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THOMAS v. A.R. BARON & CO.

June 3, 1997

ROBERT THOMAS, Plaintiff, against A.R. BARON & CO., INC., THE BARON GROUP, INC., JEFFREY WEISSMAN, MARTIN WEISSMAN, SEYMOUR WEISSMAN, ANDREW BRESSMAN, MARK A. GOLDMAN, D.H. BLAIR & CO., INC., and J. MORTON DAVIS, Defendants.


The opinion of the court was delivered by: KOELTL

 JOHN G. KOELTL, District Judge :

 This is a securities fraud case brought by Robert Thomas against various defendants including the brokerage firm D.H. Blair & Co., Inc. ("Blair") and its former principal officer, J. Morton Davis ("Davis"). Blair and Davis now move, pursuant to 9 U.S.C. §§ 3 and 4, to stay this action, and to compel arbitration of Thomas' claims against them.

 I.

 The Complaint in this action was filed on March 3, 1995. On July 5, 1995, this Court granted Thomas' application for a four month extension of time in which to serve Davis. (Exhibit B to Affidavit of Max Folkenflik ("Folkenflik Aff.")). On July 18, 1995, the parties stipulated to extend the time of the defendants to respond to the Complaint until 30 days after this Court's ruling on the then pending motion to dismiss in Baxter v. A.R. Baron & Co., Inc., 94 Civ. 3913 (JGK). (Stipulation, attached as Exhibit C to Folkenflik Aff.). Baxter involves the same defendants and many of the same issues as Thomas' suit. On October 11, 1996, this Court issued its decision in Baxter, granting, in part, and denying in part, the motion to dismiss. Baxter v. A.R. Baron & Co., Inc., 1996 U.S. Dist. LEXIS 15098, 1996 WL 586338 (S.D.N.Y. 1996).

 Thomas' claims arise out of alleged "misrepresentations, fraudulent omissions, market manipulations and insider trades, in certain stock sold by D.H. Blair and A.R. Baron including in particular, the stock of Health Professionals, Inc. ("HPI"), which was sold to plaintiff by D.H. Blair, broker, Jeffrey Weissman based on numerous fraudulent misstatements and omissions. . .." (Complaint at P1). Thomas alleges that "securities of HPI were actively sold and manipulated by defendants Jeffrey Weissman and Andrew Bressman . . . while they were brokers at D.H. Blair, as well as by other D.H. Blair brokers, up to and through the first purchases by plaintiff[]. . . . these activities were conducted with the knowledge of and under the general supervision of [Davis] who was an owner of D.H. Blair, its principal officer, and one of the officers, if not the primary officer, to whom Jeffrey Weissman reported. Davis was personally involved in the various transactions between D.H. Blair and HPI . . .." (Id. at P3).

 Thomas's Complaint covers transactions that occurred between 1990 and 1993. (See id. at PP17, 96). At the end of 1991, defendant Baron Group ("Baron") was formed. (Id. at P76). In 1992, Thomas, at the behest of Blair and its employees, transferred the bulk of his shares at Blair to a Texas discount broker but transferred some of his shares of HPI from his account at Blair to an account at Baron. (Id. at PP48-49). Thomas alleges that Blair and Davis "loomed large" in Baron's formation and success. (Id. at P76).

 In opening up his brokerage account with Blair, Thomas signed a "Cash Account Agreement" with Blair. That Cash Account Agreement states "I agree as follows with respect to all of my accounts, in which I have an interest alone or with others, which I have opened or open in the future, with you." (Cash Account Agreement, attached as Exhibit A to Folkenflik Aff.). The Cash Account Agreement contains an arbitration clause which states that "all controversies or disputes between us of any kind shall be settled by arbitration. Without limiting the foregoing, this arbitration agreement specifically applies to all controversies or disputes arising out of or relating to (1) any aspect of this account or any other account in which I now or in the future have or in the past had an interest; (2) transactions entered into prior, on, or subsequent to the date of this agreement; and (3) the construction, performance, or alleged breach of this or any other agreement entered into between us at any time." (Id.).

 The Cash Account Agreement also provides that "any arbitration under this agreement shall be held before an arbitration facility of the New York Stock Exchange, Inc. or the National Association of Securities Dealers, Inc. or another self-regulatory organization before which I have the right to have the controversy or dispute arbitrated and in accordance with the rules of such organization then obtaining. The undersigned may elect in the first instance whether arbitration shall be by the New York Stock Exchange, Inc or the National Association of Securities Dealers, Inc., or otherwise as provided in this paragraph, but if the undersigned fails to make such election, . . . then you may make such election." (Id.).

 II.

 The defendants' petition to compel arbitration is governed by the Federal Arbitration Act, which provides that written agreements to arbitrate disputes "shall be valid, irrevocable, and enforceable." 9 U.S.C. § 2; see also In re Home Insurance Co., 908 F. Supp. 180, 183 (S.D.N.Y. 1995). Unless the parties explicitly provide otherwise, this Court, rather than an arbitrator, determines whether the parties did in fact agree to arbitration. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S. Ct. 1920, 1924, 131 L. Ed. 2d 985 (1995); PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1198 (2d Cir. 1996).

 Whether an agreement to arbitrate governs a particular dispute is essentially a matter of contract interpretation. See Collins & Aikman Products Co. v. Building Systems, Inc., 58 F.3d 16, 19 (2d Cir. 1995) ("Federal arbitration policy respects arbitration agreements as contracts that are enforceable in the same way as any other contract"); see also Home Insurance Co., 908 F. Supp. at 183. Any doubts about the scope of arbitrable issues should be resolved in favor or arbitration. Collins, 58 F.3d 16 at 19 (citing Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983)); see also United States Fire Insurance Co. v. National Gypsum Co., 101 F.3d 813, 816 (2d Cir. 1996).

 Thomas acknowledges that all of his claims that concern transactions that occurred while his holdings were in an account at Blair are covered by the arbitration clause, and the overwhelming number of transactions at issue in this case apparently occurred while the securities were held in Thomas' account at Blair. (See Reply Affidavit of Edward T. McDermott at 2). However, Thomas argues that he is not required to arbitrate his claims against Blair that arose out of transactions that occurred after some of his securities were transferred to Baron. Thomas argues that he does not have to arbitrate these claims because the Cash Account Agreement states that it applies only "to all of my [Thomas's] accounts . . . with you." (Transcript of April 18, 1997 Argument ("Tr.") at 14). Thomas argues that the phrase "all of my accounts . . . with you," cannot be read to include claims that arose from transactions occurring when he had an account at Baron, because Baron was not a signatory to the Cash Account Agreement, and therefore cannot be considered covered by the term "you."

 In response, Blair argues that the phrase "with you" does not refer to the accounts covered by the Cash Account Agreement, but instead merely identifies the parties to the Cash Account Agreement. Blair argues that the Cash Account Agreement should be read as stating, in effect, that "I agree with you as follows with respect to all of my accounts, in which I have an interest alone or with others, which I have opened or open in the future." (See Tr. at 6). Moreover, Blair argues that, regardless of the introduction to ...


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