Opinion
03-CV-6141 CJS.
June 21, 2003
K. Wade Eaton, Esq., Chamberlain D'Amanda, Oppenheimer Greenfield, Rochester, New York, for the Plantiffs.
Edward R. Conan, Esq., Brian J. Butler, Esq., Bond, Schoeneck King, PLLC, Syracuse, New York, for Defendants William L. Tatro, IV, and Eagle Steward Ltd.
Sharon H. Stern, Esq., Jenkens Gilchrist Parker Chapin LLP, New York, New York, for defendant Nathan Lewis Securities, Inc.
DECISION AND ORDER
INTRODUCTION
This is an action in which the plaintiffs are asserting proposed federal and state law class action claims as well as individual state law claims. The proposed federal class action claims allege securities fraud in violation of section 10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. §§ 78j(b), Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t(a). Now before the Court are defendants' motions [#20][#22] seeking to dismiss the First Amended Class Action Complaint, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, as well as the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(b), and alternatively seeking to stay or dismiss the action pending arbitration of plaintiffs' claims. For the reasons that follow, plaintiffs' proposed class claims are dismissed, and this action is stayed pending arbitration of plaintiffs' remaining claims.
As for the New York state law claims, the complaint asserts proposed class action claims for deceptive trade practices in violation of New York General Business Law § 349, breach of contract, common law fraud, constructive fraud, and breach of fiduciary duty, as well as individual claims for negligence and breach of contract.
BACKGROUND
Unless otherwise noted, the following facts are taken from plaintiffs' First Amended Class Action Complaint ("Complaint"), including documents incorporated by reference or upon which plaintiffs relied in drafting the complaint. Defendant William L. Tatro, IV ("Tatro") is President and sole shareholder of defendant Eagle Steward Ltd. ("Eagle Steward"), in which capacity he advises investors and manages investment accounts entrusted to him. Defendant Nathan Lewis Securities, Inc. ("Nathan Lewis") is a broker/dealer of securities and is registered as such with the National Association of Securities Dealer ("NASD"). At all relevant times, Tatro was registered with the NASD as a representative and principal of Nathan Lewis, and he bought and sold securities through Nathan Lewis. Tatro received commissions from Nathan Lewis, based upon the dollar value of trades executed on behalf of his clients. By law, Nathan Lewis was required to supervise Tatro. Nathan Lewis maintained records of all securities transactions involving Tatro's clients, and sent monthly statements and transaction confirmation documents to Tatro's clients.
Generally, on a motion to dismiss pursuant to Rule 12(b)(6), the Court must consider only the complaint, which is deemed to include "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (citations and internal quotations omitted). Moreover, "[e]ven where a document is not incorporated by reference, the court may nevertheless consider it where the complaint relies heavily upon its terms and effect, which renders the document integral to the complaint." Id. at 153. "If a district court wishes to consider additional material, Rule 12(b) requires it to treat the motion as one for summary judgment under Rule 56, giving the party opposing the motion notice and an opportunity to conduct necessary discovery and to submit pertinent material." Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d C ir. 1991); see also, FED. R. CIV. P. 12(b). Here, in opposition to defendants' motions, plaintiff has submitted an affidavit from plaintiff Deborah L. Souter, however, pursuant to the foregoing principles of law, the Court will not consider the affidavit.
Prior to the events complained of in this action, and prior to Tatro forming Eagle Steward, he worked as a Senior Vice President at Prudential Securities ("Prudential"). In that capacity, Tatro, and others, marketed investments in certain limited partnerships to Prudential's clients. Apparently, a number of Prudential's clients subsequently complained that Prudential and its agents, including Tatro, had made misrepresentations regarding the suitability of these investments. From records attached to the complaint, it appears that, because of some administrative action taken against Prudential involving the sale of these limited partnerships, Prudential mailed claim forms to 340,000 investors who purchased limited partnerships through Prudential between January 1, 1980 and January 1, 1991. Prudential subsequently paid over $1 billion to those investors, including $2 million to Tatro's clients.
