Coffey v. Dean Witter Reynolds Inc.

• Decision Date: 14 April 1992
• Docket Number: No. 91-1020,91-1020
• Parties: Fed. Sec. L. Rep. P 96,599 Florabelle COFFEY, Plaintiff-Appellant, v. DEAN WITTER REYNOLDS INC., a Delaware corporation; and Jeffrey Hines, an individual, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 922

961 F.2d 922

Fed. Sec. L. Rep. P 96,599

Florabelle COFFEY, Plaintiff-Appellant, v. DEAN WITTER REYNOLDS INC., a Delaware corporation; and Jeffrey Hines, an individual, Defendants-Appellees.

No. 91-1020.

United States Court of Appeals, Tenth Circuit.

April 14, 1992.

Richard K. Rufner (Kitrina J. Anderson with him on the brief), Englewood, Colo., for plaintiff-appellant.

William G. Imig (Neal S. Cohen of Ireland, Stapleton, Pryor & Pascoe, P.C., with him on the brief), Denver, Colo., for defendants-appellees Dean Witter Reynolds Inc. and Jeffrey Hines.

Before BRORBY and McWILLIAMS, Circuit Judges, and ALLEY, District Judge. ^*

McWILLIAMS, Circuit Judge.

This 10b-5 securities case has been in this court three times. Initially, the federal district court denied the defendants' request that plaintiff's federal securities claim be submitted to arbitration. At the same time the federal district court dismissed the plaintiff's pendent state claims. See Coffey v. Dean Witter Reynolds Inc., et al., 640 F.Supp. 874 (D.C.Colo.1986). The defendants took an interlocutory appeal from the district court's ruling that plaintiff's federal securities claim was non-arbitrable. On June 26, 1987, a panel of this court granted the defendants' unopposed motion for immediate remand for reconsideration by the federal district court of its ruling concerning arbitrability in light of an intervening decision of the Supreme Court, i.e., Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987). Our No. 86-2074, Coffey v. Dean Witter Reynolds, Inc., et al. (June 26, 1987).

On remand, the same federal district judge who had previously denied defendants' request that plaintiff's federal securities claim be submitted to arbitration, granted the defendants' motion to compel arbitration of Coffey's federal securities claim. The matter was then submitted to an arbitration panel and the panel held for the defendants. A different federal district judge thereafter confirmed the arbitration award and dismissed plaintiff's action. On appeal, another panel of this court reversed the federal district court and held that plaintiff's federal securities claim was not subject to arbitration and remanded the case for further proceedings. Coffey v. Dean Witter Reynolds Inc., et al., 891 F.2d 261 (10th Cir.1989), Baldock, J. concurring in part and dissenting in part, cert. denied, --- U.S. ----, 111 S.Ct. 43, 112 L.Ed.2d 20 (1990).

On the second remand of the case, the defendants moved for summary judgment on the basis of collateral estoppel. Still another judge of the federal district court granted the defendants' motion for summary judgment and plaintiff appeals the judgment entered thereon. Additional background facts are necessary to bring the collateral estoppel issue into focus.

On or about October 15, 1985, Florabelle Coffey commenced the present action in the United States District Court for the District of Colorado against Dean Witter Reynolds Inc. and one of its account executives, Jeffrey Hines. Under the heading "General Allegations," Coffey set forth in great detail her dealings with Dean Witter, the gist of which was that she had invested monies with Dean Witter in a managed commodities account and in an investment account and that in connection therewith she had sustained financial loss as a result of Dean Witter's misconduct.

Based on her dealings with Dean Witter, Coffey set forth six claims for relief in her federal proceeding. Specifically, Count 1 was based on Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. Count 2 was a pendent state claim based on Dean Witter's alleged breach of a fiduciary duty. Count 3, also a pendent state claim, was based on Dean Witter's alleged negligence. Count 4 was based on alleged violations of Colorado securities law, Colo.Rev.Stat. §§ 11-51-123 and 11-51-125(2) (1973). Count 5, a state claim, was based on alleged outrageous and intentional misconduct. Count 6, a state claim, was based on Dean Witter's alleged failure to supervise and control its account executive, Jeffrey Hines.

By amended answer, Dean Witter and Jeffrey Hines denied liability and affirmatively alleged, inter alia, that Florabelle Coffey's two accounts were actually joint accounts with her husband, Irving Coffey, in connection with which each had full trading authority, and that all actions taken by Dean Witter in connection with those two accounts were pursuant to instructions given it by Irving Coffey. ¹ Dean Witter further filed a motion to dismiss or stay the case pending arbitration.

