Deputy, Doris v. Lehman Brothers Inc ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 02-4305 & 03-1155
DORIS DEPUTY,
Plaintiff-Appellee,
v.
LEHMAN BROTHERS, INC.,
Defendant-Appellant.
____________
Appeals from the United States District Court
for the Eastern District of Wisconsin.
No. 02 C 718—Charles N. Clevert, Jr., Judge.
____________
ARGUED APRIL 17, 2003—DECIDED SEPTEMBER 29, 2003
____________
Before BAUER, MANION, and EVANS, Circuit Judges.
MANION, Circuit Judge. Doris Deputy sued Lehman
Brothers, Inc., SG Cowen Securities Corporation, and
Cowen & Company, alleging various state law claims stem-
ming from the securities fraud allegedly perpetrated by one
of the defendants’ brokers. Lehman Brothers moved to stay
the action and compel arbitration based on an arbitration
clause contained in its Client Agreement with Deputy. The
district court denied that motion, finding that Deputy had
not signed the Client Agreement and that in any event the
arbitration clause was against public policy. Lehman
Brothers appeals. Because we conclude that the arbitration
clause does not violate public policy and because the dis-
2 Nos. 02-4305 & 03-1155
trict court did not adequately consider the validity of the
signature, we reverse and remand.
I.
Doris Deputy has been a client of Lehman Brothers, SG
Cowen Securities Corporation and Cowen & Company since
1989. During this time, Deputy’s investment advisor was
Frank Gruttadauria; the now infamous Gruttadauria
pleaded guilty in 2002 to federal securities fraud, bank
fraud, wire fraud and identity theft, and he has been de-
scribed as having perpetrated one of the “largest scam[s] of
retail investors ever [committed] by an individual broker.”
After learning of Gruttadauria’s fraud, Deputy filed suit
against Lehman Brothers, Inc., SG Cowen Securities Corpo-
ration and Cowen & Company, alleging various Wisconsin
state law claims, including fraud, negligent and strict
liability misrepresentation, negligent supervision, breach of
fiduciary duty, and various other Wisconsin statutory
causes of action. Lehman Brothers responded by filing a
Motion to Stay Pending Arbitration or to Dismiss. In its
motion, Lehman Brothers contended that Deputy’s claims
were subject to arbitration based on an arbitration clause
contained in its Client Agreement with Deputy. Deputy
argued in response that she had not signed the Client
Agreement and thus had not agreed to arbitration.
The district court scheduled a hearing for November 21,
2002 on Lehman Brothers’ Motion to Stay or Dismiss. Prior
to this hearing, Lehman Brothers obtained an expert opinion
from handwriting expert Diane Marsh. Marsh concluded
that the Client Agreements of April 26, 2001 and July 26,
2001 contained the genuine signatures of Deputy. Con-
versely, in an affidavit presented to the court, Deputy
maintained that she did not sign the Client Agreements.
Both Marsh’s expert report and Deputy’s affidavit were
submitted along with briefing on Lehman Brothers’ Motion
to Stay or Dismiss prior to the November 21, 2002 hearing,
and the district court reviewed both prior to the hearing.
Nos. 02-4305 & 03-1155 3
What actually transpired during the November 21, 2002
hearing, however, turned out to be much more significant
than the briefing. We therefore excerpt at length from the
hearing transcript, beginning with the district court’s initial
comments on convening court:
I’d like to commence the hearing by telling you what I
expect to look at today and consider and to give you a
preliminary view of how I have viewed the matters as
submitted up to this point. . . . With regard to arbi-
tration and whether this matter should be stayed, at this
point I’m inclined to deny the request to stay and would
1
like to hear from Lehman Brothers and Cowen as to
why I should not come down with that decision. I’ve
read your submissions. I’ve looked at the cases and
have paid special attention to the decisions that were
rendered in California and Ohio with respect to similar
cases. I’ve also taken note of Miss Marsh’s report and
some of the requirements for considering opinion tes-
timony, particularly the need to identify the basis for
certain opinions and the absence of certain information
underlying the opinion. I’m mindful of this Court’s
obligation as a doorkeeper with respect to opinion
evidence and the need for parties offering opinion tes-
timony to show that a particular discipline has been
adhered to and that there is an objective slash scientific
basis for certain types of opinion evidence. I’m also
mindful of the terms that were utilized in the opinion
evidence and the factual basis for the opinion offered by
Miss Marsh, that being a review of a photocopy, the
1
Although the district court noted that it would like to hear
from both Lehman Brothers and Cowen on the issue, only
Lehman Brothers sought a stay pending arbitration, as Cowen
did not claim that Deputy had agreed to arbitrate her claims.
Accordingly, this interlocutory appeal concerns only Lehman
Brothers’ Motion to Stay or Dismiss pending arbitration.
4 Nos. 02-4305 & 03-1155
authenticity of which was not addressed, and the ab-
sence of any certification by Lehman Brothers that its
document person knew anything about the authenticity
of the photocopy or the circumstances in connection
with which it was created.
I’m mindful that the submission[s] do not show that the
so-called arbitration agreement was prepared by anyone
operating in the ordinary course of business or that it
was within, the person was operating within the scope
of his or her authority when they created the so-called
arbitration agreements. Having said all that I’d like to
hear from Lehman Brothers and SG Cowen as to why
this case should be stayed.
In response to the district court’s expressed concerns as to
Lehman Brothers’ expert report, Lehman Brothers explained
that “we have Miss Marsh here and prepared to testify and
I believe, and very briefly, and I believe the testimony will
address a number of the issues that Your Honor has raised
with respect to the forgery, whether or not it is a forgery as
raised by the claimant [Deputy].” At this point, Deputy’s
attorney objected to evidence being taken, stating “[t]his is
a motion to dismiss. Such evidence is beyond obviously the
written record. The parties had an opportunity to submit
affidavits and so on. Miss Marsh’s affidavit was submitted.
We did not have an opportunity to submit an affidavit. We
did not hire an expert.” Deputy’s attorney then noted that
by taking evidence, the hearing was seemingly turning into
a motion for summary judgment.
The district court then responded:
Well, I think you’re accurate in saying that it does
smack of a motion for summary judgment. You’re also
equally accurate that it’s well beyond the usual scope of
a motion to dismiss. And with those acknowledgments
on the record I will give to Lehman Brothers and Cowen
an opportunity to present this testimony. I am not going
to preclude you, however, from offering whatever
Nos. 02-4305 & 03-1155 5
evidence you have. And if it is your desire to present
expert testimony to counter that offered here today, we
may certainly have the opportunity to hear that expert
testimony. I know that this case is in an unusual posture
and I know also that if the issue concerning arbitration
is played out to its fullest in this forum we may in
essence have what constitutes a trial on the issue as to
whether or not the parties were, had a valid arbitration
agreement. And so in a sense we’re putting a little of the
trial first as opposed to somewhere near the end. And I
will tell you, Lehman Brothers and SG Cowen will not
have two kicks at this portion of the cat. . . . So if they’re
presenting their testimony now they’re not going to
bootstrap it later.
The hearing then continued with Lehman Brothers calling
Marsh to the stand. After introducing herself, Marsh
testified that she was a forensic document examiner, that
she had been involved in this profession for 21 years, that
she belonged to the World Association of Document
Examiners, the Independent Association of Questioned
Document Examiners, and that she was a diplomat of the
American Board of Forensic Examiners. Marsh then further
elaborated on her experience, stating that she had testified
in state or federal court as a forensic document examiner
approximately 115 times. Lehman Brothers’ attorney then
asked Marsh whether “any court refused to accept you as an
expert witness in this subject matter?” Marsh responded:
“No.”
