Opinion
No. 01 C 7761
September 18, 2002
ORDER
Plaintiff, Linda C. Tarrson ("Tarrson"), alleges material misrepresentations and omissions with respect to her investments in BLC Partners ("Partners"), a limited partnership, resulting in losses exceeding $1 million. Her claims are based on federal securities laws as well as common law claims under state law. The court's jurisdiction rests in 28 U.S.C. § 1331 (federal question) and § 1367 (supplemental jurisdiction). Defendants Balis, Lewittes Coleman, Inc., Mathew Coleman, Sr. and David J. Doerge, all related entities or individuals associated with Partners, petition pursuant to 9 U.S.C. § 1 et seq. for an order compelling Tarrson to arbitrate the claims alleged in her pending complaint in New York and staying the instant litigation pending completion of the arbitration proceeding. For the reasons set forth below, the petition to compel arbitration is denied without prejudice, and the petition to stay is granted to allow defendants to file their petition in an appropriate forum.
A. Petition to compel arbitration
The Federal Arbitration Act ("FAA"), 9 U.S.C. § 4, enables a party to invoke the authority of a court to enforce an arbitration agreement by compelling the reluctant party to arbitrate a dispute. Section 4 provides:
A party aggrieved byte alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court that, save for such agreement, would have jurisdiction under Title 28, in a civil action . . . of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.9 U.S.C. § 4. The court has jurisdiction of this matter since it would otherwise have jurisdiction under 28 U.S.C. § 1331.
The FAA provides that an arbitration clause in a "contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The court will enforce an arbitration agreement if (1) a valid agreement to arbitrate exists and (2) that agreement covers the underlying dispute. See We Care Hair Dev., Inc. v. Engen, 180 F.3d 838, 844 (7th Cir. 1999); Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 909 (7th Cir. 1999).
The agreement under which defendants move is a Customer Agreement ("Agreement") with Bear Stearns Securities Corporation ("Bear Stearns") which Tarrson signed. Tarrson acknowledges that she signed the Agreement but argues that the instant case does not relate to the Agreement or the account opened with Bear Stearns under that Agreement. Whether the Agreement binds the parties to arbitrate, however, is not for this court to decide because defendants expressly request an order directing arbitration before the National Association of Securities Dealers, Inc. ("NASD") in New York (Pet. at 3-4) and not before a forum in the Northern District of Illinois. "[W]here the arbitration agreement contains a forum selection clause, only the district court in that forum can issue a § 4 order compelling arbitration." Merrill Lynch, Pierce, Fenner Smith, Inc. v. Lauer, 49 F.3d 323, 327 (7th Cir. 1995). The arbitration clause of the Agreement permits Tarrson to select as the forum for arbitration either the New York Stock Exchange, Inc., the American Stock Exchange, Inc., or NASD or, if Tarrson fails to select the forum within ten days after written request to do so from Bears Stearns, then Bears Stearns may make the election. The arbitrator then holds the arbitration "at the facilities and before an arbitration panel appointed by" the chosen arbitration entity. Because the "forum" under the Agreement is the arbitration entity selected pursuant to the arbitration clause, which entity then selects a site for the arbitration hearing, in order to grant the petition the court must find that an entity has been selected and that the entity has indicated a site within the Northern District of Illinois. Here, defendants explicitly seek a New York forum. In that case, defendants must petition the court in an appropriate New York forum.
Defendants also provide the "BLC Partners, L.P. Subscription Agreement and Suitability Statement" ("the Subscription Agreement") as further evidence of an agreement to arbitrate between the parties. Because Tarrson did not sign the Subscription Agreement and her complaint goes towards defendants' failure to produce documents, including the Subscription Agreement (Resp. at 4-5), the court relies on the Subscription Agreement only in so far as defendants assort that the parties must arbitrate in New York.
B. Petition for a stay
A stay of the litigation is appropriate in order for defendants to pursue arbitration. Although a stay is discretionary where the question of arbitrability is unresolved, the policy favoring enforcement of arbitration clauses counsels in favor of a stay in the instant case. Further, a stay will prevent duplicative proceedings. For these reasons, the court will grant defendants' petition to stay the instant litigation for a period of 30 days in order to allow defendants to seek an order in New York. Accordingly, defendants' petition to compel arbitration is denied without prejudice, and their petition to stay the litigation is granted to October 19, 2002 [#7].
Under § 3 "a district court, when presented with an application for a stay of proceedings pending arbitration, must grant the requested stay where two conditions are satisfied: (1) the issue is one which is referable to arbitration under an agreement in writing for such arbitration, and (2) the party applying for the stay is not in default in proceeding with such arbitration." C. Itoh Co. (Am.) Inc. v. Jordan Int'l Co., 552 F.2d 1228, 1231 (7th Cir. 1977).
Although not all parties in the instant case are parties to the Agreement, a court may stay the litigation with respect to all parties under the doctrine of abstention. See Creative Foods of Indiana, Inc. v. My Favorite Muffin, Too, Inc., No. IP01-0228-C-T/G, 2002 WL 244577, at *4 (S.D. Ind. Jan. 14, 2002) (relying on IDS Life Ins. Co. v. Sunamerica Co., 103 F.3d 524, 529-30 (7th Cir. 1997) to stay litigation against defendants, including non-parties to arbitration agreement).