Opinion
05 Civ. 4852 (DAB).
August 24, 2006
MEMORANDUM ORDER
Plaintiff Delbert L. Dunmire ("Plaintiff" or "Dunmire") has brought suit against Defendant Matthew Stephen Hoffman ("Defendant" or "Hoffman"). During the times relevant to the Complaint, Hoffman was an employee at Morgan Stanley DW, Inc. ("Morgan Stanley"), Plaintiff's brokerage firm. (Def.'s Mem. of Law at 1; Pl.'s Opp. Mem. of Law at 2.) Now before this Court is Defendant's Motion to Compel Arbitration and Stay These Proceedings. Plaintiff opposes this Motion. For the reasons contained herein, Defendant's Motion is GRANTED.
BACKGROUND
On November 16, 1989, Plaintiff signed a Customer's Agreement with Dean Witter Reynolds, Inc., Morgan Stanley's predecessor firm ("1989 Agreement"). (Weissman Aff. Ex. 2.) That Agreement pertains to Plaintiff's brokerage account with Dean Witter. (Id.) Plaintiff agreed to arbitrate all controversies arising under the Agreement:
I [Plaintiff] agree and, by carrying my accounts, you [Dean Witter Reynolds, Inc.] agree that all controversies between me or my agents and you or your agents, representatives or employees, arising out of or concerning any such accounts, any transactions between us or for such accounts, or the construction, performance or breach of this or any other agreement between us, whether entered into prior to, on or subsequent to the date below, shall be determined by arbitration in accordance with the rules of the National Association of Securities Dealers, Inc., the New York Stock Exchange, Inc., the Municipal Securities Rulemaking Board; the National Futures Association (in case of controversies concerning futures or commodities); or any other arbitration facility operated by any other exchange of which you are a member and on which a transaction giving rise to a claim took place, as I may elect. If I do not make such an election by registered mail addressed to you at your office within five days after receipt of notification from you requesting such election, then I authorize you to make such election for me. Any arbitration proceeding between us shall be held at the location at which the selected forum regularly conduts such proceedings nearest to your office carrying my accounts. The award of the arbitrator or a majority of the arbitrators shall be final. Judgment on the award rendered may be entered in any state or federal court having jurisdiction.
(Weismann Aff. Ex. 2 at ¶ 14.) The 1989 Agreement is "binding upon [the] present organization, and any successor organization", including Defendant's employer, Morgan Stanley. A later agreement between Plaintiff and Defendant — the "August 1999 Client Account Agreement" — also provides that "all controversies between you or your principals or agents and Morgan Stanley Dean Witter or its agents (and affiliated corporations) . . . shall be determined by arbitration. . . ." (Weissman Aff. Ex. 4 at 13.)
On December 4, 2000, Plaintiff entered into a subsequent agreement with Dean Witter Reynolds, Inc. ("2000 Agreement"). That agreement, like the 1989 and 1999 Agreements, pertains to the transactions addressed in Plaintiff's Complaint. Plaintiff agreed to arbitrate all proceedings arising under the 2000 Agreement:
Every dispute between Customer [Plaintiff] and DWR [Dean Witter Reynolds, Inc.] arising out of or relating to the making or performance of this Agreement or any transaction pursuant to this Agreement, shall be settled by arbitration in accordance with the rules, then in effect, of the National Futures Association, the contract market upon which the transaction giving rise to the claim was executed, or the National Association of Securities Dealers as Customer may elect. If Customer does not make such election by registered mail addressed to DWR . . . within 45 days after demand by DWR that the Customer make such election, then DWR may make such election. . . .
. . . .
BY SIGNING THIS AGREEMENT, YOU (1) MAY BE WAIVING YOUR RIGHT TO SUE IN A COURT OF LAW AND (2) ARE AGREEING TO BE BOUND BY ARBITRATION OF ANY CLAIMS OR COUNTERCLAIMS WHICH YOU OR DWR MAY SUBMIT TO ARBITRATION UNDER THIS AGREEMENT. . . . YOU NEED NOT AGREE TO THIS ARBITRATION AGREEMENT TO OPEN AN ACCOUNT WITH DWR. . . . ACCEPTANCE OF THIS ARBITRATION AGREEMENT REQUIRES A SEPARATE SIGNATURE. . . .
(Spievack Aff. Ex. 1 at ¶ 24 (capitalization in original).) Plaintiff executed a separate signature indicating his assent to this Arbitration Clause. (Id. at 8.) The 2000 Agreement also contained a standard Integration Clause: "This Agreement constitutes the entire agreement between Customer and [Dean Witter Reynolds] with respect to the subject matter hereof and supersedes any prior agreements between the parties with respect to such subject matter." (Id. at ¶ 22.)