The district court then inquired: “I’m curious Miss Marsh,
did you testify in Leon S. Malachinski versus Commissioner
of Internal Revenue Service?” Marsh responded, “I don’t, it
doesn’t sound familiar,” and that since she had testified
over 115 times she would have to check her list and see.
After the district court gave Marsh the legal citations to that
case, Marsh responded, “it doesn’t sound familiar, but I still
can’t say.” The district court then told Marsh that the case
6 Nos. 02-4305 & 03-1155
involved a Dr. Malachinski and his ex-wife who had filed
joint federal income tax returns in 1980 and 1981 and asked
whether that sounded at all familiar. Marsh once again
responded, “I’m sorry. It doesn’t sound familiar but I don’t,
what, it doesn’t sound familiar but—” The district court
then broke in and stated, “Well, I have a copy of the deci-
sion and in this case it indicates that Dr. Malachinski
introduced an expert report of Diane Marsh.” Marsh
responded, “Well, then apparently I must have been
involved in some way,” to which the district court stated
that “if you are the same person it says that the court
rejected your expert report.” Marsh rejoined: “I’m not fami-
liar with that.” At this point the district court said, “I’ll hear
what you have to say,” and Marsh then continued with her
testimony concerning the disputed issue, namely whether
the signatures on the Client Agreements were Deputy’s.
In this regard, Marsh testified that Lehman Brothers had
provided her with four documents containing a “Doris
Deputy” signature for her review. These documents, iden-
tified as Q1, Q2, Q3, and Q4, were, respectively, an Option
Approval Form and Agreement dated February 20, 1993; a
Client Agreement dated April 26, 2001; a Client Agreement
dated June 4, 2001; and a Client Agreement dated July 26,
2001. Marsh explained that she compared these questionable
signatures with the signature contained in Exhibit 4, which
was a copy of a letter Lehman Brothers provided her as an
2
authentic example of Doris Deputy’s signature, but that she
was unable to determine the validity of the Q1-Q4 signa-
tures based on just one exemplar. Specifically, in a Septem-
ber 20, 2002 report, Marsh stated:
2
During the hearing, Deputy’s attorney argued that Lehman
Brothers had failed to authenticate the signature contained in
Exhibit 4. Lehman Brothers offered to establish its authenticity,
but the question became moot when the district court rejected
Marsh’s testimony in whole.
Nos. 02-4305 & 03-1155 7
In this examination, I had only one (1) known stand-
ard to compare with the four (4) questioned signatures.
After a complete examination, I have concluded that
the one (1) standard signature of Doris A. Deputy is not
sufficient to be able to reach an opinion as to whether
Doris A. Deputy signed the four (4) documents in
question. Before a conclusion can be reached, additional
samples of the genuine signature of Doris A. Deputy
need to be submitted for examination. Since the ques-
tioned documents span a time period of February 20,
1993, through July 26, 2001, it would be advisable to
have known standards covering this time frame.
After receiving this report, Lehman Brothers provided
Marsh with a second sample of Deputy’s signature, namely
a facsimile copy of Deputy’s signature from the affidavit she
had filed with the district court in this pending litigation.
Marsh explained that although she was unable to reach a
conclusion as to the validity of the signatures contained in
Q1-Q4 based solely on the sample contained in Exhibit 4,
when considered along with the additional sample, she was
able to render an expert opinion as to the validity of the
signatures contained in Q2 and Q4 (which were the Client
Agreements dated April 26, 2001 and July 26, 2001, respec-
tively) and that those signatures were genuine. However,
Marsh stated that she was still unable to determine the
validity of the signatures contained in Q1 and Q3.
During the hearing, Marsh further explained the basis
of her conclusion that the signatures on the April and July
Client Agreements were valid. Marsh noted that she first
examined the signatures with the naked eye and then under
a magnifying glass and microscope. Marsh then explained
that in doing so she was looking for any indication of a pen
lift, a tremor in the signature, or the possibility of the
signature being a cut and paste. As to the Q2 signature,
Marsh then explained:
The questioned signature compares favorably with
the two known signatures, standard one and standard
8 Nos. 02-4305 & 03-1155
two. There’s agreement in beginning strokes, ending
strokes, letter formations, T crossings, spacing, relative
proportions, closeness of the letters. And on the origi-
nal, the Lehman Brothers agreement I looked at under
microscope and there’s fine beginnings and fine end-
ings. There’s no pen lifts where the signature was
patched together. Everything was made in a fluent
smooth matter, so I arrived at the conclusion that all
three of the signatures were written by the same indivi-
dual, the questioned signature and the two standards.
Marsh further detailed her handwriting analysis by ex-
plaining that:
I did the complete analysis and there were, there’s
comparisons, favorable comparisons in the letter
formations, in the beginning strokes, in the ending
strokes, the T formations, how the T is crossed, how the
Y is ended. And I also with the original that I had I
looked at it under a microscope and it had fine begin-
nings and fine endings. And when signatures are forged
the forger will put the pen down on the paper and then
start drawing the signature and there will be tremors
and they will end with blunt beginnings and blunt
endings. And this original signature had fine begin-
nings and fine tapered endings. And my opinion is that
it is not a forgery.
On cross-examination, Deputy’s attorney asked Marsh
about differences in the signatures and Marsh acknowl-
edged that the signatures were not identical, but also ex-
plained that “[a] person always has, they have what we call
variations,” “when a person signs their name they never
sign their name exactly the same way because a person is
not a machine.” Deputy’s attorney also questioned Marsh
about the fact that the Client Agreements contained Dep-
uty’s middle initial, whereas her genuine signature on the
affidavit did not. Marsh stated that in her experience the
same individual did not always use a middle initial and that
Nos. 02-4305 & 03-1155 9
“[i]n document examination the middle initial, the addition
or subtraction of a middle initial is not considered a funda-
mental difference in determining if two signatures were
written by the same individual.” Deputy’s attorney further
asked Marsh about differences in the look of the “D” in
Doris, which Marsh acknowledged but discounted as minor
variations.
Marsh faced additional questions concerning her use of a
copy to compare the signatures and Marsh explained that it
is “better to have the original whenever it’s available,” but
then stated that “when the original is not available if we
have a good photocopy then a photocopy can be used.”
Marsh also acknowledged that the exemplar contained in
Exhibit 4 was faded in part and missing the top portion of
part of Deputy’s signature. But Marsh testified that that
exhibit allowed her to “see the letter formations and then I
had the affidavit,” and that together with the affidavit
she was able to form an expert opinion. Marsh also admit-
ted that it is difficult to tell if there are fine beginnings and
fine endings from copies, such as the one she looked at in
Exhibit 4. However, Marsh reaffirmed that based on the two
comparisons—the one original and the copy—she was able
to conclude that the two signatures contained on the Client
Agreements were genuine. Additionally, on cross-examina-
tion Marsh admitted that she had originally provided an
expert opinion that the signatures on the Client Agreements
were valid based solely on photocopies, but she explained
that she had qualified her opinion as being based on copies.
Specifically, in her opinion letter Marsh stated: “This
opinion is qualified as my examination was made from
photocopies. However, if it can be assumed that the photo-
copies accurately reflect the appearance of the originals,
there is little likelihood that the findings would be changed
or modified by such reexamination.” At the hearing, Marsh
then explained that the copies “were good copies” and were
sufficient to form an opinion. Marsh further noted that
while her opinion was originally qualified, she had since
10 Nos. 02-4305 & 03-1155
seen the original and that her opinion that the signatures on
the two Client Agreements were genuine was now unquali-
fied.
