Brady v. Calyon Securities (Usa)

• Decision Date: 08 November 2005
• Docket Number: No. 05 Civ. 3470(GEL).,05 Civ. 3470(GEL).
• Citation: 406 F.Supp.2d 307
• Parties: Charles J. BRADY, Plaintiff, v. CALYON SECURITIES (USA), f/k/a Credit Lyonnais Securities (USA) Inc., Calyon, Credit Agricole S.A., Eric Schindler and Francois Pages, Defendants.
• Court: U.S. District Court — Southern District of New York

406 F.Supp.2d 307

Charles J. BRADY, Plaintiff, v. CALYON SECURITIES (USA), f/k/a Credit Lyonnais Securities (USA) Inc., Calyon, Credit Agricole S.A., Eric Schindler and Francois Pages, Defendants.

No. 05 Civ. 3470(GEL).

United States District Court, S.D. New York.

November 8, 2005.

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Richard A. Hubell, The Dweck Law Firm, LLP, New York City, for plaintiff.

Barbara M. Roth, Lauren G. Krasnow, Ariana R. Jaffe, Torys LLP, New York City, for defendants.

OPINION AND ORDER

LYNCH, District Judge.

Plaintiff Charles J. Brady brings this action against his former employer, Calyon Securities (USA) (formerly known as Credit Lyonnais Securities (USA)), its French parent company, Calyon, previously Credit Agricole, S.A. ("Credit Agricole"), and two individual officers and managers. Plaintiff alleges that defendants discriminated against him based on his national origin, age, and prior military service, and retaliated against him for his multiple complaints to supervisors and compliance officers about defendants' alleged violations of various securities laws, rules and regulations. Defendants move to dismiss under 12(b)(6) of the Federal Rules of Civil Procedure, for failure to state a claim upon which relief can be granted. For the reasons stated below, defendants' motion will be granted in part and denied in part.

BACKGROUND

The facts stated below are taken from plaintiff's complaint, the allegations of which must be accepted as true for purposes of this motion.

Plaintiff Charles J. Brady ("Brady") is a 52-year-old graduate of the United States Military Academy at West Point, and a "Vietnam War Era Veteran." (Am. Compl.¶ 1.) After his military service, he earned an MBA degree from the University of Chicago School of Business. Brady currently holds multiple licenses to work in the securities industry, and is registered with and licensed by both the New York Stock Exchange ("NYSE") and National Association of Securities Dealers ("NASD"). (Id. at ¶¶ 17, 18.) In February 1999, Brady was hired by Calyon Securities (USA) as an equity analyst. (Id. at 19.)

Calyon Securities (USA) is a broker-dealer incorporated in New York, and an indirect wholly owned subsidiary of the French company, Calyon. Until a recent corporate acquisition, Calyon Securities (USA) was known as a Credit Lyonnais Securities (USA), Inc., and was a wholly owned subsidiary of Credit Agricole. (D.Mem.2.) Francois Pages was the Chief Executive Officer of Credit Lyonnais Securities (USA)/Calyon Securities (USA), and Eric Schindler was the Head of Investment Banking. (Am.Compl.¶¶ 8-9.)

In 2001, Brady was promoted and began reporting to Schindler. Brady objected to reporting directly to Schindler, who was the head of the investment banking department, because both NASD and NYSE rules and the Sarbanes-Oxley Act ("Sarbanes-Oxley") forbid a research analyst from being supervised or controlled by an employee in the investment banking department. (Id. at ¶ 31.) Brady informed various supervisors and compliance officers of his objections.

In the summer of 2003, Brady met with Pages and again complained about the company's failure to comply with the NYSE and NASD rules. Because Brady felt that his complaints were not adequately addressed, he approached Pages to submit his resignation. Pages informed Brady that he was aware of the problem and that it would be corrected immediately. (Id. at ¶ 88.) Brady turned down another job elsewhere, but his employer continued to require Brady to report to Schindler in the investment banking department. (Id. at ¶¶ 89, 92.)

Plaintiff alleges that Schindler subsequently began to berate Brady for his rigid "military-like" approach to following the NYSE and NASD rules. (Id. at ¶ 43.) During Brady's last employee review in February 2004, Schindler told Brady that he rated him poorly, not for his actual job performance, but for getting in the way of the investment banking department, and that he no longer needed "an old wise man to run research." (Id. at ¶ 42.) He then repeatedly described Brady as the "old man with all the wisdom" and "the old man that is so knowledgeable in research." (Id. at ¶ 44.)

On July 1, 2004, Brady gave the Head of Compliance a letter, complaining again about the research department being controlled and supervised by the head of investment banking. Brady was terminated that day. (Id. at ¶¶ 47, 48.)

