Arrants v. F.N. Wolf & Co.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
FRANKIE A. ARRANTS; DANETTE F.
ARRANTS,
Plaintiffs-Appellees,
v.
ELLSWORTH ALLEN BUCK, JR.;
GEORGE E. HUBBARD, No. 93-1651
Defendants-Appellants,
and
F. N. WOLF & COMPANY,
INCORPORATED,
Defendant.
ERNEST T. COLTRAIN; BETTY P.
COLTRAIN,
Plaintiffs-Appellees,
v.
ELLSWORTH ALLEN BUCK, JR.;
GEORGE E. HUBBARD, No. 93-1658
Defendants-Appellants,
and
F. N. WOLF & COMPANY,
INCORPORATED,
Defendant.
Appeals from the United States District Court
for the Eastern District of Virginia, at Norfolk.
J. Calvitt Clarke, Jr., District Judge.
(CA-93-45, CA-93-127-2)
Argued: April 12, 1994
Decided: December 4, 1997
Before WILLIAMS and MICHAEL, Circuit Judges, and
WARD, Senior United States District Judge for the
Middle District of North Carolina, sitting by designation.
_________________________________________________________________
Affirmed and remanded by published opinion. Judge Michael wrote
the opinion, in which Judge Williams and Senior Judge Ward joined.
_________________________________________________________________
COUNSEL
ARGUED: James Christopher Cosby, MALONEY, YEATTS &
BARR, Richmond, Virginia, for Appellants. William Edgar Spivey,
KAUFMAN & CANOLES, Norfolk, Virginia, for Appellees. ON
BRIEF: John S. Barr, Daniel A. Gecker, Steven S. Biss, MALONEY,
YEATTS & BARR, Richmond, Virginia, for Appellants. Jonathan L.
Thorton, KAUFMAN & CANOLES, Norfolk, Virginia, for Appel-
lees.
_________________________________________________________________
OPINION
MICHAEL, Circuit Judge:
This appeal involves the subject of arbitration. The matter began
when the brokerage firm of F. N. Wolf & Co., Inc. (F. N. Wolf or
Wolf) and two of its employees, Ellsworth A. Buck, Jr. and George
E. Hubbard, were sued in two cases by four customers for securities
fraud. There were immediate motions to compel arbitration. Wolf, the
introducing broker, and its employees sought to invoke the arbitration
clause in an agreement to which Wolf was not a party, that is, the
agreement between the customers and the clearing broker. The district
court denied arbitration, and Wolf and its employees appealed. We
now join the many federal courts which (aside from two limited
2
exceptions not relevant here) do not allow an introducing broker to
invoke the clearing broker's arbitration clause. F. N. Wolf is no lon-
ger a party in this case, so we affirm the district court's denial of arbi-
tration to its employees, Buck and Hubbard.
I.
After their broker, F. N. Wolf, placed them in allegedly risky
stocks that lost value, Frankie and Danette Arrants and Ernest and
Betty Coltrain (in separate cases) sued F. N. Wolf; Buck, their
account executive; and Hubbard, Buck's supervisor. 1 The main counts
of the complaints assert violations of federal securities law.
The Arrantses are high school graduates who are self-employed in
the logging and trucking business. Mr. Coltrain works in the mainte-
nance department of a lumber company. Neither the Arrantses nor the
Coltrains had any prior experience in stock market investment.
According to the complaints, Buck's "high-pressure telephone calls"
convinced the Arrantses in 1989 and the Coltrains in 1992 to open
securities accounts with F. N. Wolf. The customers claim that Buck
and F. N. Wolf convinced them to buy high risk, speculative stocks
that rapidly declined in price and were unsuitable to their investment
needs. The Arrantses claim to have lost about $52,000 and the
Coltrains about $29,000. They allege, among other things, misrepre-
sentations and omissions in violation of section 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17
C.F.R. § 240.10b-5.
After the complaints were filed, F. N. Wolf, Buck, and Hubbard
moved in each case to compel arbitration under the Federal Arbitra-
tion Act, 9 U.S.C. §§ 1 et seq. The movants sought to take advantage
of an arbitration clause contained in the account agreements between
the customers and the clearing broker, Prudential Securities Incorpo-
rated (Prudential).
The facts governing the arbitration issue are undisputed, and we
begin our discussion by explaining why Prudential is in the picture.
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1 We sometimes refer to the Arrantses and the Coltrains as "the custom-
ers."