After Marsh had explained her opinion and the process by
which she had formed her opinion, the district court asked,
“Miss Marsh, you described your work as a science, is that
correct?” After responding in the affirmative, the district
court asked why she described it as a science, to which
Marsh responded:
Well, it is considered a science but it’s not an exact
science like mathematics. I believe mathematics is the
only exact science. But it is considered a science. Scien-
tific instruments were used for the examination. For
example, the microscope, those are all, and looking, if
I check for anything on ink comparisons or any mea-
surements, that’s all considered a scientific examination.
So it is considered a scientific science.
Upon further inquiry from the court Marsh explained:
Well, I have other instruments. I have what is called
an ESDA, electrostatic detection device and that de-
termines differences in ink. The abbreviation is ESDA.
Electrostatic detection apparatus. I also have an infrared
video spectra scanner which differentiates between inks.
The ESDA picks up indentations. It determines if there’s
indentations on a document. I have an ultraviolet lamp
which can be used to determine differences in paper.
And all that is considered a scientific examination.
The district court then stated: “Well, let me get at what is
the heart of my questioning. Is there a set of principles or
rules coupled with techniques and the use of instruments
utilized in document examinations?” The court also in-
quired as to whether “there [are] any principles that govern
document examination by you and others who engage in
your profession?” Marsh then explained:
[T]here are principles. When we attend the seminars,
they teach how to go through to examine a document.
Nos. 02-4305 & 03-1155 11
And so there are principles. You compare the letter
formations and such. When you’re comparing two
signatures the way you compare is by the letter forma-
tions, by the beginning strokes, ending strokes, relative
proportions, height of the taller letters, length of the
extenders, the closeness of the letters, whether it’s on
the line, the alignment to the line, whether it’s off the
line, whether it’s written on a slant upward or a slant
downward.
So there are various principles that you go through
and you check when you’re comparing one signature to
another. And then we’re taught what variations are.
Variations is, because a person never signs their name
exactly the same way twice. They can have variations in
their signatures. So we learn what variations are. And
we learn what fundamental differences are. And varia-
tions is, well, for example, a person who has a Y in their
name, they may make the length of the down stroke on
the Y, it may vary in length from time to time. It won’t
be exactly the same length from time to time. It won’t be
exactly the same length all the time.
A fundamental difference is a stroke that is entirely
different. Like a letter may be started in a totally differ-
ent way than what the exemplars are. And if that’s in
the evidence then that can be a fundamental difference.
But of course, you need, you know, the signatures for
the comparison to point out the fundamental differ-
ences.
The district court then asked: “Is there a particular set
of variations, fundamental differences or other characteris-
tics that must be seen or eliminated in order to arrive at an
opinion?” Marsh explained that “[t]here is not a particular
set that’s set up. . . . I have never seen a made up list. Other
than what I have already gone through where when you’re
making comparisons you make up, you make comparisons,
like as I said, in the beginning stroke, ending strokes, align-
ment, letter formations. . .” but that there are no particular
12 Nos. 02-4305 & 03-1155
number of points of comparisons. Rather, as an expert,
Marsh explained, she must determine if there is a funda-
mental difference because “in order to determine that two
signatures were not written by the same individual you only
need one fundamental difference.” Marsh then elaborated,
noting that she relies on printed works common in the
profession which detail fundamental differences, and that
she used several books common in the profession to reach
her expert conclusions.
Following this testimony, the district court asked the
parties how much additional time they would need for
argument. Lehman Brothers began by noting that it would
first be necessary to present a witness “with respect to the
business record aspect of these documents,” likely meaning
that Lehman Brothers would present a witness able to au-
thenticate Exhibit 4. The district court apparently believed
such testimony unnecessary and instead ruled:
I will tell you right now I am rejecting this testimony. So
we proceed based upon that determination. I’ll set forth
in some greater detail my reasoning in rejecting the
testimony as the gatekeeper in the matter, and clearly
one of the reasons is that Lehman Brothers has not
demonstrated that this testimony is based upon any
fundamental set of principles. Just because someone has
an opinion it doesn’t mean that that opinion is valid.
Just because someone has experience, it doesn’t mean
that experience warrants receipt of the opinion.
And as noted at the inception of this witness’s testi-
mony, she has failed to accurately recount her creden-
tials, and in particular, the fact that her testimony has
been previously rejected in court. If you would like for
me to catalog, list, itemize, set forth in particularity the
other reasons why I’m rejecting this testimony I can
certainly do that at a later time. But in fairness to my
reporter and in consideration of the hour which is now
5:19 p.m. we will adjourn for today. I can take up this
matter at 10:30 tomorrow morning and will do so.
Nos. 02-4305 & 03-1155 13
At the hearing the next morning, Lehman Brothers, in
summarizing its position, began by noting that the district
court had ruled that expert testimony was inappropriate on
the issue of the validity of the signature. The district court
broke in to clarify, stating:
I didn’t rule that expert testimony was inappropriate. So
that should be clear. I ruled that the expert testimony
that you offered should be rejected and that the testi-
mony of your witness in particular was not admissible
as expert testimony. Number two, that she was not
credible. In fact, I rejected her for a variety of reasons
which I did not describe completely and I indicated to
you yesterday that if you wanted further explanation or
further reasons why I was rejecting her testimony I
would provide that to you today. You may proceed.
Lehman Brothers then continued, noting that it had not
meant to mischaracterize the district court’s ruling, but that
it merely meant that the district court’s “ruling yesterday
with respect to the expert testimony that was offered by
Lehman Brothers” does not end the inquiry. Rather,
Lehman Brothers explained, it believed a fact issue as to
whether Deputy had in fact signed the arbitration agree-
ment still needed to be decided, which would require the
court to consider on its own the various samples provided
to determine their validity. Additionally, Lehman Brothers
stated that it needed limited discovery so as to depose those
familiar with Deputy’s signature in order to present testi-
mony supporting the validity of the signature contained on
the Client Agreements. Lehman Brothers further noted the
need for a full hearing to determine the ultimate question as
to whether Deputy signed the arbitration agreements.
Deputy’s attorney objected to any further discovery or
hearing, and the district court “agree[d] 100 percent,” stat-
ing:
Yesterday when we commenced the hearing [Deputy’s
attorney] expressed his concern that Lehman Brothers
had consulted with an expert and had brought that ex-
14 Nos. 02-4305 & 03-1155
pert here to testify. He underscored his lack of prepara-
tion for the hearing and lack of notice that the defense
expert would appear. During the course of the hearing
it became apparent that the defense expert—and I use
that term loosely in this case because I did not find her
to be an expert qualified to testify here—had been given
a number of documents starting in August of this year
and had rendered two opinions, only one of which had
been proffered and made known to the plaintiff and the
Court prior to yesterday.
As [Deputy’ attorney] noted during the course of his
remarks, I stated yesterday that there would be but one
kick at the cat. The request of Lehman to conduct dis-
covery on an issue that it has already explored is little
more than a thinly disguised attempt to revisit the issue
that we considered yesterday. We will not go down that
path again. The request for delay is denied. Moreover,
the request for further discovery on this issue prior to
the Court ruling is denied.
Later during the hearing, the district court once again
commented on its ruling barring Marsh’s testimony, stating:
I do want to just note that in reference to Rule 702 an
expert may testify if the testimony is based upon suf-
ficient facts or data and the testimony is the product
of reliable principles and methods and the witness
has applied the principles and methods reliably to
the facts of the case. I did emphasize yesterday during
my inquiry of Miss Marsh that there was a need for her
to tell me what scientific principles or methods or reli-
able principles and methods she had applied. None was
forthcoming. She mentioned that handwriting analysis
or documentary examination was a science. And all that
she could tell me about her science, about the scientific
aspect of her work was that she used a magnifying
glass, microscope and presumably a ruler in reaching
the conclusion after looking at facsimile copies of
documents that she was told were authentic.
