Dean Witter Reynolds, Inc. v. McCoy

• Decision Date: 27 November 1995
• Docket Number: No. 94-5779,94-5779
• Citation: 70 F.3d 1271
• Parties: Fed. Sec. L. Rep. P 99,002 NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. DEAN WITTER REYNOLDS, INC., Plaintiff-Appellee, v. M.C. MCCOY; Carolyn J. Scott; Lois S. Stooksbury; Nan C. Robinson; Herman E. Collier; C. Cecil Lance; Irby C. Lightner; Robert O. Worrell; Robert M. James; Herbert T. Wood, Jr.; Aubrey D. Jarratt; J. Howell Peebles, Jr.; David L. Merzbacher; Mack R. Mulkey; James T. Hatfield; Walter C. Swanson; Wanda J. Swanson; Ronald J. Bailey, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1271

70 F.3d 1271

Fed. Sec. L. Rep. P 99,002

NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.

DEAN WITTER REYNOLDS, INC., Plaintiff-Appellee, v. M.C. MCCOY; Carolyn J. Scott; Lois S. Stooksbury; Nan C Robinson; Herman E. Collier; C. Cecil Lance; Irby C Lightner; Robert O. Worrell; Robert M. James; Herbert T Wood, Jr.; Aubrey D. Jarratt; J. Howell Peebles, Jr. David L. Merzbacher; Mack R. Mulkey; James T. Hatfield; Walter C. Swanson; Wanda J. Swanson; Ronald J. Bailey, Defendants-Appellants.

No. 94-5779.

United States Court of Appeals, Sixth Circuit.

Nov. 27, 1995.

Before: RYAN, BATCHELDER, and MOORE, Circuit Judges.

BATCHELDER, Circuit Judge.

Defendants-appellants appeal from the district court's order granting plaintiff-appellee's motion for summary judgment on its complaint for declaratory relief, and granting a permanent injunction. We affirm the judgment of the district court.

I.

Plaintiff-appellee Dean Witter Reynolds ("Dean Witter") filed this action seeking a declaratory judgment that under the Code of Arbitration Procedure of the National Association of Securities Dealers (NASD), the claims of defendants-appellants ("the Investors") were time-barred from arbitration, and also seeking a permanent injunction prohibiting the Investors from pursuing these claims any further, either in arbitration or litigation. The district court initially denied the request for injunctive relief, and on appeal this court remanded to the district court, holding that the issue of whether the claims were arbitrable under the NASD Code was not an issue for arbitration but must be decided by the district court. Dean Witter Reynolds, Inc. v. McCoy, 995 F.2d 649, 651 (6th Cir.1993). On remand, the district court held that the claims, all arising out of allegedly improper investments made on the Investors' behalf by a Dean Witter account executive, were ineligible for arbitration under the time bar of Sec. 15 of the NASD Code and could not be pursued in litigation because under the Investors' contract with Dean Witter arbitration of the claims was mandatory. The district court granted Dean Witter's motion for summary judgment and permanently enjoined the Investors from pursuing their claims either in arbitration or in litigation. Dean Witter Reynolds, Inc. v. McCoy, 853 F.Supp. 1023 (E.D.Tenn.1994). The Investors timely appealed.

II.

A. The Standard of Review

We review de novo both the district court's grant of summary judgment, City Mgmt. Corp. v. U.S. Chemical Co., 43 F.3d 244, 250 (6th Cir.1994), and its grant of judgment under the Declaratory Judgment Act, 28 U.S.C. Sec. 2201, Allstate Ins. Co. v. Mercier, 913 F.2d 273, 277 (6th Cir.1990). We consider five criteria when reviewing a request for a declaratory judgment: (1) whether the declaratory judgment would settle the controversy; (2) whether it would serve a useful purpose in clarifying the legal relations in issue; (3) whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race for res judicata"; (4) whether use of a declaratory action would increase friction between federal and state courts and improperly encroach upon state jurisdiction; and (5) whether there is an alternative remedy which is better or more effective. Id.; Allstate Ins. Co. v. Green, 825 F.2d 1061, 1063 (6th Cir.1987).

B. Analysis

Section 15 of the NASD Code of Arbitration Procedure reads as follows:

Time Limitation on Submission. 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.

