Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-02286/USCOURTS-ca10-88-02286-0/pdf.json

Parties Involved:
Florabelle Coffey
Appellant
L. Irving Coffey
Not Party
Dean Witter Reynolds, Inc.
Appellee
Jeffrey Hines
Appellee

Document Text:

~lnifrb ~tales _(!fourt of c1\ppeals 

TENTH CIRCUIT 

OFFICE OF THE CLERK 

C404 UNITED STATES COURTHOUSE 

DENVER. COLORADO 80294 

ROBERT L. HOECKER Januarf 11, 1990 CLEAK 

TO·: ALL RECIPIENTS OF THE CAPTIOl;ED OPINION 

RE: No. 88-2286; Coffey v. Dean Witter Reynolds, et al. 

Opinion filed on December 5, 1989 by Judge James 

K. Logan .. 

Attached is a modified page 2 to be substituted 

for page 2 of the opinion sent to you on December 5, 1989. 

Footnote one has been modified. 

Please call this office if you have questions. 

TELEPHONE 

(303) 844·3157 

<FTSl 564·3157 

ROBERT L. HOECKER, Clerk 

RLH:kmh 

enclosure 

Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 1
Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 2
Nq. 88-2286; Opinion filed on Deceniber 5, 1989 by Judge James K. Logan. 

Coffey v. Dean Witter Reynolds, Inc., et al. 

Plaintiff Florabelle Coffey brought suit under§ l0(b) of the 

Securities Exchange Act of 1934 (Exchange Act), 15 u.s~c. 

§ 78j(b), and SEC Rule l0b-5 promulgated thereunder, 17 C.F.R. 

§ 240.l0b-5, against defendants Dean Witter Reynolds, Inc. (Dean 

Witter} and Jefftey Hines, a Dean Witter account executive. 1 

Defendants moved to compel arbitr~tion of the federal claims, but 

the trial court denied the motion based on Wilke v. Swan, 346 U.S. 

427 (1953} (agreements to arbitrate federal securities claims void 

under Securities Act of 1933), overruled, Rodriguez de Quijas v. 

Shearson/American Express, Inc., 57 U.S.L.W. 4539 (U.S. May 15, 

1989}; and Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Moore, 

590 F.2d 823 (10th Cir. 1978} (agreements to arbitrate federal 

securities claims also void under Exchange Act). Defendants then 

appealed to this court. We remanded the case to the trial court 

for reconsideration in light of the Supreme Court's intervening 

decision in Shearson/American Express, Inc. v. McMahon, 482 U.S. 

220 (1987), which overruled Moore and upheld agreements to 

arbitrate federal securities claims under the Exchange Act. 2 

On remand, the district court compelled arbitration of 

Coffey's l0b-5 claims and subsequently confirmed an arbitral award 

in favor of both defendants. Coffey appeals from this order and 

asserts in the alternative that (1) no agreement to arbitrate 

1 Coffey ~lso brought several pendent state law claims that were 

dismissed by the trial court. The arbitration of state law issues 

is not before us, and we express no opinion on that matter. 

2 After examining the briefs and appellate record, this panel has 

determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a}; 10th Cir. R. 34.1.9. The cause is therefore ordered 

submitted without oral argument. 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 3
Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 4
PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

FLORABELLE COFFEY, 

Plaintiff-Appellant, 

FILED 

Uoite<l States Court of Appeals 

Tenth Cir~?i~ 

DEC G 1989 

ROBERT L. HOECKER 

Clerk 

v. 

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No. 88-2286 

DEAN WITTER REYNOLDS, INC., a, 

Delaware corporation, 

Defendant-Appellee, 

JEFFREY HINES, an individual, 

Defendant-Appellee, 

. V • 

L. IRVING COFFEY, 

Third-Party-Defendant. 

) 

) 

) 

) 

Appeal from the United States District Court 

for the District of Colorado 

(D.C. No. 85-M~2256) 

Submitted on the briefs: 

Richard K. Rufner and Sergiu L. Herscovici, Denver, Colorado, for 

Plaintiff-Appellant. 

