Crean v. Morgan Stanley Smith Barney, LLC
| Decision Date | 23 January 2023 |
| Docket Number | 21-cv-11021-PBS |
| Parties | MARK R. CREAN and DAWN M. DINO, Personal Representative of the Estate of DAVID M. CREAN and as Trustee of HALMARK SYSTEMS, INC. PROFIT SHARING PLAN, Plaintiffs, v. MORGAN STANLEY SMITH BARNEY, LLC, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
MEMORANDUM AND ORDER ON MORGAN STANLEY SMITH BARNEY LLC'S MOTION TO COMPEL ARBITRATION AND STAY
The plaintiffs, Mark R. Crean and Dawn M. Dino, as Personal Representative of the Estate of David M. Crean and as Trustee of Halmark Systems, Inc. Profit Sharing Plan, (collectively “the plaintiffs”), have brought suit against Morgan Stanley Smith Barney, LLC (“the defendant” or “Morgan Stanley”). The operative amended complaint presently asserts claims for breach of contract conversion, fraud, breach of fiduciary duties, and violation of M.G.L. c. 93A, § 9. Pending before the court is the defendant's motion to compel the plaintiffs to submit the claims to arbitration. (D. 25). The defendant also moves to stay these proceedings pending resolution of the arbitration. (D. 25).
The plaintiffs argue in opposition that there is no showing that a written arbitration agreement exists, and that the defendant has effectively admitted as much where it failed to answer a request for admission regarding a written agreement and provide documents in response to a document request asking for the same. (D. 28). They argue further that the defendant waived the right to seek arbitration by waiting until the close of discovery to file the motion to compel arbitration. (D. 28, pp. 4-5). The court agrees that the defendant has failed to persuasively prove the existence of a written arbitration agreement. For this and other reasons stated below, the motion to compel (D. 25) is denied.
The defendant moves to compel arbitration pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16. In such circumstances, a summary judgment standard applies to evaluating the motion. Air-Con, Inc. v. Daikin Applied Latin America, LLC, 21 F.4th 168, 174 (1st Cir. 2021) (); Soto v. State Industrial Products, Inc., 642 F.3d 67, 72 n.2 (1st Cir. 2011) ( argument that district court improperly considered documents outside scope of complaint because movant sought review under FAA as opposed to Fed. R. Civ. P. 12(b)(6)). An exception applies when the party moving to compel relies on “only uncontroverted allegations from the complaint,” as did the party moving to compel in Air-Con. AirCon, 21 F.4th at 177 & n.10. The defendant, however, relies on matters outside the unsworn amended complaint (D. 26-1, pp. 228241), including a Morgan Stanley client agreement and an affidavit. (D. 26-1, pp. 2, 34-48).
In describing the summary judgment standard, the court in Air-Con initially declares that “[i]f the non-moving party puts forward materials that create a genuine issue of fact about a dispute's arbitrability, the district court ‘shall proceed summarily' to trial to resolve that question.” Air-Con, 21 F.4th at 175 (). The court goes on to state that “[t]he non-moving party ‘cannot avoid compelled arbitration by generally denying the facts upon which the right to arbitration rests; the party must identify specific evidence in the record demonstrating a material factual dispute for trial.'” Id. at 175 n.8 (quoting Soto, 642 F.3d at 72 n.2). Notably, later in the decision the Air-Con court recognizes that “the non-moving party's burden ‘to offer evidence supporting its own case' does not arise ‘unless the moving party meets its initial burden' of production.” Id. at 177 (citing Carmona v. Toledo, 215 F.3d 124, 133 (1st Cir. 2000)) (emphasis added).
Accordingly, in finding that the summary judgment standard applies to a motion to compel arbitration, the Air-Con court did not reject sub silentio the initial summary judgment burden of production placed on the movant seeking arbitration. Bolstering this conclusion is the fact that the movant seeking arbitration in Soto implicitly met its initial summary judgment burden of production by putting forth several documents which the non-moving party signed, including an acknowledgment of the company's dispute resolution program and a contract with an arbitration clause. Soto, 642 F.3d at 70.
In short, “if the party moving to compel arbitration meets its initial burden of production, the non-moving party must offer evidence supporting its own case” and “cannot avoid compelled arbitration by generally denying the facts upon which the right to arbitrate rests.” Casale v. Ecolab Inc., Docket No. 2:21-CV-00126-NT, 2022 WL 1910126, at *4 (D. Me. June 3, 2022), appeal filed, No. 22-1498 (1st Cir. June 27, 2022). Here, in attempting to satisfy its initial burden of production, the defendant primarily relies on an affidavit (D. 26-1, p. 2) to show the existence of a written arbitration agreement binding on Halmark PSP. (D. 26); see generally Carmona, 215 F.3d at 132 n.8 ().