As indicated above, the federal district court concluded that Coffey's federal securities claim was not subject to the arbitration agreement between the parties, but at the same time the federal district court dismissed all pendent state claims, the court believing that it had the discretion to so do, and further believing that the assertion of these state claims in a 10b-5 proceeding would unduly complicate and delay the 10b-5 proceeding.

Coffey thereafter filed her various state claims, including her claim based on Colorado securities law, in state court. The complaint filed in state court was nearly a verbatim copy of the complaint previously filed in federal district court except for the deletion of the 10b-5 claim. Specifically, the "General Allegations" set forth in the complaint filed in state court were the same as those pleaded in the federal court. Count 1 of the complaint filed in state court alleged a breach of fiduciary duty; Count 2 was based on alleged negligence; Count 3 was based on local Colorado securities law, i.e., Colo.Rev.Stat. §§ 11-51-123 and 11-51-125(2) (1973); Count 4 on intentional and outrageous conduct; and Count 5 was based on Dean Witter's alleged failure to supervise and control its account executive, Jeffrey Hines.

Jumping ahead, all the state claims were eventually referred to arbitration, over Coffey's objection. After hearing, the arbitrators found in favor of Dean Witter "in full settlement of all claims submitted to this arbitration." On January 27, 1989, a state district court judge confirmed the arbitration award, rejecting Coffey's suggestion that her various state claims were not subject to arbitration. In an unpublished opinion, the Colorado Court of Appeals affirmed the state district court's confirmation order, agreeing with the state district court that Coffey's state claims against Dean Witter were subject to arbitration.

Back to the federal court. The district court granted Dean Witter an interlocutory appeal from its order denying the arbitration of Coffey's federal securities claim. As stated, a panel of this court on June 26, 1987, granted Dean Witter's unopposed motion for an immediate remand to allow the district court to reconsider its earlier order denying arbitration in the light of a then recent Supreme Court decision, i.e., Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987). After remand, that particular appeal was dismissed.

Upon remand, the same federal district judge, who had previously denied Dean Witter's request to compel arbitration, held that Coffey's federal securities claim was subject to the arbitration agreement, and Coffey's federal securities claim was submitted to the same arbitration panel to which Coffey's pendent state claims, which, as indicated, after being dismissed in federal court were refiled in state court, had been submitted but were still pending. ² After hearing, the arbitration panel not only rejected Coffey's state claims, but at the same time also found for Dean Witter on Coffey's federal securities claim. A different federal district judge thereafter confirmed the arbitration award in favor of Dean Witter and dismissed Coffey's federal securities claim.

Coffey appealed the order of the federal district court confirming the arbitration award in favor of Dean Witter and dismissing Coffey's federal securities claim, and, as indicated, we reversed, holding that Coffey's federal securities claim was not subject to arbitration and remanded "for further proceedings not inconsistent with this decision." Coffey v. Dean Witter, supra.

After this remand, Dean Witter filed a motion for summary judgment based on collateral estoppel, counsel contending that the arbitration award dismissing Coffey's state claims based on state securities law, negligence, breach of fiduciary duty, and the like, barred further proceedings on her federal securities claim in federal court. A third federal district judge granted the motion and dismissed Coffey's federal securities claim. In so doing, the federal district court recognized the rule of Greenblatt v. Drexel Burnham Lambert, Inc., 763 F.2d 1352 (11th Cir.1985), that a federal claim which is non-arbitrable may be barred by collateral estoppel arising out of the resolution of state claims which were subject to arbitration. ³ The federal district court in granting Dean Witter summary judgment concluded that "collateral estoppel is properly applied to plaintiff's 10b-5 claim based on the prior arbitration and decision in favor of the defendants on all plaintiff's claims save for her 10b-5 claim, which the Tenth Circuit determined she could not be compelled to arbitrate."

On appeal, Dean Witter's basic position is that the arbitration award in favor of Dean Witter on Coffey's state claim based on state securities law involved the same issues as posed by her claim based on federal securities law, and, having lost her claim based on state securities law, she is collaterally estopped from proceeding further with her 10b-5 claim. Coffey's basic position is that issues resolved in the arbitration of the issues raised by her complaint in state court are not identical with the issues raised in her proceeding in federal court based on federal...