William G. Imig and Neal S. Cohen of Ireland, Stapleton, Pryor & 

Pascoe, Den--v-er,. Colorado, for Defendant-Appellee. ---·--

Before LOGAN, SEYMOUR, and BALDOCK, Circuit Judges. 

LOGAN, Circuit Judge. 

Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 5
Plaintiff Florabelle Coffey brought suit under·§ l0(b) of the 

Securities Exchange Act of 1934 (Exchange Act), 15 u.s.c. 

§ 78j(b); and SEC Rule l0b-5 promulgated thereunder, 17 C.F.R .. 

§ 240.l0b-5, against defendants Dean Witter Reynolds, Inc. (Dean 

Witter) ~and Jeffrey Hines, ~ Dean Witter account executive. 1 

Defendants moved to compel arbitration of the federal claims, but 

the trial court denied the motion based on Wilke v. Swan, 346 U.S. 

427 (1953) (agreements to arbitrate federal securities claims void 

under Securities Act of 1933), overruled, Rodriguez de Quijas v. 

Shearson/American Express, Inc·., 57 U.S.L.W. 4539 (U.S. May 15, 

1989); and Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Moore, 

590 F.2d 823 (10th Cir. 1978) (agreements to arbitrate federal 

securities claims also void under Exchange_Act). Defendants th~n 

appealed to this court. We remanded .the 6ase to the trial c6urt 

for reconsideration in light of the Supreme Couit's intervening 

decision in Shearson/Amerfcan Express_, Inc. v. McMahon, 482 U.S. 

220 (1987), which ov~rruled Moore and upheld.agreements to 

· arbitrate federal securities claims under the Exchange Act. 2 

On remand, the district court compelled arbitration of 

Coffey's lOb-5 claims and subsequently confirmed an arbitral award 

in favor of both defendants. Coffey appeals from this order and 

asserts in the alternative tha~ (1) no agreemen~ to arbitrate 

1 Coffey also brought se~eral pendent s~ate. law claims that were 

dismissed by the trial 6o~rt. -- · - · 

2 After examining the briefs and appellate record, this panel has 

determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The cause is therefore ordered 

submitted without oral argument. 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 6
existed-between the parties, and (2) if an arbitration agreement 

existed, it was modified by operation of SEC Rule 15c2-2, 17 

C.F.R. § 240.15c2-2, rescinded, 52 Fed. Reg. 39,216 (effective 

October 21, 1987). 

I 

Our threshold inquiry is whether the parties agreed to 

arbitrate the claims at issue. Mitsubishi Motors Corpi v. Soler 

Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). An agreement 

to arbitrate is nothing more than a contract fashioned by the 

parties in accordance with their intentions. If the parties 

intended to arbitrate the relevant claims, we must enforce the. 

agreement under the- Fede~al Arbitration Act, 9 u.s.c. §§ 1-14, 

unless "legal constraints ~xternal to the partie~• agreement .. 

forecl6se[] the arbitration of _those claims." Mitsubishi, 473 

U.S. at 628. 

In conducting this inquiry, we are mindful that under the 

Federal Arbitration Act "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 itseif or an allegation of waiver, delay, or a like 

defense to arbitrability." Moses H. Cone Memorial Hosp. v. 

Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983) (footnote omitted). The Act, however, "does not require parties to arbitrate 

0

:when they .have not-·.ag.reed to do so, nor does it prevent parties 

who do agree to arbitrate from excluding certain claims from the 

scope of their arbitration agreement." Volt Information Sciences, 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 7
-Inc. v. Board of Trustees, 57 U.S.L.W. 4295, 4298 (U.S. March 6, 

198~) (citations omitted). 

On April 28, 1983, Coffey executed a Customer's Agreement in 

connection with a Dean Witter commodity account, which provided in 

relevant part as follows: 

"16. Any controversy between you [Dean Witter] and 

the undersigned [Coffey] arising out of or relating .to 

this contract or the breach thereof, shalL be settled by 

arbitration •••• 

17. · This agreement .•. and its provisions shall 

be continuous; shall cover individually and collectively 

all accounts which the undersigned may open or re-open with you •••• " · 

Pl. ex. 3 at 1. 

