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FINKLE & ROSS v. A.G. BECKER PARIBAS

December 2, 1985

FINKLE AND ROSS, A PARTNERSHIP; JUSTON ENTERPRISES, INC. EMPLOYEES' PENSION PLAN; JOSEPH NEIRA; JOHN NEIRA; FRANCISCO CARVAJAL NAVAREZ; EVAN LEVY and CAROL LEVY, Plaintiffs,
v.
A.G. BECKER PARIBAS, INC.; MASON SEXTON and MICHAEL ROSE, Defendants. LOUISE MOCKRIDGE, Plaintiff vs. PRESCOTT, BALL & TURBAN, and ERHARDT SCHMIDT, Defendants.



The opinion of the court was delivered by: EDELSTEIN

EDELSTEIN, District Judge :

These civil actions allege violations of Section 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. Plaintiffs in both actions also allege pendent state law claims for fraud and breach of fiduciary duty. Pursuant to Section 3 of the Federal Arbitration Act ("Arbitration Act"), 9 U.S.C. § 3, defendants in both actions have moved to compel arbitration of both the federal and state law claims. The court has consolidated these motions for the purpose of deciding common issues concerning the arbitrability of claims under the 1934 Act. The court finds that the federal and state law claims are arbitrable and that no other factors preclude arbitration in either instance. The motions are therefore granted.

FACTUAL BACKGROUND

 A. Finkle and Ross v. A.G. Becker Paribas, Inc.

 In March 1983, plaintiffs Finkle and Ross, a partnership; Juston Enterprises, Inc. Employees' Pension Plan; Joseph Neira; John Neira; Francisco Carvajal Navarez; Evan Levy and Carol Levy ("Finkle and Ross") engaged defendant Mason Sexton ("Sexton") as their personal broker. Defendant Sexton was an employee of A.G. Becker Paribas, Inc. ("Becker"), a securities brokerage firm. By written agreement, plaintiffs authorized defendants to engage in discretionary trading in plaintiffs' account. The agreement contained the following arbitration clause ("Becker Arbitration Clause"):

 
Any controversy between us arising out of, or relating to, any transaction for my account shall be settled by arbitration, in accordance with the rules, then obtaining, of either the National Association of Securities Dealers, Inc. or the Board of Arbitration 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 office within five (5) days after receipt of notification from you requesting such election, I authorize you to make such election on my behalf. Any arbitration hereunder shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction. By this agreement to arbitrate future controversies, I understand that I do not waive any rights I may have under the Federal securities laws for controversies arising under such laws.
 
Plaintiffs Finkle and Ross allege that defendants engaged in churning, the, "excessive and unsuitable trading for the purpose of generating commissions,". Plaintiffs bring this action for violations of Section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Plaintiff's further claim that defendants' acts constitute common-law fraud and breach of fiduciary duty.

 B. Mockridge v. Prescott, Ball & Turban

 In 1967, plaintiff Louise Mockridge, at the encouragement of defendant Erhard Schmidt ("Schmidt"), opened an account at Clark Dodge & Company, where Schmidt was a registered representative. In 1968, Schmidt became a broker with Vanden Broeck Liber & Co. and thereafter asked Mockridge to transfer her securities account to this firm. Vanden Broeck Liber & Co subsequently became Prescott, Ball & Turban ("Prescott"). Plaintiff's contract with Schmidt and Prescott contained the following clause providing for arbitration of disputes arising out of the contract ("Prescott Arbitration Clause"):

 Any controversy between you [Prescott] and the undersigned arising out of or relating to any transaction of this or any other contract or the breach thereof, shall be settled by arbitration . . . . Any arbitration hereunder shall be before at least three arbitrators and the award of the arbitrator or a majority of them shall be final, and judgment upon the award may be entered in any court, state or federal, having jurisdiction.

 Defendant Prescott's Memorandum of Law at 4.

 Plaintiff Mockridge alleges that defendants engaged in a course of business which would operate as a fraud against any person. Plaintiff's Memorandum in Opposition at 7-9. Thus, plaintiff brings this action for violation of Section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, as well as for common-law fraud.

 Defendants in both actions contend that these claims fall within the scope of the respective arbitration clause and therefore have moved to compel ...


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