Jack B. Cohen, Betty L. Cohen v. Wedbush, Noble, Cooke, Inc.

We consider the enforceability of an agreement to arbitrate claims arising out of a stock margin purchase agreement.

Background

On October 13, 1986, plaintiffs Jack B. and Betty L. Cohen entered into a Customer’s Margin Account Agreement with defendant Wedbush, Noble, Cook, Inc., a stock brokerage firm. The margin agreement provided that Wedbush would loan money to the Cohens to finance the purchase of securities, and required the Co-hens to maintain certain securities as collateral for the repayment of those loans. The agreement further provided that “all controversies which may arise ... concerning any transaction or the construction, performance or breach of this ... agreement ... shall be determined by arbitration. ...”

On February 20, 1987, Wedbush sold securities worth some $3 million held as collateral in the Cohens’ account. The Co-hens, alleging that this sale violated their agreement with Wedbush, brought suit in federal district court for breach of fiduciary duty, breach of contract and breach of the covenant of good faith and fair dealing. They sought relief in the form of compensatory and punitive damages, imposition of a constructive trust and award of attorney’s…