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PaineWebber Inc. v. Hartmann

filed: December 31, 1990; As Corrected January 21, 1991.

PAINEWEBBER INCORPORATED
v.
WILLARD S. HARTMANN, LEONA R. HARTMANN, APPELLANTS



On Appeal From the United States District Court for the Western District of Pennsylvania; D.C. Civil No. 89-01822.

Sloviter, Becker and Stapleton, Circuit Judges.

Author: Becker

Opinion OF THE COURT

BECKER, Circuit Judge

This is an appeal by Willard and Leona Hartmann from an order of the district court for the Western District of Pennsylvania granting the motion of plaintiff PaineWebber Inc., a brokerage house, for a preliminary injunction to prevent the scheduled arbitration of a securities dispute between PaineWebber and the Hartmanns. The Hartmanns contend that the district court erred in making, rather than referring to an arbitrator, the determination whether a clause in an agreement between the parties, which stated that claims filed more than six years after the events in dispute were not "eligible for submission" to arbitration, barred their arbitration demand. The district court's jurisdiction was predicated on diversity of citizenship, 28 U.S.C. § 1331. Our jurisdiction is based on 9 U.S.C. § 15(a)(2), which allows an appeal from an interlocutory order granting an injunction against arbitration. We will affirm the district court's order.

I. FACTUAL AND PROCEDURAL HISTORY

The relevant facts are essentially undisputed. From January through December of 1979, the Hartmanns maintained one or more brokerage accounts with Blyth, Eastman, Dillon & Company (Blyth), a predecessor of PaineWebber. Account executive Dennis Cowden managed these accounts. From January of 1980, through early April of 1982, the Hartmanns maintained one or more accounts with PaineWebber, also managed by Cowden. The last transaction involving any of the Hartmanns' accounts at PaineWebber occurred on March 22, 1982. Cowden then went to work for Shearson Lehman Brothers (Shearson), taking the Hartmanns' accounts with him. From April of 1982, through August of 1985, the Hartmanns maintained one or more accounts with Cowden at Shearson.

In opening their accounts at PaineWebber, the Hartmanns entered into a client agreement in which both parties agreed to submit certain disputes to arbitration. The agreement reads, in relevant part:

Any controversy between us arising out of or pertaining to this contract or the breach thereof, shall be [submitted] . . . for arbitration, in accordance with the [rules] . . . of either the . . . Committee of the New York Stock Exchange, American Stock Exchange, National Association of Securities Dealers, or where appropriate, Chicago . . . Exchange or Commodities Futures Trading Commission.

At some point, the Hartmanns came to believe that Cowden had fraudulently mishandled their accounts, causing them considerable loss. On April 18, 1988, the Hartmanns filed a demand for arbitration with the New York Stock Exchange (NYSE) Department of Arbitration against Blyth, PaineWebber, Shearson, and Cowden.

At all relevant times, Rule 603 of the NYSE Department of Arbitration Rules provided:

Time Limitation Upon Submission

No dispute, claim or controversy shall be eligible for submission to arbitration under this Code where six (6) years shall 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 any case which is directed to arbitration by a court of competent jurisdiction.

The parties agree that Rule 603 is incorporated by reference into their agreement. They also agree that the last account transaction involving PaineWebber, which could give rise to arbitration, occurred on March 22, 1982, and that the demand for arbitration was filed more than six ...


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