DISCUSSION

I. Standard on a Motion to Dismiss

On a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must accept as true all well-pleaded factual allegations in the complaint and view them in the light most favorable to the plaintiff, drawing all reasonable inferences in his favor. Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir.1996). The Court will not dismiss a complaint for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). To be deemed adequate at the pleading stage, a complaint need not use particular words nor demonstrate that the plaintiff will prevail on the merits, but need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (quoting Fed.R.Civ.P. 8(a)). However, "[w]hile the pleading standard is a liberal one, bald assertions and conclusions of law will not suffice." Leeds, 85 F.3d at 53; see also De Jesus v. Sears, Roebuck & Co., 87 F.3d 65, 70 (2d Cir.1996) ("A complaint which consists of conclusory allegations unsupported by factual assertions fails even the liberal standard of Rule 12(b)(6).") (internal quotation marks omitted).

When deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents attached to the complaint as exhibits or incorporated in it by reference. Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir.1993). Because plaintiff refers to his employer's compliance manual in his complaint and it is crucial to plaintiff's claims, it may properly be considered for the purposes of this motion. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002) (determining that documents were properly considered in a motion to dismiss as plaintiff had relied on the terms and effects of the documents, and were integral to the complaint).

II. Alleged Violations of NYSE and NASD Rules

Plaintiff alleges in Counts Two and Three that defendants have unlawfully retaliated against plaintiff in violation of NYSE Rule 2711 and NASD Rule 2711. NYSE Rule 2711 prohibits retaliation against research analysts as a result of unfavorable research reports or public appearances that may adversely affect the prospective investment banking relationship with the company that is the subject of a research report. NYSE R. 2711(j). NYSE Rule 2711 and NASD Rule 2711 both provide that research analysts may not be subject to supervision or control of anyone in the investment banking arm of the same company. NYSE R. 2711(b)(1); NASD R. 2711(b)(1).

While defendants may be subject to the rules and by-laws of NYSE and NASD, the rules of NYSE and NASD do not confer a private right of action. See Tucker v. Janney Montgomery Scott, Inc., No. 96 Civ.1923(LLS), 1997 WL 151509, at *3 (S.D.N.Y. April 1, 1997) (granting 12(b)(6) motion to dismiss because NYSE and NASD rules do not confer private rights of action); SSH Co., Ltd. v. Shearson Lehman Bros., Inc., 678 F.Supp. 1055, 1058 (S.D.N.Y.1987) ("[T]he [NYSE and NASD] rules contain no express provisions for civil liability and the courts in this circuit have refused to imply a private right of action to enforce these rules."); Jaksich v. Thomson McKinnon Securities, Inc., 582 F.Supp. 485, 499-501 (S.D.N.Y. 1984) (utilizing the Cort v. Ash four-prong test to determine that a NYSE rule and NYSD constitutional provision provide no private rights of action).¹ Thus, plaintiff has no cause of action under either rule for any alleged violations.

Plaintiff attempts to evade the absence of a private right of action by converting his claim into one for (1) breach of contract as an intended third-party beneficiary of the NASD/NYSE's rules, or (2) tortious interference with contract. (P. Mem.9-14.) Both of these claims require the existence of a contract to succeed. See Maldonado v. Olympia Mech. Piping & Heating Corp., 8 A.D.3d 348, 777 N.Y.S.2d 730, 731 (2d Dep't 2004) (holding that a breach of contract claim was properly dismissed where plaintiff did not identify the contracts allegedly breached); Bradbury v. Woller Cope-Schwarz, 20 A.D.3d 657, 798 N.Y.S.2d 207, 209 (3d Dep't 2005) (listing the first element of tortious interference claim as requiring existence of a valid contract).

Neither Brady nor defendants have an express contract with the NASD or NYSE, and the case law upon which plaintiff relies do not support a finding of a contract that will support a viable third-party beneficiary claim. While the Second Circuit stated in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Georgiadis, 903 F.2d 109 (2d Cir. 1990) that "the rules of a securities exchange are contractual in nature," the specific issue in that case was whether an arbitration provision of an exchange member's constitution could be superseded by a more specific customer agreement, and the court found that the exchange rules could compel arbitration. Id. at 113. In Barbara v. N.Y. Stock Exch., Inc., 99 F.3d 49, 54 (2d Cir.1996) and Credit Suisse First Boston LLC v. Chai, 317 F.Supp.2d 380, 382 (2004), the courts noted the contractual nature of stock exchange rules, but solely in the context of whether federal jurisdiction was appropriate. Brady cites no case holding that the rules of the NASD or NYSE operate as a contract that can support a third-party beneficiary claim.

In any event, pl...