Nos. 02-4305 & 03-1155 15
After again rejecting Marsh’s testimony, and based on
Deputy’s affidavit in which she denied signing the arbitra-
tion agreements, the district court concluded that “this
Court is not persuaded from what has been submitted that
a valid arbitration agreement is in force and should require
and requires that this case be stayed to allow arbitration to
proceed.” The court continued:
Also, and this is not the central, this is not central to my
decision. As a matter of public policy to stay this case
would be inappropriate. The activities engaged in or
allegedly engaged in here were tortious and it’s difficult
to see how if at all they would have been contemplated
by the arbitration agreement Lehman Brothers claims
Miss Deputy executed. Mr. Gruttadauria allegedly stole
from Miss Deputy over an extended period of time and
continued unabated for approximately twelve years. For
all of that to be folded into an arbitration agreement
executed in 2001 as to preclude Miss Deputy from
proceeding in a court of law is wrong. So taking all of
that together, the motion to stay will be denied and the
Court will not direct that this case proceed to arbitration
as requested by the defense.
Lehman Brothers then responded, stating that the “ruling
points out why there’s a need for a full evidentiary hear-
ing.” For instance, Lehman Brothers noted that the district
court had based its ruling in part on Deputy’s affidavit,
yet it had not had an opportunity to cross-examine her.
The district court responded that since Lehman Brothers
had not indicated a desire for this testimony, it would “deny
your request to supplement the record because that’s
essentially what you’re asking at this stage now that I’ve
ruled.” Lehman Brothers then further explained that had the
district court allowed a full evidentiary hearing, it would
have presented evidence that Gruttadauria had told Dep-
uty’s attorneys that he had not forged her signature and that
he believed Deputy’s signature genuine. After hearing from
Lehman Brothers, the district court reaffirmed its ruling
16 Nos. 02-4305 & 03-1155
denying Lehman Brothers’ requests for further discovery, an
evidentiary hearing and to stay pending arbitration.
About a month later, the district court issued a written
decision and order denying Lehman Brothers’ Motion to
Stay Pending Arbitration or to Dismiss. In this written
order, the district court reiterated its oral ruling, noting that
it had “concluded that, at least in this case, Marsh’s testi-
mony is inadmissible under the standards of Daubert and
did not credibly refute the affidavit testimony of Deputy.”
The district court explained the basis for this conclusion,
noting that “[a]t the outset, Marsh could not identify a set of
scientific principles or standards that she applied in this
case. Nor could she explain satisfactorily the inconsistencies
in her reasoning process, which led to her conclusion that
Deputy’s signatures were genuine.” The district court also
noted that Marsh’s report stated “that she was able to
conclude that the July 26, 2001 (Q-4) signature was genuine
but adds that she could not reach a conclusion as to the July
26, 2001 (Q-4) signature.” Marsh, however, had explained
during the hearing that the report contained a typographical
error and that the report should have stated that “she could
not reach a conclusion as to the June 4, 2001 (Q-3) signature.
The district court further expanded on its rationale,
stating:
More importantly, once in court, Marsh admitted that
she did not ask to see the original documents in forming
her opinion and that she received and used facsimile
copies. In her own words, photocopies and facsimiles
are “less than optimal examples.” She further admitted
that on September 20, 2002, she could not render an
opinion on the four documents referred to in her report,
but changed her mind on September 24, 2002, after
seeing the Deputy affidavit (or one additional signa-
ture). On cross-examination, Marsh acknowledged the
absence of Deputy’s middle initial in one of the docu-
ments as well as variations in the name “Deputy.”
Nos. 02-4305 & 03-1155 17
Finally, the court found Marsh less than candid regard-
ing her testimony in Malachinski v. C.I.R., 268 F.3d 497(7th Cir. 2001), a case which is listed on her record of
court testimony. In that case, the court found Marsh’s
report did not adequately set forth the facts and reasons
supporting Marsh’s conclusions.
After rejecting Marsh’s testimony, the district court con-
cluded that based on Deputy’s affidavit, in which she
attested that she had not signed the Client Agreements, “the
court was satisfied that the parties did not agree to arbitrate
their dispute.” The district court added that “[a]lthough this
record at this stage does not demonstrate that Deputy
signed the Client Agreements dated April 26 and July 26,
2001, assuming she did raises significant public policy
concerns. Deputy would have been asked to sign the
Agreements in 2001 or twelve years after the onset of the
fraud.” For these reasons, the court denied Lehman Broth-
ers’ Motion to Stay or Dismiss pending arbitration. Lehman
Brothers appeals from this ruling.
I.
On appeal, Lehman Brothers contends that the district
court erred in several ways. First, Lehman Brothers claims
that the district court erred in excluding Marsh’s expert
testimony by failing to properly apply Daubert and by mis-
reading the Malachinski case in which Marsh previously
testified as an expert. Next, Lehman Brothers argues that the
district court erred by refusing to compare the various
samples of Deputy’s handwriting with the disputed signa-
tures contained on the Client Agreements. Lehman Brothers
asserts that had the district court made this comparison, the
similarities between the signatures would have necessitated
a full evidentiary hearing to determine if Deputy had signed
the two client agreements at issue. And Lehman Brothers
maintains that the district court’s failure to hold such an
evidentiary hearing also constitutes reversible error. Addi-
tionally, Lehman Brothers maintains that the district court
18 Nos. 02-4305 & 03-1155
wrongly refused its request for additional discovery in
preparation for a full evidentiary hearing. We consider each
issue in turn.
A. Marsh’s Proffered Expert Testimony
Lehman Brothers first challenges the district court’s re-
jection of Marsh’s proffered expert testimony. Federal Rule
of Civil Procedure 702 allows for expert testimony, provid-
ing:
If scientific, technical, or other specialized knowledge
will assist the trier of fact to understand the evidence or
to determine a fact in issue, a witness qualified as an
expert by knowledge, skill, experience, training, or ed-
ucation, may testify thereto in the form of an opinion or
otherwise, if (1) the testimony is based upon sufficient
facts or data, (2) the testimony is the product of reliable
principles and methods, and (3) the witness has applied
the principles and methods reliably to the facts of the
case.
Fed. R. Civ. P. 702.
In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579(1993), the Supreme Court held that the district court must
perform a gatekeeping function to determine whether
expert scientific evidence is admissible under Rule 702. Id.
at 593-95. See also Kumho Tire Co., Ltd. v. Carmichael, 526 U.S.
137, 141 (1999) (extending Daubert to other non-scientific
types of expert testimony). To determine admissibility
under Rule 702, the Daubert Court announced five factors
that may be used in assessing the relevancy and reliability
of expert testimony: (1) whether the particular scientific
theory “can be (and has been) tested”; (2) whether the
theory “has been subjected to peer review and publication”;
(3) the “known or potential rate of error”; (4) the “existence
and maintenance of standards controlling the technique’s
operation”; and (5) whether the technique has achieved
“general acceptance” in the relevant scientific or expert
community. Daubert, 509 U.S. at 593-94. However, as the
Court clarified in Kumho, this list is neither definitive nor
Nos. 02-4305 & 03-1155 19
exhaustive, but rather flexible to account for the various
types of potentially appropriate expert testimony. Kumho,
526 U.S. at 141. In reviewing the district court’s decision
concerning the admissibility of an expert’s testimony, we
review de novo whether the district court properly followed
the Daubert framework. Walker v. Soo Line R. Co., 208 F.3d
581, 590 (7th Cir. 2000). And if the district court properly
applied Daubert, we review the “court’s decision to admit or
exclude expert testimony only for an abuse of discretion.”
