Unpublished Disposition, 872 F.2d 427 (9th Cir. 1987)

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U.S. Court of Appeals for the Ninth Circuit - 872 F.2d 427 (9th Cir. 1987)

Alan J. GARDNER and Trudi Y. Gardner, Plaintiffs-Appellants,v.BOETTCHER & COMPANY, INC., and Frederick H. Camp,Defendants-Appellees.

No. 87-4419.

United States Court of Appeals, Ninth Circuit.

Submitted*  April 7, 1989.Decided April 14, 1989.

W.D. Wash.


Appeal from the United States District Court for the Western District of Washington; Hon. John C. Coughenour, District Judge, Presiding.

Before PREGERSON, BOOCHEVER and NOONAN, Circuit Judges.


Appellants Alan and Trudi Gardner ("the Gardners") appeal from the district court's denial of their motion for reconsideration of the court's order compelling arbitration of claims arising out of securities transactions entered into by the Gardners and appellee Boettcher & Co., Inc., a brokerage firm ("Boettcher"). The Gardners seek a jury trial of their claims against appellees Boettcher and Frederick H. Camp, an employee of Boettcher who acted on behalf of Boettcher in the transactions upon which the Gardners' claims are based. The Gardners assert that a written agreement to arbitrate any disputes arising out of the transactions, which they signed, is vague and ambiguous and that parole evidence purportedly demonstrating that the agreement does not require arbitration of the instant dispute should have been considered by the district court. The Gardners also argue that the district court's decision denied them their Seventh Amendment right to jury trial. Finally, the Gardners contend that because they did not receive from Boettcher the disclosure required by SEC Rule 15c2-2, the district court should not have compelled arbitration of their claims.

Boettcher and Camp ask us to affirm the district court's order and to impose attorneys' fees and double costs upon the Gardners and their counsel for their pursuit of a frivolous appeal.

For the reasons discussed below, we affirm and impose attorneys' fees of $1,000 and double costs upon the Gardners.

The Gardners established an investment account with Boettcher in November of 1982. In conjunction with opening the account, the Gardners executed Boettcher's New Account Form, which included a Cash Account Agreement (hereinafter "Agreement") containing the following arbitration provision:

The undersigned [the Gardners1 ] agrees that all controversies which may arise between us generally shall be determined by arbitration, before the New York Stock Exchange, Inc. or National Association of Security Dealers and in accordance with their rules then obtaining. However, if a controversy arising between us involves the federal securities laws, you may have a choice between arbitration or legal action which may be selected at the time the dispute arises. Under arbitration, the undersigned may elect in the first instance whether arbitration shall be by the New York Stock Exchange, Inc. or by the National Association of Security Dealers, but if the undersigned fails to make such election, by registered letter or telegram addressed to you at your main office, before the expiration of five days after receipt of a written request from you to make such election, then you may make such election. The award of the arbitrators shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction. (Emphasis added.)

The Gardners brought this action against Boettcher and Camp in June of 1987, seeking recovery for losses allegedly incurred in four investments purchased through them. Six of the Gardners' claims were based on the Securities Acts of 1933 and 1934 and on the Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO"). Five additional claims were based on state law.

Boettcher and Camp filed a motion asking the district court to stay the proceedings pending arbitration of the Gardners' claims. In opposition to this motion, the Gardners argued that before executing the Agreement they had discussed the arbitration provision with Frederick H. Camp, a representative of Boettcher, who had assured them that the provision permitted the Gardners, and not Boettcher, to elect to arbitrate or litigate disputes involving violations of federal securities laws.

The district court granted Boettcher and Camp's motion on October 21, 1987. Clerk's Record (C.R.) 17. The court stayed all proceedings in the case pending arbitration. Id. at 2.2 

The Gardners moved for reconsideration of the district court's order staying the proceedings pending arbitration. The district court denied this motion on November 4, 1987. The Gardners then brought this timely appeal.

The decision of the district court to stay proceedings pending arbitration is subject to de novo review. Zolezzi v. Dean Witter Reynolds, Inc., 789 F.2d 1447, 1449 (9th Cir. 1986).

