Egon L. Badart and Patra L. Badart v. Merrill Lynch, Pierce, Fenner & Smith, Inc. Steven Kerstein and Jack Queen

This is another in a series of recent cases exploring the arbitrability of federal securities claims following the Supreme Court’s decision last year in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 , 105 S.Ct. 1238 , 84 L.Ed.2d 158 (1985).

In November 1981, the Badarts opened a securities account with Merrill Lynch at its Pasadena, California, office. At that time, the Badarts signed Merrill Lynch’s standard Customer Agreement, which provided for the arbitration of any disputes arising out of the parties’ relationship. They later signed an Options Trading Agreement that included a similar term.

The Badarts brought this action in August 1984 against Merrill Lynch and two of its employees. They alleged violations of various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 as well as state statutes and common law principles. The Badarts claim that, despite their inexperience as investors, Merrill Lynch employees induced them to engage in highly speculative, and ultimately unsuccessful, investments in stocks and stock options. They allege that their account was churned and that their broker, defendant Steven Kerstein, made fraudulent…