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IN RE ABN INTL. CAPITAL MKTS. CORP.

February 4, 1993

In the Matter of the Application of ABN INTERNATIONAL CAPITAL MARKETS CORPORATION, now known as ABN AMRO SECURITIES (USA) INC., Petitioner, For a Judgment Staying the Arbitration Commenced by ZWITSERSE MAATSCHAPPIJ van LEVENSVERZEKERING en LIJFRENTE and N.V. PENSIOEN ESC, Respondents. In the Matter of the Application of ZWITSERSE MAATSCHAPPIJ van LEVENSVERZEKERING en LIJFRENTE and N.V. PENSIOEN ESC, Counter-Petitioners, For a Judgment Compelling Arbitration On the Part of ABN INTERNATIONAL CAPITAL MARKETS CORPORATION, now known as ABN AMRO SECURITIES (USA), INC., Counter-Respondent


The opinion of the court was delivered by: KENNETH CONBOY

 KENNETH CONBOY, DISTRICT JUDGE:

 Background

 On March 19, 1991, ZwitserLeven, a Dutch insurance company, and ESC, a pension fund it manages, submitted a Request for a Preliminary Witness Hearing ("Request for Hearing") to the District Court in Amsterdam, Holland. The Request for Hearing named ABN CMC, a registered broker/dealer with the National Association of Securities Dealers ("NASD") and a broker/dealer with the Securities and Exchange Commission, and Algemene Bank Nederland N.V. ("ABN") (ABN CMC's parent company) as adverse parties, and stated that ZwitserLeven and ESC "intend to file legal proceedings" against ABN CMC and ABN based upon the furnishing of incorrect and misleading information and advice in connection with the purchase of three bond issues. Request for Hearing, p. 1. On March 28, 1991, the Netherlands Court granted the Request for Hearing and initiated a proceeding (the "Netherlands proceeding").

 Between June 21, 1991 and December 20, 1991, Zwitserleven and ESC ("Respondents") called six witnesses, who provided statements before Examining Judge J.A.C. Bartels. Of the six individuals providing statements, two were employed by ABN CMC, two were employed by Respondent Zwitserleven, and two were employed by ABN.

 In addition to the testimony of the six witnesses named above, Respondents sought and received from ABN CMC the voluntary production of documents relevant to the bond purchases. *fn1" ABN CMC called no witnesses and did not seek the production of documents in the Netherlands proceeding.

 On February 14, 1992, Respondents informed the Netherlands Court that they had no further witnesses to call. The preliminary hearing was subsequently closed.

 On April 13, 1992, Respondents served a Demand for Arbitration and Statement of Claim on ABN CMC, demanding arbitration before the New York Stock Exchange ("NYSE"). On May 1, 1992, Respondents served an Amended Demand for Arbitration and Statement of Claim on ABN CMC, demanding arbitration before the NASD. This Amended Demand was identical to the original Demand except for the designation of the arbitral forum.

 On May 4, 1992, ABN CMC served on ZwitserLeven and ESC a Notice of Petition and Verified Petition to Stay Arbitration pursuant to Section 7503(b) of the New York Civil Practice Law and Rules. ZwitserLeven and ESC removed the proceeding to this Court on May 8, 1992.

 In its application for a stay of arbitration, Petitioner ABN CMC has made three arguments. First, petitioner argues that ZwitserLeven and ESC have waived their right to submit the dispute to arbitration by commencing litigation in a judicial forum. Second, Petitioner maintains that Respondents are not entitled to arbitration because they are not parties to the customer agreement and they do not demonstrate the factual basis to satisfy the requirements of assignment. Third, Petitioner seems to claim that since Respondents originally moved to arbitrate their claim under the wrong section of the NASD Code of Arbitration Procedure, they should be denied access to the NASD forum.

 Discussion

 Petitioner argues that Respondents waived their right to arbitrate by commencing legal proceedings that involved discovery not permitted in arbitration. Under certain circumstances, a party that commences litigation may waive its right to arbitration. *fn2" Sweater Bee By Banff v. Manhattan Industries, 754 F.2d 457, 461, cert. denied, 474 U.S. 819, 88 L. Ed. 2d 55, 106 S. Ct. 68 (1985). However, the Second Circuit has made clear that waiver "is not to be lightly inferred." See Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985). As the Supreme Court stated in Moses H. Cone Memorial Hospital v. Mercury Construction Corp.:

 The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an ...


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