912 F.

2d 1418

Fed. Sec. L. Rep. P 95,610

Joe GOLDBERG, Plaintiff-Appellee,
v.
BEAR, STEARNS & CO., INC., and Michael S. Gorinsky,
Defendants-Appellants.
No. 89-8573.

United States Court of Appeals,

Eleventh Circuit.
Sept. 26, 1990.

Paul W. Stivers and Theodore J. Sawicki, Rogers & Hardin, Atlanta, Ga.,
for defendants-appellants.
Jay M. Sawilowsky, Augusta, Ga., for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of
Georgia.
Before ANDERSON, Circuit Judge, MORGAN and RONEY* , Senior
Circuit Judges.
PER CURIAM:

Defendants Bear Stearns & Co. and Michael S. Gorinsky appeal the district
court's denial of their motion to compel arbitration of the plaintiff's federal
securities claims. We affirm on the ground that the contract between the parties
preserves the customer's right to pursue such claims in federal court.

This case turns on the interpretation of the arbitration provision in the Customer
Agreement which the plaintiff, Joe Goldberg, signed in December 1985, when
he opened an investment account with Bear Stearns. The form agreement set
out the method by which the parties would settle disputes. In pertinent part, it
read:

Any controversy arising out of or relating to your account in connection with

3

3
transactions between us or pursuant to this Agreement or the breach thereof shall be
settled by arbitration.... You understand that this Agreement to arbitrate does not
constitute a waiver of your right to a judicial forum where such waiver would be
void under the securities laws and specifically does not prohibit you from pursuing
any claim or claims arising under the federal securities laws in any court of
competent jurisdiction.
4

In August of 1988, Goldberg brought an action against Bear Stearns alleging

violations of the Securities Exchange Act of 1934 and various state claims.
Only the proper forum for the federal securities claims is at issue here,
Goldberg having agreed that his state claims should be submitted to arbitration.
The question is whether the last sentence of the Customer Agreement quoted
above removed all federal claims from the ambit of the otherwise binding
arbitration agreement, whether or not an agreement to arbitrate federal claims
would be valid.

The United States Magistrate to whom the case was assigned determined that
the agreement between Bear Stearns and Goldberg provided that all
controversies between the parties, state and federal, should be arbitrated. He
concluded that unless the agreement to arbitrate federal claims was invalid, the
agreement required arbitration. The district court, however, rejected the
recommendation of the magistrate and held that the final sentence of the
agreement specifically excluded all federal claims from the reach of the
compulsory arbitration clause. The district court predicated its decision on the
explicit language in the Customer Agreement:

6
"this
Agreement to arbitrate ... specifically does not prohibit you from pursuing any
claim or claims arising under the federal securities laws in any court of competent
jurisdiction." (emphasis added). A federal court only may compel arbitration of an
issue if the terms of a private agreement require the parties to arbitrate that issue.
See Volt Information Sciences, Inc. v. Board of Trustees of the Leland Stanford
Junior Univ., [489 U.S. 468,] 109 S.Ct. 1248, 1254 [103 L.Ed.2d 488] (1989).
Although the magistrate's analysis of the arbitrability of securities law issues is
unassailable, plaintiff nevertheless is not required to arbitrate his securities law
claims because the arbitration clause in the parties' December 7, 1985, agreement
specifically permits plaintiff to select a judicial forum for his securities law claims.
7

The court denied the defendants' motion to compel arbitration as to the

plaintiff's federal securities claims.

Agreements to arbitrate are essentially creatures of contract. Although there is a

presumption in favor of arbitration, see Moses H. Cone Memorial Hospital v.

Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765,
785 (1983), the parties will not be required to arbitrate when they have not
agreed to do so. See Volt Information Sciences, Inc. v. Board of Trustees of
Leland Stanford Jr. University, 489 U.S. 468, ----, 109 S.Ct. 1248, 1255, 103
L.Ed.2d 488, 499 (1989). The courts are not to twist the language of the
contract to achieve a result which is favored by federal policy but contrary to
the intent of the parties. The Federal Arbitration Act (FAA) "simply requires
courts to enforce privately negotiated agreements to arbitrate, like other
contracts, in accordance with their terms." Id. 489 U.S. at ----, 109 S.Ct. at
1255, 103 L.Ed.2d at 500.
9

In this case, the district court correctly discerned that the arbitration agreement
unmistakably states that federal securities claims are not included within the
scope of the agreement. All state claims based on either state securities law or
the contract itself, and all other federal claims not relating to the securities laws
are subject to arbitration, but the agreement specifically did not prohibit the
customer from pursuing any claim or claims arising under the federal securities
laws in court.

10

The defendants argue that the last sentence in the agreement is a notice
provision only and confers no substantive rights to the plaintiff. They point out
that the agreement was signed during a period when existing Supreme Court
authority held that pre-dispute agreements to arbitrate federal securities claims
were invalid. See Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 188, 98 L.Ed.
168 (1953). Since that time, however, the Supreme Court has reversed its
position and held that such agreements are not waivers of a substantive right
granted under the securities laws and thus are not void. See Shearson/American
Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185
(1987), and Rodriguez de Quijas v. Shearson/American Express Inc., 490 U.S.
477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989). Defendants contend that the last
sentence in the agreement was inserted solely to comply with a pre-McMahon
Securities and Exchange Commission regulation which required brokers to
notify clients that the arbitration agreements they were signing would not waive
their right to bring federal securities claims in court. See 17 C.F.R. Sec.
240.15c2-2. Regardless of the reason for the inclusion of the language,
however, the parties are bound by what they agreed to do, not by what they
would have agreed to do if the law had been different at the time.1

11

The defendants suggest that the phrase used at the beginning of the last
sentence, "You understand that ...," clearly indicates that the provision which
follows serves a "notice function" only and provides no substantive right.
Assuming that the last sentence is a "notice" provision, one might appropriately

ask, notice of what? The only plausible answer is that the language notified
customers that despite the seemingly absolute language used earlier in the
agreement, they were not required to arbitrate their federal securities claims.
The customer needs no substantive right in the contract to litigate in court. He
has that right, unless he has contracted it away. The last sentence of the
agreement, therefore, informs the customer that he has not forfeited that right
by signing this agreement. Although the law may have changed since the
agreement was signed, the understanding of the parties has not.
12

Several courts have refused to compel arbitration, despite the presence of

similar "notice" language, when the contract provisions which follow clearly
state that federal securities claims are not included in the requirement to
arbitrate. See Giles v. Blunt, Ellis & Loewi, Inc., 845 F.2d 131, 132 (7th
Cir.1988) ("I understand ... this agreement ... does not bar me from pursuing
such claims based solely on alleged violations of the federal securities laws....")
(emphasis added); Ballay, 878 F.2d at 731 n. 1 ("I am aware that this
arbitration provision is not binding on me in any dispute ... under the federal
securities laws") (emphasis added).

13

The defendants contend that a reading which excludes federal claims from the
scope of the arbitration agreement would render meaningless the first sentence
of the agreement which states that "Any controversy arising out of ... your
account ... shall be settled by arbitration...." Yet it is not at all uncommon for
contracts to begin with broad sweeping language which is later qualified or
narrowed. When general propositions in a contract are qualified by the specific
provisions, the rule of construction is that the specific provisions in the
agreement control. See, e.g., John Hancock Mutual Life Insurance Co. v.
Carolina Power & Light Co., 717 F.2d 664, 669-70 n. 8 (2d Cir.1983);
Waldman v. New Phone Dimensions, Inc., 109 A.D.2d 702, 487 N.Y.S.2d 29,
31 (1985).