NASD records attached to the complaint indicate that the administrative action resulted in a settlement between Prudential, the Securities Exchange Commission ("SEC"), the NASD, and "state securities administrators."
Plaintiffs allege that, despite his alleged misconduct at Prudential, during the proposed class period Tatro maintained in an advertisement on the internet that he had "had a highly successful career at Prudential Securities." However, during oral argument of the subject motions, plaintiffs' counsel expressly affirmed that plaintiffs are not relying upon any alleged affirmative misrepresentations by Tatro as part of their securities fraud claims.
Plaintiffs in this action are all former clients of Tatro and Eagle Steward, who lost money after opening investment accounts with Tatro between 1992 and 2000. Plaintiffs contend that Tatro never informed them about his activities at Prudential or the settlement with his former clients. Plaintiffs further allege that when they opened their accounts with Tatro, he had them sign form investment account agreements in blank, and that at a later time he filled in the missing information, such as the amount of money being deposited and the type of investments to be made. Notably, Tatro indicated on each of the agreements that he did not have discretion or authority to buy or sell securities without the plaintiffs' authorization. Plaintiffs allege that despite this, Tatro regularly bought and sold securities for their accounts without their prior knowledge or approval. Plaintiffs maintain that they lost large sums of money because Tatro bought unsuitable securities. Although it is undisputed that plaintiffs received accurate monthly statements reflecting Tatro's purchases and sales of securities for their accounts, they maintain that they never realized that Tatro lacked authority to carry out those trades, or that they could have required him to undo the trades, because he never advised them of those facts. Rather, plaintiffs allege that they only became aware of those facts after they consulted with their attorneys in connection with the initiation of this lawsuit.
Plaintiffs contend that Tatro falsely indicated in the investment account agreements that he would not have such authority, "in order to avoid being charged with the additional fiduciary responsibilities that arise in conjunction with discretionary accounts." Complaint ¶ 30.
The form investment account agreements that each of the plaintiffs signed upon retaining Tatro contained arbitration clauses, which state:
IT IS AGREED THAT ANY CONTROVERSY BETWEEN THE PARTIES ARISING OUT OF YOUR BUSINESS OR THIS AGREEMENT, EXCEPT FOR THOSE DISPUTES BETWEEN THE PARTIES ARISING UNDER THE FEDERAL SECURITIES LAWS WHICH ARE OR ARE HELD TO BE NONARBITRABLE AS A MATTER OF LAW, SHALL BE SUBMITTED TO ARBITRATION CONDUCTED UNDER THE PROVISIONS OF THE CONSTITUTION AND RULE OF THE BOARD OF GOVERNORS OF THE NEW YORK STOCK EXCHANGE, INC. OR ANY OTHER NATIONAL SECURITIES EXCHANGE ON WHICH A TRANSACTION GIVING RISE TO A CLAIM TOOK PLACE OR PURSUANT TO THE CODE OF ARBITRATION PROCEDURES OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., AS THE UNDERSIGNED MAY ELECT.
* * *
DISCLOSURES (I) ARBITRATION IS FINAL AND BINDING ON THE PARTIES. (II) THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO A JURY TRIAL. (III) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT FROM COURT PROCEEDINGS. (IV) THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF RULINGS BY THE ARBITRATOR IS STRICTLY LIMITED. (V) THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
Tatro Declaration, Ex. A-H (Emphasis in original). Also, immediately above the signature of each plaintiff, each agreement reads as follows: " I UNDERSTAND THAT THIS AGREEMENT CONTAINS THE ABOVE PREDISPUTE ARBITRATION CLAUSE." Id.
