REVIEW OF COURT DECISIONS - Dispute Resolution Journal - Vol. 41, No. 2
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Originally from Dispute Resolution Journal
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INTERNATIONAL—ARBITRABILITY—RICO
CLAIMS—GUARANTOR
The guarantor was a party to the contract and was thus bound
to arbitrate the dispute alleging fraud and claims arising under
the Racketeer Influenced and Corrupt Organizations Act.
Chemtex, a United States corporation, contracted with
American Philippine Fiber Industries, Inc. (APFI), a Philippine
corporation, for the dismantling and reassembly of a
synthetic fiber plant. The contract called for arbitration of
any disputes in New York under the auspices of the International
Chamber of Commerce. Chemtex agreed to provide
the financing for the project, and Development Bank
of the Philippines (DBP) guaranteed the loans made by
Chemtex to APFI. When APFI defaulted on some of the
notes due to Chemtex, DBP made the payments. DBP then
filed suit, alleging that Cbemtex submitted false accounis
and further alleging claims under the Racketeer Influenced
and Corrupt Organizations Act (RICO), 1B U.S.C. §
1962 et seq. Chemtex moved for arbitration of the dispute
in accordance with the contract. DBP resisted arbitration,
claiming that, as guarantor. It was not a party to the contract
and thus was not bound to arbitrate and that its RICO
claims were not arbitrable in any event. The court disagreed,
finding that DBP was in fact a signatory to the
contract and was involved at every stage of contract negotiations.
It further found that RICO claims raised in an
international context are arbitrable, under the recent U.S.
Supreme Court holding In Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., _ U.S. _ , 105 S. Ct. 334b
(1985). The court ordered arbitration to proceed. Development
Bank of the Philippines v. Chemtex Fibers, Inc., 617 F.
Supp. 55 (S.D.N.Y. 1985).
SECURITIES—ARBITRABILITY—RICO CLAIMSSECURITIES
EXCHANGE ACT OE 1934—
STATE SECURITIES LAWS—BROAD ARBITRATION
CLAUSE
Claims raised under the Racketeer Influenced and Corrupt
Organizations Act, the Securities Exchange Act of 1934, and
state securities laws are arbitrable under a broad arbitration
clause. West contracted with Drexel Burnham Lambert
(Drexel) for investment purposes. When a dispute arose,
he sued the investment firm, alleging churning, violations
of the Racketeer Influenced and Corrupt Organizations
Act (RICO), 18 U.S.C. § 1962 et seq., violations of the
Securities Fxchange Act of 1934, 15 U.S.C. § 78a e( .seq.,
and violations of Washington state securities laws. Drexel
moved fo compel arbitration of the disputes under the
brokerage contract. West resisted arbitration, claiming
that the arbitration clause in question provided that it did
not constitute a waiver of any rights he had under federal
securities laws and further stating that certain federal
courts have held claims raised under the 1933 and 1934
Securities Acts to be nonarbitrable. He also contended
that his RICO claims and state securities laws claims were
nonarbitrable. Tbe court disagreed. It first reasoned that,
while the rule stated in Wilko v. Swan, 346 U.S. 427 (1953),
is still good law as to claims raised under the Securities Act
of 1933, the U.S. Supreme Court has expressed doubts
about the 1934 Act in Scherk v. Alberto-Culver Co., AM
U.S. S06 (1974), and more recently in Dean W/itter Reynolds,
Inc. V. Byrd, _ U.S 105 S. Ct. 1238 (1985). It thus
found such claims to be arbitrable. The court then turned
to the question of arbitrability of RICO claims, surveying
decisions from courts that have considered fhe question.
It concluded that because the claim raised "touches upon
no great societal or public interest, the policy of enforcing
arbifration agreements should prevail." Finally, the court
addressed West's state securities claims, holding that if
claims under the 1934 Act are arbitrable, so are state
claims. It further noted that the Washington supreme
court had itself ruled such claims arbitrable. West v.
Drexel Burnham Lambert, Inc., 623 F. Supp. 26 (W.D. Wash.
1985).
SECURITIES—ARBITRABILITY—SECURITIES
EXCHANGE ACT OF 1934—STATE SECURITIES
LAWS CLAIMS
Claims raised under tbe Securities Excbange Act of 1934 and
under state securities laws are arbitrable. In two consolidated
securities actions, the federal district court for the
Southern District of New York ruled that such claims are
arbitrable in the wake of Dean Witter Reynolds, Inc. v.
Byrd, „ U.S 105 S. Ct. 1238 (1985) and Mitsubishi Motors
Corp. V. Soler Chrysler-Plymouth, Inc., — U.S. _ , 105
S. Ct. 334b (1985). In the first case, finkle & Ross v. AC.
Becker Paribas, Inc., the partnership of Finkle & Ross (F &
R) engaged A.C. Becker Paribas (Becker), a securities bro-