The Gardners contend that the Agreement's arbitration provision is "vague and ambiguous" because the provision's reference to "you" is unclear. The Gardners believe that the term can be interpreted either as a reference to customers of Boettcher who, like the Gardners, sign the Agreement, or as a reference to Boettcher itself. The Gardners argue that because "you" is an ambiguous term, parole evidence in the form of discussions purportedly held between the Gardners and Camp should be admitted to demonstrate that the parties intended the arbitration clause to be construed to permit the Gardners, rather than Boettcher, to elect either arbitration or litigation of disputes.

The Gardners' premise is faulty. Our reading of the arbitration provision, supra, leads us to conclude that "you" is an unambiguous reference to Boettcher.3  Therefore, under the parole evidence rule, extrinisic evidence offered to vary or contradict the provision's clear meaning, such as evidence of the purported conversations between the Gardners and Camp, may not be considered by the court. See Sentinel Acceptance Corp. v. Colgate, 424 P.2d 380, 382 (Colo.1967) ("It is well settled that the parole evidence rule excludes extrinsic evidence which varies or contradicts the express terms of a written agreement...."); Alley v. McMath, 346 P.2d 304, 305 (Colo.1959) ("It is fundamental that a written instrument cannot be enlarged upon or varied by parole unless its terms are so ambiguous as to render uncertain the intent of the parties thereto.").4  Because the terms of the Agreement clearly express the parties' intention that Boettcher have the right to elect arbitration or litigation of disputes, the parole evidence rule bars consideration of the discussions purportedly held between the Gardners and Boettcher's representative concerning the arbitration provision's meaning. The district court therefore properly granted the motion to stay the proceedings pending arbitration. See Shearson/American Express, Inc. v. McMahon, 107 S. Ct. 2332 (1987) (agreement to arbitrate 1934 Exchange Act and RICO claims is enforceable in accordance with the Federal Arbitration Act, 9 U.S.C. §§ 1-14 (1982)). See also Leicht v. Bateman Eichler, Hill Richards, Inc., 848 F.2d 130, 131 (9th Cir. 1988). Consequently, the district court did not err in denying the Gardners' motion for reconsideration.

The Gardners argue that the district court's decision to stay the proceedings pending arbitration denied them their Seventh Amendment right to jury trial.5  This contention is meritless. In McMahon the Supreme Court clearly held that valid agreements to arbitrate Exchange Act6  and RICO claims are to be enforced. While not specifically discussing the relationship between the Seventh Amendment and the Federal Arbitration Act, 9 U.S.C. section 1 et seq., the Court observed:

The Arbitration Act, standing alone, ... mandates enforcement of agreements to arbitrate statutory claims. Like any statutory directive, the Arbitration Act's mandate may be overridden by a contrary congressional command. The burden is on the party opposing arbitration, however, to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue.... If Congress did intend to limit or prohibit waiver of a judicial forum for a particular claim, such an intent "will be deductible from [the statute's] text or legislative history," ... or from an inherent conflict betweeen arbitration and the statute's underlying purposes.

107 S. Ct. at 2337 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)) (emphasis added). The Court went on to hold that Congress did not intend to make an exception to the Arbitration Act for claims arising under either the Exchange Act of 1934 or RICO. Id. at 2343, 2345-46. Therefore, we must assume that the Court believed that the Seventh Amendment does not preclude "waiver" of the right to jury trial for Exchange Act and RICO claims by means of the signing of a valid arbitration agreement.

The Gardners assert that the district court erred in staying the proceedings pending arbitration because Boettcher never sent them the disclosure supposedly required by Rule 15c2-2, issued by the Securities and Exchange Commission (SEC) in November of 1983. See 17 C.F.R. Sec. 240.15c2-2 (1987). The issue was not properly raised in the district court but because it involves legal issues only we elect to dispose of it on the merits. Rule 15c2-2 until recently provided:

(a) It shall be a fraudulent, manipulative or deceptive act or practice for a broker or dealer to enter into an agreement with any public customer which purports to bind the customer to the arbitration of future disputes between them arising under the Federal securities laws, or to have in effect such an agreement, pursuant to which it effects transactions with or for a customer.

