McDonald & Co. Securities, Inc. v. Bayer

• Decision Date: 06 December 1995
• Docket Number: No. 95 CV 1355.,95 CV 1355.
• Citation: 910 F. Supp. 348
• Parties: McDONALD & COMPANY SECURITIES, INC., et al., Plaintiffs, v. Ronald J. BAYER, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

910 F. Supp. 348

McDONALD & COMPANY SECURITIES, INC., et al., Plaintiffs, v. Ronald J. BAYER, et al., Defendants.

No. 95 CV 1355.

United States District Court, N.D. Ohio, Eastern Division.

December 6, 1995.

Brian M. Eisenberg, James F. Lang, Calfee, Halter & Griswold, Cleveland, OH, for plaintiffs.

Stewart D. Roll, Persky, Shapiro, Salim, Esper, Arnoff & Nolfi, Cleveland, OH, for defendants.

MEMORANDUM OF OPINION AND ORDER

NUGENT, District Judge.

The within matter is before this court upon Plaintiff's Complaint for Declaratory Judgment and Preliminary and Permanent Injunction. An oral hearing was held on Tuesday, November 28, 1995. During this oral hearing the parties agreed to file Joint Stipulations with the Court. These stipulations, which provide the necessary factual background for this matter, are as follows:

1. On May 17, 1985, Defendant Ronald Bayer made his first purchase of 12% Ohio State Economic Development Revenue Bonds, Convention lace Series 1983 due 12-1-89 (the "Bonds") for Defendant Mollie Bayer's Account.

2. Within a week or two of this purchase, McDonald sent to Defendants a confirmation slip, the front of which Defendant attached to their Statement of Claim, describing the purchase.

3. On September 11, 1985, Defendant Ronald Bayer made his second purchase of the Bonds for Defendant Mollie Bayer's account.

4. Within a week or two of this purchase, McDonald sent to Defendants a confirmation slip, the front of which Defendants attached to their Statement of Claim, describing the purchase.

5. On October 3, 1985, Defendant Ronald Bayer made his third purchase of the Bonds for Defendant Mollie Bayer's account.

6. Within a week or two of the purchase, McDonald sent to Defendants a confirmation slip, the front of which Defendants attached to their Statement of Claim, describing the purchase.

7. On May 21, 1986, Defendant Ronald Bayer made his fourth purchase of the Bonds, this time for his own account.

8. Within a week or two of this purchase, McDonald sent to Defendants a confirmation slip, the front of which Defendants attached to their Statement of Claim, describing the purchase.

9. McDonald delivered out Defendant Ronald Bayer's bonds on June 16, 1987.

10. McDonald delivered out Defendant Mollie Bayer's bonds on July 10, 1987.

11. On December 12, 1988, the State National Bank sent a notice of default to all bondholders.

12. On or about November 27, 1990, Plaintiffs and Defendants entered into Cash Account Agreements. Those agreements contain the arbitration provisions relevant to this case. A copy of those agreements are attached hereto as Exhibit A.

13. On October 6, 1992, the Defendants filed an action in the Cuyahoga County Court of Common Pleas (the "Cuyahoga Action") which asserted claims against McDonald and Plaintiff Mapes for fraud and breach of fiduciary duty and against McDonald for negligent supervision, all of which related to the four purchases described above.

14. McDonald moved to stay the Cuyahoga Action on the ground that the Bayers had executed binding arbitration agreements.

15. The arbitration agreements executed by the Defendants provide that the arbitration will be conducted "in accordance with the rules obtaining of the selected organization."

16. The court in the Cuyahoga Action stayed the action pending arbitration.

17. On November 17, 1994, the Cuyahoga County Court of Appeals affirmed the stay.

18. On April 21, 1995, the Defendants filed a Statement of Claim with the NASD.

19. Defendant's Statement of Claim asserts claims against McDonald and Plaintiff Mapes for fraud and breach of fiduciary duty and against McDonald for negligent supervision.

20. For purposes of this case, the parties agree that the Court should assume the truth of Defendant's allegations that Plaintiffs had a fiduciary duty to Defendants, that a breach of that duty occurred in that Plaintiffs failed to disclose and misrepresented to Defendants material facts about the bonds as alleged in the Statement of Claim, and that Defendants affirmatively acted at least twice to fraudulently conceal such facts by making misrepresentations during each purchase subsequent to the first purchase as alleged in the Statement of Claim, and by holding the bonds in safekeeping and not delivering the bonds until June 16, 1987 when the representations could be determined to be false.

