Morgan Stanley & Co. v. Couch

Decision Date24 September 2015
Docket NumberNo. 1:15–cv–1291–LJO–JLT.,1:15–cv–1291–LJO–JLT.
CourtU.S. District Court — Eastern District of California
Parties MORGAN STANLEY & CO., LLC, and Morgan Stanley Smith Barney, LLC, Plaintiffs, v. David COUCH, Defendant.

Betsey A. Boutelle, Mary Catherine Dollarhide, Paul Hastings, LLP, San Diego, CA, Blake Robert Bertagna, Paul Hastings LLP, Costa Mesa, CA, for Plaintiff.

MEMORANDUM DECISION AND ORDER RE PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION
LAWRENCE J. O'NEILL

, District Judge.

I. INTRODUCTION

Plaintiffs Morgan Stanley & Co., LLC, and Morgan Stanley Smith Barney, LLC (collectively, "MSSB," "Morgan Stanley," or "the Firm")1 move for an order from this Court preliminarily enjoining an arbitration proceeding before the Financial Industry Regulatory Authority ("FINRA") initiated by Defendant David Couch ("Couch") against MSSB on June 2, 2015. Doc. 9. MSSB contends that (1) this Court's August 7, 2015 order granting MSSB's motion for summary judgment2 bars Couch from proceeding with the FINRA arbitration under the doctrine of res judicata and (2) Couch has waived his right to pursue his FINRA arbitration claims. Id. at 6–8.

The Court did not set a hearing for the motion and the parties did not request one. The Court finds it appropriate to rule on the motion without oral argument. See Local Rule 230(g). For the following reasons, the Court GRANTS MSSB's motion and PRELIMINARILY ENJOINS Couch's FINRA arbitration from proceeding.

II. FACTUAL AND PROCEDURAL BACKGROUND3

Couch joined MSSB as a full-time financial advisor ("FA") in September 2007. Doc. 1, Complaint ("Compl.") at ¶ 10. When joining, MSSB and Couch executed an employment agreement (Doc. 1–2, "Employment Agreement"), which contained the following arbitration clause:

7. ARBITRATION
7.1 Any controversy or claim arising out of or relating to (i) your employment by Morgan Stanley (excluding statutory employment claims and other claims covered by Paragraph 7.2) or (ii) this Agreement (or its breach), will be settled by arbitration before either the National Association of Securities Dealers, Inc., ("NASD") or the New York Stock Exchange, Inc. ("NYSE") in accordance with their respective rules, and judgment upon an award issued by the arbitrator(s) may be entered in any court having jurisdiction. Except as otherwise expressly agreed, any dispute as to the arbitrability of a particular issue or claim pursuant to this arbitration provision is to be resolved in arbitration. This paragraph will not be deemed a waiver of Morgan Stanley's right to injunctive or provisional relief from any court, as provided for in this Agreement.
7.2 Notwithstanding the arbitration requirement of paragraph 7.1 above, you agree that certain other claims (including, but not limited to, statutory discrimination and other statutory employment claims) must be submitted to Morgan Stanley's Alternative Dispute Resolution Program, "Convenient Access to Resolutions for Employees (‘CARE’)." Claims required to be submitted to CARE are recited in the CARE Guidebook.

Id. at ¶ 18; Employment Agreement at 5–6. Couch initialed both sections of the arbitration clause. Employment Agreement at 5–6.

In January 2014, Couch brought suit against MSSB before this Court, asserting various statutory causes of action. Couch, 2015 WL 4716297, at *5

. On April 18, 2014, the Court granted in part and denied in part MSSB's motion to dismiss the complaint. Id.

On May 9, 2014, Couch filed a first amended complaint ("the FAC"), which alleged "causes of action for: (1) violation of [California Labor Code] section 1101(a)

; (2) violation of [California Labor Code] section 1102 ; (3) violation of [California Labor Code] section 98.6 ; (4) intentional interference with existing and prospective economic relationships; (5) and negligent interference with existing and prospective economic relationships." Id.4

The parties then proceeded to litigate the Couch case for almost a year. In doing so, Couch issued interrogatories to MSSB, deposed at least five MSSB witnesses, had numerous discovery disputes that required the Court's intervention, engaged in private mediation to resolve the case, submitted status reports to the Court, and participated in status conferences with the Court. See generally Couch, Docs. 31, 33, 36, 38–43, 71 at 5.

