No. 85-459 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1986 

LARRY W. PASSAGE; NEVA M. PAGGAGE, 

individually and as custodian for 

ALLISON PASSAGE and TOD PASSAGE, 

minors; and TWILA PASSAGE, 

Plaintiffs and Respondents, 

PRUDENTIAL-BACHE SECURITIES, INC., 

a Delaware corporation; G.T. MURRAY 

COMPANY, a Montana corporation; 

RICHARD DOBBINS; WILLIAM CROWLEY; 

and G.T. MURRAY, 

Defendants and Appellants. 

APPEAL FROM: District Court of the First Judicial District, 

In and for the County of Lewis & Clark, 

The Honorable Gordon Bennett, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Daniel J. Shea argued for Prudential-Bache, Helena, 

Montana 

Luxan & Murfitt; Michael J. Mulroney argued for G.T. 

Murray, et al., Helena, Montana 

For Respondent: 

W. W. Leaphart argued, Helena, Montana 

Submitted: June 17, 1986 

Decided: August 26, 1986 

AUG 2 6 1986 Filed: 
Mr. Justice Fred J. Weber delivered the Opinion of the Court. 

In this case, all parties appeal portions of an order of 

the District Court for Lewis and Clark County which held that 

claims on some of the Passages' accounts with defendants were 

subject to valid arbitration clauses. We affirm in part and 

reverse in part. 

The issues are: 

1. Did the District Court correctly determine that it 

had jurisdiction to order arbitration of the Passages' claims 

under the Federal Arbitration Act? 

2. Are the arbitration agreements in this case adhesion 

contracts, and if so, are they unenforceable? 

3. Did the District Court err in directing that arbitration be conducted under the rules of the American Arbitration Association as elected by the Passages? 

4. Which parties are entitled to benefit of the arbitration agreement? 

5 Did the District Court properly stay the claims of 

the children pending arbitration of their parents' claims? 

Prudential-Bache Securities, Inc. (Prudential) is the 

New York correspondent of G. T. Murray Company. The other 

three defendants are or were officers or employees of G. T. 

Murray Company. Beginning in 1983, the Passages opened 

several accounts at the G. T. Murray office in Helena, Montana. The accounts included two "target accounts" and two 

regular accounts, with total deposits of $429,403.30. Neva 

Passage also opened accounts for each of their two children 

with total deposits valued at $13,440.97. Larry Passage 

opened an account for Twila Passage, his mother, with total 

deposits valued at $27,187.51. When they opened their 
regular and target accounts, Larry and Neva Passage signed 

customer agreement forms, a copy of which is appended to this 

opinion. Twila Passage also signed a customer agreement 

form. The customer agreement forms included arbitration 

clauses providing as follows: 

Any controversy arising out of or relating to my 

account, to transactions with or for me or to this 

Agreement or the breach thereof, . . . shall be 

settled by arbitration in accordance with the rules 

then obtaining of either the American Arbitration 

Association or the Board of Governors of the New 

York Stock Exchange as I may elect. If I do not 

make such election by registered mail addressed to 

you at your main office within five (5) days after 

demand by you that I make such election, then you 

may make such election. 

In February 1985, the Passages filed suit in the District Court for Lewis and Clark County, charging defendants 

with various violations of state securities laws and duties 

in handling their accounts. The complaint alleged losses in 

the regular and target accounts of $320,104.82, losses in the 

children's accounts of $4,770, and loss in the Twila Passage 

account of $10,210.15. Defendants filed demands for arbitration. The District Court found that the accounts, except for 

the children's accounts, were subject to valid arbitration 

clauses and granted the motion of defendant Prudential to 

compel arbitration. It denied the motion of defendants G. T. 

Murray Company, Richard C. Dobbins, William Crowley, and G. 

T. Murray (the Murray defendants) to compel arbitration. It 

held that there was a question of whether the Murray defendants had standing to demand arbitration, but stated that 

this was immaterial since Prudential undisputedly had the 

necessary standing. The court also held that the client 

agreements containing the arbitration clauses did not apply 

to the accounts opened in the names of the Passage children, 
but it stayed judicial proceedings on the children's claims 

until arbitration is completed on the other claims. Each of 

the parties has appealed on portions of the judgment which 

are unfavorable to it. 

