The opinion of the court was delivered by: JAMES F. MCCLURE, JR.
On December 8, 1994, plaintiff Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch") initiated this action by filing a complaint seeking injunctive relief against defendant Edward K. Masland. Masland was a customer of Merrill Lynch, a registered securities broker-dealer. Masland filed a statement of claim against Merrill Lynch before the National Association of Securities Dealers, Inc. ("NASD"), alleging improprieties in the manner in which he was induced to make certain investments. Merrill Lynch then filed a complaint in this court seeking to enjoin arbitration of Masland's claims, contending that the claims were not arbitrable.
In a telephone conference between the court and counsel, both sides indicated that NASD had agreed to postpone arbitration proceedings pending a ruling by the court, removing the need for any temporary restraining order or immediate preliminary injunctive relief. On March 20, 1995, the court issued a memorandum and order granting Merrill Lynch's motion for a preliminary injunction. Merrill Lynch, Pierce, Fenner & Smith v. Masland, 878 F. Supp. 710 (M.D. Pa. 1995).
However, we deferred the granting of final relief pending the presentation of further evidentiary matters. These related to the question of whether the parties intended to submit the issue of the relevant "transactions or occurrences" to arbitration, a part of the analysis set forth in PaineWebber Inc. v. Hofmann, 984 F.2d 1372 (3d Cir. 1993). The briefs of the parties having been submitted, the matter is ripe for disposition.
I. STATEMENT OF FACTS1
Masland became a customer of Merrill Lynch in 1986 and dealt with an employee of Merrill Lynch named William B. Brumley. Brumley recommended investment in a number of limited partnerships, which Masland contends were high-risk ventures. They included:
Investment (Purchase Date) Investment Amount
ML Media Partners, L.P. (3/13/86) $ 10,000.00
ML Media Partners, L.P. (11/3/86) $ 40,000.00
SCA Tax Exempt Fund Series II, L.P
(12/11/86) $ 50,000.00
ML Venture Partners II, L.P. (3/13/87) $ 25,000.00
ML Lee Acquisition Fund, L.P. (8/13/87) $ 20,000.00
Arvida/JMB Partners II, L.P. 89
(11/20/89) $ 20,000.00
The last purchase is no longer at issue, since Masland did not opt out of a class action related to that investment. According to Masland, at the time of his purchases, he did not understand the fundamentals of limited partnerships, and was not made aware of the high-risk nature of the investments.
Merrill Lynch then initiated this action to enjoin arbitration of Masland's claims.
II. CONTRACTUAL PROVISIONS2
The parties agree that the case is governed initially by the terms of the customer agreement and the cash management account agreement between Masland and Merrill Lynch. See Complaint, Exhibit A (customer agreement); Defendant's Brief in Opposition to Plaintiff's Motion for Temporary Restraining Order and Preliminary Injunction, Exhibit A (cash management account agreement). Both of those documents indicate that they are governed by the law of the State of New York. Customer Agreement at 2 P 17; Cash Management Account Agreement at 2. The customer agreement sets forth the following language:
Except to the extent that controversies involving claims arising under the Federal securities laws may be litigated, it is agreed that any controversy between us arising out of your business or this agreement shall be submitted to arbitration conducted under the provisions of the Constitution and Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the National Association of Securities Dealers, Inc., as the undersigned may elect. ...
Customer Agreement at 2 P 13. The cash management account agreement contains substantially the same language. Cash Management Account Agreement at 1.
The NASD Code of Arbitration Procedure (cited hereafter as "NASD Code") provides for a time limitation on the submission of claims for arbitration, which reads:
Time Limitation on Submission
Sec. 15. No dispute, claim, or controversy shall be eligible for submission for arbitration under this Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim, or controversy. This section shall [not] extend applicable statutes of limitations, nor shall it apply to ...