The parties agree that the 1989, 1999, and 2000 Agreements cover the subject matter of the instant lawsuit. (See Pl.'s Mem. of Law at 3 ("Dunmire does not dispute the applicability of [the] arbitration clause to his claims against Morgan Stanley.").) Specifically, this suit pertains to Plaintiff's brokerage account. Defendant Hoffman managed his account in his capacity as a Morgan Stanley employee. (Def.'s Mem. of Law at 1; Pl.'s Opp. Mem. of Law at 2.) Plaintiff alleges that Defendant either fraudulently or negligently misrepresented the amount of money Plaintiff needed to deposit into his margin trading account in order to retain trading eligibility. (Compl. ¶¶ 9, 18-38.) These alleged causes of action arose in 2004. (Compl. ¶¶ 9-17.) According to Plaintiff, the damages approach two-and-one-half million dollars. (Compl. ¶ 1.)
To date, Plaintiff has brought one parallel arbitration proceeding against Morgan Stanley before the Commodity Futures Trading Commission ("CFTA") (Weissman Dec., Ex. 5), and another before the National Futures Association ("NFA") (Id., Ex. 7). Both proceedings are based on the same operative facts as this case. (Id. ¶¶ 5-11.) Plaintiff's CFTA Reparations Complaint has been dismissed for failure to state a cognizable reparations claim. The parties have not indicated whether the NFA proceeding has been resolved.
Plaintiff additionally has brought a lawsuit in the United States District Court for the Northern District of Illinois against Lawrence Schneider, also based on the same operative facts. Schneider was an employee of Morgan Stanley who allegedly represented to Plaintiff Dunmire that Hoffman was capable of managing Dunmire's account, even though Schneider allegedly knew Hoffman was improperly trained and supervised. Dunmire v. Schneider, 05 Civ. 3450 (JAN) (N.D. Ill., Dec. 15, 2005). The Illinois court decided that Schneider was protected by the arbitration clause in the 2000 Agreement. Id.
DISCUSSION
Defendant now moves this Court to compel arbitration and stay the instant proceeding, arguing that the parties are bound by the arbitration clauses of the 1989 and 2000 Agreements. Plaintiff argues that he is not bound to arbitrate his claims against Defendant Hoffman because the 2000 arbitration clause does not apply to agents and employees of Dean Witter, Inc. or of its successor, Morgan Stanley.The Federal Arbitration Act provides for when a court shall compel arbitration and stay all proceedings before it:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
Federal Arbitration Act, 9 U.S.C. § 3.
Non-signatories may fall within the scope of an arbitration agreement if including them would comport with the parties' intent. McPheeters v. McGinn, Smith and Company, Inc., 953 F.2d 771, 772 (2d Cir. 1992). Generally, employees or disclosed agents of an entity that is a party to an arbitration agreement are protected by that agreement. See, e.g., Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1360 (2d Cir. 1993) (finding that plaintiff's complaints against individual agents who, while acting on behalf of a principal, allegedly violated securities law are subject to the same arbitration agreement made between plaintiffs and the principal). "Acts by employees of one of the parties to a customer agreement are equally arbitrable as acts of the principals as long as the challenged acts fall within the scope of the customer agreement." Scher v. Bear Stearns, 723 F. Supp. 211, 216-17 (S.D.N.Y. 1989) (brokerage house employee benefitted from an arbitration agreement made between the brokerage house and the customer, even though the agreement did not expressly include the employees), citing Brener v. Becker Paribas, Inc., 628 F. Supp. 442, 451 (S.D.N.Y. 1985); Nesslage v. York Securities, Inc., 823 F.2d 231, 233 (8th Cir. 1987);Letizia v. Prudential Bache Securities, Inc., 802 F.2d 1185, 1188 (9th Cir. 1986); Brick v. J.C. Bradford Co., Inc., 677 F. Supp. 1251 (D.D.C. 1987); Jarvis v. Dean Witter Reynolds, Inc. 614 F. Supp. 1146, 1150 (D. Vt. 1985); Ross v. Mathis, 624 F. Supp. 110, 114-15 (N.D. Ga. 1985). "If it were otherwise, it would be too easy to circumvent [an arbitration] agreement by naming individuals as defendants instead of the [principals] themselves." Roby, 996 F.2d at 1360.