Plaintiff Deborah L. Souter, purporting to act on behalf of herself and all other persons similarly situated, commenced this action on March 28, 2003. On July 29, 2003, Souter filed an amended complaint, which added Rosemary Spratt, Ronald Conley, and Nancy H. Burton as named plaintiffs. Plaintiffs contend that, as discussed above, Tatro engaged in a similar course of conduct as to each of them, and committed securities fraud in three ways: 1) by failing to disclose his alleged misconduct while employed by Prudential; 2) by failing to advise them that he needed their permission before making any trades; and 3) by failing to advise them that they had the right to have him undo any trade. Defendants now move to dismiss the amended complaint on the following grounds: 1) the claims for securities fraud are time-barred; 2) the complaint fails to state a claim for securities fraud; 3) the complaint fails to plead securities fraud with particularity; 4) the action is not appropriate for class certification; and 5) plaintiffs' claims must be arbitrated. Alternatively, defendants ask the Court to either dismiss or stay any remaining claims pending arbitration. As for defendant's contention that the claims must be arbitrated, plaintiffs maintain that the arbitration clauses are inapplicable here, pursuant to Rule 10301(D) of the NASD Code of Arbitration, which states, in relevant part, that a "claim submitted as a class action shall not be eligible for arbitration under this Code." (emphasis added). Nonetheless, plaintiffs' counsel admitted, during oral argument of the subject motions, that were the Court to find that plaintiffs' claims were not appropriate for class action treatment, the entire case would necessarily have to proceed to arbitration. As discussed below, the Court makes that finding, and accordingly this action will be stayed pending arbitration, pursuant to 9 U.S.C. § 3, and the Court will not reach the merits of defendants' motions to dismiss.
STANDARDS OF LAW
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a court may dismiss a complaint for "failure to state a claim upon which relief can be granted." It is well settled that in determining a motion under Fed.R.Civ.P. 12(b)(6), a district court must accept the allegations contained in the complaint as true and draw all reasonable inferences in favor of the nonmoving party. Burnette v. Carothers, 192 F.3d 52, 56 (1999). While the Court must accept as true a plaintiff's factual allegations, "[c]onclusory allegations of the legal status of the defendants' acts need not be accepted as true for the purposes of ruling on a motion to dismiss." Hirsch v. Arthur Andersen Co., 72 F.3d 1085, 1092 (2d Cir. 1995) ( citing In re American Express Co. Shareholder Litig., 39 F.3d 395, 400-01 n. 3 (2d Cir. 1994)). The Court "may dismiss the complaint only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. (internal quotations omitted) ( citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Moreover, "a Rule 12(b)(6) motion to dismiss need not be granted nor denied in toto but may be granted as to part of a complaint and denied as to the remainder." Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 115 (2d Cir. 1982) (citations omitted).Plaintiffs allege that Tatro and Eagle Steward are liable for securities fraud pursuant to § 10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. §§ 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and that Nathan Lewis is secondarily liable for the actions of Tatro and Eagle Steward pursuant to and section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t(a). Section 10(b) of the Securities Exchange Act provides, in relevant part, that
[i]t shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange — . . . [t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.15 U.S.C. § 78j(b). Rule 10b-5 states that,
[i]t shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.17 C.F.R. § 240.10b-5.
It is well settled that
[t]o establish liability under § 10(b) and Rule 10b-5, a plaintiff must prove that: (1) in connection with the purchase or sale of a security; (2) the defendant, acting with scienter; (3) made a material misrepresentation or (where there exists a duty to speak) a material omission, or used a fraudulent device. In the case of an omission, the duty to disclose generally arises when one party has information that the other party is entitled to know because of a fiduciary or other similar relation of trust and confidence between them.Grandon v. Merrill Lynch Co., Inc., 147 F.3d 184, 189 (2d Cir. 1998) (citations and internal quotation marks omitted).