On October 3~ 1984, Coffey and her husband executed a Joint 

Account Agreement· With Right of Survivorship ("Joint Account-

· Agreement") in connection with a differently numbered stock 

account. The Joint Account Agreement did not contain an 

arbitration clause, and Coffey did not sign a new Customer's 

Agreement. The Joint Account Agreement is not inconsistent with 

the Customer's Agreement Coffey had already signed, which treats 

many aspects _not covered by the Joint Account Agreement. Indeed, 

the Customer's Agreement expressly contemplates that it will apply 

whether the securities are carried "either individually or jointly 

with others." Id. ,1 5. And the Joint Account Agreement provides 

that "[i]f the undersigned [Coffey and her husband] sign and 

deliver to you [Dean Witter] a Customer's~:Agreement ...•. ·- •. , [it is]· 

intended to cover, in addition to the provisions hereof, the terms 

on which the joint account is to be carried." Pl. ex. 2. Because 

Coffey already had signed a. Customer's Agreement that covered "all 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 8
accounts" she might thereafter open, no new agreement· was 

necessary to bind her. 3 Thus, because we have no evidence to the 

contrary, we hold that Co~fey and Dean Witter intended the 

arbitration clause in the Customer's Agreement to apply to claims 

by Coffey arising under the joint account. 

II 

Coffey next argues that even if the arbitration clause in herCustomer's Agreement applies to claims under the joint account, 

SEC Rule 15c2-2 modified the agreement to arbitrate. Paragraph 2 

of· the. Customer's Agreement provides that "whenever any rule or 

regulation shall be prescribed or promulgated by •. w the Federal 

Securities and Exchange Commission, .· •• which shall affect in 

any manner or be iriconsistent with any of the provisions h~reo£, 

the provisions of this agrj~ment_ so affected shall be deemed 

modifi~d or superseded." 

Rule 15c2-2 provided as follows: 

. . 

"(a) It shall be~ fraudulent, manipulative or. 

deceptive act or practice for a broker or dealer to 

enter into an agreement with any public customer which 

purports to bind the customer to the arbitration of 

future disputes between ttiem arising under the Federal 

securities laws, or to have in effect such an agieement, 

pursuant to which it effects transactions with or for a 

customer. 

(b) Notwithstanding paragraph (a) of this section, 

until December·31, 1984 a bicker or dealer may use 

existing supplies of customer agreement forms if all 

such agreements entered into with public customers after 

3 Nothing in the record indicates whether Coffey's husband, who 

was joined by Dean Witter and Hines as a third party defendant, 

signed a Customer's Agreement as well. Defendant's Third Party 

Complaint againsi Coffey's husband was dismissed with the rest of 

the action in the district court's final order of July 27, 1988. 

IR. tab 17. 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 9
December 28, 1983 are accompanied by the separate 

written disclosure: 

Although you have signed a customer 

agreemeqt form with FIRM NAME that states that 

you are required to arbitrate any future 

dispute or controversy that may arise between 

us, you are not required to arbitrate any 

dispute or controversy that arises under the 

Federal securities laws but instead can 

res6lve any such dispute or controversy 

through litigation in the-courts. 

(c) A broker or dealer shall not be in _violation of 

paragraph (a) of this section with respect to any 

agreement entered into with a public customer prior to 

December 28, 1983 if: 

(1) Any such public customer for whom the broker or 

dealer has after July 1, 1983 (i) carried a free credit 

balance, or (ii) held securities for safekeeping or as 

collateral, or (iii) effected a· securities trartsaction 

is sent, no later than Dec~mber 31, 1984, the disclosure 

prescribed in paragraph (b) of this section; or 

(2) Any other public customer is sent upon the 

completion of his ne}!.'.t transaction purs_uant to such 

agreement, the disclosure prescribed in ~aragtaph (b) of 

this section." 

Under this rule, Dean Witter was required to send a written 

disclosure to Coffey informing her of the right to a judicial 

forum for adjudication of any federal securiti~s claims fn spite 

-of the arbitration clause in the Customer's Agreement. The 

question, then, is whether this written disclosure, although based 

on a view of the law that no longer prevails, precludes 

arbitration· of Coffey's Exchange Act claims over her objection. 

Relevant to our decision is that Rule 15c2-2 was rescinded after 

-· •-·-·the instant suit -was filed but before the'.· district court's 

decision on remand. 

