Torts and Arbitration

CK - Washington.   An American arbitration clause provided by contract for retail securities transactions does not cover tort claims arising under the German statute for investor protection, the Düsseldorf appellate court decided on December 20, 2007 in the matter I-6 U 225/06. The decision does not name the American brokerage but states that it is a major internationally active entity operating in conjunction with brokers in Germany who produce customers. The dispute centers on options trades, kick-backs and churning in securities accounts in violation of German law. The court does not mention which state law applies to the contract. It analyzes the German federal conflicts of laws rules codified in the EGBGB code and then applies German law. The unenforceability of the arbitration clause derives from the fact that the German statute for the protection of investors requires commercial parties or an agreement reached after the tort occurred for…