Did the District Court correctly determine that it had 

jurisdiction to order arbitration of the Passages' claims 

under the Federal Arbitration Act? 

This area of the law is undergoing rapid and comprehensive change as a result of recent U.S. Supreme Court decisions. That Court's decision in Southland Corp. v. Keating 

(1984), 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1, conclusively 

answers this question. In that case, Southland Corporation, 

the owner and franchisor of 7-Eleven convenience stores, was 

charged by 7-Eleven franchisees with fraud, oral misrepresentation, breach of contract, breach of fiduciary duty, and 

violation of state disclosure requirements in its franchise 

agreements. Southland Corporation appealed the decision of 

the California Court of Appeals that arbitration clauses in 

Southland's contracts with its franchisees were rendered void 

by California's Franchise Investment Law, which required 

judicial consideration of claims brought under it. The 

Supreme Court reversed. It held that, as interpreted, the 

California Franchise Investment Law conflicted with the 

Federal Arbitration Act and violated the Supremacy Clause. 

The Court reasoned: 

In enacting 2 of the federal Act, Congress declared a national policy favoring arbitration and 

withdrew the power of the states to require a 

judicial forum for the resolution of claims which 

the contracting parties agreed to resolve by arbitration . . . 
Congress has thus mandated the enforcement of 

arbitration agreements. 

Southland, 465 U.S. at 10. In answer to the argument that 

claims brought in state court are not subject to the Arbitration Act, the Court stated: 

. . . it is clear beyond question that if this suit 

had been brought as a diversity action in a federal 

district court, the arbitration clause would have 

been enforceable. [citation omitted. ] The interpretation given to the Arbitration Act by the 

California Supreme Court would therefore encourage 

and reward forum shopping. We are unwilling to 

attribute to Congress the intent, in drawing on the 

comprehensive powers of the Commerce Clause, to 

create a right to enforce an arbitration contract 

and yet make the right dependent for its enforcement on the particular forum in which it is asserted. And since the overwhelming proportion of all 

civil litigation in this country is in the state 

courts, we cannot believe Congress intended to 

limit the Arbitration Act to disputes subject only 

to federal-court jurisdiction. Such an interpretation would frustrate congressional intent to place 

" [a]n arbitration agreement . . . upon the same 

footing as other contracts, where it belongs." H.R. 

Rep. No. 96, 68th Cong., 1st Sess., 1 (1924). 

In creating a substantive rule applicable in state 

as well as federal courts, Congress intended to 

foreclose state legislative attempts to undercut 

the enforceability of arbitration agreements. 

Southland, 465 U.S. at 15-16. Under Southland, a state court 

clearly has jurisdiction order arbitration under the 

Federal Arbitration Act. 

We affirm the District Court as to this issue. 

Are the arbitration agreements in this case adhesion 

contracts, and if so, are they unenforceable? 

The customer agreement forms signed by the Passages are 

one-page documents, but they contain a number of complex and 

technical agreements and promises on the parts of both parties. The arbitration clause, paragraph 14, is printed in 

the same typeface as the rest of the form. It is one of the 
longer provisions in the agreement. The Passages invested a 

significant amount of money with defendants, and there has 

been no suggestion that they require protection because they 

are in any way improvident persons. 

The Southland opinion does not mandate that all arbitration clauses are enforceable: 

We discern only two limitations on the 

enforceability of arbitration provisions governed 

by the Federal Arbitration Act: they must be part 

of a written maritime contract or a contract "evidencing a transaction involving commerce" and such 

clauses may be revoked upon "grounds as exist at 

law or in equity for the revocation of any 

contract." 

Southland, 465 U.S. at 10-11. The agreement between the 

Passages and Prudential clearly involves interstate commerce, 

since its object was purchase and sale of securities through 

a public stock exchange. 

The Passages contend that the agreement should be declared unenforceable upon "grounds as exist at law or in 

equity for the revocation of any contract." The Passages 

argue that this clause is revocable because it appears in a 

contract of adhesion. They have cited post-Southland cases 

in which state courts have declared void arbitration clauses 

in contracts of adhesion. However, the factual and legal 

situations in those cases were different from the one here. 

