Completing “bucking” its trend of supporting arbitration over litigation, the U.S. Supreme Court rejected a UBS PaineWebber appeal of a decision that the firm claims allows clients to circumvent arbitration agreements they had previously signed.
The ruling has “serious ramifications” for brokers and firms, according to attorney Mark Astarita of the New York-based firm Beam & Astarita.
The high court decision impacts brokers and firms based in Ohio, but according to Astarita, “If a judge in New York or Michigan or any other state has to rule on this issue, he could base his decision on this current case.”
PaineWebber asked the court to overturn a ruling that allowed the broker of a former client to go to court with allegations that the broker allegedly stole $1 million from the customer's account. The Ohio state court said the arbitration agreements signed by the customer and broker didn't cover cases of brokerage theft, according to Astarita.
When the Supreme Court rejected PaineWebber’s appeal, it relinquished the opportunity “to reaffirm its support for arbitration,” a less expensive alternative to traditional litigation, Astarita says. The issue is important to brokerages houses, which almost universally require clients to sign arbitration agreements.
The Supreme Court has previously said that arbitration agreements, including those reached before any dispute arose, must be treated like any other contract. However, the Hamilton County (Ohio) Court of Appeals said it was “applying traditional state contract law to conclude that PaineWebber’s arbitration agreements didn't cover the possibility of broker theft,” Astarita says.
The courts decision ``is bucking every trend,'' says Astarita, who has a Web page on securities arbitration. ``The trend in the courts is toward arbitration.''