McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

Opinion

HASTINGS, J.

The principal issue

on

this appeal is whether the trial court correctly determined that defendant and appellant, Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) had waived its right to arbitration.

The original complaint was filed by John and Marguerite McConnell (McConnells). The complaint was a class action suit brought on behalf of margin account customers of Merrill Lynch “who were similarly situated” with the McConnells and had ‘“margin accounts’ with defendant presently and during the months of July, August and September, 1973.” They alleged that Merrill Lynch had charged usurious interest in an amount in excess of $100 million to all of its customers. The McCon

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nells had signed an agreement with Merrill Lynch on November 21, 1966, under which Merrill Lynch would act as their broker. The agreement did not contain an arbitration clause. Merrill Lynch customers executing agreements after April 1967 signed a different agreement which did contain an arbitration clause. The class designated in the complaint includes customers signing both types of the agreement.

Merrill Lynch filed an answer to the complaint (without claiming or reserving a right to arbitration) and concurrently therewith had the action removed to the federal district court where it sought to litigate the matter. The action, however, was remanded to the state court upon a finding that the amount in controversy did riot exceed $10,000. The federal court refused to aggregate the claims of the purported class members and considered only the claim of the McConnells.

After remand the McConnells served a first and second set of interrogatories on Merrill Lynch. By interrogatory No. 64 the McConnells inquired as to whether the form of customer agreement (which contained the arbitration clause) was the only agreement which governed the parties on the matters at issue. Merrill Lynch’s answer affirmed it was the only agreement involved.

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The McConnells then filed a motion for class certification and the superior court conducted five separate and lengthy hearings related thereto. During the course of these hearings, with court approval, the McConnells filed a first and second amended complaint. Merrill Lynch filed three separate oppositions to the class certification. The right to arbitration with class members signing the agreement after April 1967 was never mentioned.