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Osterneck v. Lynch

filed: March 9, 1988.

MILTON L. OSTERNECK
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. AND WILLIAM LAMPE, APPELLANTS



On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 85-4824.

Sloviter and Cowen, Circuit Judges, and Debevoise, District Judge*fn*

Author: Sloviter

Opinion OF THE COURT

SLOVITER, Circuit Judge.

The question on appeal is whether a claim may be maintained for violation of the Pennsylvania Securities Act notwithstanding an agreement to submit such claims to arbitration. The district court refused to submit to arbitration a claim of violation of the Pennsylvania Securities Act because it construed a provision of that Act as forbidding judicial enforcement of prior agreements to arbitrate such claims. We conclude that recent Supreme Court precedent applying the Federal Arbitration Act required a different result.

I.

Background

Plaintiff Milton Osterneck maintained an investment account with Merrill Lynch, Pierce, Fenner & Smith, Inc., with William Lampe as his broker. It is undisputed that in 1981 Osterneck signed a customer agreement that included a clause binding the parties to submit "any controversy between us arising out of your [Osterneck's] business or this agreement" to arbitration. App. at 31.*fn1

Osterneck alleged in his complaint, inter alia, that Lampe fraudulently induced him to invest in an oil and gas leasing and development concern, and that Merrill Lynch either conspired with Lampe or negligently failed to prevent Lampe's deception. This conduct, according to Osterneck, gave rise to violations of the federal Securities Exchange Act of 1934, the Pennsylvania Securities Act of 1972 and the state common law.

The district court stayed proceedings in Osterneck's suit pending this court's decision in another action on the issue of the arbitrability of claims under the federal Securities Exchange Act of 1934.*fn2 After the Supreme Court decided that claims under Section 10(b) of the Securities Exchange Act must be submitted to arbitration under the Federal Arbitration Act if the parties have so contracted Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S. Ct. 2332, 96 L. Ed. 2d 185 (1987), the district court ordered arbitration of Ostemeck's state common law and federal claims but denied Merrill Lynch's motion to arbitrate the claims under the Pennsylvania Securities Act. Merrill Lynch appeals from that order.

This court's precedent is clear that a district court order granting or denying a stay of its own proceedings pending arbitration is an appealable interlocutory order under 28 U.S.C. § 1292(a)(1) (1982), if the underlying action is at law rather than equity. H.C. Lawton, Jr., Inc. v. Truck Drivers, Chauffeurs and Helpers Local Union No. 384, 755 F.2d 324, 327 (3d Cir. 1985); accord Patten Securities Corp. v. Diamond Greyhound & Genetics, Inc., 819 F.2d 400, 403-05 (3d Cir. 1987) (citing Cost Bros., Inc. v. Travelers Indemnity Co., 760 F.2d 58, 59-60 n. 1 (3d Cir. 1985)). Osterneck's claims seeking damages for various statutory and common law breaches are legal. We are therefore satisfied that we have jurisdiction to consider whether the district court erred in refusing to enforce the arbitration agreement. Because this appeal turns on a question of law, our review is plenary.

II.

Discussion

The Pennsylvania Securities Act of 1972, 70 Pa. Cons. Stat. Ann. § § 1-101 to 1-704 (Purdon Supp. 1987), which is based on the Uniform Securities Act, 7B U.L.A. 515 (1985), is a comprehensive scheme regulating the securities industry. Section 507 of the Pennsylvania Securities Act, which is identical to section 410(g) of the Uniform Act, provides that "any condition, stipulation or provision binding any person acquiring any security to waive compliance with ...


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