We recognize that some circuits have applied the rescission 

of Rule 15c2~2 retroactively, paying little or no attention to the 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 10
contractual modifications and resultant changed expectations 

effected during the life of the Rule. See Jeske v. Brooks, 875 

F.2d 71 (4th Cir. 1989); Adrian v. Smith Barney, Harris, Upham & 

Co., 841 F. 2d 1059 (11th Cir. 1988); Villa Garci.a v. Merrill 

Lynch, Pierce, Fenner a~d Smith Inc., 833 F.2d 545 (5th Cir. 

1987). The strongest argument in support of these decisions 

appears to be "the usual rule that 'federal cases should be 

decided in accordance with the law·existing at the time of the 

decision,'" Jeske, 875 F.2d at 75 (quoting Saint Francis College 

v. Al-Kharzraj i, 481 U.S. 604, 608 ( 1987)), unless "injustice" 

would result thereby, id.; see also Villa Garcia, 833 F.2d at 548 

("manifest. injustice" would justify an exception to the "usual· 

rule of retrqacfivity"). · In Jeske, the court concluded· that no 

injustice would result from retroactive application of the rule's 

rescission because (1) the plaintif~ signed the customer agreement. 

at issue before the SEC's adoption of the rule, and so could not 

have relied on the rule in.signing the agreement; and (2) the 

court found no evidence to indicate that the plaintiff "would not 

have signed the agreement if he had foreseen that his securities 

claims would be arbitrable." Id. 

Both of the Jeske court's observations are equally applicable 

to the Custpmer Agreement that Coffey signed in October 1983, the 

arbitration provision of which applies to the Joint Account 

.Agreement.. under ·which Coffey now . sues. But that arbitra~ion~ 

provision did not comply with Rule 15c2-2, and Dean Witter was 

therefore required to notify Coffey of her right to litigate 

federal securities law claims. Because the rule required ~xplicit 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 11
modification of the parties' contract, narrow fdcus on Coftey's 

expectations at the time the Customer's Agreement or the Joint 

Account Agreement was signed is- insufficient. 

We are more persuaded by the reasoning of those courts which 

have treated the.effect of Rule 15c2-2's requirem~nts, and of the 

rule's rescission, from a private contractual rather thari a public. 

regulatory perspective. See Ballay v. Legg Mason Wood Walker, 

Inc., 878 F.2d 729 (3d Cir. 1989); Gooding v. Shearson Lehman 

Bros.,_Inc., 878 F.2d 281 (9th Cir. 1989). In Ballay, plaintiffs 

signed customer agreements wi t.h Legg Mason that contained a broad 

arbitration provision and the qualification that "this arbitration 

provision is not binding upon me in any dispute or confroversy 

that arises under the federal securities laws, and, in such cases, 

I may seek resolution through litigation in the courts." Id. at 

731 n.l. 

Legg Mason argued that this clause "did not reflect a 

bargained-for term of the contract but rather was included merely 

to comply with SEC [Rule 15c2-2]." Id. at 734. In response, the 

court concluded that 

"the unequivocal exclusionary language in plaintiffs• 

arbitration agreements creates a contractual right to 

litigate plaintiffs' [federal securities law] claims. 

The language admits of no justification for looking 

beyond it to the regulatory history surrounding its 

inclusion. In any event, even if we were to look at the 

regulatory background we see no reason in it for 

rejecting customers' reasonable expectations. A 

customer reading the exclusionary language. could .. not be 

expected to be aware of the regulatory background or to 

understand that the language may become meaningless with 

the winds of change in the law. Legg Mason, if it truly 

did not intend to be bound by the contractual language 

it drafted, should have· challenged Rule 15c2-2 or 

reexecuted the arbitration agreements in accordance with 

its intent after rescission of the Rule." 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 12
Id. 