3
F. N. Wolf engaged Prudential to provide certain clearing functions
for the accounts of Wolf's customers. In industry jargon F. N. Wolf
is the "introducing broker" and Prudential is the "clearing broker."
The clearing agreement between F. N. Wolf and Prudential is not
in the record, but the basic division of their responsibilities for cus-
tomer accounts is clear. F. N. Wolf, as is universally the case with
introducing brokers, "retain[ed] all functions that relate to direct per-
sonal customer contacts, such as soliciting customer accounts, . . .
making investment recommendations to customers, and accepting
their orders for the purchase or sale of securities." Henry F. Min-
nerop, The Role and Regulation of Clearing Brokers, 48 Bus. Law.
841, 843 (1993). Prudential performed "cashiering and processing
functions" for the accounts introduced by F. N. Wolf. Among other
things, Prudential kept books and records reflecting transactions in the
accounts, maintained funds and securities, and prepared (and mailed
to the customers) confirmations and monthly statements.
After the Arrantses and the Coltrains agreed to open accounts with
F. N. Wolf, each couple received a letter from that firm asking that
they sign and return certain documents "need[ed] to support" their
accounts with Wolf. One of the documents was a joint account agree-
ment (Prudential Agreement) bearing Prudential's name in large bold
print at the top.2 The name F. N. Wolf did not appear anywhere in the
agreements. There were some boxes filled in near the top of both doc-
uments. On both, "EWP" was written under "Branch" and "B5" was
written under the letters "FA." The "Account Number" was filled in
on both agreements, "015541" for the Arrantses and "024931" for the
Coltrains. It was later revealed that "EWP" was the F. N. Wolf branch
office, "B5" was the F. N. Wolf account executive (Buck) for each
account, and the numbers were the customers' account numbers at
F. N. Wolf. It is apparent from the record that the Arrantses and the
Coltrains did not know the meaning of these codes and numbers when
they signed the agreements.
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2 The agreement received by the Arrantses bore the name "Prudential-
Bache Securities," and the one received by the Coltrains said "Prudential
Securities."
4
When the Coltrains received the letter from F. N. Wolf enclosing
the agreement with Prudential's name at the top, Mr. Coltrain tele-
phoned Buck, his account executive. Buck "explained to [him] that
[Prudential] was a clearinghouse broker performing certain paper-
work functions for [F. N. Wolf] and that the ``Joint Account Agree-
ment' was something Prudential required be signed in order for
Prudential to perform such services." The Coltrains then signed the
Prudential Agreement and returned it to F. N. Wolf. The Arrantses
also signed and returned the agreement.
Sometime after executing the Prudential Agreements, the Arrantses
and Coltrains received from Prudential a Correspondent Allocation of
Responsibility Letter. The letter began with the greeting, "Dear Cli-
ent," and summarized its message in the first substantive paragraph
as follows: "[Prudential] is not your Broker.[Prudential] is your Bro-
ker's clearing firm. As such, [Prudential] handles the back office, or
clearing functions for your Broker and, for this purpose only, [Pru-
dential] has opened an account in your name."
The Prudential Agreements executed by the Arrantses and the
Coltrains contain the same key sentence in the arbitration provision:
The undersigned [customer] agrees, and by carrying an
account for the undersigned you agree,3 all controversies
which may arise between us concerning any transaction or
the construction, performance or breach of this or any other
agreement between us, whether entered into prior, on or
subsequent to the date hereof, shall be determined by arbi-
tration.
It is this clause that F. N. Wolf and its employees sought to invoke
in their motions to compel arbitration.
After considering the undisputed facts and the case law bearing on
the arbitration issue, the district court denied the motions to arbitrate,
concluding that "Wolf is not identified with reasonable certainty in
_________________________________________________________________
3 A Prudential vice president acknowledged in her affidavit that Pru-
dential, as clearing broker, "carr[ies] accounts . . . for the customers" of
the introducing broker.
5
the agreement the [customers] signed containing the arbitration provi-
sion." Coltrain v. F. N. Wolf & Co., 818 F. Supp. 163, 164 (E.D. Va.
1993); Arrants v. F. N. Wolf & Co., Civ. A. No. 2:93cv45 (E.D. Va.
Apr. 9, 1993).4 F. N. Wolf, Buck, and Hubbard appealed from this
determination in each case, and the cases were consolidated.