Plaintiff contends that the 2000 Agreement was not intended to apply to employees of Morgan Stanley. He points out that the arbitration clause in the 1989 Agreement expressly protected "agents, representatives, or employees" of Morgan Stanley, but the 2000 Agreement does not. (Pl.'s Opp. Mem. of Law at 5.) Plaintiff notes that other provisions in the 2000 Agreement do expressly apply to "officers, directors, employees, or agents". For example, the first paragraph states that "[Morgan Stanley] shall not be liable to Customer as a result of any action by [Morgan Stanley], its officers, directors, employees or agents to comply with any rule or regulation." (2000 Agreement, Spievack Aff. Ex. 1 ¶ 1.)
But case law overwhelmingly holds that an employee is protected by an arbitration agreement signed by his or her employer. See supra. Defendant shall not be deprived of an arbitration simply because the 2000 Agreement did not explicitly include the precise words "agents, representatives, or employees". Courts in this Circuit have not required employers to expressly enumerate employees in arbitration provisions. See, e.g., Scher v. Bear Stearns, 723 F. Supp. 211, 216 (in stating that "[t]he issue of the relationship of an employee of a brokerage house to [an agreement] between the brokerage house and an investor is . . . consistent and clear", the court found that the employee was protected by the arbitration provision in that agreement). Had the drafters intended to exclude Morgan Stanley employees from the protection of the arbitration provision, the law requires them to have done so expressly.
Plaintiff also has directed the Court to the following provision in the 2000 Agreement: "SUCCESSORS AND ASSIGNS — This Agreement shall inure to the benefit of [Dean Witter and] its successor and assigns. . . ." (2000 Agreement at ¶ 17.) According to Plaintiff, the omission of "agents" or "employees" from this provision means that only successors and assigns are to benefit from the 2000 Agreement. (Pl.'s Opp. Mem. of Law at 5.) But the caption — "Successors and Assigns" — signifies that the provision was not meant to be an exhaustive list of beneficiaries to the Agreement. It was meant only to delineate the Agreement's applicability to the parties' successors and assigns.
Plaintiff cites McPheeters v. McGinn, Smith Co., Inc., 953 F.2d 771 (2d Cir. 1992) as a counterexample. In McPheeters, a securities brokerage firm utilized the services of a third party, SSC, to purchase securities for the firm's clients. 953 F.2d at 772. SSC thereafter entered into an agreement with one of the firm's clients. Id. That agreement included an arbitration provision. Id. The Second Circuit held that the securities brokerage firm was not protected by SSC's signature to the arbitration provision.
The facts of McPheeters differ from this case. InMcPheeters, a principal sought to enforce an arbitration agreement signed by its agent. This case is the reverse, that is, an agent is seeking enforcement of an arbitration agreement signed by his principal. It is also worth noting thatMcPheeters did not involve an employer-employee relationship, while the case before this Court does. See Dunmire v. Schneider, 05 Civ. 3450 (JAN) (N.D. Ill., Dec. 15, 2005) (finding under the same 2000 Agreement that the case before it was not "a case involving an agent, such as a related corporation, which has a more tangential connection than an employee of the company who was indisputably acting within the scope of his employment"). McPheeters is inapposite to Plaintiff's case.
Plaintiff further argues that Sarantakis v. Gruttadauria, 2003 WL 1338087, *3-5 (N.D. Ill. Mar. 14, 2003) is analogous to his case. Sarantakis held that an arbitration provision limited to disputes over an "account agreement" should not apply to disputes over other issues. In making its decision, theSarantakis court noted that a prior arbitration agreement between the parties had required arbitration of all of their disputes. 2003 WL 1338087, at *5. Plaintiff contends that the changed wording from the 1989 Agreement to the 2000 Agreement evinces a similar intent to limit the scope of the 2000 arbitration provision.
Plaintiff's argument is unavailing for two reasons. First,Sarantakis is not binding on this Court. Second, Sarantakis addressed the scope of arbitrable subject matter, not the scope of the parties involved. In light of the case law in this Circuit which generally protects employees under arbitration provisions signed by their employers, Sarantakis does not inure to Plaintiff's benefit.
Lastly, including Defendant Hoffman within the scope of the 2000 Agreement's arbitration provision comports with the overarching federal policy favoring the efficiency and cost-effectiveness of arbitration over the intensity and expense of litigation. Brener v. Becker-Paribas, 628 F. Supp. 442, 445-46 (S.D.N.Y. 1985) ("The [Federal Arbitration] Act was designed to avoid the expense and delays involved in litigation, and to give arbitration agreements the same validity as other contracts."). See also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) ("as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability.").
CONCLUSION
Accordingly, Defendant's Motion to Compel Arbitration and Stay These Proceedings is GRANTED.
SO ORDERED.