Court Opinion

ID: 8976012
Source: CourtListenerOpinion
Date Created: 2022-11-27 10:56:34.809728+00
Date Added: 2024-06-11T17:10:32.920414
License: Public Domain

BALDOCK, Circuit Judge,
concurring in part and dissenting in part.
I concur with the court’s decision that the parties agreed to arbitrate the claims at issue, but I differ with the court concerning whether plaintiff-appellant 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 predis-pute 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.Reg. 53,404 (1983). As explained by the SEC:
The Commission is adopting a rule that prohibits broker-dealers from using pre-dispute 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 broker-dealers to disclose to existing public customers that they are not precluded by such clauses from judicial recourse with respect to those claims. The purpose of this rule is to ensure that public customers are not misled concerning such recourse.
Id. The rationale 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 Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953)). Thus, Rule 15c2-2 did not purport to create a new substantive right barring waiver of the right to litigate federal securities law claims. 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 of the law to public customers. That exposition of the law concerning the 1934 Act was rejected in Shearson/American Express v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), and the SEC promptly rescinded its rule, believing that “Rule 15c2-2 is no longer appropriate or accurate and, accordingly, should be rescinded.” Recission of Rule Governing Use of Predis-pute 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/American Express, — U.S. —, 109 S.Ct. 1917, 1920-21, 104 L.Ed.2d 526 (1989). There is nothing in the record to support this court’s decision that plaintiff-appellant has a reasonable expectation in the continued application of a now incorrect view of the 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. Reliance 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 provisions hereof, or whenever any rule or regulation shall be proscribed or promulgated by ... the Federal Securities and Ex*267change 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 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, promulgated 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 and all claims were subject to arbitration.
Given the strong federal policy in favor of arbitration and the highly regulated nature of securities 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, Cooke, 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 Wood 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 respectfully dissent from that part of this court’s opinion which holds otherwise.