In Gooding, the arbitration provision at issue was limited by 

a clause.excluding arbitration of "any controversy •.• for which 

a remedy may exist pursuant to an express or implied right_ of 

action under certain of the federal ~ecurities l~ws." 878 F.2d at 

283. The broker urged that since this language "was placed in the 

agreement to satisfy Rule 15c2-2, it should not be enforced 

because th~ rule has been rescinded." Id. Relying on its earlier 

decision in Van. Ness Townhouses v. Mar Industries Corp., 862 F.2d 

754, ~58 (9th Cir. 1989), which found that "such an express 

·' 

exc-lusion from arbitration is an express grant of the right ·to 

litigate th6se claims," the court rejected the broker's argument. 

"Under the contract, [the broker] agreed that [the customer] had 

the option of ·seeking a judicial determination of his federal 

securities law claims .,"id.at 284, and "[b]oth parties must 

abide by the terms of the contract," id. 

We find the reasoning of Ballay and Gooding persuasive and 

applicable to the case at bar. Although the record does not 

disclose whether Dean Witter actually s~nt the required notice to 

Coffey, that uncertainty does not affect our disposition of the 

case. If the notice was sent, it became part of the parties' 

contract, creating a new (albeit unbargained-for} contractual 

right to litigate federal securities law claims. See also Wehe v. 

Montgomery, 711 F. Supp. 1035 (D. Or. 1989} (notice sent to 

customer in compliance wi~h Rule 15c2-2 modified unconditionalar~itration clause; thus, customer's Exchan~e Act claims not 

subject to arbitration even after rule's rescission). 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 13
In this si~uation, like th~ Ballay court, we see no reason to 

defeat Coffey's reasonable expectation, based cfo the clear, 

unequivocal language of the Rule 15c2-2-mandated modification of 

the arbit~ation clause, that she.could litigate federal securities 

law claims under the joint account. At the time Coffey commenced 

the instant litigation Rule 15c2-2 was in effect. The notice 

required by Rule 15c2-2 added a new paragraph to the parties' 

contract. This substitute paragraph does not declare that it is 

effective only until such claims are held to be arbitrable. The 

substitute language does not automatically become ineffective when 

· the •'Supreme · Court changes its view of the law on securities 

arbitrations nor, we believe, upon repeal of the rule which 

dictated the substitute language, absent a new agreement between 

Dean Witter and ·coffey. 4 

-

If Dean Witter never sent the required notice, its action 

constituted a violation of Rule 15c2-2 and we will not allow it. to 

profit from its transgression. See Paulson· v. Dean Witter 

Reynolds, Inc., 708 F. Supp. 1163, 1167 (D. Or. 1989) ("[A]ny 

provision executed while Rule 15c2-2 was· in effect and which 

purports to bind a customer to arbitration of federal securities 

claims is unenforceable."); Wehe v. Montgomery, 711 F. Supp. 1035, 

1039 (D. Or. 198~) (same); Gugliotta v. Evans & Co., 690 F. Supp. 

4 Certainly an arbitration provision could have been drafted that .. would have comp1ied -with. Rule 15c2-2 an:d th.at would have mandated 

arbitration of federal securities law claims in the event they 

were held to be ar~itrable. See,~, Reed v. Bear, Stearns & 

Co., 698 F. Supp. 835, 840-41 & n.2 (D. Kan. 1988) (court 

construed language in arbitration clause, "likely included so that 

the clause would comply with Rule 15c2-2," to mean that "federal 

securities -laws •claims must .be. submitted to arbitration when such 

arbitration is permitted by federal law.") 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 14
144, 147-49 (E.D.N.~. 1988) (arbitration clause which violated 

Rule 15c2-2 when rule was in effect would not be enforced after 

rule's rescission; ·"[o]n the contrary, 'an agreement that is 

illegal by statute or on the grounds of public policy when made is 

not rendered_ legal by repeal of the statute or change in the 

public or legislative policy.' Palmisano v. United States Brewing 

Co., 1_31 F.2d 272, 273 (10th Cir. 1942)"). We reject those cases 

which, by retroactive application of Rule 15c2-2's rescission, 

have immunized brokers from responsibility for possible violations 

of the rule while it was in effect. See, ~, Adrian·, 841 F. 2d 

at 1061-62 (court did not consider plaintiffs' argument that 

arbitration clause violated Rule 15c2-2 because "whatever effect. 