Section 20(a) of the Exchange Act imposes secondary liability on persons who "control" persons who commit securities fraud in violation of section 10(b) and Rule 10b-5. Suez Equity Investors v. Toronto-Dominion Bank, 250 F.3d 87, 101 (2d Cir. 2001) ("`Controlling-person liability' under § 20 of the Securities Exchange Act is a separate inquiry from that of primary liability and provides an alternative basis of culpability.") (citation omitted). Specifically, § 20(a) provides that:
[e]very person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.15 U.S.C. § 78t(a). It is well settled that,
[t]o make out a prima facie case under § 20(a) of the Exchange Act, a plaintiff must show a primary violation by the controlled person and control of the primary violator by the targeted defendant, and show that the controlling person was in some meaningful sense a culpable participant in the fraud perpetrated by the controlled person.Ganino v. Citizens Util. Co., 228 F.3d 154, 170 (2d Cir. 2000) (citation and internal quotations omitted).
In cases such as this involving issues that are contractually required to be arbitrated, federal courts are required, upon application of any party, to stay the court proceedings until arbitration is completed. As to that, 9 U.S.C. § 3 provides:
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.9 U.S.C.A. § 3. In determining whether or not arbitration is required,
a court . . . has essentially four tasks: first, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then determine whether to stay the balance of the proceedings pending arbitration.Genesco, Inc. v. T. Kakiuchi Co., Ltd., 815 F.2d 840, 844-845 (2d Cir. 1987)
ANALYSIS
At the outset, the Court will consider whether or not this action may proceed as a class action under Rule 23 of the Federal Rules of Civil Procedure, which in turn will determine whether or not plaintiffs' claims must be arbitrated. As to that, the requirements for class certification are well settled:
In order to qualify for class certification under Fed.R.Civ.P. 23(b)(3), plaintiffs in the proposed class must first demonstrate that they satisfy the four requirements of Fed.R.Civ.P. 23(a): (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation. If these criteria are met, the court must decide whether "questions of law or fact common to the members of the class predominate over any questions affecting only individual members," and whether a class action "is superior to other available methods for the fair and efficient adjudication of the controversy." Fed.R.Civ.P. 23(b)(3).
The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). It is a more demanding criterion than the commonality inquiry under Rule 23(a). Id. at 623-24, 117 S.Ct. 2231. Class-wide issues predominate if resolution of some of the legal or factual questions that qualify each class member's case as a genuine controversy can be achieved through generalized proof, and if these particular issues are more substantial than the issues subject only to individualized proof.Moore v. Paine Webber, Inc. 306 F.3d 1247, 1252 (2d Cir. 2002) (emphasis added, one citation omitted).
In the instant case, defendants contend that the predominance requirement is not met since plaintiffs' unauthorized trading claims "raise individual issues which wholly predominate over any common issues of law or fact." Tatro Memo [#23], p. 19; see also, Id. at 21 ("[Plaintiffs'] allegations require individualized inquiries into . . . what representations Tatro made to each Member . . ., how each individual Member communicated their desire to trade within the account, when each individual Member first became aware of each alleged unauthorized trade and a host of other individualized questions and issues."); Nathan Lewis Memo [#21], p. 23 ("Plaintiffs' claims based on unauthorized trading involve an extremely fact-specific inquiry, requiring individualized proof that each allegedly unauthorized trade of each member of the proposed class was in fact unauthorized (as well as establishing Tatro acted with scienter in each such instance), requiring the evaluation as to whether there was any actionable accompanying misrepresentation or omission, and requiring analyses on the investment objectives, financial acumen, account character, investor involvement or monitoring and investor acquiescence or approval."). In this regard, defendants rely almost exclusively on a case that is strikingly similar to the instant case, Rowe v. Morgan Stanley Dean Witter (hereinafter " Rowe"), 191 F.R.D. 398 (D.N.J. 1999).
Plaintiffs, however, contend that the predominance requirement is met for two main reasons. First, they indicate that their "allegations [that Tatro exercised unauthorized de facto control over their accounts] all arise out of [Tatro's] uniform practice of having his customers sign non-discretionary account agreements and then usurping the authority to trade in their accounts without obtaining their advance authorization." And second, they maintain that "this is an omissions case . . ., not a misrepresentation case," and that "[a]ccordingly, there is no need to plead or prove that individual misrepresentations were made and there is no need for the plaintiffs to allege or prove individual or class reliance." Pl. Memo [#28], p. 18.
