan are private investors and residents of the State of Maryland.
Eutaw Oncology Associates, P.A. Profit Sharing Plan is an entity created under the laws of Maryland.
Prior Proceedings
Plaintiffs filed the complaint in this action (the "Complaint") on November 24, 1998. The instant motion was filed on June 22, 1999. Answer and reply papers were received through November 3, 1999, at which point oral argument was heard.
Facts
Plaintiffs are private investors who allege that they lost approximately $1.3 million as a result of a complex scheme to manipulate the market for shares in VideoLan Technologies, Inc. ("VLNT"). Plaintiffs held several brokerage accounts with Kensington Wells, Inc., an independent broker-dealer that cleared its business through Bear Stearns. The Complaint alleges that Bear Stearns defrauded the public through a market manipulation scheme for VLNT securities.
Following the filing of the Complaint, Bear Stearns conducted searches of its records for accounts associated with the Plaintiffs. The following accounts turned up:
Dr. Philip Konits Ravi Anankrishnan, Acct. No. 710-75701 as joint tenants
Dr. Philip H. Konitz Trust, for the Acct. No. 710-75073 benefit of Jonathan Adina Konitz
Dr. Ravi Anankrishnan Acct. No. 710-75230
Philip Konits IRA Acct. No. 710-95146
Philip Konits Acct. No. 710-75069
A further search identified customer agreements which Konits signed, relating to Acct. Nos. 710-95146 and 710-75069, and which Anankrishnan signed, relating to Acct. No. 710-75230. Each agreement (the "Agreements") contained the following provision:
YOU AGREE, AND BY MAINTAINING AN ACCOUNT FOR YOU, BEAR STEARNS AGREES THAT CONTROVERSIES ARISING BETWEEN YOU AND BEAR STEARNS OR ITS CONTROL PERSONS, SUBSIDIARIES AND AFFILIATES . . . WHETHER ARISING PRIOR TO, ON OR SUBSEQUENT TO THE DATE HEREOF, SHALL BE DETERMINED BY ARBITRATION.
In addition, trade confirmations received by Anankrishnan contained the following language:
IT IS AGREED BETWEEN YOU AND BEAR STEARNS THAT;
1. Transactions are subject to the terms of any Customer Agreement between you and Bear Stearns and to the constitution, rules, by-laws, practices and interpretations of the exchange or market (and clearing house, if any) where executed, and of the National Association of Securities Dealers, Inc., and all applicable law.
This statement appears on all trade confirmations generated by Bear, Stearns Securities Corp.
Discussion
A valid arbitration agreement is governed by the Federal Arbitration Act., 9 U.S.C. § 1 et seq., which establishes a "federal policy favoring arbitration." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941, 74 L. Ed.2d 765 (1983). This policy requires that courts "rigorously enforce agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221, 105 S. Ct. 1238, 1242, 84 L. Ed.2d 158 (1985); see also Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S. Ct. 2332, 2337, 96 L. Ed.2d 185 (1987); McDonnell Douglas Fin. Corp. v. Pennsylvania Power Light Co., 858 F.2d 825, 830 (2d Cir. 1988); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S. Ct. 3346, 3353, 87 L. Ed.2d 444 (1985).
When considering a motion to stay litigation in favor of arbitration, a court must first determine whether an agreement to arbitrate exists and then decide whether the dispute before it arises under the agreement and is arbitrable. See Cook Chocolate Co. v. Salomon, Inc., 684 F. Supp. 1177, 1181 (S.D.N.Y. 1988); see also Prudential Lines, Inc. v. Exxon Corp., 704 F.2d 59, 64 (2d Cir. 1983); B.V.D. Licensing Corp. v. Maro Hosiery Corp., 688 F. Supp. 961, 963 (S.D.N.Y. 1988). Moreover, in making such determinations, a court is to employ ordinary contract principles, see Conway v. Icahn Co., 787 F. Supp. 340, 344 (S.D.N.Y. 1990); Kyung Sup Ahn v. Rooney, Pace Inc., 624 F. Supp. 368, 369 (S.D.N.Y. 1985), and "as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability," Mitsubishi Motors, 473 U.S. at 626, 105 S. Ct. at 3354.
There is a strong federal policy to construe arbitration clauses broadly. See David L. Threlkeld v. Metallgesellschaft Ltd., 923 F.2d 245, 250-51 (2d Cir. 1991); S.A. Mineracao da Trindade-Samitri v. Utah International, Inc., 745 F.2d 190, 194 (2d Cir. 1984); AT T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 650, 106 S. Ct. 1415, 1419, 89 L. Ed.2d 648 (1986) (citations omitted).
Bear Stearns contends that the language of the Agreements signed by Konits and Anankrishnan requires arbitration of all controversies between those plaintiffs and Bear Stearns — regardless of whether the controversy arises in connection with a particular account.
The arbitration clause in the Agreements states that "YOU AGREE, AND BY MAINTAINING AN ACCOUNT FOR YOU, BEAR STEARNS AGREES THAT CONTROVERSIES ARISING BETWEEN YOU AND BEAR STEARNS . . . WHETHER ARISING PRIOR TO, ON OR SUBSEQUENT TO THE DATE HEREOF, SHALL BE DETERMINED BY ARBITRATION." This language is undeniably broad. "Controversies" are not limited to controversies arising from transactions in the particular account. The language implies extension to any and all controversies arising between the plaintiffs and Bear Stearns relating to any accounts. This conclusion is reinforced by the first sentence of the Agreements, which states: "This agreement . . . sets forth the terms and conditions under which Bear, Stearns . . . will transact business with you including but not limited to the maintenance of your accounts" (Mallery Affirmation, Exhs. A, B, E) (emphasis added).
Plaintiffs contend that general contract law principles require construing the contractual language against the party which drafted the document. That presumption, however, does not apply to arbitration clauses. "The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, [including] whether the problem at hand is the construction of the contract language itself. . . ." Moses H. Cone, 460 U.S. at 24-25.
Plaintiffs also maintain that there is a dispute as to whether Konits signed one of the agreements. This is irrelevant, however, in light of the conclusion reached above. Bear Stearns has provided copies of three agreements signed by Konits. It is undisputed that Konits signed two of those agreements.
Plaintiffs also contend that even if Konits and Anankrishnan are required to arbitrate their claims, Eutaw should not be required to do so. This is correct. However, Plaintiffs' Complaint and the attachments thereto contain no reference to any account at Bear Stearns in Eutaw's name. Nor did Bear Stearns' searches reveal the existence of any such accounts. If an account for the benefit of Eutaw did in fact exist, it was most likely Account Number 710-75701, which Konits and Anankrishnan held as joint tenants.
Thus, the only accounts held by Plaintiffs with Bear Stearns were in the names of Konits or Anankrishnan. Since the Agreements which Konits and Anankrishnan signed make clear that all disputes between them and Bear Stearns must be settled by arbitration, it is appropriate here to compel arbitration of Plaintiffs' claims.
Conclusion
The parties will proceed to arbitration.
This action will be dismissed with leave granted to reopen without payment of filing fees necessary to enforce or vacate the arbitration.
It is so ordered.