In Victoria v. Superior Court (Cal. 1985), 710 P.2d 833 

(patient was sexually assaulted by an orderly), the holding 

that the arbitration clause would be set aside was based on 

the court's determinations that the scope of the arbitration 

clause was unclear, its ambiguity should be interpreted 

against the hospital-drafter, and it was unlikely that the 

parties intended the arbitration clause to apply in these 

circumstances. In Obstetrics and Gynecologists v. Pepper 
(Nev. 1985), 693 P.2d 1259 (gynecology clinic patient suffered cerebral incident while on oral contraceptives), the 

appellate court upheld the district court's setting aside of 

an arbitration clause. The appellate court stated the district court had not made findings and conclusions but reasoned that the district court could have found the agreement 

was an adhesion contract and was not knowingly entered. 

The Passages also argue that this Court's opinions in 

Anderson v. Baker (1982), 196 Mont. 494, 641 P.2d 1035 (adhesion contracts construed against the drafter), and 

Transamerica Ins. Co. v. Royle (1983), 202 Mont. 173, 656 

P.2d 820 (insurance policy clause examined using consumer 

approach), should be extended so that the enforceability of 

this arbitration clause would be examined from a consumer 

approach. They contend that under the consumer approach the 

provision for arbitration should be stricken, since it was 

not clearly established that the Passages were put on notice 

of the arbitration clauses. 

In contrast, the federal courts have held arbitration 

clauses in brokerage agreements enforceable: 

Contracts of adhesion arise when a standardized 

form of agreement, usually drafted by the party 

having superior bargaining power, is presented to a 

party, whose choice is either to accept or reject 

the contract without the opportunity to negotiate 

its terms. [citation omitted. ] Here, the investor 

is faced with an industry wide practice of including Arbitration Clauses in standardized brokerage 

contracts. As the investor faces the possibility 

of being excluded from the securities market unless 

he accepts a contract with such an agreement to 

arbitrate, such clauses come within the adhesion 

doctrine. However, mere inequality in bargaining 

power does not render a contract unenforcible , [citation omitted] nor are all standardized contracts unenforcible. [citations omitted. ] As a 

consequence of current commercial realities, form 

forum clauses will control, absent a strong showing 

it should be set aside. [citation omitted.] For 

such a contract or clause to be void, it must fall 
within judicially imposed limits of enforcement. 

It will not be enforced against the weaker party 

when it is: (1) not within the reasonable expectations of said party or (2) within the reasonable 

expectations of the party, but, when considered in 

its context, is unduly oppressive, unconscionable 

or against public policy. [citations omitted.] 

Such pre-dispute arbitration agreements are not 

outside the reasonable expectations of the investor. [citation omitted.] Nor are they contrary to 

public policy, as indicated by the judicial and 

legislative presumption favoring the arbitration of 

such disputes. [citation omitted.] 

Finkle and Ross v. A.G. Becker Paribas, Inc. (D.C.N.Y. 1985), 

There nothing the record indicate that the 

arbitration clause in the client agreement form was not 

within the parties1 reasonable expectations. Nor is there 

any evidence that the clause is oppressive or unconscionable. 

The federal caselaw demonstrates that arbitration clauses are 

common, and may be universal, in brokerage agreements. In 

Southland, which like the present case involved allegations 

of fraud and misrepresentation, the public policy of enforcement of arbitration clauses was forcefully stated. We conclude that even if the customer agreement form is an adhesion 

contract, there is nothing in the record and no compelling 

law to prevent enforcement of the arbitration clause. We 

affirm the District Court's holding that the arbitration 

clause is enforceable. 

Did the District Court err in directing that arbitration 

be conducted under the rules of the American Arbitration 

Association as elected by the Passages? 

The Murray defendants argue that the Passages' election 

of arbitration rules should not be honored, since they did 

not consent to arbitration. The Passages' April 16, 1985 
election of the American Arbitration Association was made 

within the 5 days allowed from the date of demand for arbitration, as required in paragraph 14 of the customer agreement form. The selection complied in all respects with the 

requirements of the contract, but was made contingent upon 

arbitration being compelled by the court. We conclude that 

the District Court properly honored the Passages' election of 

arbitration rules, once it determined that arbitration was 

proper. 

IV 

Which parties are entitled to benefit of the arbitration 

agreement? 

The District Court found the Murray defendants were not 

signatories to the customer agreement forms. It therefore 

denied the Murray defendants' motion to compel arbitration. 

