Court Orders Arbitration in Hutton Suit

A former branch manager’s defamation suit against E. F. Hutton Group Inc. must be arbitrated under New York Stock Exchange rules before it is tried in court, a federal appeals court ruled Friday.

The U.S. Circuit Court of Appeals here made the ruling in the suit filed by former branch manager John M. Pearce over a Hutton report that named him as a participant in an illegal check kiting scheme to which the brokerage firm pleaded guilty in 1985.

The ruling does not affect a libel claim the suit also made against former Atty. Gen. Griffin B. Bell, who was hired by Hutton to conduct an internal investigation of the company’s cash management practices.

Pearce’s libel action against Bell is scheduled to go to trial Jan. 19 before U.S. District Judge Thomas Flannery.

Bell’s investigation was launched after Hutton pleaded guilty in 1985 to 2,000 counts of mail and wire fraud in connection with an elaborate check kiting scheme.

Hutton was accused of cheating banks by writing checks for funds not covered by the accounts.

No individual Hutton executives or employees were held criminally liable as a result of the Justice Department’s investigation. But the firm agreed to pay a $2-million fine and make restitution to the banks.

Bell’s report, published several months later, largely exonerated top Hutton executives and faulted regional and branch executives.

Hutton’s top management was blamed only for failure in their “duty to properly manage and detect the improprieties.”

Pearce, who managed Hutton branches in Bethesda, Md., and St. Louis, charged in his suits that Hutton and Bell conspired to make him a scapegoat as a way of exonerating top executives.