The opinion of the court was delivered by: WEBER
For sometime prior to the events in issue, plaintiffs had sought and accepted investment advice from Arthur Kaufman, a broker with Rocky Mountain Securities and Investments, Inc. In February 1987, Kaufman advised plaintiffs to subscribe to a new issuance of stock in Visual Products Systems, Inc. (VSP). Kaufman and Gunther Slaton, the principal at VSP, indicated to plaintiffs that the stock would soon be offered for public sale at twice the subscription price. Plaintiffs quickly invested $ 70,000 but soon became disillusioned. The stock was never issued and was never offered for public sale.
Plaintiffs sued Slaton and VPS in this action and obtained a default judgment when those two defendants failed to respond to the Complaint. Plaintiffs have also sued Kaufman and Rocky Mountain on a variety of securities law and fraud claims. These two defendants have filed a Motion for Stay, asserting that a prior agreement between the parties requires arbitration of this dispute. Plaintiffs oppose the motion and both sides have submitted briefs.
When plaintiffs first became clients of Rocky Mountain and Kaufman, they signed a Customer Account Agreement. Paragraph 13 of that agreement reads:
Agreement to Arbitrate Controversy
13. I agree that all controversies which may arise between us concerning any transaction or the construction, performance or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration in accordance with the rules of the National Association of Securities Dealers, Inc. It is understood that my agreement to arbitrate does not constitute a waiver of the right to seek a judicial forum where such a waiver would be void under the federal securities laws.
It is this provision which defendants invoke to compel arbitration.
Plaintiffs also argue that the Account Agreement with Rocky Mountain is limited in application to transactions in which Rocky Mountain sold securities or other property for or on behalf of plaintiffs. Because plaintiffs bought the VPS stock directly from Slaton and VPS, without Rocky Mountain being a middleman on the transaction, plaintiffs argue that the Account Agreement does not apply.
This appears to be a distinction without a difference. The stock subscription was offered to plaintiffs by Kaufman. He advised them to invest and outlined the terms of the investment. He projected the expected return on the investment and introduced plaintiffs to Slaton. Even though the check and stock do not appear to have physically passed through Rocky Mountain accounts, Rocky Mountain was undeniably the middleman in the transaction. It is important to note that the arbitration clause of the Account Agreement is broad, requiring arbitration of "all controversies which arise between us concerning any transaction, or the construction, performance or breach of this or any other agreement between us." We conclude that the present case falls within the scope of this provision.
The arbitration provision being applicable, the question is what claims are arbitrable? The Complaint states 5 claims for relief:
Count I - Violation of Section 5 of the Securities Act of 1933.
Count II - Violation of Section 17 of the Securities Act of 1933.
Count III - Violation of Securities and Exchange Act of 1934 ...