An examination of the customer agreements reveals that Prudential was not a signatory either, although its name or the 

name of its predecessor in interest was printed at the top of 

each of the forms. The customer agreement form does not 

clearly indicate the identity of the party or parties with 

whom the Passages were contracting; it refers to "you", with 

no explanation of who "you" is. The District Court granted 

Prudential's motion to compel arbitration. 

All of the claims in the Passages' complaint relate to 

mishandling or unwise management of the Passages' accounts 

opened at the G. T. Murray office. It is our conclusion 

that since the claims against Prudential and against the 

Murray defendants arise out of the same facts and the same 

actions, to separate the claims as to the defendants would be 

inappropriate. There is support for this conclusion: 
Ross [the investor] argues that her claims should 

not be arbitrated for several reasons. First, she 

argues that the claims against Mathis [the broker] 

should not be arbitrated because he is not a party 

to the agreement. Although Mathis did not sign the 

agreement, the causes of action against him may be 

arbitrated. Every allegation against him arises 

out of his handling of Ross' account as a Bear 

Stearns employee. Her damages are predicated on 

Mathis' alleged breach of a myriad of state and 

federal duties concerning her account at Bear 

Stearns. Ross' assertions based upon her trust in 

Mathis due to their relationship do not change this 

fact. Any breach of trust dealt with Mathis' 

actions regarding Ross' accounts with Bear Stearns. 

Thus, her case against Mathis is based solely on 

her account, which the arbitration agreement 

covers. 

Ross v. Mathis (N.D.Ga. 1985), 624 F.Supp 110, 113-14. That 

court held that the claims against broker Mr. Mathis were 

arbitrable. 

We hold that the Passages' claims against all of the 

defendants are arbitrable. 

Did the District Court properly stay the claims of the 

children pending arbitration of their parents' claims? 

Both Prudential and the Passages object to the District 

Court's order staying the claims on the Passage children's 

accounts pending arbitration of the other claims. Prudential 

argues that the claims on the Passage children's accounts are 

subject to arbitration along with the other claims. The 

Passages argue that the District Court was correct in finding 

the children's accounts were not included under the terms of 

the client agreement forms. They contend, however, that it 

is unjust to stay court action on the children's claims. 

Neva Passage opened the accounts in the names of the 

children and deposited all funds into them. The children are 

teenagers, and the daughter has attained the age of majority 

during the course of this action. The amounts deposited in 
the children's accounts are not large in comparison with the 

deposits to the other accounts. There is nothing in the 

record to conclusively establish the nature of these accounts, whether as completed gifts, funds held in trust, or 

otherwise. The Passages' complaint states that Larry and 

Neva Passage are 'guardians' of their children but no facts 

are known as to the technical or legal aspects of the guardian status. We conclude that a factual question remains as to 

whether Larry and Neva Passage have an interest in the children's accounts, subjecting the accounts to the arbitration 

agreement. 

Issues which go to the formation of the contract as a 

whole may properly be decided by an arbitrator. Merrill 

Lynch, Pierce, Fenner, etc. v. Haydu (5th Cir. 1981), 637 

F.2d 391, 398. We have here an issue of whether the children's accounts are covered by the customer agreement forms. 

We reverse the order of the District Court on this issue. 

The District Court shall enter an order submitting this issue 

to arbitration. 

Affirmed in part and reversed in part. 

We Concur: 

Chief Justice 

,,? v-.,-w ts . . t.5' y!*:l,$ ogrw o, ldlowg kith nspret to all of my accounts: in whkh I hov; on interest olon: or with othen, whkh I hove opened or open h the futuie, with you 