Id.In this case, in rejecting Marsh’s testimony during the
November 21, 2002 hearing, the district court provided only
two reasons: (1) that “Lehman Brothers has not demon-
strated that this testimony is based upon any fundamental
set of principles;” and (2) that Marsh “has failed to ac-
curately recount her credentials, and in particular, the fact
that her testimony has been previously rejected in court.”
However, the district court also stated that it would “set
forth in particularity the other reasons why [the court was]
rejecting this testimony.” The district court did that in its
later-issued written order, listing seven reasons: (1) Marsh
could not identify a set of scientific principles or standards
that she applied in this case; (2) she did not adequately
explain the inconsistencies in her reasoning process, which
led to her conclusion that Deputy’s signatures were genu-
ine; (3) Marsh’s report stated that she was able to conclude
that the July 26, 2001 signature was genuine, while at the
same time stating “she could not reach a conclusion as to
the July 26, 2001 signature”; (4) “Marsh admitted that she
did not ask to see the original documents in forming her
opinion and that she received and used facsimile copies”;
(5) she admitted on September 20, 2002 that she could not
render an opinion on the four documents, but changed her
mind on September 24, 2002, after seeing Deputy’s affidavit;
(6) Marsh acknowledged the absence of Deputy’s middle
initial in one of the document as well as variations in the
name “Deputy”; (7) “Marsh [was] less than candid regard-
ing her testimony in Malachinski v. C.I.R., 268 F.3d 497 (7th
20 Nos. 02-4305 & 03-1155
Cir. 2001), a case which is listed on her record of court
testimony. . . . [in which] the court found Marsh’s report did
not adequately set forth the facts and reasons supporting
Marsh’s conclusions.”
Most of these seven stated reasons concerned issues
of credibility and persuasiveness, but such considerations
are relevant only in valuing the testimony, not in deter-
mining its admissibility. As we explained in Smith v. Ford
Motor Co., 215 F.3d 713, 719 (7th Cir. 2000), “[i]t is not the
trial court’s role to decide whether an expert’s opinion is
correct. The trial court is limited to determining whether ex-
pert testimony is pertinent to an issue in the case and
whether the methodology underlying that testimony is
sound.” See also, id. (whether an expert’s theory is correct is
a factual question for the jury to determine). For instance, as
its third reason for rejecting Marsh’s testimony the district
court noted that Marsh’s expert report contradictorily stated
that the July 26, 2001 signature was genuine, but in the same
report stated that her analysis was inconclusive as to the
July 26, 2001 signature. At the hearing, however, Marsh
explained that the inconsistency was merely a typographical
error, and that the report should have stated that the review
of the June 4, 2001 statement was inconclusive. A typo-
graphical error appearing in an expert report might lead a
fact-finder to conclude that the expert is sloppy, but it does
not render an expert’s opinion unreliable and thus inadmis-
sible.
The next rationale offered by the district court concerned
Marsh’s reliance on facsimile copies. Contrary to the district
court’s statement that Marsh had not asked to see the
originals, Marsh had testified that she always requests the
originals. Additionally, Marsh testified that she had qual-
ified her original report on the basis that she did not have
access to the originals, but that she had since had an op-
portunity to view the original and her conclusion remained
unchanged. Thus, contrary to the district court’s statement,
Marsh’s expert opinion was not based solely on facsimiles.
However, even if it were, the district court did not ade-
quately explore whether experts in the field believe it pos-
Nos. 02-4305 & 03-1155 21
sible to form an opinion solely from a facsimile, or in this
case on the basis of one facsimile and one original copy.
Although Marsh testified that facsimiles are less than ideal,
and that an original is preferable, she also testified that a
handwriting expert could reach a conclusion on the basis of
the two samples provided. Whether or not experts in the
field would agree, however, is unclear from the record, and
that should have been the district court’s focus.
Similarly, the district court rejected Marsh’s testimony
because on September 20, 2002, she stated that she could not
render an opinion on the four documents, but then changed
her mind on September 24, 2002, after seeing Deputy’s
affidavit. Again, the district court went beyond determining
admissibility and focused on credibility. This was error
because “the focus of the district court’s Daubert inquiry
must be solely on principles and methodology, not on the
conclusions they generate.” Cummins v. Lyle Indust., 93 F.3d
362, 368 (7th Cir. 1996). Thus, the district court’s inquiry
should have been on whether professionals in the field of
handwriting analysis agree that the addition of a second
sample allows for a conclusion as to the validity of the
signature at issue. The only testimony before the district
court was Marsh’s, and she stated that two samples were
sufficient in her field to render an opinion. Rather than
explore this issue further, the district court in effect found
Marsh not credible because she had changed her opinion
3
after obtaining only one additional sample.
The court’s next rationale regarding Marsh’s acknowl-
edgment of Deputy’s missing middle initial in one of the
documents, as well as variations in the name “Deputy” has
no bearing on the Daubert analysis because it merely calls
3
Similarly, on appeal, Deputy argues that Marsh’s testimony
was not credible because she did not disclose her initial Septem-
ber 20 inconclusive opinion, implying that Marsh was in some
way trying to hide that fact. Although it might be appropriate for
a fact-finder to consider this fact in assessing credibility, it is in-
appropriate to rely on this non-disclosure as a basis for rejecting
Marsh’s expert opinion.
22 Nos. 02-4305 & 03-1155
into question the persuasiveness of her opinion, not whether
she applied the appropriate expert standards in reviewing
the signatures. See United States v. Mooney, 315 F.3d 54, 63
(1st Cir. 2002) (“Once a trial judge determines the reliability
of the proffered expert’s methodology and the validity of
his reasoning, the expert should be permitted to testify as to
the inferences and conclusions he draws from it, and any
flaws in his opinion may be exposed through cross-exami-
nation or competing expert testimony. . . .”). Moreover, in
this case Marsh provided an explanation as to these differ-
ences, stating that the exclusion of a middle initial is typical
and does not indicate that a signature is not genuine.
Similarly, Marsh explained that variations exist in every-
one’s signatures, and that those appearing in the various
“Deputy” signatures were minor variations. A finder of fact
might not accept those explanations, but that is a different
issue from whether the testimony is admissible in the first
instance. See Smith, 215 F.3d at 719.
Another reason the district court offered was that “Marsh
[was] less than candid regarding her testimony in Mala-
chinski v. C.I.R., 268 F.3d 497 (7th Cir. 2001), a case which is
listed on her record of court testimony. . . . [in which] the
court found Marsh’s report did not adequately set forth the
facts and reasons supporting Marsh’s conclusions.” In this
regard, the district court doubly erred. First, the district
court misread the Malachinski case. In that case, Marsh pre-
sented an expert report as to the genuineness of a signature
appearing on a tax return, and then at trial was called as a
witness. Malachinski v. C.I.R., 1999 WL 349342 (Tax Ct.
1999). The Tax Court in that case held that Marsh’s live
testimony should be limited to the information provided
in her expert report based on Tax Court Rule 143(f). (Rule
143(f) prohibits expert testimony beyond that provided
prior to trial in an expert report.) On appeal, this court
affirmed. Malachinski, 268 F.3d 497. In doing so, although we
noted that Marsh’s report was conclusory and did not set
forth the facts supporting her opinion, this court did not
reject her expert testimony; rather we affirmed the Tax
Nos. 02-4305 & 03-1155 23
Court’s application of its rule limiting her testimony to the
content of her report. Id. at 501-02. Simply put, Marsh’s
testimony was not rejected as unreliable under Daubert
in Malachinski. Id. Thus, factually the district court clearly
erred. Legally, the district court also erred, because its view
that Marsh “was less than candid regarding her testimony,”
4
even if true, at best went to Marsh’s credibility and not the
admissibility of her expert opinion.