The Court, having given much consideration to the parties' arguments, concludes that plaintiffs' securities fraud claims are not appropriate for class treatment, since each of the claims will depend upon individualized proof. In that regard, the Court finds that plaintiffs, in complaining that Tatro failed to disclose to them his alleged misconduct at Prudential, and that he failed to inform them that he needed their authorization to execute trades and that they could have rejected his trades, are maintaining in effect that he engaged in a common course of conduct toward the proposed class. However, as the Second Circuit held in Moore, a common course of conduct alone is insufficient to establish that class-wide issues predominate over individual issues:
liability for fraudulent misrepresentations cannot be established simply by proof of a central, coordinated scheme. Rather, to recover for a defendant's fraudulent conduct, even if that fraud is the result of a common course of conduct, each plaintiff must prove that he or she personally received a material misrepresentation, and that his or her reliance on this misrepresentation was the proximate cause of his or her loss. Fraud actions must therefore be separated into two categories: fraud claims based on uniform misrepresentations made to all members of the class and fraud claims based on individualized misrepresentations. The former are appropriate subjects for class certification because the standardized misrepresentations may be established by generalized proof. Where there are material variations in the nature of the misrepresentations made to each member of the proposed class, however, class certification is improper because plaintiffs will need to submit proof of the statements made to each plaintiff, the nature of the varying material misrepresentations, and the reliance of each plaintiff upon those misrepresentations in order to sustain their claims. As these are questions that more than likely will be the central disputed issues in a fraud action, certification of the class will not negate the need for a series of mini-trials where there are material variations in the nature of the misrepresentations made.Moore v. PaineWebber, Inc. 306 F.3d at 1253 (citation omitted, emphasis added). The Second Circuit in Moore further agreed with the Third, Fourth, Fifth, Sixth, and Seventh Circuits that oral misrepresentations are presumptively individualized, and therefore not subject to generalized proof, unless the plaintiffs can demonstrate that the misrepresentations were "materially uniform." Id. at 1253-55. For example, in Moore, the court noted that plaintiffs could show that a defendant used uniform written scripts when making oral communications, or that a defendant's sales representatives received uniform training on how and what to communicate to clients. Id. at 1255-56.
Here, under the theory of fraud advanced by plaintiffs, each must establish that Tatro omitted to inform him or her about his past employment at Prudential and that he needed their permission to conduct trades and that they could require him to undo any trades. In that regard, all of the plaintiffs contend that their communications with Tatro were oral, and took place over a period of years. As to the oral nature of the alleged omissions, the Court notes that while plaintiffs suggest that their claims arise from Tatro's "uniform practice of having his customers sign non-discretionary account agreements," they do not contend that the omitted information should have been contained in the agreements. Rather, plaintiffs allege that "Tatro's conduct was in violation of [§ 10(b) and Rule 10b-5] because of Tatro's failure to properly advise them of their rights under the investment account agreements," and to advise them of his alleged misconduct at Prudential. Thus, the agreements are not generalized proof of the alleged omissions. Nor do plaintiffs allege that Tatro used a scripted presentation or "sales pitch" when meeting with or advising clients, such that his statements and omissions could be established by generalized proof.
Nonetheless, plaintiffs contend that class issues will predominate over individual issues, since this is an "omissions case," in which "there is no need to plead or prove that individual misrepresentations were made." Pl. Memo [#28], p. 18. However, the Court disagrees, because, since plaintiffs have not alleged facts showing that the omissions can be established using generalized proof, they will still need to show, on an individual basis, what Tatro told each of them in order to establish what was omitted. In re Scientific Control Corp. Sec. Litig., 71 F.R.D. 491, 504 (S.D.N.Y. 1976) ("Omissions of material facts in oral communication is a matter which requires individual proof to the same extent as actual misstatements. The Court still must determine what was told to each purchaser . . . in order to establish what was omitted.") (citation omitted).