On June 2, 2015, Couch filed a claim in arbitration before a FINRA panel ("the Arbitration Claim"). Id. at *8; Doc. 1–4. "The Arbitration Claim's allegations are materially similar to the FAC's allegations, though they are not identical. The Claim contains four discrete non-statutory claims for relief for (1) intentional interference with existing and prospective economic relationships; (2) negligent interference with existing and prospective economic relationships; (3) breach of the covenant of good faith and fair dealing; and (4) fraud and deceit." Couch, 2015 WL 4716297, at *8

.

On June 5, 2015, before MSSB's counsel received notice that Couch had filed the Arbitration Claim, MSSB moved for summary judgment on all of Couch's claims in the Couch case, and moved to enjoin Couch's FINRA arbitration. Id. The Court granted the summary judgment motion in its entirety, but denied MSSB's motion for an injunction on the ground MSSB was not entitled to any injunctive relief because it had no underlying claim in the Couch case. Id. at *24.

MSSB brought this case on August 21, 2015. Compl. at 1. MSSB asserts causes of action for (1) declaratory judgment and (2) injunctive relief. In the former, MSSB seeks "[a] judicial declaration that Couch is barred by res judicata and/or collateral estoppel from bringing the Arbitration Claim, and/or that Couch has waived his right to arbitrate the Arbitration Claim." Id. at ¶ 31. Based on those assertions, MSSB's second claim seeks an order from this Court enjoining Couch's FINRA arbitration. Id. at ¶¶ 34–35. MSSB maintains an injunction is necessary because Couch "has asserted claims for money damages against MSSB in the FINRA arbitration and ... unless enjoined will continue to pursue such claims to judgment." Id. at ¶ 34. MSSB moved to preliminarily enjoin Couch's FINRA arbitration on September 2, 2015. Doc. 9.

On September 4, 2015, Couch filed an "Amended Statement of Claim" ("the ASC") in the FINRA arbitration. See Doc. 12–3. The ASC brings four claims for (1) breach of the implied covenant of good faith and fair dealing; (2) fraud and deceit; (3) negligence; and (4) breach of contract. Id.

Couch opposes MSSB's preliminary injunction motion on three primary grounds. First, Couch asserts MSSB fails to state a claim and therefore the Court has no jurisdiction over this case. Doc. 12 at 10. Second, Couch maintains that he did not waive his arbitration rights because the FAC asserted only "statutory employment claims expressly excluded from the arbitration provision in the Employment Agreement." Id. at 14. Third, Couch claims that he is authorized to proceed with the Arbitration Claim under FINRA Rule 13803. Id. at 18.

III. STANDARD OF DECISION

To secure injunctive relief prior to a full adjudication on the merits, a plaintiff must show "that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008)

. Injunctive relief is "an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief." Id. at 22, 129 S.Ct. 365. The Ninth Circuit follows a "sliding scale" approach to preliminary injunctions. See Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir.2011). "Under this approach, the elements of the preliminary injunction test are balanced, so that a stronger showing of one element may offset a weaker showing of another." Id. at 1131–32. For example, if the moving party is unable to establish a likelihood of success on the merits, preliminary injunctive relief may still be had if the party can show that (1) there are at least "serious questions" going to the merits; (2) the balance of the hardships tips "sharply" in its favor; and (3) the other factors listed in Winter (i.e., irreparable harm and in the public interest) are satisfied. Id. at 1135.

IV. ANALYSIS
A. Whether the Court Has Jurisdiction.

As a threshold argument, Couch asserts MSSB's motion should be denied for lack of jurisdiction because the Complaint fails to state a claim. Doc. 12 at 13–14. Couch maintains that MSSB's " ‘claims' only arise as a defense to a motion to compel arbitration; but no such motion is before the Court." Id. at 14.

MSSB's first cause of action is for declaratory judgment. The Declaratory Judgment Act permits the federal courts to "declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a)

. Although the Act "enlarged the range of remedies available in the federal courts, [it] did not extend their jurisdiction." Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 94 L.Ed. 1194 (1950).

When a plaintiff seeking declaratory relief "asserts a claim that is in the nature of a defense to a threatened or pending action, the character of the threatened or pending action determines whether federal question jurisdiction exists with regard to the declaratory judgment action." Levin Metals Corp. v. Parr–Richmond Terminal Co., 799 F.2d 1312, 1315 (9th Cir.1986)

. Accordingly, when determining declaratory judgment jurisdiction, "federal courts ... often look to the ‘character of the threatened action.’ " Medtronic, Inc. v. Mirowski Family Ventures, LLC, ––– U.S. ––––, 134 S.Ct. 843, 848, 187 L.Ed.2d 703 (2014) (quoting Public Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 97 L.Ed. 291 (1952) ). "That is to say, [federal courts] ask whether...

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