There is no dispute that the investments complained of here were made more than six years prior to the Investors' filing of any claims in arbitration. The Investors argue, however, that their claim or cause of action did not arise until discovery of the alleged injury because the "occurrence or event" from which the six years began to run was the discovery of the injury. What the Investors refuse to acknowledge, however, is that the injury they complain of occurred when the investments were first made. Consequently, the Investors' claim arose and the six-year time limit began to run at the time the investments were made.

The Investors received prospectuses from their Dean Witter agent which clearly outlined the substantial risks of investing in limited partnerships. It is not enough for these Investors to complain that they were naive and inexperienced investors. Unless the prospectuses were misleading in some way, these Investors were on notice--at the time the investments were made--of the nature of the investments made on their behalf. The prospectuses received by the Investors were clearly worded and cannot, by any stretch, be read to be misleading, even for a novice investor.

There is no merit in the Investors' allegation that their injury did not occur until the investments turned sour. Adopting the Investors' interpretation would clearly undermine the intention of Sec. 15 calling for a six-year time limit on the arbitrability of claims, and would enable the Investors to control the running of the time limit while they reaped the benefits of the investments about which they would later complain.

The Investors also argue that Sec. 15 is subject to equitable tolling, contending that the six-year time period should be tolled if it is found that fraudulent concealment prevented discovery of the injury. We need not reach this issue at this time, however, because we hold that the Investors provided no evidence in response to the motion for summary judgment sufficient to raise a genuine issue of fact material to their claim of fraudulent concealment, and for the reasons stated by the district court, the Investors cannot prove that Dean Witter was guilty of fraudulent concealment.

The Investors raise several additional issues: (1) that Sec. 15 does not bar claims which would otherwise have been timely under the applicable state statute of limitations; (2) that the Tennessee discovery rule tolls the statute of limitations in actions for breach of fiduciary duty; and (3) that receipt of the prospectuses was not enough to trigger the six-year time limit in Sec. 15. The district court addressed each of these issues, and for the reasons stated in its opinion, we affirm the district court's ruling as to each of these issues.

Finally, we find that it was not error for the district court to enjoin the Investors from litigating their claims once the court found that arbitration was precluded. The enactment of the Federal Arbitration Act (FAA) manifested Congress' clear intent to require courts to enforce privately negotiated arbitration agreements, Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989), and it is undisputed that these Investors voluntarily entered into an arbitration agreement with Dean Witter that clearly intends for all disputes to be resolved exclusively through arbitration.

II.

For the foregoing reasons, we AFFIRM the order of the district court.

MOORE, Circuit Judge, dissenting.

There are two critical issues in this case: First, have the Investors met their burden of producing evidence of fraudulent concealment by Dean Witter sufficient to withstand summary judgment? Second, does the equitable tolling doctrine apply to permit resolution of claims filed more than six years after the investment in unsuitable securities? Because I believe that the Investors did produce evidence of fraudulent concealment sufficient to demonstrate a genuine issue of material fact, and that the doctrine of equitable tolling does apply, I would reverse the district court's grant of summary judgment and remand to the district court with directions to apply the doctrine of equitable tolling as appropriate to the circumstances found in each individual case.

I.

I disagree with the majority only on one issue: I believe that the evidence before the district court on the summary judgment motion, when viewed in the light most favorable to the Investors, giving them the benefit of all reasonable inferences to be drawn therefrom, see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986), was sufficient to establish the existence of a genuine issue of fact material to the claims of fraudulent concealment.

To toll a limitations period for fraudulent concealment under Tennessee law, one generally "must prove that the [other party] took affirmative action to conceal his cause of action and that [one] could not have discovered [one's] cause of action despite exercising reasonable diligence." Vance v. Schulder, 547 S.W.2d 927, 930 (Tenn.1977). The affirmative action requirement, however, is relaxed where a confidential or fiduciary relationship exists between the parties; in such instances there is a duty to disclose, and mere silence may constitute fraudulent concealment. Benton v. Snyder, 825 S.W.2d 409, 414 (Tenn.1992); Clark v. American Nat'l Bank and Trust, 531 S.W.2d 563, 569 (Tenn.Ct.App.1974), cert. denied, 423 U.S. 1053 (1976). In Tennessee, the relationship between agent and principal is clearly subject to such a duty to disclose. Marshall v. Sevier County, 639 S.W.2d 440, 446 (Tenn.Ct.App.1982); Heard v. Miles, 222 S.W.2d 848, 851-52 (Tenn.Ct.App.1949).

Dean Witter and the district court concentrate on the second element of fraudulent concealment, asserting that the prospectuses that the Investors received fully described the limited...