The opinion of the court was delivered by: KATZ
Plaintiff Alfred Ferreri brought this action to recover damages for trading losses he sustained on the Philadelphia Stock Exchange as a limited partner in a market making firm called Idraniam Trading Partners. The defendant, First Options of Chicago, Inc. ("First Options"), has filed a motion to compel the arbitration of Ferreri's claims in accordance with section 4
of the Federal Arbitration Act, 9 U.S.C. §§ 1-14 as well as for a stay of proceedings pending arbitration in accordance with section 3
of the Act. First Options claims that the provisions of a Market Maker's Agreement which was signed by Ferreri's general partner, Andrew Mainardi, III, govern this matter.
For the reasons outlined below, the motion of First Options to compel arbitration and for a stay of proceedings pending arbitration are held in abeyance, pending a jury trial as to whether there was a meeting of the minds between the parties to arbitrate this dispute.
On April 19, 1984, Mr. Ferreri filed a summons in the Court of Common Pleas of Philadelphia County against First Options, seeking to take discovery of First Options to enable him to prepare a complaint, in accordance with Rule 4007.1(c) of the Pennsylvania Rules of Civil Procedure.
In the Court of Common Pleas, First Options argued in part that it had no obligation to proceed with any discovery because Mr. Ferreri allegedly was obligated to arbitrate the dispute. By Order dated July 24, 1984, the Court overruled the objections of First Options and compelled it to comply with Mr. Ferreri's discovery requests. After the Court's Order of July 24, 1984, limited discovery was taken.
On March 25, 1985, Mr. Ferreri filed his complaint in the Court of Common Pleas of Philadelphia County. On April 15, 1985, First Options removed the action to this Court pursuant to 28 U.S.C. §§ 1441 et seq. This Court has original jurisdiction of this action because of the diversity of citizenship of the parties. 28 U.S.C. § 1332.
First Options filed a motion to compel arbitration and for a stay of proceedings pending arbitration. Mr. Ferreri refused the arbitration demand of First Options and opposed the motion of First Options to stay proceedings.
In his brief in opposition to the motions of First Options, Mr. Ferreri argued that he could not be compelled to arbitrate the claims because he did not sign the Market Maker's Agreement containing the provision relating to arbitration and because his general partner, who had signed that agreement, did not have the authority to do so on Mr. Ferreri's behalf. In conference, Mr. Ferreri's counsel also asserted that the arbitration provision in the Market Maker's Agreement was inapplicable because Mr. Ferreri had a personal account with First Options that was not part of the partnership account and thus was not covered by the Market Maker's Agreement. I ordered discovery on these issues and denied the motion of First Options with leave to renew at the close of discovery. Discovery having been completed, First Options has now renewed its motion to compel arbitration and for a stay of proceedings pending arbitration.
Mr. Ferreri again opposes this motion on the grounds that he never entered into an arbitration agreement with First Options, nor did he authorize Mr. Mainardi or anyone else to enter into such an agreement on his behalf. Mr. Ferreri has filed a demand for a jury trial on the issue of the making of an arbitration agreement, as is his right under § 4 of the Federal Arbitration Act. Affidavit of Alfred Ferreri in Opposition to Motion of First Options of Chicago, Inc. for Stay of Proceedings Pending Arbitration, at para. 19.
At all times material to this action, Mr. Ferreri, a retired podiatrist, had no source of income other than the savings and investments he had accumulated over the course of his lifetime.
In the fall of 1982, Mr. Ferreri was introduced to Christian Huber, Jr., who at the time was a vice-president of First Options. On a number of occasions during the latter part of 1982 and the beginning of 1983, Mr. Huber tried to solicit Mr. Ferreri to become a customer of First Options as a "market maker".
Mr. Ferreri expressed concern to Mr. Huber about becoming a market maker because he was living on a fixed income and did not want to jeopardize his life savings. Mr. Ferreri also was uneasy about the complexity of the activities of market makers. Mr. Huber told Mr. Ferreri that his concerns could be met by becoming a limited partner with a market maker. Mr. Huber suggested that Mr. Ferreri attend a series of seminars sponsored by First Options. At these seminars Mr. Ferreri met Andrew Mainardi, III, who at the time was a market maker and customer of First Options.