Rule 15c2-2 may have had before its rescission, it cart no longer 

be used as a defense to arbitration"); Villa Garcia, 833 F.2d at 

548 (" [ S] ince the rescission of the Rule shoul.d be applied 

retroactively, ~e have no occasion to consid~r whether Merrill 

Lynch did or did not violate the Rule as Villa contends."). 5 . 

5 In Cohen v. Wedbush, Noble, Cooke, Inc., 841 r.2d 282, 288 (9th 

Cir. 1988), a panel of the Ninth Circuit summarily concluded that, 

because Rule 15c2-2 had been rescinded, the argument that an 

arbitration provision was unenforceable because .it violated the 

rule while the rule was in effect was "without foundation." If 

Cohen was intended as a holding contrary t6 our contract approach 

it has not been followed in the Ninth Circuit. In Van Ness 

Townhouses v. Mar Industries Corp., 862 F.2d 754 (9th Cir. 1989), 

a different panel found that "[i]t cannot be doubted that Rule 

15c2-2 was intended to prohibit predispute agreements to arbitrate 

securities claims .•• ,"id.at 757, and that exclusionary 

clauses · included • to comply, .. wi th:.1the rule constitute ''-an express 

grant of the right to litigate those claims," id. at 758. 

Although Van Ness did not specifically addressarbitration 

agreements which violated Rule 15c2-2, two district courts in the 

Ninth Circuit have relied on the case to determine that, despite 

Cohen, "any provision executed while Rule 15c2-2 was in effect and 

which purports· to bind a customer to arbitration of federal 

Continued to next page 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 15
The approach which we adopt today does not ignore violation 

of valid· regulations, and protects customers' reasonable 

expectations based on explicit contractual provisions. 

Thus, w~ REVERSE the distric£ court's order confirming the 

arbitral award and dismissing the case and REMAND for further 

proceedings not inconsistent with this decision. 

cc{ntinued from previous page ·····- ·· ·---

securities claims is unenforceable." Paulson v. Dean Witter 

Reynolds, Inc., 708 F. Supp. 1163, 1167 (D. Or. 1989) (Frye, J.). 

Accord Wehe v. Montgomery, 711 F. Supp. 1035, 1039 (D. Or. 1989) 

(Redden, J.). Van Ness, Paulson and Wehe, as well as Gooding, 

discussed ante at 9, are all in accord with the approach we adopt· 

today. 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 16
No. 88-2286~ Florabelle Co-ffey v. Dean Witter Reynolds, _Inc~, 

et al. 

BALDOCK, Circuit Judge, concurring in part and dissenting in part. 

I concur with the court's decision that the parties agreed to 

arbitrafe the claims at issue, but I differ with the court 

concerning whether plain.tiff-appellan~ may avoid that agreement 

based upon Rule 15c2-2, 17 C.F.R. § 240.15c2-2 (1987). 

First, Rule 15c2-2 was a disclosure provision designed to 

inform customers that under the then-current law, federal 

securities claims could be litigated despite a predispute 

agreement to arbitrate. Recourse to the Courts Notwithstanding 

·Arbitration Clauses in Broker-Dealer Customer Agreements, Exchange 

Act. Release No. 20,397, Nov. 18, 1983, 48 Fed. Re~. 53,404 (1983). 

As explained by the SEC: 

The Commission is adopting a rule that prohibits 

broker-dealers from using predispute arbitration clauses 

in customer agreements that purport to bind public 

customers to the arbitration of claims arising under the 

federal securities laws. The rule also requires · b~oker-dealers to disclose to existing public customers 

that they are not precluded by such clauses from 

judicial recourse with respect to those claims. The 

p~rpose of this rule is to ensure that public customers 

ar·e not misled concerning such recourse. · 

Id. The rationaie for the rule.was that "[t]he federal securities 

laws • provide that broker-dealer agreements purporting to 

bind public customers to the arbitration of disputes arising in 

the future are void and unenforceable as applied to those laws." 

.. Id. (citing Wilke v. Swan:, 346 u .• S • ...=A27 (1953)). Thus, Rule 

15c2-2 did not purport to cre~te a new substantive right barring 

waiver of the right to litigate federal securities law claims. 

Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 17
See.Finkle & Ross v;- A.G. Becker Paribas, Inc., 622 F. Supp •. 1505,· 

1510 (S.D.N.Y. 1985). Instead, it merely required disclosure of 

the then-current state bf the law to public customer~. That 

_exposition of the law concerning the 1934 Act was rejected in 

Shearson/American Express v. McMahon, 482 U.S. 220 (1987), and the 

s~c promptly rescinded its rule, believing that ''Rule 15c2-2 is nb 

longer appropriate or accurate and, accordingly, should be 

rescinded." Recission of Rule Governing Use of Predispute 

Arbitration Clauses in-Broker-Dealer Customer Agreements, Exchange 

Act Release No. 25,034, Oct. 15, 1987, 52 Fed. Reg •. 39,216-17 

(1987). The Supreme Court subsequently extended McMahon to the 

1933 Act and overruled Wilko v. Swan. Rodriguez de Quijas v. 

Shearson/Ame.r ican Express, 109 S. Ct. 1917, 1920-21 ( 1989}. There 

is nothing in th_e· record to. support this court's decision that 

plaintiff-appellant has a reasonable expectation in· the continue·a 

application of a now incorrect view of tne law. 

Second, to the extent the arbitration provision in the 

Customer's Agreement was modified to comply with Rule 15c2-2, the 

·modified provision was again modified when the SEC rescinded the 

rule. R~liance upon the court's private contractual approach to 

the arbitration provision would yield the same result. Paragraph 

2 of the Customer's Agreement provides in pertinent part: 

Whenever any statute shall be enacted which shall 

effect in any manner or be inconsistent with any of the 

pr-ovisions hereof, or whenever any :orule or regulation 

shall be proscribed or promulgated by ••• the Federal 

Securities and Exchange Commission .•• which shall 

effect in any manner or be inconsistent with any of the 

provisions hereof, the provisions of this agreement so 

affected shall be modified or superseded, as the case 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 18
may be~ by such statute, rule or regulation, and all 

other provisions of the agreement and the provisions as 

so modified or superseded, shall in all respects 

continue to be in full force and effect._ 

Rec. vol. I, doc. 15, ex.- 3. This paragraph resulted _in the 

incorporation of Rule 15c2-2 into the contract on the effective 

date of the rule, December 28, 1983. See Rel. No. 20,397, 48 Fed.· 

Reg. 53~407. On October 21, 1987, the SEC's final rule rescinding 

Rule 15c2-2 became effective. Rel. No. 25,034, 52 Fed. Reg. 

39,216. This final rule, promulgate~ by the SEC, clearly affected 

the arbitration provision of the contract as previously amended by 

the required language of Rule 15c2-2. Once again the arbitration 

provision was modified~ but this time back to its original state 

artd all claims were subject to arbitratio~. 

Given the strong _federal policy in favor oi: arbitration and 

the highly regulated nat~re of secuiities markets, the rescission 

of.Rule 15c2~2 should be applied to the contract and the district 

court's order confirming the arbitral award should be confirmed. 

See Jeske v. Brooks, 875 F.2d 71, 74-75 (4th Cir. 1989); Adrian v. 

Smith Barney, Harris, Upham & Co., 841 F.2d 1059, 1061-62 (11th 

Cir. 1988);· Cohen v. Wedbush, Noble, tooke, Inc·., 841 F.2d 282, 

288 (9th Cir. 1988); Villa Garcia v. Merrill Lynch, Pierce, Fenner 

& Smith, Inc., 833 F.2d 545, 547-48 (5th Cir. 1987); contra Ballay 

v. Legg Mason Wo6d Walker, Inc., 878 F.2d 729, 733-34 (3d Cir. 

1989); Gooding v. Shearson Lehman Bros., 878 F.2d 281, 284 (9th 

Cir. 1989); Van Ness Townhouses v. Mar Industries Corp., 862 F.2d 

754, 758 (9th Cir. 1989); Leicht v. Bateman, Eichler, Hill, 

Richards, Inc., 848 F.2d 130, 133-34 (9th Cir. 1988). I 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 19
respectfully dissent from that part of this court's opinion which 

holds otherwise. 

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Appellate Case: 88-2286 Document: 010110280905 Date Filed: 12/05/1989 Page: 20