(b) Notwithstanding paragraph (a) of this section, until December 31, 1984 a broker or dealer may use existing supplies of customer agreement forms if all such agreements after December 28, 1983 are accompanied by the separate written disclosure:

Although you have signed a customer agreement form with FIRM NAME that states that you are required to arbitrate any future dispute or controversy that arises between us, you are not required to arbitrate any dispute or controversy that arises under the Federal securities laws but instead can resolve any such dispute or controversy through litigation in the courts.

(c) A broker or dealer shall not be in violation of paragraph (a) of this section with respect to any agreement entered into with a public customer prior to December 28, 1983 if:

(1) Any such public customer for whom the broker or dealer has after July 1, 1983 (i) carried a free credit balance, or (ii) held securities for safekeeping or as collateral, or (iii) effected a securities transaction is sent, no later than December 31, 1984, the disclosure prescribed in paragraph (b) of this section; or

(2) Any other public customer is sent upon the completion of his next transaction pursuant to such agreement, the disclosure prescribed in paragraph (b) of this section.

In the present case, the Gardners established their investment account with Boettcher in 1982. They contend that Boettcher never sent them the disclosure required by Rule 15c2-2. They ask this court to therefore "restrict the application of Shearson/American Express, Inc. v. McMahon," presumably by holding that an otherwise valid arbitration agreement will not be enforced when Rule 15c2-2 has been violated.

The Gardners' argument is meritless. Rule 15c2-2 does not "restrict" the McMahon holding; to the contrary, McMahon undermined the rationale for Rule 15c2-2 and led the SEC to rescind the rule. See Leicht v. Bateman Eichler, Hill Richards, Inc., 848 F.2d 130, 133 n. 4 (9th Cir. 1988) (" [I]n light of McMahon, the SEC recently determined that Rule 15c2-2 'is no longer appropriate or accurate,' and thus rescinded the rule.") (quoting Rescission of Rule Governing Use of Predispute Arbitration Clauses in Broker-Dealer Customer Agreements, 52 Fed.Reg. 39, 216-17 (Oct. 21, 1987)). In Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 288 (9th Cir. 1988), we rejected a claim that an arbitration agreement similar to the one in this case was unenforceable because it violated Rule 15c2-2. We noted that after the SEC's rescission of Rule 15c2-2, such a claim was "without foundation." Id. The Gardners' claim is similarly unfounded.

We regard the Gardners' appeal as frivolous. Therefore, pursuant to Rule 38 of the Federal Rules of Appellate Procedure, we impose attorneys' fees of $1,000 and double costs upon the Gardners and their counsel.



The panel unanimously found this case suitable for decision without oral argument. Fed. R. App. P. 34(a) and Ninth Circuit Rule 34-4


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3


"The undersigned" clearly refers to the Gardners, whose signatures appear at the bottom of the document


The district court also dismissed with prejudice the Gardners' Second Claim for Relief, which was based upon alleged violations of section 17(a) of the Securities Exchange Act of 1933. The Gardners have not appealed this decision of the district court. In addition, the court denied the Gardners' motion for sanctions against appellees and their counsel. C.R. 17


A reading of the entire Agreement, which contains the arbitration provision, supports our conclusion. The Agreement begins:

Boettcher & Co.

In consideration of your carrying an account or accounts for the undersigned, the undersigned hereby agrees as follows....

(Emphasis added.) The remainder of the Agreement employs the term "you" in a way that could only refer to Boettcher.


The Agreement provides that Colorado law governs its enforcement


The Seventh Amendment states:

In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise examined in any Court of the United States, than according to the rules of the common law.

U.S. CONST. amend. VII.


McMahon concerned claims brought under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. section 78j(b). In the present case, the Gardners asserted a claim under the Securities Exchange Act of 1933, 15 U.S.C. section 777(q), as well as claims under the 1934 Exchange Act. However, the district court, in its order of October 21, 1987, dismissed with prejudice the Gardners' 1933 Exchange Act claim. C.R. 17. The Gardners have not appealed the dismissal of their 1933 Exchange Act claim. See supra note 2