Opinion ID: 663081
Heading Depth: 2
Heading Rank: 1

Heading: Of Waiver.

Text: 15 Icahn's contention that Conway's express waivers preclude any claims for negligence or breach of fiduciary duty with regard to the liquidations in Conway's margin account is based upon the Customer Agreement entered into between Cowen and Conway. That agreement provided Cowen with authority to sell any asset in the account in any manner and at any time, without notice, to satisfy any account indebtedness. It is well-settled that provisions of this nature are enforceable as between the parties to agreements that include such provisions. See, e.g., Modern Settings, Inc. v. Prudential-Bache Sec., Inc., 936 F.2d 640, 644 (2d Cir.1991); Geldermann & Co. v. Lane Processing, Inc., 527 F.2d 571, 576 (8th Cir.1975). Although Icahn was not a party to the Customer Agreement at issue, it claims the benefits of the liquidation provision by virtue of its status as introducing broker. 16 A third party claiming to be a beneficiary of a contract must demonstrate that the parties to the contract intended at the time of contracting to confer the benefit claimed. Port Chester Elec. Constr. Corp. v. Atlas, 40 N.Y.2d 652, 389 N.Y.S.2d 327, 330, 357 N.E.2d 983, 985-86 (1976); Restatement (Second) of Contracts Sec. 302 (1981). The rule is no different where an introducing broker seeks the benefit of an agreement between its customer and a clearing broker. McPheeters v. McGinn Smith & Co., 953 F.2d 771, 773 (2d Cir.1992) (per curiam) (introducing broker not entitled to benefit of arbitration provision in Customer's and Margin Agreement between customer and clearing broker). In McPheeters, we cited with approval the district court's decision in Church v. Gruntal & Co., 698 F.Supp. 465 (S.D.N.Y.1988), wherein it was determined that an introducing broker was not a third party beneficiary of arbitration clauses because the customer agreement did not specifically mention the introducing broker. 17 By their terms, these clauses only bound plaintiff and [clearing broker]. The clauses made no mention of [introducing brokers] and no extrinsic evidence is suggested which would show an intent to benefit them as third party beneficiaries. Had plaintiff and [clearing broker] intended the arbitration clauses to benefit [introducing brokers], this intent could have been expressed in the clauses. It was not. 18 Id. at 467. 19 We are faced with the same factual scenario in the case at bar, except that we are dealing here with clauses in the agreement between Cowen and Conway that permit the sellout of an account without notice to satisfy indebtedness. These provisions make no mention whatsoever of Icahn. No extrinsic evidence has been introduced to demonstrate that the parties to the agreement intended Icahn to have the benefit of these provisions. Indeed, the evidence seems to indicate that Conway had no intention that Icahn have such a benefit. It would have been a simple matter to include Icahn as a party to the Customer Agreement so that it could derive the benefits therein provided. Similarly, Icahn could have entered into a separate agreement including such provisions. It failed to do either and must suffer the consequences. 20 Claiming that it presents an analogous situation, Icahn relies heavily on Schenck v. Bear, Stearns & Co., 484 F.Supp. 937 (S.D.N.Y.1979). In that case, the value of certain bonds in Schenck's accounts began to decline shortly after he left for Paris. Schenck took no action, and his account continued to drop in value. While Schenck was enroute, his account was liquidated by Bear, Stearns, the clearing broker. Claiming irregularities in the liquidation, Schenck sued Bear, Stearns and Merkin, the introducing broker. The district court dismissed as to both defendants. The difference between that case and this is that in Schenck, the actual liquidation was conducted by the clearing broker in accordance with an agreement permitting it to do so. Although Icahn argues here that Cowen would have executed the liquidation if it did not, the fact remains that Icahn, having very different duties toward Conway, actually chose the stocks and sold them. The district court in Schenck also found as a fact that plaintiff was aware of the probability of a margin call and did nothing to reduce his indebtedness. Conway, on the other hand, testified to his assumption that no margin call on his account was appropriate because of the buying power in the account. Finally, to the extent that Schenck holds that there is no fiduciary duty on the part of the introducing broker in circumstances similar to those presented in the case at bar, we reject the holding. 21