14

In essence, the defendants would have us append a clarifying phrase to the end
of the last sentence, so that it would read, "... and specifically does not prohibit
you from pursuing any claim or claims arising under the federal securities laws
in any court of competent jurisdiction where such prohibition would be void
and unenforceable under the securities laws." The defendants presumably could
have written the contract in that way so that plaintiff's federal claims would
now be arbitrable under the Supreme Court's current interpretation of the
securities laws. Given the presumption in favor of arbitration, there is a strong
temptation to rewrite the contract to achieve that result. See Moses H. Cone
Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927,
941, 74 L.Ed.2d 765, 785 (1982). Indeed, in interpreting this precise language,

several courts have succumbed to this temptation. See Caleel v. Curry, No. 87C-8155 (N.D.Ill. May 2, 1990) (1990 W.L. 71033); Scher v. Bear Stearns &
Co., 723 F.Supp. 211 (S.D.N.Y.1989); Karol v. Bear Stearns & Co., 708
F.Supp. 199 (N.D.Ill.1989); Reed v. Bear Stearns & Co., 698 F.Supp. 835
(D.Kan.1988); Ryan v. Liss, Tenner & Goldberg Securities Corp., 683 F.Supp.
480 (D.N.J.1988); Wolverine Carbide Die Co. Employees Profit Sharing Trust
v. Bear Stearns & Co., No. 88-70384 (E.D.Mich. May 5, 1988). As we have
stated, however, the presumption does not require the parties to arbitrate when
they have not agreed to do so. See Volt Information Sciences, Inc. v. Board of
Trustees of Leland Stanford Jr. University, 489 U.S. 468, ----, 109 S.Ct. 1248,
1255, 103 L.Ed.2d 488, 499 (1989).
15

We recognize that of the nine district courts to interpret this precise language,
the six listed above have compelled arbitration, while only three, including the
court below, have found that the clause precludes arbitration of federal claims.
Kelly v. Robert Ainbinder & Co., No. 87-Civ-6348 (S.D.N.Y. March 8, 1990)
(1990 W.L. 26809); Goldberg v. Bear, Stearns & Co., No. CV188-169 (S.D.Ga.
June 21, 1989); Creative Securities Corp. v. Bear Stearns & Co., 671 F.Supp.
961 (S.D.N.Y.1987), aff'd, 847 F.2d 834 (2d Cir.1988). We are satisfied that
our interpretation accords with the agreement's plain language and the intent of
the parties at the time the contract was executed. The language did more than
inform customers of the existing state of the law, it incorporated the existing
law into the arbitration agreement. If the defendants had wished to provide for
a change in the federal law, they certainly could have drafted a provision which
allowed the contract to change as the law changed. Having failed to do that,
defendants must abide by the agreement they signed.

16

Although this may result in the piecemeal resolution of the state and federal
issues involved in this case, concerns for judicial economy alone are not
sufficient to justify interference with the binding agreement of the parties. See
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628,
105 S.Ct. 3346, 3354, 87 L.Ed.2d 444 (1985) (parties who agree to arbitrate are
not prevented from excluding specified claims from the scope of the
agreement). Individuals are free to subject different claims to different forums
for resolution. Accordingly the district court's order denying the defendants'
motion to compel is

17

AFFIRMED.
MORGAN, Senior Circuit Judge, dissenting:

18

I respectfully disagree with the majority's conclusion that the customer

18

I respectfully disagree with the majority's conclusion that the customer

agreement at issue in this case permits appellee to forego arbitration of his
federal securities law claims. As the majority notes, there is a split in authority
among the district courts that have considered the language involved in
paragraph 13 of the customer agreement at bar. I find those cases which hold
that this agreement provides for arbitration of all claims, whether state or
federal, to be better reasoned. See e.g., Scher v. Bear Stearns & Co., Inc., 723
F.Supp. 211 (S.D.N.Y.1989); Reed v. Bear Stearns & Co., Inc., 698 F.Supp.
835 (D.Kan.1988); Ryan v. Liss, Tenner & Goldberg Securities Corp., 683
F.Supp. 480 (D.N.J.1988).