jC ~I+VQI d s+ of murities ond commoditbst 

2.1 bn,d MI q)e and npnunt that I am not an employee of ony exchonge or of o Member Flrm of any Exchange or the NASD, or of o bonk, tr st company, 

~~~M90*npany ;.',> . md thot,t will promptly notlfy you H I become so employed. 'I . 3. AH hmsadbns fo; my occeunt shall be su~ecto the constitution, rules, regulations, customs ond usoges, oa the tame mq be constituted from tlme M tkm, 

$iof,the mxuchmgr or meet (and b dewhg hbuu, H any) where executed. 

*r*i ' +'wlmd dl ci.dH bdmcn, wcuritbs, commoditbs or controcts relating thereto, ond 011 other property of whakoever khd belonging to me or in whkh I 

a mq hm~ a httnH held by pu or carrbd for my occounts shall be subiect to o generol lien for the discharge of my obligotbns to you (including unmotured and 

!'conthgent obllgatbnc) howwer ahhg md wHhovt ragord to whether or not you hove mode odvonces with respect to such property and withovt notke to me mq be 

,,,cmkd h'yw gonerd bans md all ucurlbs mq be pledged, repledged, hypothecoted or re-hypothecated, separately or in common with other securitbs or any 

'-other prom, for the sum dw to u thereon or fot o greater sum and without retaining in your possessbn ond control for delivery o like amount of rimlor securitbt 

.or ahrt ropry. At my tlmr mfirom tlme to tlme you may, In your discretbn, without notke to me, apply and/or hansfer on7 securities, commodities, controcts 

: nlathg:~nto, tmh or my other property therein, Interchangeably between any of my accounts, whether lndividud or klnt or from any of my acounts to any 

omunt gu&mtaed by me. You are specHkdly outhorlxed to transfer to my cosh account on the settlement day following o purchase mode In that account, excess ,' funds avofable h my of my other occounts, including but not limited to ony free bolonces in any margin occount or in any non-regulated commoditbc acount, 

wffkknt tod~akr.full po)*nr*.of $b .~yh purchau, I agree that any debit occurring In any of my occounh mq be trmrferred by you at your optbn to my margh : -,$t, f el$, - !'. "!., . , 4 ' ' . , I f-.. 5. I wfl mohtoh twh morghs OS'~OU mq h your discretbn require from tlme to time ond will pq on demand ony debit bolonce owing with resped to any 

0f.v oaountl. Whenever h your dhcretbn you deem it deslroble for your profectbn, (and without the necessity of o morgin call) including but not limited to on 

. hstmcr whwa a petitbn h bonkwpky or for thi appointment of o receiver k filed by or ogalnst me, or an dachment h levied against my acount, or In the event 

of notk. of my dedh or hcop~,lt~,.o~ h,compllance with the orders of ony Exchonge, you mq, without prbr demand, tender, ad without any notke of the tlme 

. or plar of ad*, dl of whkh are expressly woived, ull ony or all securities, or commodities or contracts reldlng thereto whkh mq be in your possessbn, or whkh you 

,,may k tqhg for me, or buy my ucurhbs, or commoditbs or contracts relating thereto of whkh my acount or accounts may be short, in order to clow out In 

, ,whole or h part my commitment h my behalf or you may place stop orders with respects to such securitbs or commoditbs and such tole or purchme mq be mode 

at your dbcretbn on ony Exchange or other morket where such business Is then tronsocted, or ot puMk ouctbn or private sale, with or without odverthlng ad neither 

,my demands, tdls, tenders or notkes whkh you may moke or give in any one or more Instances nor any prbr coune of conduct or deolings between us sholl invdldoh thr afonsakl woken on my port. You shall hovr ?he right to purehdw for your own account ony or dl of the oforesoM property at any such sde, dhchaged 

of my rbht of redemption, whkh h hereby waived. 

: * 6. Al arden for the purchow or sole of commoditbs for future delivery mq be closed out by you as and when authorized or required by the Exchange where 

. made. Agahrt a "long" positbn h my commodiy controct, prbr to matur'q thereof, ond at least five business dqs before the first notke dq of the delivery month, 

I wll gk hstructbns to Ilquklatr, or ploce you in suffkbnt funds to toke delivery1 ond in default thereof, or In the event such liquidating hstructbns connot be 

r&ed under pmvoilhg condlbncj you may, without notice or demand, close out the contracts or take delivery ond dispose of the commod'v upon any terms ad 

by any dad whkh mq br frolible. Against o "short" positbn In ony commodity contract, prior to maturity thereof, ond d least five business doy~ before the 