The other two reasons given by the district court were that
Marsh did not adequately explain the inconsistencies in her
reasoning process and that “Lehman Brothers has not
demonstrated that this testimony is based upon any funda-
mental set of principles.” It is unclear what the district court
meant by inconsistencies in Marsh’s reasoning process, and
in any event, inconsistencies tend to concern credibility. If
by “inconsistencies in her reasoning process” the district
court meant that Marsh failed to follow the proper stan-
dards required of handwriting experts, that was an appro-
priate inquiry under Daubert. Marsh did, however, present
evidence as to the methodology used by handwriting
experts and which she used in this case, and no evidence
was presented to dispute her testimony. But in any event,
the more fundamental problem in this case is that too much
of the district court’s analysis involved factors not appropri-
ate under Daubert. The transcript demonstrates that the
overriding factor driving the district court’s decision was its
incorrect reading of Malachinski, and its negative view of
Marsh based on its belief that the court in Malachinski had
rejected her as an expert and that Marsh had misrepresented
4
Moreover, even had the court in Malachinski rejected Marsh’s
testimony, after reading the transcript in its entirety, we would
be hard pressed to affirm the district court’s finding that Marsh
had been less than candid about her role in that case. Marsh
clearly stated several times that she did not recall that case and
was not familiar with the court’s holding. She had testified in
over 100 cases and was candid about not recalling that case.
24 Nos. 02-4305 & 03-1155
that fact to the district court. By incorrectly focusing on
5
Malachinski and other issues relating to credibility, the
district court did not properly assess whether handwriting
analysis in general, or Marsh’s expert opinion in particular,
is admissible under Rule 702. Therefore, we must reverse.
Cf. Chapman v. Maytag Corp., 297 F.3d 682, 688 (7th Cir. 2002)
(“the record in this case reveals that the district court
conducted virtually no Daubert analysis of [the expert’s]
qualifications in light of these factors,” and therefore it erred
in admitting the expert’s testimony).
That does not mean, however, that Marsh’s testimony
must be admitted. Rather, on remand, the district court
must properly function as a gatekeeper pursuant to Daubert
and determine whether testimony concerning the genuine-
ness of a signature is properly the subject of expert opinion.
This circuit has yet to rule on that issue post-Daubert. Sev-
eral other circuits and district courts have considered the
issue. Every circuit that has considered the issue has al-
lowed expert testimony on handwriting analysis. United
States v. Crisp, 324 F.3d 261, 270 (4th Cir. 2003); United States
v. Jolivet, 224 F.3d 902, 906 (8th Cir. 2000); United States v.
Paul, 175 F.3d 906, 911 (11th Cir. 1999); United States v. Jones,
107 F.3d 1147, 1161 (6th Cir. 1997); United States v. Velasquez,
64 F.3d 844, 848-49 (3d Cir. 1995). Several district courts,
however, have rejected handwriting analysis, finding it
lacks scientific reliability. United States v. Hines, 55
5
On appeal, in arguing that the district court properly excluded
Marsh’s testimony, Deputy points to the fact that Marsh did not
charge Lehman Brothers an additional fee for providing a second
opinion. Deputy insinuates that this shows that Marsh did not
perform any additional tests, or that her additional analysis was
superficial and thus not worthy of belief. However, like the dis-
trict court, Deputy is confusing issues of credibility with issues of
admissibility. The fact that Marsh did not charge Lehman
Brothers an additional fee is irrelevant to the question of whether
Deputy’s opinion is admissible under Rule 702 and Daubert.
Nos. 02-4305 & 03-1155 25
F.Supp.2d 62, 68 (D. Mass. 1999); United States v. Saelee, 162
F.Supp.2d 1097, 1102-03 (D. Alaska 2001); United States v.
Lewis, 220 F.Supp.2d 548, 555 (S.D.W.Va. 2002); United States
v. Brewer, 2002 WL 596365 (N.D. Ill. 2002).
Thus, there appears to be some divergence of opinion as
to the soundness of handwriting analysis. However, given
that the hearing in this case improperly focused on issues
related to credibility, and not the principles and methodol-
ogy of handwriting analysis, we leave the question of the
propriety of such testimony for further review on remand.
And after remand, assuming the court properly applies the
Daubert standards, any review in this court will be for an
abuse of discretion. Walker, 208 F.3d at 581.
B. Evidentiary Hearing
Lehman Brothers also contends that the district court
erred in refusing to hold a full evidentiary hearing to allow
it, among other things: to present testimony from lay
6
witnesses as to the validity of the “Deputy” signature; to
question Deputy about her affidavit and statement that she
did not sign the Client Agreements; and to present evidence
concerning whether or not Gruttadauria claimed to have
forged Deputy’s signatures. In support of its position,
Lehman Brothers cites to Section 4 of the Federal Arbitration
Act, which provides that:
The court shall hear the parties, and upon being satis-
fied that the making of the agreement for arbitration or
the failure to comply therewith is not in issue, the court
6
The Federal Rules of Evidence permit lay testimony concerning
disputed handwriting samples. See United States v. Tipton, 964
F.2d 650 (7th Cir. 1992). In Tipton, this court also upheld the use
of expert testimony to establish the validity of a handwriting
sample, id. at 654, but that case predates Daubert, and therefore is
not controlling.
26 Nos. 02-4305 & 03-1155
shall make an order directing the parties to proceed to
arbitration in accordance with the terms of the agree-
ment. . . . If the making of the arbitration agreement or
the failure, neglect, or refusal to perform the same be in
issue, the court shall proceed summarily to the trial
7
thereof.
9 U.S.C. § 4.
Section 4 thus required the court to hold a trial if the
making of the arbitration agreement was in issue. That was
the case here: The evidence before the district court in this
case was sufficient under Section 4 to mandate a trial on the
issue of the genuineness of the “Deputy” signature and to
allow Lehman Brothers to present additional evidence, as
identified above. Specifically, the district court had before
it Deputy’s affidavit stating that she had not signed the
Client Agreements, while sample signatures of Deputy’s
greatly resembled the disputed Client Agreement signa-
tures. This created a factual issue as to the validity of
Deputy’s signatures. Although Deputy maintains that the
7
Section 4 continues: “If no jury trial be demanded by the party
alleged to be in default, or if the matter in dispute is within ad-
miralty jurisdiction, the court shall hear and determine such
issue. Where such an issue is raised, the party alleged to be in
default may, except in cases of admiralty, on or before the return
day of the notice of application, demand a jury trial of such issue,
and upon such demand the court shall make an order referring
the issue or issues to a jury in the manner provided by the
Federal Rules of Civil Procedure, or may specially call a jury for
that purpose. If the jury finds that no agreement in writing for
arbitration was made or that there is no default in proceeding
thereunder, the proceeding shall be dismissed. If the jury finds
that an agreement for arbitration was made in writing and that
there is a default in proceeding thereunder, the court shall make
an order summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.” 9 U.S.C. § 4.
Nos. 02-4305 & 03-1155 27
district court was not required to grab a magnifying glass
and compare the proffered samples to the contested signa-
tures, that response is misplaced. The various handwriting
samples constituted relevant evidence as to the question of
whether Deputy had in fact signed the Client Agreements.