Mr. Huber made various representations to Mr. Ferreri concerning Mr. Mainardi. He told Mr. Ferreri that Mr. Mainardi was an experienced market maker who knew what he was doing; that Mr. Mainardi was a conservative investor who was less oriented toward taking risks than other market makers; that Mr. Ferreri would be exposed to very limited risks if he entered into a partnership with Mr. Mainardi; and that the proposed partnership could be positioned to yield an annual profit of approximately $200,000. Through these representations, Mr. Huber convinced Mr. Ferreri to become associated with Mr. Mainardi.
In the latter part of May, 1983, Mr. Huber asked Mr. Ferreri to show him evidence of his stock portfolio, which Mr. Ferreri maintained at another brokerage house. At that time his account at the other brokerage house had a net equity of approximately $375,000.
To initiate the limited partnership, Mr. Huber directed Mr. Ferreri to transfer his securities to an account at First Options. Mr. Ferreri agreed to transfer his securities to First Options based upon an oral understanding he had with Mr. Huber. Under the terms of this oral contract, Mr. Huber agreed to do the following:
(a) Monitor Mr. Ferreri's account on a daily basis to be sure that his securities would not be at jeopardy;
(b) Not allow more than $200,000 in equity in Mr. Ferreri's account to be used for transactions in the partnership account;
(c) Not allow Mr. Mainardi to engage in trading which was inconsistent with Mr. Ferreri's objectives;
(d) Not allow more than $2500 to be withdrawn from Mr. Ferreri's account without the joint signatures of Mr. Ferreri and Mr. Mainardi; and
(e) Send Mr. Ferreri, while he was out of Philadelphia, periodic reports on the status of his account.
On or about June 17, 1983, Mr. Ferreri and Mr. Mainardi executed a limited partnership agreement. The partnership agreement states that the "partnership shall engage in the business of acting as brokers and dealers in, and of, buying, selling, trading, holding and otherwise dealing in stocks, bonds, options and other securities." Deposition of Alfred Ferreri, Exhibit 1, at para. 3. The role of each partner is outlined in the agreement as follows:
"ANDREW MAINARDI, III as general partner shall devote his whole time exclusively to the management and conduct of the partnership business. ALFRED FERRERI, as limited partner, is making a capital contribution to the partnership and desires to limit his liability in the partnership to the amount of his investment." Id. at P 6.
The agreement also gives Mr. Mainardi the power to issue partnership checks. Id. at P 11. While the limited partnership agreement apparently makes Mr. Mainardi the managing partner of the firm, the agreement contains no provisions relating directly to his power to submit partnership claims to arbitration.
On or about July 1, 1983, Mr. Ferreri and Mr. Mainardi executed an amendment to the limited partnership agreement. The amendment contemplates that the partners would establish a separate customer account for Mr. Ferreri's securities and placed restrictions on Mr. Mainardi's use of these securities. Deposition of Andrew Mainardi, III, Exhibit 2.
On June 30, 1983, Mr. Mainardi, on behalf of the partnership, entered into a Market Maker's Agreement with First Options. Under that agreement, First Options agreed to carry the partnership's account. Paragraph 21 of the Market Maker's Agreement contains the provisions upon which First Options relies to compel arbitration. It reads in pertinent part as follows:
"It is agreed that any controversy between us arising out of the undersigned's business or this agreement, whether arising before or after the date hereof, shall be submitted to and determined by arbitration under the provisions of the Constitution and Rules of Chicago Board Options Exchange, Inc. or other national securities exchange or pursuant to the Code of Arbitration of the National Association of Security Dealers, as the undersigned may elect."
Mainardi Deposition, Exhibit 4, at para. 21.
Mr. Ferreri never signed the Market Maker's Agreement and alleges that he never saw a copy of the agreement until after this litigation was instituted.
On or about July 1, 1983, Mr. Mainardi began to trade on behalf of the partnership. At about that time, Mr. Ferreri informed Mr. Huber that he would be out of Philadelphia for the summer. He again requested assurances from Mr. Huber that Mr. Huber would monitor his account daily, that Mr. Mainardi would be permitted to engage only in conservative option transactions and that no more than $200,000 of equity in his security account would be used for the partnership. Mr. Huber again agreed to these ...