Review of Court Decisions - Dispute Resolution Journal - Vol. 42, No. 2
Originally from Dispute Resolution Journal
SECURITlES- ARB ITRABILITY - SECURITIES EXCHANGE ACT OF 1934- STATE SECURITIES LAWS- RICO CLAIMS
An investor's claims against his broker brought under Section 1 O(b) and Rule 1 Ob-5 of the Securities Exchange Act of 1934 and state law were arbitrable. The RICO claims, however, would not be submitted to arbitration. Sevinor opened several accounts with Merrill Lynch, Pierce, Fenner & Smith. The customer agreement contained an arbitration clause. Alleging severe financial loss that was due to misrepresentations by his broker, Sevinor brought an action seeking monetary damages under the Securities Exchange Act of 1934, 15 U.S.C. § 78(a) et seq .; Rule 10b-5 promulgated under the 1934 Act, 17 C.F.R. § 240 .10b-5; the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq.; and under state law. Merrill Lynch moved to compel arbitration. Sevinor opposed arbitration, arguing that Merrill Lynch waived its right to arbitration by its use of discovery procedures. Sevinor further argued that under Wilko v. Swan, 346 U.S . 427 (1953), the federal securities claims could not be arbitrated, and that policy considerations militated against submitting the RICO claims to arbitration. Merrill Lynch maintained that Wilko applied only to claims brought under Section 12(2) of the Securities Act of 1933 and not to Section 10(b) claims of the 1934 Act. The court found that Merrill Lynch had not waived its arbitration right since it had given notice to Sevinor of its arbitration position in its answer to the complaint. It then held that the state claims were arbitrable under Dean Witter Reynolds v. Byrd, 470 U.S. 213, 105 S. Ct. 1238 (1985).