Moreover, plaintiffs' claims of unauthorized trading in their individual accounts would clearly require individual proof. See, Rowe v. Morgan Stanley Dean Witter, 191 F.R.D. at 414-15; see also, Id. at 415 ("Because the instant action [for unauthorized trading] is predicated almost exclusively on alleged oral representations within the context of a personalized investor-broker relationship, it is highly likely those alleged non-standardized oral representations are subject to material variations.") (citation omitted). Even if, as plaintiffs contend, the issue of reliance may be presumed here on a class-wide basis pursuant to Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972), plaintiffs would still have to prove other elements of their claims on an individual basis, such as that the trades were in fact unauthorized, and that Tatro acted with the requisite scienter. Rowe v. Morgan Stanley Dean Witter, 191 F.R.D. at 414-15; see also, In re Scientific Control Corp. Sec. Litig., 71 F.R.D. at 504 ("Assuming that reliance need not be demonstrated here, individual issues will remain: first, as to what representations or omissions occurred; second, whether the person making the representation [or omission] did so fraudulently; . . . and finally, individual measures of damages."). Therefore, the Court finds that this action is not appropriate for class certification, because questions of law or fact common to the members of the class do not predominate over questions affecting only individual members.
See, Shemtob v. Shearson, Hammill Co., 448 F.2d 442, 445 (2d Cir. 1971) (Holding that a "customer's suit against a broker for breach of contract . . . cannot be bootstrapped into an alleged violation of § 10(b) of the Exchange Act, or Rule 10b-5, in the absence of allegation of facts amounting to scienter, intent to defraud, reckless disregard for the truth, or knowing use of a device, scheme or artifice to defraud.") (citations omitted).
Having determined that plaintiffs' claims are not appropriate for class action certification, and there being no dispute that the plaintiffs' claims are, in that case, required to be arbitrated in accordance with the parties' agreements, the Court finds that this action must be stayed pending arbitration of plaintiffs' claims. See, Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 237, 107 S.Ct. 2332, 2343 (1987) (Holding that § 10(b) claims are subject to the provisions of the Federal Arbitration Act, 9 U.S.C. § 3). Consequently, the Court will not address defendants' alternative motion to dismiss. See, Martens v. Thomann, 273 F.3d 159, 179 n. 14 (2d Cir. 2001) (Noting that "if the claims are subject to a valid and enforceable arbitration agreement, the arbitrator, not the court, should be deciding the statute of limitations issue.") (citation omitted); Pilanski v. Metro. Life Ins. Co., No. 95 CIV. 10292 DC, 1996 WL 622024 at *1 (S.D.N.Y. Oct. 28, 1996) (Finding that claims were subject to arbitration clause, and thus declining to "reach the merits of defendant' motion to dismiss."). The Court notes that, although defendants have alternatively requested that the action be dismissed entirely, the Second Circuit has indicated that where the issues are to be arbitrated, issuing a stay is preferable to dismissal:
Courts should be aware that a dismissal renders an order appealable under [9 U.S.C.] § 16(a)(3), while the granting of a stay is an unappealable interlocutory order under § 16(b). . . . Unnecessary delay of the arbitral process through appellate review is disfavored. . . . District courts should continue to be mindful of this `liberal federal policy favoring arbitration agreements,' when deciding whether to dismiss an action or instead to grant a stay.Usinor Steel Corp. v. M/V Koningsborg, No. 03 Civ. 4301 (AKH), 2004 WL 230910 at *3 (S.D.N.Y. Feb. 6, 2004) ( quoting Salim Oleochemicals v. M/V Shropshire, 278 F.3d 90 (2d Cir. 2002)).
CONCLUSION
Defendants' motions [#20][#22] to dismiss the First Amended Class Action Complaint are granted in part and denied in part. Plaintiffs' proposed class action claims are dismissed, and this action is stayed pending arbitration of plaintiffs' remaining claims.
SO ORDERED.