lad hodhg duy of the delivery month, I will gh you instructions to cover, or furnish you with all necessary delivery documentsr and In defwlt thereof, you mq without damand or notke, cover the conhoch, or H orden to buy in such contracts, cannot be executed under prevatling conditions, you mq procure the ahrd commodity 

md moke drlinry thrrwf upon any terms and by any method whkh mq be feasible. 

7. All tonrations h mynof my occounts ore to be pold for or required morgin deposited no later than 2100 p.m. on the wnlemont date. 

: t. 8. I ogm to pq hterest and uwke charges upon my accounts monthly at the prevailing rate as determined by you. 

' 9. I ogm hat, h gkhg orders to seI1~ all "short" sale orders will be deslgnded 01 "short" and all "long" sde orders will be deslgnded ol "long" ad 

thd the hignotbn of b sell order oa "long" h a representdbn on my par! that I own the securiy ond, H the ucurity b not h your poswsskn that I b not then. 

poulble to ddkr (h. crcurhy k you forthwith ond I will deliver it on or before the wttlament date. 

rw 10. ~epim.of the executbn of orden and rtdemenk of my occount shall be conclusive H not oqeded to in writing within fh dqa ond ten dqa, respectively, 

afbr trmrmind to ma by ma9 or otherwhe. . .. ... ' .' 11. All mmmunkatbnc including margin calls mq be sent to me at my address given you, or at such other oddress as I mq hereafter give you h writing, md 

'.dl communkatbns w unt, whether h writing or othewhe, sholl be deemed given to me persondly, whether octuolly received or not. . .. .'I : . 12:Nd woe of my ppvkbn of thh ogrwment hall be deemed o woiver of any other provkbn, nor a continuing waiver of the provhbn or provhbns SO. ,,,d",d."J$'l& ., -' 

. . 13. 1 understand that no provkbn of thk ogreement con be omended or woived except in writing signed by on offker of your Company, ad that thh agreement 

hdl conthw h force until Hs tdrmhatbn by me b acknowledged in writing by oh officer of your Componyj or untl written notke of termhatbn by you hdl have 

boon moiled to me @ my oddresi last given you. 

14. Thh controcl shdl be governed by the lows of the State of New York, and sholl inure to the benefit of your successors ad osslgns, and sholl be bhding on 

a the undmlgnod, hh heks, executors, odministrotors ond asslgns. Any controversy arising out of or relating to my account, to tronstxtbns with or for me or to thh 

Agreement or the breah thereof, and whether executed or to be executbd within or outside of the United States, except for any controversy orbing out of or reldlng 

to honsoclbns h commoditbs or contracts related thereto executed on or subject to the rules of o contrtxt morket designated as such under the Commod'v Exchange 

Act, oa ommded, shdl be wttled by arbithion In occordonce with the rules then obtaining of either the Amerkon Arbitration Assoclotbn or the Boord of Gowrnon 

of the New,York St& Exchange as I moy elect. If I do not make such election by regittered moil addressed to you crt your mob, office withh five (5) duys after 

demand by pu that I make such electbn, then you may moke such election. Notke preliminary to, In con/unctbn with, or incMent to such orbitrdbn proceeding, may 

be sent to rr* by mol and penond wwka h hereby woived. Judgment upon ony oword rendered by the arbitraton mey be entered in my court hwhg jurhdidbn 

thereof, wihoul hotke to me. ' . '.' " IS. If my provhbn hereof h or ot any time should become inconsistent with ony presew? or future law, rule or regulation of ony wcurities or commodities exchange 

!"or of any wverelgn government or a reguloto+ body thereof and if any of these bodies hove iurlsdktion over the subfect matter of thk agreement, sold provkbn 

. .hall ba:d.rmad k br wparwd.drd or modified to conform to such low, rule or regulatbn, but in all other respsctr thb ogrwmmt shall continue ond rem-full I : 

. , # 

CLlENflS SIGNATURE 

. . :2 LENDING AGREEMENT 

YOU AN6.M FIRM SUCCEEDING TO YOUR FIRM ARE HEREBY AUTHORIZED FROM TIME TO TIME TO LEND SEPARATELY OR TOGETHER WITH THE PROPERTY 

OF OTHERS EITHER TO YOURSELVES OR TO OTHERS ANY PROPERM WHICH YOU MAY BE CARRYING FOR ME ON MARGIN. THlS AUTHORlZATiON SHALL APPLY 

TO ALL ACCOUNTS CARRIED BY YOU FOR ME AND SHALL REMAIN IN FULL FORCE UNTIL WRITTEN NOTICE OF REVOCATION IS RECEIVED BY YOU AT YOUR 

. ,I KINDLY SIGN THIS FORM IN THE TWO SIGNATURE SPACES INDICATED ABOVE. IN THE CASE OF'J~INT ACCOUNTS, BOTH TENANI 

: , BOTH SIONATURL SPACES, RETURN THlS ORIGINAL (WHITE) TO THE BACHE OFFICE WHI$H SERVICES YOUR ACCOUNT. THE DUPLICAT .. . ..'.f . RETAINED FOR YOUR PERSONAL RECORDS. ' 

, . ... . EXHIBIT 

APPENDIX 
Mr. Justice Frank B. Morrison, Jr., dissenting: 

