Defendant-appellant Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") appeals from a district court order which denied Merrill Lynch's motion to compel arbitration of a controversy with its customer, plaintiff-appellee Eunice Bitkowski, pursuant to an arbitration provision in a customer agreement signed by Bitkowski. For the reasons stated herein, we reverse the district court's order.
In October 1981 Bitkowski opened seven accounts with Merrill Lynch through its agent, Thomas Henson, on her own behalf and that of her minor children. At the meeting she executed customer agreements, each of which contained a paragraph captioned in bright blue ink, "Agreement to Arbitrate Controversies." The arbitration agreement provides in relevant part:
As the district court noted, it is undisputed that Bitkowski asked what the documents were that she was signing and Henson said that the documents were standard Merrill Lynch forms. The parties also agree that the contents were never discussed. Copies were later mailed to Bitkowski who filed them without reading them.
In March 1982 Bitkowski opened another account. At that time she signed another customer agreement which contained the same arbitration agreement. In April 1982 Bitkowski signed standard option agreements so that Merrill Lynch could engage in options transactions in her original account. That agreement also contained an arbitration clause similar to the one above. In August 1982 she signed identical standard option agreements for each of her guardian accounts. At none of these meetings did she and Henson discuss the contents of the agreements. After Henson was terminated by Merrill Lynch in October 1982 (for reasons unrelated to this litigation), Malcolm Ross serviced Bitkowski's accounts until his death in September 1985. During this period Bitkowski signed another customer agreement containing an arbitration provision. As in the previous signings, the contents of the agreement were never discussed.
In August 1985 Bitkowski filed an action against Merrill Lynch, Henson, and his supervisor under sections 10(b) and 20 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78(j)b, 78t, section 901(a) of the Organized Crime Control Act of 1970, 18 U.S.C. § 1962, and various state laws. She alleged that Henson churned her accounts and engaged in speculative options trading
The district court erred in its formulation of the standard for fraudulent inducement. It is well established under Michigan law, which controls this diversity jurisdiction case, that fraud can be established only by clear and convincing evidence that the defendant made a material representation that was false; that he knew was false or made recklessly without knowledge of its truth; that he made with the intent that it should be acted upon by the plaintiff; that the plaintiff acted in reliance thereon; and thereby suffered injury. Disner v. Westinghouse Electric Corp., 726 F.2d 1106, 1111-12 n. 11 (6th Cir.1984); Hi-Way Motor Co. v. Int'l Harvester Co., 398 Mich. 330, 336, 247 N.W.2d 813, 816 (1976). Clearly, Bitkowski did not proffer any evidence which tends to establish these elements, much less prove them by clear and convincing evidence. Indeed, the district court's own findings confirm that Merrill Lynch did not engage in fraudulent conduct. The district court specifically found that "Henson did not conceal the content of the agreements at any time," and that the parties did not discuss the contents of the agreements.
Moreover, Henson's reference to the customer agreements as "standard" is of no aid to Bitkowski. The customer agreements are standard forms used routinely by Merrill Lynch and are common in the industry. Although the district court stated that Henson's use of the term "standard" implied that the customer agreements were not extraordinary, the district court never found that use of the term was a material misrepresentation.
Even if the term "standard" could be construed as a material misrepresentation, that representation went to the making of the customer agreement generally, not the arbitration agreement specifically. Under Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), claims of fraudulent inducement relating to the contract as a whole are to be decided by the arbitrator, not the court. Id. at 403-04, 87 S.Ct. at 1805-06. Only if the allegation pertains to the arbitration clause, standing independently of the overall agreement, may the court address the issue. Id. Bitkowski never produced any evidence that the alleged fraud related to the making of the arbitration agreement itself. Her own testimony bears out that the alleged misrepresentation related to the signing of the customer agreements generally:
Accordingly, Prima Paint dictates that Bitkowski's claim be referred to arbitration. See also Bhatia v. Johnston, 818 F.2d 418, 420-22 (5th Cir.1987)
Although other points relating to this issue were raised by the parties, it is unnecessary to address them. Bitkowski's