A review of these signatures demonstrates a substantial
similarity between the samples and the signatures contained
in the Client Agreements, and these similarities created an
issue of fact as to whether Deputy in fact had signed the
Client Agreements. Because this evidence was relevant, the
district court erred in refusing to compare the exemplars of
Deputy’s signatures with those contained in the Client
Agreements. That does not mean that following a trial the
8
district court, as the fact finder, or a jury if one is requested,
will necessarily conclude that the “Deputy” signatures are
genuine. But the district court should have considered the
similarities to determine whether a trial on the issue was
necessary under Section 4.
We conclude that the similarities do create a genuine issue
of material fact as to the validity of the “Deputy” signatures.
Moreover, this factual dispute exists even without consider-
ing the proffered expert testimony which, as explained
above, is arguably admissible. Under these circumstances,
the district court was required to hold a trial to determine
the validity of the disputed signatures.
In response, Deputy seems to argue that Lehman Brothers
waived its right to a trial under Section 4 because, before it
presented Marsh’s testimony, the district court warned it
that it would have but “one kick at the cat.” Although a
vivid caution, it is unclear from this statement exactly what
the district court meant, and in light of the procedural
posture of the case, coupled with the other errors discussed
above, we conclude that Lehman Brothers did not waive its
8
Section 4 of the Arbitration Act authorizes a jury trial, so it may
be that on remand the district court will not determine the valid-
ity of the signature.
28 Nos. 02-4305 & 03-1155
right to present further evidence concerning the validity of
Deputy’s signature at a trial. First, it is important to recog-
nize that the one-kick hearing under way addressed
Lehman Brothers’ Motion to Stay Pending Arbitration or
Dismiss. That motion was based on the arbitration clause
contained in the Client Agreements. Such is the normal
procedure for seeking to enforce an arbitration agreement.
Deputy then responded to Lehman Brothers’ motion by
denying the validity of her signature.
It was Deputy’s denial that altered the normal course
of the proceedings, and what turned the scheduled Novem-
ber 21, 2002, hearing into something other than a hearing on
a motion to dismiss. And although Deputy claims she was
broadsided by Lehman Brothers showing up for the hearing
with Marsh as a witness, the hearing transcript demon-
strates that Lehman Brothers only called Marsh as a witness
in response to the district court’s opening salvo that it was
inclined to deny the Motion to Compel because it had
problems with her report. At that point, Deputy complained
that she had not expected Marsh to testify and that she did
not have an expert of her own available. It was in this
context that the district court made the “one kick at the cat”
comment. But that passing comment did not reasonably put
Lehman Brothers on notice that by presenting Marsh’s
testimony that day it would be barred from seeking a trial
under Section 4. Rather, it seems more appropriate to view
the November 21, 2002, hearing as an initial inquiry into
whether or not there was a genuine issue of fact concerning
the validity of the “Deputy” signature. The evidence
presented at that hearing demonstrated that there was in
fact a genuine issue of material fact as to the authenticity of
the signature. At that point, the district court should have
scheduled a trial on the issue, pursuant to 9 U.S.C. § 4.
But instead the district court ruled on the limited evidence
before it and made a factual finding that Deputy had not
signed the Client Agreements. Because Section 4 requires a
trial in cases where there is an issue as to the validity of the
arbitration agreement and because the district court refused
Nos. 02-4305 & 03-1155 29
to allow Lehman Brothers the opportunity to present other
relevant evidence concerning this issue, the district court’s
decision must be reversed and Lehman Brothers must be
given a Section 4 trial.
Additionally, Lehman Brothers must be given the oppor-
tunity to conduct limited discovery on the narrow issue
concerning the validity of Deputy’s signature. The district
court refused Lehman Brothers’ request for this discovery
based on its “one kick at the cat” ruling. But, as just noted,
that statement cannot be considered fair warning to Lehman
Brothers that if it presented Marsh at the November 21, 2002
hearing, it would be barred from a Section 4 trial or from
conducting discovery relevant to a trial on the issue of the
signature. Because discovery is clearly warranted and the
district court’s only stated rationale fails, it was an abuse of
discretion to deny Lehman Brothers’ request for limited
discovery.
C. Validity of the Arbitration Clause
In rejecting Lehman Brothers’ Motion to Stay Pending
Arbitration or to Dismiss, the district court noted in passing
that even if it had concluded that Deputy had signed the
Client Agreements containing the arbitration clauses, it
would be against public policy to enforce the arbitration
clause. The district court also reasoned that an enforceable
contract containing an arbitration clause never existed be-
tween Lehman Brothers and its client because Gruttadauria
never intended to perform his contractual obligations, and
thus “there was never any meeting of the minds . . . . ” 2002
WL 32121834 *3 (N.D. Ohio 2002). On appeal, Deputy
argues that even if the district court erred in other respects,
these alternative rationales require affirmance of the district
court’s denial of Lehman Brothers’ Motion to Stay Pending
Arbitration or to Dismiss. Because we can affirm on any
basis in the record, we consider each of these arguments in
turn. Rothner v. City of Chicago, 929 F.2d 297, 303 n.9 (7th Cir.
1991).
30 Nos. 02-4305 & 03-1155
Deputy first maintains that the Client Agreements, in
which the arbitration clauses are found, are not enforce-
able contracts because Gruttadauria never intended to per-
form his contractual obligations and thus there was no
“meeting of the minds.” Deputy relied on Fazio v. Lehman
Brothers, Inc., 268 F.Supp.2d 865 (N.D. Ohio 2002), to stand
for this proposition. However, Fazio was recently reversed
by the Sixth Circuit. Fazio v. Lehman Brothers, 340 F.3d 386(6th Cir. 2003). Among other things, in reversing, the Sixth
Circuit rejected the idea that no agreement existed because
Gruttadauria had “no intention of acting as a true broker . . .
.” Id. at 394. Moreover, the district court’s decision in Fazio
represents a misunderstanding of the “meeting of the
minds” requirement, looking to the subjective intent of the
parties instead of applying the appropriate objective
9
standard. It is black letter contract law, and also the law of
the state of Wisconsin—the law governing the dispute in
this case—that mutual assent “does not mean that parties
must subjectively agree to the same interpretation at the
time of contracting . . . . ” Management Computer Serv., Inc. v.
Hawkins, Ash, Baptie & Co., 557 N.W.2d 67, 75 (Wis. 1996).
Rather, “mutual assent is judged by an objective standard,
looking to the express words the parties used in the con-
tract.” Id. at 76. Thus, it is irrelevant in this case that
Gruttadauria never subjectively intended to perform the
contractual obligations. The only question is whether, ob-
jectively, there was a meeting of the minds. Under Wiscon-
sin law, “[r]egardless of the parties’ actual intentions, their
execution of an unambiguous written contract establishes an
enforceable ‘meeting of the minds’ as a matter of law.”
Nauga, Inc. v. Westel Milwaukee Co., Inc., 576 N.W.2d 573, 577
(Wis. App. 1998). Thus, assuming Deputy signed the Client
Agreements, Gruttadauria’s execution established an
9
Similarly, the district court in FSP, Inc. v. Societe Generale, 2003
WL 124515, *3 n.1 (S.D.N.Y. 2003), misapplied a subjective stand-
ard to the meeting of the minds requirement.
Nos. 02-4305 & 03-1155 31
enforceable meetings of the minds. See also Sarantakis v.
Gruttadauria, 2003 WL 1338087 *4 (N.D. Ill. 2003) (rejecting
argument that Gruttadauria’s intent to commit fraud pre-
vented a meeting of the minds).