Shortly after we heard oral argument, F. N. Wolf filed a petition
under Chapter 11 of the Bankruptcy Code. We then stayed further
proceedings in this appeal pending action in the bankruptcy case. The
bankruptcy court ultimately entered a confirmation order that results
in the discharge of the claims asserted here against F. N. Wolf. As a
result, we have entered an order dismissing F. N. Wolf as a party to
this appeal. We are now free to decide the appeal insofar as it is
pressed by the two remaining parties, Buck and Hubbard, who were
denied arbitration.
II.
An arbitration clause in a "contract evidencing a transaction involv-
ing commerce . . . shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of
any contract." 9 U.S.C. § 2. This provision in the Federal Arbitration
Act "manifest[s] Congress's ``liberal federal policy favoring arbitra-
tion agreements.'" Glass v. Kidder Peabody & Co., 114 F.3d 446, 451
(4th Cir. 1997) (quoting Moses H. Cone Mem'l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24-27 (1983)). In keeping with this policy,
we have said that arbitration "``should not be denied unless it may be
said with positive assurance that the arbitration[agreement] is not
susceptible of an interpretation that covers the asserted dispute.'"
Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 867 F.2d 809,
812 (4th Cir. 1989) (quoting United Steelworkers of Am. v. Warrior
& Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)).
Even though arbitration has a favored place, there still must be an
underlying agreement between the parties to arbitrate. See Adamovic
v. Metme Corp., 961 F.2d 652, 654 (7th Cir. 1992) (stating that "the
federal policy favoring arbitration does not give[courts] license to
_________________________________________________________________
4 Because the orders denying arbitration are substantially identical, we
hereafter cite only the published Coltrain order.
6
compel arbitration absent an agreement to do so." (citing Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626
(1985))). Courts decide whether there is an agreement to arbitrate
according to common law principles of contract law. See Whiteside
v. Teltech Corp., 940 F.2d 99, 101 (4th Cir. 1991).
In the case before us, there is no question that the arbitration clause
would be valid and enforceable as between the customers and Pruden-
tial, the clearing broker. Indeed, Prudential's reason for requiring an
arbitration provision is obvious: clearing brokers are also vulnerable
to suit. Thus, Prudential followed the common industry practice of
requiring the customers to sign a client agreement directly with it. See
Henry F. Minnerop, The Role and Regulation of Clearing Brokers, 48
Bus. Law. 841, 864 (1993).
Of course, Prudential has not been sued here, so it does not seek
arbitration. Instead, it is the introducing broker, F. N. Wolf, and its
employees, Buck and Hubbard, who have argued that the customers
were bound to arbitrate with them under the Prudential Agreement.
As noted, F. N. Wolf is no longer a party, and only Buck and Hubbard
remain as defendants and appellants. Wolf's absence does not affect
our inquiry, however. The allegations against Buck and Hubbard
arose out of their actions concerning the customers' accounts at F. N.
Wolf. Thus, if F. N. Wolf had the right to compel arbitration under
the Prudential Agreement, Buck and Hubbard can enforce the same
right as employees and disclosed agents of F. N. Wolf. See Scher v.
Bear Stearns & Co., 723 F. Supp. 211, 216 (S.D.N.Y. 1989); Lenhart
v. Westfield Fin. Corp., 909 F. Supp. 744, 749 n.9 (D. Haw. 1995).
We will therefore analyze Buck and Hubbard's situation by determin-
ing whether F. N. Wolf would be entitled to enforce the arbitration
clause, with the understanding that our determination applies to Buck
and Hubbard.
III.
A.
For the most part federal courts have rejected attempts by introduc-
ing brokers to invoke arbitration clauses in agreements between their
customers and clearing brokers. See, e.g., McPheeters v. McGinn,
7
Smith & Co., 953 F.2d 771 (2d Cir. 1992); Mowbray v. Moseley,
Hallgarten, Estabrook & Weeden, Inc., 795 F.2d 1111 (1st Cir. 1986);
Taylor v. Investors Assocs., 29 F.3d 211 (5th Cir. 1994); O'Connor
v. R.F. Lafferty & Co., 965 F.2d 893 (10th Cir. 1992).
An introducing broker has been permitted to invoke the arbitration
provision in a customer-clearing broker agreement only in two situa-
tions that rarely occur: when the introducing broker is the agent of the
clearing broker or when the introducing broker is a third-party benefi-
ciary to the agreement. In this appeal F. N. Wolf has not advanced
either of these theories, but we discuss them briefly to illustrate how
difficult it is for introducing brokers to take advantage of arbitration
clauses in customer-clearing broker agreements.