I dissent. 

The majority opinion concludes that it is not necessary 

to decide whether the contract is one of adhesion since there 

is "no compelling law and nothing in the record to prevent 

the clause from being enforced." I am at a loss to 

understand what is being said. 

First, it is necessary to decide whether the provision 

is one of adhesion. Under the authority cited in the 

majority opinion, the language is clearly one of adhesion 

since the investor does face the possibility of being 

excluded from the securities market unless he or she accepts 

a contract with such an agreement to arbitrate. 

Since this provision is one of adhesion the authorities 

universally require that it not be enforced unless there is a 

showing that: (1) the provision is within the reasonable 

expectations of the parties and (2) is not unduly oppressive, 

unconscionable or against public policy. Finkle and Ross v. 

A.G. Becker Paribas, Inc. (D.C.N.Y. 1985), 622 F.Supp. 1505, 

1511-12, cited in the majority opinion. 

There has been no factual determination by the trial 

court respecting the reasonable expectations of the parties 

to this agreement. The adhesion provision provided: 

Any controversy arising out of or relating to my 

account, to transactions with or for me or to this 

agreement or the breach thereof . . . shall be 

settled by arbitration in accordance with the rules 

then obtaining of either the American Arbitration 

Association or the Board of Governors of the New 

York Stock Exchange as I may elect . . . 

First, the adhesion provision is not specifically 

directed to anyone in particular. We do not know whether 

Passages' intended for the arbitration agreement to apply to 

Prudential-Bache, or G.T. Murray, or both. The District 
Court found that the agreement applied to Prudential-Bache 

but not to G.T. Murray. The majority finds that the District 

Court erred in that it would be inappropriate to separate the 

claims as to the defendants. This action is taken by the 

majority with no reference to whether application of 

arbitration to the Murray defendants was within "the 

reasonable expectations" of the parties. This is a factual 

determination that was not clearly addressed by the District 

Court but, if it was addressed, the District Court must have 

found that Passages did not expect the agreement to apply to 

Murrays. There is no factual basis for this appellate court 

to find that the record shows, as a matter of law, that the 

parties intended the arbitration clause to run to Murrays who 

are not mentioned in the agreement. 

Secondly, there are no facts in the record respecting 

whether Passages intended the arbitration provision to apply 

to tort actions. Domke on Commercial Arbitration (Rev.~d.) 

states at § 13:08 that: 

Liability for tort will usually not be an 

arbitrable issue since parties will hardly have 

contemplated such occurrence when they made an 

agreement containing an arbitration clause. Since 

events of a tortious character are usually not 

foreseen, such events will not be specifically 

included in the arbitration agreement so as to 

later come [sic] arbitrable issues. 

Again, we have no factual determination by the trial 

court about whether it was within the reasonable expectation 

of the parties that tort claims would be submitted to 

arbitration. As indicated by Domke such claims are usually 

not embraced within arbitration agreements and there would 

have to be evidence to the contrary showing that the parties 

did in fact intend to include tort claims within the 

arbitration provision. 
The most amazing aspect of the majority opinion is the 

position that the issue of whether childrens' accounts are 

included within the arbitration provision is a fact to be 

determined by arbitration. What a quantum leap in logic! 

The children have a right to court access for resolution 

of their claims unless they have validly relinquished that 

right through executing an arbitration provision. Whether 

such contractual consent existed is a factual determination 

for the District Court. The District Court apparently held 

the children had not relinquished their rights for court 

access. The majority begins by denying court access in 

allowing an arbitrator to decide a factual question that 

necessarily requires court resolution first. How could the 

childrens' rights be decided by an arbitrator unless they 

first validly relinquished their right to a judicial 

determination? 

The case should be remanded for factual findings as 

indicated.