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KLEIN v. BOYD

August 1, 1996

ELYSE S. KLEIN, et al.
v.
WILLIAM BALLANTINE BOYD, III., et al.



The opinion of the court was delivered by: YOHN

 Yohn, J.

 August 1, 1996

 Defendant William Coleman asks the court to stay certain of plaintiffs' claims against him and order the parties to submit these claims to arbitration. For the reasons outlined below, the court will grant Coleman's motion.

 I. Background:

 Many of the facts involved in this case have been detailed in prior memoranda of this court and will not be repeated in detail here. In summary, plaintiffs, Elyse Klein, Richard and Doris Kastner, and Warren Kastner, invested in a limited partnership, Mercer Securities, Ltd., that subsequently failed leaving their investment worthless. They filed a complaint against numerous persons involved with the limited partnership and alleged violations of the federal securities laws, the Racketeer Influenced and Corrupt Organizations Act (RICO), and various state laws, including those of common law fraud, negligent misrepresentation, breach of contract, breach of fiduciary duty, and the Pennsylvania securities law. Plaintiffs also allege that defendant Coleman mismanaged their investment accounts. The latter claims, relating to the plaintiffs securities accounts, are the subject of Coleman's motion to stay and to compel arbitration.

 Plaintiffs' initial complaint, filed August 23, 1995, contained the general allegation that Coleman mismanaged Klein's investment account, by buying and/or maintaining securities on margin and by not properly diversifying her account, thereby breaching fiduciary duties owed to Klein. (Compl. PP 89-92, 124.) Plaintiffs' first amended complaint, filed November 20, 1995, contained the same allegations. (First Am. Compl. PP 115-18, 120, 163-64.) The allegations also included the suggestion that the "Control Defendants" (defined to include defendants Boyd, Thomas T. Tarantino, Lawrence G. Stevens, and Gregory C. Jamogchian) recklessly or negligently supervised Coleman. (Id. at PP 120, 164.) Plaintiffs' second amended complaint, proposed April 16, 1996, made no additional references to Coleman's alleged mismanagement of Elyse's brokerage account, and no references whatsoever to the Kastners' securities accounts. (Pls.' Mot. to Amend, Ex. A.) On May 23, 1996, plaintiffs proposed a revised second amended complaint "to make clear that Plaintiffs are also seeking damages for Coleman's misconduct in relation to investments which he solicited to purchase other than Mercer, i.e. Kelly Oil and other stocks, (collectively 'Kelly Oil Stocks'), under this claim against Coleman. " (Pls.' Mot. to Substitute Second Am. Compl. at 2. (emphasis added)) Plaintiffs clarified that they seek damages against Coleman related to the "Kelly Oil Stocks" based on RICO, common law fraud, negligent misrepresentation, breach of contract, and breach of fiduciary duty. (Id. 2-3.) The proposed second amended complaint also indicates that plaintiffs make claims against the Control Defendants for failing to properly supervise Coleman. *fn1" (Id., Ex. A. at PP 155, 161, 175.)

 On July 17, 1996, the court granted in part and denied in part plaintiffs' motions to amend the first amended complaint and to substitute a revised second amended complaint, allowing all of the proposed amendments discussed above.

 II. Discussion:

 Client's Agreements executed by Klein, Richard and Doris Kastner, and Warren Kastner, and to which Mercer Securities, Ltd. succeeded as a party, contain an arbitration clause providing:

 
any and all controversies which may arise between me and CSC or between me and the organization that has introduced my account(s) carried by CSC concerning any account, transaction, dispute or the construction, performance, or breach of this or any other agreement, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration.

 (Client's Agreement P 20.) *fn2" Pursuant to this clause, and the Federal Arbitration Act, 9 U.S.C. ยงยง 3, 4, Coleman seeks to compel arbitration of the claims relating to plaintiffs' securities accounts. Plaintiffs primarily contend that Coleman, a nonsignatory to the Client's Agreements, lacks the authority to compel arbitration of the claims relating to the securities accounts, and, in the alternative, Coleman has waived any right to compel arbitration.

 Certainly, courts are in agreement in holding that nonsignatories--usually employees or agents of the signatory--are bound by arbitration clauses and may therefore be compelled to submit them to arbitration. See, e.g., Pritzker v. Merrill, Lynch, Pierce, Fenner & Smith, 7 F.3d 1110, 1120 (3d Cir. 1993) ("Because a principal is bound under the terms of a valid arbitration clause, its agents, employees, and representatives are also covered under the terms of such agreements."); Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1358 (2d Cir. 1993); Arnold v. Arnold Corp., 920 F.2d 1269 (6th Cir. 1990); Letizia v. Prudential Bache Secs., 802 F.2d 1185, 1187-88 (9th Cir. 1986). Review of the decisions regarding ...


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