Courts have concluded that the standard arrangement between an
introducing and clearing broker, such as the one between F. N. Wolf
and Prudential here, does not support a claim that the introducing bro-
ker is the agent of the clearing broker. See, e.g., Taylor, 29 F.3d at
214-15; Lenhart v. Westfield Fin. Corp., 909 F. Supp. 744, 749-50 (D.
Haw. 1995); Shaffer v. Stratton Oakmont, Inc. , 756 F. Supp. 365, 369
(N.D. Ill. 1991); Kyung Sup Ahn, M.C., P.C. v. Rooney, Pace Inc.,
624 F. Supp. 368, 370-71 (S.D.N.Y. 1985). Only in very limited cir-
cumstances have introducing brokers been recognized as agents of
clearing brokers. See, e.g., Nesslage v. York Sec., Inc., 823 F.2d 231,
233 (8th Cir. 1987) (holding that introducing broker, who was dis-
closed agent of clearing broker, could take advantage of arbitration
clause in client-clearing broker agreement); Okcuoglu v. Hess, Grant
& Co., 580 F. Supp. 749, 751-52 (E.D. Pa. 1984) (finding that intro-
ducing broker acted as agent for clearing broker in approving custom-
ers for options trading). Although it does not appear that F. N. Wolf
made an agency argument in district court, the court nevertheless con-
cluded that "Wolf is not Prudential Securities's agent." Coltrain, 818
F. Supp. at 163.
The second instance in which an introducing broker has been
allowed to take advantage of the arbitration clause in a customer-
clearing broker agreement is when the introducing broker is made the
third-party beneficiary of the agreement. However,"where an agree-
ment between a customer and a clearing broker does not express a
clear intent to benefit the introducing broker, the introducing firm will
8
not be held to be a third-party beneficiary." Monisoff v. American
Eagle Inv., Inc., 927 F. Supp. 137, 138 (S.D.N.Y.) (citations omitted),
aff'd 104 F.3d 356 (2d Cir. 1996). Courts usually find that the requi-
site intent to benefit is lacking and do not permit introducing brokers
to compel arbitration as third-party beneficiaries. See, e.g., Taylor, 29
F.3d at 215; Conway v. Icahn & Co., 16 F.3d 504, 509 (2d Cir. 1994);
O'Connor, 965 F.2d at 901-02; Monisoff, 927 F. Supp. at 138;
Lenhart, 909 F. Supp. at 750-51; Wilson v. D.H. Blair & Co., 731
F. Supp. 1359, 1362 (N.D. Ind. 1990). Courts have found that the
introducing broker has third-party beneficiary status only where a
specific provision in the customer-clearing broker agreement makes
the arbitration clause applicable to the introducing broker. See, e.g.,
Whisler v. H.J. Meyers & Co., 948 F. Supp. 798, 801 (N.D. Ill. 1996)
(contract with clearing broker explicitly included introducing broker
in arbitration clause); Ziegler v. Whale Sec. Co., 786 F. Supp. 739,
743 (N.D. Ind. 1992) (same). It also appears that F. N. Wolf did not
claim third-party beneficiary status in district court. In any event, the
district court found nothing in the circumstances or in the Prudential
Agreement to establish an intent to benefit Wolf. It therefore deter-
mined that "there is no evidence that Wolf was intended to be a bene-
ficiary of the agreement." Coltrain, 818 F. Supp. at 163.
B.
Perhaps recognizing the futility of asserting an agency or third-
party beneficiary theory to invoke the clearing broker's arbitration
clause, F. N. Wolf makes a different argument. 5 It claims to be an
actual party to the Prudential Agreement based on three allegations:
(1) F. N. Wolf is expressly referred to in the agreement, (2) the agree-
ment's language and the circumstances of its execution entitle F. N.
Wolf to compel arbitration, and (3) the course of dealing between the
customers and F. N. Wolf make Wolf a party to the agreement. We
will now evaluate each of Wolf's arguments.
_________________________________________________________________
5 Although for convenience we refer to the argument as Wolf's, it is
now Buck and Hubbard who press it.
9
1.
F. N. Wolf first argues that it is referred to expressly in the Pruden-
tial Agreement. In an effort to prove this, F. N. Wolf points to letters
and numbers written in boxes under the Prudential letterhead: "EWP"
and "B5," which turned out to be the codes for Wolf's Virginia Beach
branch office and the account executive, Buck; and"015541" and
"024931," which happened to be the customers' account numbers at
Wolf. The issue, of course, is whether these references are clear
enough to make F. N. Wolf a party to the agreement.
