Whisler v. HJ Meyers & Co., Inc.

Citations: 948 F. Supp. 798; 1996 U.S. Dist. LEXIS 19340; 1996 WL 737448Docket: 96 C 3493

Court: District Court, N.D. Illinois; December 23, 1996; Federal District Court

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Curtis and Michele Whisler filed a lawsuit against H.J. Meyers Company, Thomas James Associates, and William Robinson, alleging violations of federal and state securities laws stemming from the mishandling of their securities brokerage account over a two-year period. The defendants sought to compel arbitration of the dispute based on the terms of the account agreement. The Whislers requested a delay in the decision on this motion to allow for depositions of two employees of H.J. Meyers. 

The court granted the defendants' motion to compel arbitration and denied the Whislers' request. The background details reveal that in May 1993, Mr. Robinson of H.J. Meyers opened a brokerage account for the Whislers after discussing investment opportunities. Although the defendants asserted that the Whislers received an introductory account agreement, the Whislers denied this, claiming they only received the agreement in January 1994 and had an oral agreement with the defendants prior to signing. The signed account agreement included a clause mandating arbitration for any disputes related to the account, applicable to both parties and their agents.

Paragraph 12 of the account agreement specifies that "I," "me," and "my" refer to the Whislers, while "you" and "your" refer to Cowen. It permits Cowen to accept orders and instructions from another broker-dealer without inquiry and states that the other broker-dealer is not Cowen's agent, absolving Cowen of responsibility for the broker-dealer's actions. The agreement’s terms, including arbitration provisions, apply to the relationship between the Whislers and the other broker-dealer.

The crux of the dispute concerns the applicability of the arbitration clause. Under the precedent set by Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., a valid arbitration agreement requires mutual consent to arbitrate. New York law governing contracts stipulates that a written agreement suffices, and a party may be bound even without a signature. The Whislers signed the written account agreement, validating the arbitration provision.

The defendants, who did not sign the agreement, seek to enforce its provisions as third-party beneficiaries. New York law requires that for third-party enforcement, the original parties must intend to confer a benefit upon the third party. The court in Ziegler v. Whale Securities Co. previously recognized third-party beneficiary status under similar circumstances, affirming that the arbitration clause applied to broker-dealers. The court noted the clarity of the agreement's language, indicating that the plaintiff (the Whislers) was presumed to have read and accepted the terms. 

In this case, the Whislers do not contest that they signed the agreement that explicitly states the arbitration provision applies to dealings with other broker-dealers. Thus, the conditions for applying the arbitration clause to the parties' dispute are met, supporting the defendants' claim.

The Whislers were aware of the relationship between Meyers and Cowen prior to signing their account agreement. Mr. Robinson, an employee of Meyers, contacted Mr. Whisler multiple times regarding trades and identified himself as their broker, while quarterly statements from Meyers labeled him as "account executive." Additionally, a notice in a statement from Meyers explicitly identified Cowen as the clearing broker, indicating that the Whislers had prior knowledge of this relationship.

The court cited the Ziegler case, stating that the Whislers are presumed to understand the contents of the agreement since they did not allege any fraud or misconduct related to its signing. The arbitration clause within the agreement applies broadly to any controversies arising from the accounts, including transactions conducted before the agreement was signed. Under the Federal Arbitration Act, there is a strong presumption favoring arbitration, and any doubts about the scope of arbitrable issues should be resolved in favor of arbitration. The arbitration clause's language, which focuses on relationships rather than timing, supports applying it to pre-signature transactions.

Consequently, the court found the Whislers' argument against retroactive application of the arbitration clause unpersuasive, referencing several cases that affirm the validity of arbitration agreements regardless of when transactions occurred. As a result, the defendants' motion to compel arbitration is granted, and the motion to stay court proceedings is also granted, while the plaintiffs' request for depositions is denied.

H.J. Meyers, previously known as Thomas James Associates, changed its name in early 1995, and all references will be made to H.J. Meyers to avoid confusion. The defendants failed to provide specific printouts related to unsigned agreements, instead submitting similar documents; Mr. Robinson indicated he did not save the original printouts. The account agreement includes a choice of law provision favoring New York law. Under Illinois law, such a provision may be disregarded only if it violates fundamental public policy or if Illinois has a greater interest in the case, but neither party disputes the applicability of New York law in this matter, and the choice of law provision remains intact. Additionally, the analysis does not rely on introductory materials due to a dispute regarding their distribution; should the Whislers have received them, those materials would have clarified the relationship between Meyers and Cowen.