Opinion ID: 523242
Heading Depth: 2
Heading Rank: 2

Heading: Validity of Arbitration Clause

Text: 20 Jeske contends that the arbitration clause is invalid and, therefore, no basis exists for compelling arbitration of his federal claims. First, he argues that SEC Rule 15c2-2 and Paragraph 15 of the parties' agreement rendered the arbitration clause null and void. Jeske also argues that the agreement containing the arbitration clause is itself void for lack of consideration and because of overreaching, unconscionability and fraud in the inducement of the agreement. Neither argument provides a basis for refusing to compel arbitration of Jeske's federal claims. 21 Paragraph 15 of the Customer's Agreement provides that any portion of the agreement will be deemed rescinded to the extent that it conflicts with governing laws or administrative regulations. Jeske argues that Paragraph 15 requires the invalidation of the arbitration clause because that clause conflicts with SEC Rule 15c2-2, which was adopted after the parties entered the customer's agreement. Rule 15c2-2 forbade clauses in customer agreements that required arbitration of federal securities law claims. 22 We disagree that Paragraph 15 and SEC Rule 15c2-2 nullified the arbitration clause. The SEC has rescinded Rule 15c2-2. See 52 Fed.Reg. 39,216 (1987). Thus, the arbitration agreement, insofar as it applies to Jeske's federal claims, does not now conflict with the SEC rule. 23 Although the SEC did not rescind Rule 15c2-2 until after this litigation began, we have no problem applying the rescission retroactively to cover the present case. In doing so, we join at least three other circuits that have given retroactive effect to the rescission of Rule 15c2-2. Villa Garcia v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 833 F.2d 545, 547-48 (5th Cir.1987); Adrian v. Smith Barney, Harris, Upham & Co., 841 F.2d 1059, 1062 (11th Cir.1988); Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 288 (9th Cir.1988). 24 We follow the usual rule that federal cases should be decided in accordance with the law existing at the time of decision. Saint Francis College v. Al-Kharzraji, 481 U.S. 604, 608, 107 S.Ct. 2022, 2025, 95 L.Ed.2d 582 (1987). Of course, courts will depart from that rule if a change in the law is unfairly disruptive of a litigant's course of conduct or reasonable expectations. Noble, 823 F.2d at 850, citing Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971). No such injustice would result here from a retroactive application of Rule 15c2-2's rescission. Jeske could not have relied on Rule 15c2-2 in signing the customer's agreement, because the SEC did not adopt the rule until some eight months after Jeske entered the contract. Furthermore, we have seen no evidence to suggest that Jeske would not have signed the agreement if he had foreseen that his securities claims would be arbitrable. Certainly, the plain language of the arbitration clause gives no indication that federal securities claims were to be treated differently than other disputes between the parties. Of course, if rescission of the SEC rule had represented a change in Jeske's substantive rights, we would be more inclined to deny retroactive effect to the change. However, we agree with the Fifth Circuit that a party's preference for litigation over arbitration does not rise to the level of a substantive right. Noble, 823 F.2d at 851. Because the SEC has rescinded Rule 15c2-2, we reject Jeske's argument that that rule rendered the arbitration clause null and void. 25 We also reject Jeske's arguments that the arbitration clause must be declared invalid on grounds that the customer's agreement as a whole is void due to overreaching, unconscionability and fraud, as well as lack of consideration. Because the alleged defects pertain to the entire contract, rather than specifically to the arbitration clause, they are properly left to the arbitrator for resolution. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 1805-06, 18 L.Ed.2d 1270 (1967); Merrill Lynch, Pierce, Fenner, & Smith, Inc. v. Haydu, 637 F.2d 391, 398 (5th Cir. Unit B 1981). Therefore, the alleged invalidity of the customer's agreement does not preclude arbitration of Jeske's federal claims.IV. 26 In conclusion, we reverse that portion of the district court judgment that refused to compel arbitration of Jeske's claims under RICO, the Securities Act of 1933, and the Securities Exchange Act of 1934. Accordingly, we remand the case to the district court with instructions to compel arbitration of those federal claims and to stay litigation of those same claims pending the arbitration. 27 As to the district court's order compelling arbitration of Jeske's various state law claims, we have no jurisdiction to review that decision. Accordingly, we dismiss the appeals challenging that aspect of the district court judgment. 28 Nos. 86-2146, 87-2048 REVERSED AND REMANDED. 29 Nos. 86-2167, 87-2047 DISMISSED.