"While the parties [to an agreement] need not be named formally,
there can be no enforceable agreement unless [they] . . . can be identi-
fied with reasonable certainty." Conway v. Ichan & Co., 787 F. Supp.
340, 344 (S.D.N.Y. 1990) (internal quotations omitted), aff'd 16 F.3d
504 (2d Cir. 1994). The district court found that the Prudential Agree-
ment "lacked any meaningful identification of Wolf" because the cus-
tomers "had no reference from which to equate[the letter and number
codes] to Wolf." Coltrain, 818 F. Supp. at 163-64. The court thus
concluded "that Wolf [was] not identified with reasonable certainty in
the agreement." Id. This ruling is consistent with that of other courts
in similar circumstances. See, e.g., O'Connor v. R.F. Lafferty & Co.,
965 F.2d 893, 902 (10th Cir. 1992) (account agreement on clearing
broker's letterhead with name of introducing broker stamped at top
insufficient to bind customer to arbitration with introducing broker);
Wilson v. D.H. Blair & Co., 731 F. Supp. 1359, 1360 & n.1 (N.D. Ind.
1990) (refusing to allow introducing broker to arbitrate with customer
despite assumption that account number on customer-clearing broker
agreement reflected customer's account with introducing broker).
There is nothing to suggest that the customers in this case knew or
should have known that the codes and numbers identified F. N. Wolf
and made Wolf a party to the agreement. It thus cannot be said that
F. N. Wolf is expressly referred to in the Prudential Agreement.
2.
F. N. Wolf next argues that certain language in the Prudential
Agreement and the circumstances surrounding the establishment of
the customers' accounts with F. N. Wolf establish Wolf as a party to
the agreement.
10
First, F. N. Wolf notes that the Prudential Agreement refers to a
"joint trading account," and Wolf points out that the customers had
a trading account with it, not Prudential. Wolf also asserts that the
agreement refers to certain retail functions, such as placing orders,
and that these functions were performed for the customers by Wolf.
Thus, according to Wolf, the agreement was meant to cover it as well
as Prudential. The Prudential Agreement was certainly broad enough
to cover the activities of a broker equipped to take all steps necessary
to execute and clear a securities transaction. The agreement was spe-
cific enough, however, to cover the precise function Prudential per-
formed for these accounts. This is confirmed by the arbitration clause
itself: "The undersigned [customer] agrees, and by carrying an
account for the undersigned you agree, all controversies . . . shall be
determined by arbitration." (Emphasis added.) In the securities indus-
try, clearing brokers "carry" introduced accounts, and these brokers
are sometimes called "carrying brokers." See Minnerop, supra, at 841
n.1. Although the customers did not have trading accounts with Pru-
dential, Prudential was the carrying or clearing broker, and Prudential
opened accounts in their names to perform the clearing functions.
Moreover, right before the Coltrains signed the agreement, Buck told
Mr. Coltrain that Prudential "was a clearinghouse broker performing
certain paperwork functions for [F. N. Wolf] and that the ``Joint
Account Agreement' was something Prudential required be signed in
order for Prudential to perform such services."
Second, F. N. Wolf argues that language in its letter forwarding the
Prudential Agreement to the customers for signature, coupled with
language at the bottom of the agreement, suggests that F. N. Wolf was
a party to the agreement. According to the Wolf letter, the firm
needed the document signed "to support your account with F. N.
Wolf." The enclosed Prudential Agreement said at the bottom, "We
require two signed copies." In the circumstances, the statement in the
transmittal letter is consistent with F. N. Wolf's need to satisfy Pru-
dential's requirement for a signed customer agreement before it
would "carry" an account as clearing broker. The transmittal letter
does not indicate that Wolf was a party to the Prudential Agreement.
Finally, the "we" in "we require" at the bottom of Prudential's boiler-
plate agreement does not include or refer to Wolf. Read in context,
it is simply a corporate "we" that refers only to Prudential.
11
Third, F. N. Wolf argues that the word "you" in the body of the
Prudential Agreement refers to or includes Wolf. That is not apparent,
for example, from a reading of the agreement's arbitration clause,
which we repeat: "The undersigned [customer] agrees, and by carry-
ing an account for the undersigned you agree, all controversies which
may arise between us . . . shall be determined by arbitration."