In 1982, Edwin and David Crean incorporated Halmark Systems, Inc. in Massachusetts and served as the company's officers, directors, and shareholders. (D. 1-1, p. 229, ¶¶ 4-5). In 1984, they created the Halmark Systems, Inc. Profit Sharing Plan (“Halmark PSP”).[1] (D. 1-1, p. 230, ¶ 6) (D. 1-1, p. 26, ¶ C). By affidavit, Arthur Murphy, Jr. (“Murphy”), a current “Vice President, Financial Advisor” at Morgan Stanley, states that the Halmark PSP “opened an investment account with a Morgan Stanley predecessor, Legg Mason, Inc. (“Legg Mason”), “titled ‘Edwin Crean Trustee Halmark Systems RPM PS Profit Sharing Plan, Retirement Account No. XXX-XX410'” (“Halmark PSP Account”) “[o]n or about February 16, 2005.”[2] (D. 26-1, p. 2, ¶ 2).
On January 18, 2012, Morgan Stanley acquired the Halmark PSP Account. (D. 26-1, p. 2, ¶ 3). Murphy attests that “Halmark PSP would have been required to sign a client agreement containing a mandatory arbitration clause” when it opened the account with Legg Mason, Inc. (“Legg Mason”) in February 2005.[4] . At present, however, “Morgan Stanley is unable to locate a signed copy of the [Legg Mason client agreement] controlling the Halmark PSP Account.” (D. 26-1, p. 2, ¶ 4). Murphy further avers that the Legg Mason client “account agreement would have contained an arbitration provision similar to those used by Morgan Stanley at account opening.”[5] (D. 26-1, p. 2, ¶ 4). Attached to his affidavit is an unsigned Morgan Stanley account client agreement “used by Morgan Stanley at account opening” (“Morgan Stanley client agreement”). (D. 26-1, p. 2, ¶ 4) (D. 26-1, pp. 34-48). Murphy avers that “[t]he arbitration provision” in this agreement “is similar to the arbitration provision that Halmark PSP would have executed” when it opened the account with Legg Mason.[6] (D. 26-1, p. 2, ¶ 5).
The arbitration clause in the Morgan Stanley client agreement (“Morgan Stanley arbitration clause”) reads as follows:
You agree that all claims or controversies, whether such claims or controversies arose prior, on or subsequent to the date hereof, between you and Morgan Stanley and/or any of its present or former officers, directors, or employees concerning or arising from (i) any account maintained by you with Morgan Stanley individually or jointly with others in any capacity; (ii) any transaction involving Morgan Stanley or any predecessor or successor firms by merger, acquisition or other business combination and you, whether or not such transaction occurred in such account or accounts; or (iii) the construction, performance or breach of this or any other agreement between you and us, any duty arising from the business of Morgan Stanley or otherwise, shall be determined by arbitration before, and only before, any self-regulatory organization or exchange of which Morgan Stanley is a member.
The amended complaint alleges that, as of March 31, 2018, Mark Crean owned 60% of the Halmark PSP Account, and David M. Crean owned the remaining 40% of the account. (D. 1-1, p. 231, ¶ 14). The value of the account at that time was $110,017. (D. 1-1, p. 231, ¶ 15).
In April, May, and June 2019, Mark Crean made several requests to Morgan Stanley to withdraw his portion of the Halmark PSP Account. (D. 1-1, p. 232). He made additional requests in 2020. (D. 1-1, pp. 233, 428-29, 436-37). Despite these requests, Morgan Stanley “continues to hold, withhold, and retain the funds” and assets in the account. (D. 1-1, p. 234, ¶ 38). As a result, on April 29, 2021, the plaintiffs filed this action in the Massachusetts Superior Court Department (Suffolk County). (D. 11, p. 5). As noted, the amended complaint sets out claims for breach of contract, conversion, fraud, breach of fiduciary duties, and violation of M.G.L. c. 93A, § 9. (D. 1-1, pp. 235-239).
The plaintiffs served the complaint on the defendant on May 20 2021, and served the amended complaint on June 14, 2021. The defendant timely removed the action to the United States District Court for the District of Massachusetts four days later, on June 18, 2021. On June 25, 2021, the defendant filed an answer to the amended complaint. Notably, it sets out an affirmative defense that the claims are barred “by the...
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