In response, Deputy contends that because “when the
agreements were allegedly ‘signed’ in 2001, she had no
‘understanding’ that she had been defrauded for the past
twelve years, and was still being defrauded, . . . there could
have been no ‘meeting of the minds’ nor any effective man-
ifestation of intent, and thus no contract.” But Deputy’s
subjective intent, like Gruttadauria’s, is irrelevant to the
10
question of whether a meeting of the minds occurred, and
therefore Deputy’s argument is misplaced.
Deputy next contends that the arbitration clause does not
cover her underlying claims because she did not contem-
plate Gruttadauria’s tortious conduct. In support of her
position, Deputy once again relied on the district court’s
decision in Fazio, wherein the court held that “tort claims
are not subject even to a broad arbitration clause if the
conduct at issue was beyond any reasonable foreseeability
or contemplation at the time the contract was executed.” Id.
at *6. The Sixth Circuit reversed this portion of Fazio as well,
holding that the claims at issue fell within the broad scope
of the arbitration clause. 340 F.3d at 396. Whether a claim is
subject to arbitration depends on the contractual language,
and in this case the arbitration clause did not limit its scope
to reasonably foreseeable claims. Rather, the arbitration
clause broadly covered:
Any controversy: (1) arising out of or relating to any
of my accounts with you, maintained individually
or jointly with any other party, in any capacity; or (2)
10
Of course, if Deputy had been fraudulently induced to enter
the contract, that is another matter, but “Deputy does not argue
that the Client Agreement is unenforceable as a fraudulently in-
duced contract . . . .”
32 Nos. 02-4305 & 03-1155
with respect to transactions of any kind executed by,
through or with you, your officers, directors, agents
and/or employees; or (3) relating to any transactions
or accounts with any of your predecessor firms by
merger, acquisition or other business combination from
that inception of such accounts; or (4) with respect to
this agreement or any other agreements entered into
with you relating to my accounts, or the breach there-
of, . . . .
Deputy’s claims clearly fell within the scope of this arbi-
tration clause because they all related to her “accounts,
transactions or agreements.” See Fazio, 340 F.3d at 396.
Although Deputy argues that her claims were not foresee-
able, the arbitration clause contains no such “foreseeability”
requirement. And thus assuming that Deputy signed the
agreement, her claims are subject to arbitration. J&K Cement
Constr., Inc. v. Montalbano Builders, Inc., 456 N.E.2d 889, 902
(Ill. App. 1983) (when parties agree to a broad arbitration
clause, it “encompass[es] disputes which are not foreseeable
at the time of contracting. . . . ”); Hilti, Inc. v. Oldach, 392
F.2d 368, 373 (1st Cir. 1968) (“The broad language of the
arbitration clause forces us to conclude that the parties
intended to arbitrate all disputes arising thereunder irre-
spective of whether they were foreseeable at the time of
agreement.”); Sarantakis, 2003 WL 1338087 *4 (N.D. Ill. 2002)
(holding broad arbitration clause covered claims based on
Gruttadauria’s alleged fraud).
Finally, Deputy argues that the arbitration clause is unen-
forceable because it is against public policy. Specifically,
Deputy claims that the clause should not be enforced
because the Wisconsin “legislature has expressed a clear
policy of protecting investors against untrue statements
made by, and fraudulent acts committed by securities
brokers and their employers.” Deputy further asserts that
because Gruttadauria’s false statements were entirely de-
liberate and because he pleaded guilty to fraud, theft and
other nefarious conduct, it would violate public policy to
enforce the arbitration clause. These arguments, however,
Nos. 02-4305 & 03-1155 33
are misplaced because there is no conflict between Wiscon-
sin’s policy of protecting investors and the enforcement
of an arbitration clause—the latter merely determines the
forum in which investors’ rights are protected. Kroog v. Mait,
712 F.2d 1148, 1153-54 (7th Cir. 1983) (rejecting district
court’s conclusion that enforcing an arbitration clause
violated Wisconsin’s security regulations). And the alleged
criminal nature of Gruttadauria’s conduct, while potentially
relevant for the issue of arbitrability depending on the
language of the arbitration clause (although the language in
this case, as explained above, does not consider the crimi-
nality of the alleged conduct), is entirely irrelevant from a
public policy perspective: the arbitration clause does not
prevent Deputy from obtaining a remedy for Gruttadauria’s
criminal conduct—it merely specifies the forum in which
that relief takes place. Cf. Shearson/American Express, Inc. v.
McMahon, 482 U.S. 220, 240 (1987) (RICO’s criminal provi-
sions do not preclude arbitration of civil actions). In fact,
both of these arguments illustrate that Deputy’s position
assumes a false premise—that enforcing an arbitration
clause will deny Deputy recompense for the alleged wrongs
she suffered. That is clearly not the case; rather, it merely
means that Deputy’s claims will be resolved in a different
forum. And to the extent that Deputy believes that enforcing
arbitration provisions violates the public policy of giving
plaintiffs their day in court, that argument is misplaced as
Congress in passing the Federal Arbitration Act has made
clear that public policy favors arbitration. Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).
As the Supreme Court explained in Gilmer v. Inter-
state/Johnson Lane Corp., 500 U.S. 20 (1991), the FAA seeks
“to reverse the longstanding judicial hostility to arbitration
agreements . . . and to place arbitration agreements upon the
same footing as other contracts.” Id. at 24. Thus, the Su-
preme Court has instructed lower courts to “rigorously
enforce agreements to arbitrate.” Dean Witter Reynolds, Inc.
v. Byrd, 470 U.S. 213, 221 (1985). These are the principles that
34 Nos. 02-4305 & 03-1155
must be applied here, assuming Deputy in fact signed the
11
Client Agreements containing the arbitration clause.
III.
In passing the Federal Arbitration Act, Congress codified
a federal policy in favor of arbitration. Although arbitration
cannot be forced on the parties, if they agreed to arbitration,
the arbitration agreement must be enforced and doing so
actually furthers, as opposed to contradicts, public policy.
In this case, however, that is a big “if,” as Deputy maintains
that she never signed the Client Agreements. The district
court agreed, but in the process made several errors. First,
the district court erred in applying Daubert to determine the
admissibility of Lehman’s proffered expert. That is not to
say that expert opinions on handwriting analysis are
categorically admissible; rather, on remand the district court
must assess the propriety of such testimony in light of
Daubert and this opinion. The district court also erred in
refusing to allow limited discovery for the purposes of
determining the genuineness of the “Deputy” signatures
and in prohibiting Lehman Brothers from presenting other
evidence, such as lay testimony, supporting its claim that
Deputy in fact signed the Client Agreements. For these and
the foregoing reasons, we REVERSE and REMAND. On
11
Deputy cites the unpublished order entered in Meyeroff v. S.G.
Cowen Sec., Inc., 02-CV-1084W (S.D. Cal. 2002), and Fazio v.
Lehman Bros., Inc., 268 F.Supp.2d 865, for the proposition that
arbitration clauses contained in Client Service Agreements like
the one at issue in this case are unenforceable as against public
policy. Fazio, however, was reversed on appeal. 340 F.3d 386. And
Meyeroff is not controlling, and in any event we find it unpersua-
sive. Compare with Sarantakis v. Gruttadauria, 2003 WL 1338087(N.D. Ill. 2003) (enforcing arbitration clause contained in Lehman
Brothers’ Client Agreement in suit brought concerning
Gruttadauria’s alleged fraud).
Nos. 02-4305 & 03-1155 35
remand, Circuit Rule 36 shall apply and the district court
shall proceed in a manner consistent with this opinion.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-29-03