(Emphasis added.) The "you" in this provision refers to the firm "car-
rying" the account, and that was Prudential. This reading is consistent
with that of the court in Conway v. Icahn & Co. , 787 F. Supp. 340(S.D.N.Y. 1990), aff'd 16 F.3d 504 (2d Cir. 1994), where the intro-
ducing broker also claimed that it was covered by the pronoun "you"
in a client-clearing broker agreement containing language similar to
that in the Prudential Agreement here. The court rejected the intro-
ducing broker's attempt to invoke the arbitration clause, concluding
that "it appears from a contextual reading of the Agreement that the
term ``you' refers to [the clearing broker]." Id. at 344; accord Finkel
v. D. H. Blair & Co., 581 N.Y.S.2d 126 (N.Y. Sup. Ct. 1992) (inter-
preting Bache client-clearing broker agreement). It is therefore clear
that neither the language of the Prudential Agreement nor any circum-
stances surrounding its execution indicate that F. N. Wolf was meant
to be a party.
3.
F. N. Wolf argues finally that the established course of dealing
between it and the customers illustrates that Wolf is a party to the
Prudential Agreement. This argument is based on the fact that the cus-
tomers bought and sold the securities in their accounts solely through
F. N. Wolf. Wolf says that the customers "communicated exclusively
with F. N. Wolf and had no direct dealings with Prudential Securi-
ties." Appellants' Brief at 28. F. N. Wolf therefore claims that it and
the customers actually operated under the Prudential Agreement and
that Wolf is therefore entitled to arbitration under it. We disagree.
The customers here received a lengthy letter, addressed "Dear Cli-
ent," from Prudential. In this letter, Prudential explained that it was
F. N. Wolf's clearing firm, handling back office or clearing functions,
and that it had opened an account for the customers for the purpose
of performing those functions. The letter also set forth a full list of
Prudential's responsibilities. Because of Prudential's role, the reason
12
for a separate agreement between Prudential and the customers would
have been obvious to the customers. As a result, we would be assum-
ing too much if we said that simply as a result of their dealings with
F. N. Wolf the customers had agreed to cover Wolf in the Prudential
Agreement.
One other circuit court has specifically rejected the course of deal-
ing argument when an introducing broker tried to invoke the arbitra-
tion clause in the clearing broker-customer agreement. In Mowbray v.
Moseley, Hallgarten, Eastabrook & Weeden, Inc., 795 F.2d 1111,
1117 (1st Cir. 1986), the court recognized that the agreement between
the investor and the clearing broker was signed in conjunction with
the opening of the investors' account with the introducing broker. The
introducing broker exercised full supervisory powers over the account
and "stood in a ``central position' between the[investors] and the
clearing house." Id. Nevertheless, the court rejected the argument that
the investors intended to include the introducing broker within the
coverage of their agreement with the clearing broker. "[I]t does not
follow from the introducing broker's de facto control over a client's
account that the client originally or subsequently intended that the
introducing broker be able to invoke [the clearing broker's] power to
compel arbitration." Id. (emphasis in original); see also Shaffer v.
Stratton Oakmont, Inc., 756 F. Supp. 365, 369 (N.D. Ill. 1991) (intro-
ducing broker's supervisory power over account and investor's lack
of communication with clearing broker do not establish that investor
empowered introducing broker to invoke arbitration clause in inves-
tor's agreement with clearing broker); Finkel v. D. H. Blair & Co.,
581 N.Y.S.2d 126, 128 (N.Y. Sup. Ct. 1992) (absence of actual intent
to include introducing broker in clearing broker's arbitration clause
precluded inference of constructive consent based on conduct). We
agree with this reasoning. The fact that the customers here dealt and
communicated only with F. N. Wolf does not mean that they intended
for Wolf to be a party to the Prudential Agreement.
***
If F. N. Wolf had wanted the customers to be bound to arbitrate
with it, it could have written its own agreement and gotten the cus-
tomers' signatures. F. N. Wolf was simply not a party to, and was not
13
covered by, the Prudential Agreement. As a result, there was no
agreement to arbitrate between the customers and F. N. Wolf.
IV.
The orders and judgments of the district court are affirmed insofar
as they deny the motions of F. N. Wolf's employees, Ellsworth A.
Buck, Jr. and George E. Hubbard, to compel arbitration. The cases are
remanded for further proceedings.
AFFIRMED AND REMANDED
14