19

The paragraph at issue is set forth in the majority opinion, supra, at page 1419.
The central question to be resolved concerns the scope of the clause "[y]ou
understand that this Agreement to arbitrate does not constitute a waiver of your
right to a judicial forum where such a waiver would be void under the securities
laws and specifically does not prohibit you from pursuing any claim or claims
arising under the federal securities laws in any court of competent jurisdiction."
That question reduces itself to whether the quoted language is part of a mere
notice provision, or whether it gives a substantive contractual right to litigate
federal securities claims regardless of the arbitrability of other related claims.

20

A court asked to compel arbitration must first determine whether the parties to
the contract agreed to arbitrate their dispute. Federal policy is not absent from
this determination. "[A]s with any other contract, the parties' intentions control,
but those intentions are generously construed as to issues of arbitrability."
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626,
105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985). Any ambiguities in the
arbitration agreement should be resolved in favor of arbitration. Moses H. Cone
Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct.
927, 941-942, 74 L.Ed.2d 765 (1983).

21

When choosing between possible interpretations of an ambiguous term, the

entire contract should be considered and the interpretation selected which best
accords with the remainder of the contract and which, if possible, will make
every part of the contract effective. Broad v. Rockwell International Corp., 642
F.2d 929, 947 (5th Cir.1981) (en banc). Construing the arbitration clause as a
whole, I agree with those courts that have found that the last sentence beginning
with the language "[y]ou understand ..." is a mere notice provision and not a
substantive right to litigate federal securities claims in court. See e.g., Scher,
723 F.Supp. at 216.

22

If, as the majority suggests, the proper interpretation of the last sentence of the

arbitration clause is that arbitration of appellee's federal securities law claims is

optional, the first part of the clause, which provides for the arbitration of all
claims, would be meaningless. Accord, Scher, 723 F.Supp. at 216; Reed, 698
F.Supp. at 841; Ryan, 683 F.Supp. at 483. Because I conclude that the parties
to the contract did not intend to give appellee a substantive right to avoid the
arbitration of his federal securities law claims, I would reverse the judgement of
the district court.

See Rule 34-2(b), Rules of the U.S. Court of Appeals for the Eleventh Circuit

The majority of circuit court opinion is in accord. See Ballay v. Legg Mason
Wood Walker, Inc., 878 F.2d 729, 734 (3rd Cir.1989) ("A customer reading the
exclusionary language could not be expected to be aware of the regulatory
background or to understand that the language may become meaningless with
the winds of change in the law."); Gooding v. Shearson Lehman Brothers Inc.,
878 F.2d 281, 284 (9th Cir.1989) ("The undisclosed intentions of the parties
are ... immaterial.... The outward manifestation or expression of assent is
controlling.") (citations omitted); Coffey v. Dean Witter Reynolds, Inc., 891
F.2d 261, 264 (10th Cir.1989) ("We are more persuaded by the reasoning of
those courts which have treated the effect of Rule 15c2-2's requirements, and of
the rule's rescission, from a private contractual rather than a public regulatory
perspective."); see also Kadow v. A.G. Edwards & Sons, Inc., 721 F.Supp. 201,
206 (W.D.Ark.1989) ("no matter the reason for the sentence's inclusion, the
parties are now bound by it"); Amodio v. Blinder, Robinson & Co., 715
F.Supp. 32, 36 (D.Conn.1989) ("[t]hough defendant may have included the
exclusion in response to the regulation ... it cannot unilaterally impose its
rationale for the content of the agreement"); Leonard v. Stuart-James Co., 742
F.Supp. 653 (N.D.Ga.1990) ("[C]ases that look to the regulatory history are not
persuasive, as they ignore the specific language of the contract at issue, which
is the first step in determining if arbitration should be compelled"). But see Bird
v. Shearson Lehman/American Express Inc., 871 F.2d 292, 295 n. 5 (2d Cir.),
cert. granted and judgment vacated, --- U.S. ----, 110 S.Ct. 225, 107 L.Ed.2d
177 (1989)