At the core of the dispute between the parties in the case herein is this Court's proper interpretation of the parties Joint Stipulations 21 & 22, which state, as follow:

21. Section 15 of the NASD Code of Arbitration Procedure states: "No dispute, claim, or controversy shall be eligible for submission to arbitration under this Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim or controversy. This section shall not extend applicable statutes of limitations, nor shall it apply to any case which is directed to arbitration by a court of competent jurisdiction."

22. Section 18(b) of the NASD Code of Arbitration Procedure states: "The six (6) year time limitation upon submission to arbitration shall not apply when the parties have submitted the dispute, claim or controversy to a court of competent jurisdiction. The six (6) year time limitation shall not run for such period as the court shall retain jurisdiction upon the matter submitted."

On Friday, December 1, 1995, the Court conducted a second oral hearing in order to decide the propriety of granting plaintiffs' requested preliminary and permanent injunction. The gist of Plaintiff's Motion for Preliminary and Permanent Injunction seeks to enjoin the scheduled National Association of Securities Dealers (hereinafter "NASD") arbitration panel from considering any of Defendant's claims that are based upon events which transpired more than six years before April 21, 1995, the date of Defendants filing of their Statement of Claim with the NASD.

The Court has reviewed the Plaintiff's complaint, the memorandum in support, the memorandum in opposition, and the attachments thereto. In addition, the Court has considered the Joint Stipulations, as set forth above, as well as the oral arguments of both parties and the filings pertaining to those arguments. For the reasons that follow, Plaintiff's Motion for a Preliminary and Permanent Injunction (Doc. # 3) is DENIED.

I.

The purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held. University of Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 1834, 68 L.Ed.2d 175 (1981). Due to this fact, a preliminary injunction is customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits. Id. The parties in the present case have moved this Court to decide the propriety of the arbitrators jurisdiction over certain claims. Defining the limits of the jurisdiction of the NASD is the function of the district courts. Dean Witter Reynolds, Inc. v. McCoy, 995 F.2d 649, 651 (6th Cir.1993); Roney & Co. v. Kassab, 981 F.2d 894, 897-99 (6th Cir.1992); PaineWebber Inc. v. Hartmann, 921 F.2d 507, 510-11 (3rd Cir.1990).

Four factors are important in determining whether an injunction is appropriate: (1) the likelihood of plaintiffs' success on the merits; (2) whether the injunction will save the plaintiff from irreparable injury; (3) whether the injunction would harm others; and (4) whether the public interest would be served by the injunction. In re DeLorean Motor Co., 755 F.2d 1223, 1228 (6th Cir. 1985). These factors are not prerequisites that must be met by the parties. Rather, they are factors to be used by the district court in balancing whether a temporary restraining order and/or preliminary injunction is proper. Id. at 1229.

When considering a plaintiff's motion for a preliminary injunction, the Court is required to make the preliminary fact findings necessary to determine whether or not the four factors set forth in In re DeLorean weigh in favor of granting equitable relief prior to the completion of normal discovery. See Cabot Corp. v. King, 790 F.Supp. 153, 156 (N.D.Ohio 1992).

In the present case, the parties agree that this Court's determination as to the applicability of the time limitations of §§ 15 and 18(b) will result in a resolution of the entire Complaint for Declaratory Judgment and Preliminary and Permanent Injunction. The parties agreed, before the hearing on the application for preliminary injunction, that the trial on the merits (Complaint for Declaratory Judgment and Preliminary and Permanent Injunction) were to be advanced and consolidated into such hearing as permitted by FED.R.CIV.P. 65(a)(2).

II.

The parties are in disagreement in regard to the proper time interpretation of § 15 of the NASD Code of Arbitration Procedure. In effect, the parties are requesting this Court make a ruling upon whether the six year limitation period of § 15 is subject to equitable tolling.

Defendants, Ronald and Mollie Bayer, argue that their claims under the six-year limitation period should be equitably tolled due to the fraudulent concealment undertaken by Plaintiff's. (See Stipulation No. 20). They argue that the actions undertaken by the Plaintiff's precluded them from becoming aware of the Plaintiff's wrongdoings until, at the very earliest, the time of delivery of the securities in June and July, 1987.

On the contrary, Plaintiffs, McDonald & Co. and Richard Mapes, argue that § 15 is a strict eligibility requirement and not subject to equitable tolling. They contend that the presence, or lack thereof, of fraudulent concealment is immaterial. It is their contention that the "occurrence or event giving rise to the act or dispute" under § 15 is the purchase of the securities. Therefore, they argue that § 15 forbids any "act or dispute, claim, or controversy" in the present case from being arbitrated six (6) years after the underlying...