Opinion
No. X 09 CV 02 4030472
May 28, 2008
The plaintiff, Lori Friday, is an investor who claims that, while she was a customer of the defendants, Patrick Witheril, a licensed securities broker, and his employer, Morgan Stanley Dean Witter (Morgan Stanley), they violated the Connecticut Uniform Securities Act (act), Conn. General Statutes § 36b-1 et seq., and, in so doing, caused her to lose funds she invested through the defendants and the income she would have earned if her funds had been suitably invested. In sum, Ms. Friday claims that the defendants failed to inform her about the risks associated with some of her investments and invested her funds in accounts which were unsuitable for her needs.
Ms. Friday filed her action on March 1, 2002. In just over a month the defendants filed motions to dismiss or to stay the action pending the outcome of an arbitration proceeding to which Ms. Friday had agreed as part of her client agreement (agreement) with Morgan Stanley.
For almost five years after the defendants filed their motions neither party took any action to advance the lawsuit toward resolution. This court is not privy to the reasons for this prolonged period of dormancy because it was not until after the plaintiff's motion to transfer the case to the complex litigation docket was granted in April 2007 that the case was assigned to its docket.
There is no question that Ms. Friday signed the agreement or that the dispute which forms the basis of this lawsuit is arbitrable within the terms of the agreement. See Exhibit A to defendants' motion to dismiss, 4; Memorandum of Law in Support of Plaintiff's Request for Discovery, 2 (Dec. 20, 2007) (plaintiff's memorandum). Nevertheless, in connection with the motions to dismiss or stay, she has requested permission to conduct extensive discovery relating to what she describes as the "factual or evidentiary question . . . whether or not . . . arbitration is materially ineffective in providing investors with the protections and remedies intended to be accorded to them by the provisions of the (act)." Plaintiff's memorandum, 4. It is her position that, if the system for arbitrating disputes between investors and their brokers which is administered by the Financial Industry Regulatory Authority is "materially ineffective" in protecting investors and providing them with remedies contemplated by the act, then the "anti-waiver provision of the act trumps the State and Federal laws that protect the enforcement of arbitration agreements." Id.
"Any condition, stipulation or provision binding any person acquiring any security or receiving investment advice to waive compliance with any provision of sections 36b-2 to 36b-33, inclusive, or any regulation or order thereunder is void." Conn. General Statutes § 36b-29(i).
"An agreement in any written contract . . . to settle by arbitration any controversy thereafter arising out of such contract . . . shall be valid, irrevocable and enforceable . . ." Conn. General Statutes § 52-408.
"A written provision in a . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable and enforceable . . ." 9 U.S.C. § 2.
After reviewing the plaintiff's request to conduct discovery and the defendants' opposition to it, the court noted sua sponte the issue whether the plaintiff's request to conduct discovery is ripe for adjudication and, therefore, whether the court has subject matter jurisdiction to entertain it. In Esposito v. Specyalski, 268 Conn. 336, 347 (2004), the Supreme Court noted that "ripeness is a sine qua non of justiciability," which must be resolved "as a threshold matter because it implicates [the] court's subject matter jurisdiction . . ." "(T)he rationale behind the ripeness requirement is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements . . ." (Internal quotation marks omitted.) Office of Governor v. Select Committee, 271 Conn. 540, 570 (2004). In resolving an issue of ripeness the court "must be confident that the court is not faced with a hypothetical injury or a claim dependent upon some event that has not and, in point of fact, may never occur." Esposito v. Specyalski, supra, 268 Conn. 350. The court requested supplemental briefing on this issue and heard oral argument on May 12, 2008.
As noted above, there is no dispute between the parties that, by the terms of the agreement, the plaintiff is required to arbitrate this dispute with the defendants. There are two possible outcomes of that arbitration: the plaintiff will prevail, or she will not prevail. If the plaintiff prevails, the issues into which she proposes to conduct discovery and to litigate in opposition to the defendants' motions to dismiss or to stay will be moot. Thus, the issues which are presented to the court by the plaintiff's request for discovery are hypothetical in nature, dependent on speculation that the plaintiff will not prevail in arbitration.
If she does not prevail, she will be entitled under Conn. General Statutes § 52-418 to apply to vacate the arbitrators' decision on the grounds, inter alia, that the award has been "procured by corruption, fraud or undue means," that there has been "evident partiality or corruption" on the part of the arbitrator(s) and/or that the arbitrator(s) have been guilty of actions by which her rights have been prejudiced. The issues of arbitrator bias and failure to know or follow the law into which the plaintiff seeks discovery at this stage would be properly raised at that stage.
In her supplemental memorandum of law addressing the question of the court's jurisdiction, the plaintiff places great reliance on MBNA America Bank, N.A. v. Boata, 283 Conn. 381 (2007). That case is inapposite because the jurisdictional question it addressed pertains to the jurisdiction of the arbitrator not the court. As far as the court's jurisdiction is concerned, the decision does nothing more than confirm the unsurprising notion that " . . . a challenge to the existence of an arbitration agreement is appropriate at any stage before the court renders judgment confirming the award if the issue was not waived during the arbitration proceedings." (Emphasis added.) Id., 396. As noted earlier, there is no question in this case of the existence of an arbitration agreement.
The court finds that the issue of the effectiveness of arbitration proceedings in investor/broker disputes is not ripe for adjudication. Therefore, it is without jurisdiction to conduct a generalized inquiry into the effectiveness of that process, or to permit the discovery requested by the plaintiff in aid of that inquiry, in advance of the arbitration called for by the agreement. Since there is no dispute as to the arbitrability of the plaintiff's dispute with the defendants, the motion to stay proceedings in this case is GRANTED until the arbitration mandated by that agreement is completed. See Conn. General Statutes § 52-409; 9 U.S.C. § 3. The parties are ORDERED to proceed to arbitration forthwith.