Van Ness Townhouses, Edward A. Shay Ai O. Shay, Plaintiffs v. Mar Industries Corp. Shearson Lehman Brothers, Inc., Defendants

Van Ness Townhouses, Shay Trustees Edward A. Shay and Ai 0. Shay, and Donald A. Haun (“the appellants”) appeal the district court’s order compelling them to arbitrate their federal securities claims and their civil RICO and pendent state law claims. We reverse.

FACTS AND PROCEEDINGS

This action arises from real estate transactions in which the appellants agreed to sell condominium units or real property to Mar Industries Corp. (“Mar”). The appellants alleged that Shearson Lehman Bros., Inc. (“Shearson” — the appellants and Mar were Shearson customers) and Bruce M. Rose (“Rose” — a Shearson broker) had helped Mar to defraud the appellants. The appellants charged that Shearson and Rose agreed to transfer certain bonds as payment for the sales from Mar’s account at Shearson to the appellants’ accounts, but that only a few of the bonds were actually transferred.

Each of the appellants, on opening an account at Shearson, entered into a standard form Customer Agreement that provided:

(emphasis added). The record indicates that the last sentence of the form agreement was intended to comply with SEC Rule 15c2-2 which was in effect when the Agreement was signed and which provided:

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