Dean Witter Reynolds, Inc. v. McCoy

• Citation: 853 F. Supp. 1023
• Decision Date: 11 May 1994
• Docket Number: 1:92-cv-53,No. 1:92-cv-42,1:92-cv-52,1:92-cv-50,1:92-cv-49,1:92-cv-45-1:92-cv-47,1:92-cv-474-1:92-cv-480,and 1:93-cv-17-1:93-cv-19.,1:92-cv-42
• Parties: DEAN WITTER REYNOLDS, INC., Plaintiff, v. M.C. McCOY, Carolyn J. Scott, Lois S. Stooksbury, Nan C. Robinson, Herman E. Collier, C. Cecil Lance, Irby C. Lightener, Robert O. Worrell, Robert M. James, Herbert T. Wood, Jr., Aubrey D. Jarratt, J. Howell Peebles, Jr., David L. Merzbacher, Mack R. Mulkey, Walter C. Swanson, James T. Hatfield, Walter C. Swanson and Wanda J. Swanson, and Ronald J. Bailey, Defendants. T. Moffatt Storer, S.C. Reed, Intervenors.
• Court: U.S. District Court — Eastern District of Tennessee

853 F. Supp. 1023

DEAN WITTER REYNOLDS, INC., Plaintiff, v. M.C. McCOY, Carolyn J. Scott, Lois S. Stooksbury, Nan C. Robinson, Herman E. Collier, C. Cecil Lance, Irby C. Lightener, Robert O. Worrell, Robert M. James, Herbert T. Wood, Jr., Aubrey D. Jarratt, J. Howell Peebles, Jr., David L. Merzbacher, Mack R. Mulkey, Walter C. Swanson, James T. Hatfield, Walter C. Swanson and Wanda J. Swanson, and Ronald J. Bailey, Defendants T. Moffatt Storer, S.C. Reed, Intervenors.

Nos. 1:92-cv-42, 1:92-cv-45-1:92-cv-47, 1:92-cv-49, 1:92-cv-50, 1:92-cv-52, 1:92-cv-53, 1:92-cv-474-1:92-cv-480, and 1:93-cv-17-1:93-cv-19.

United States District Court, E.D. Tennessee, Southern Division, at Chattanooga.

May 11, 1994.

COPYRIGHT MATERIAL OMITTED

Hugh J. Moore, Jr., Witt, Gaither & Whitaker, Chattanooga, TN, George D. Sullivan, New York City, for plaintiff.

Michael A. Meyer, Sidwell & Barrett, Franklin, TN, for defendants.

MEMORANDUM

EDGAR, District Judge.

This is an action by plaintiff Dean Witter Reynolds, Inc. ("Dean Witter") for a declaratory judgment that the defendants' claims arising out of their investment in securities and the purchase of interests in various limited partnerships which occurred more than six years prior to the filing of their arbitration claims are untimely and ineligible for arbitration. Dean Witter seeks a declaratory judgment that it is under no contractual obligation to appear and defend itself in arbitration proceedings against any such untimely claims. Furthermore, Dean Witter seeks a permanent injunction prohibiting defendants from attempting to arbitrate and litigate stale claims that are no longer eligible for arbitration pursuant to the terms of the parties' agreements. Defendants have filed a counterclaim requesting that an injunction be issued requiring Dean Witter to proceed to arbitration on the claims. (Court File Nos. 23, 32).

Dean Witter previously applied for preliminary injunctions in these consolidated cases to enjoin scheduled arbitration hearings. The Court denied the applications for preliminary injunction but stayed the arbitration hearings pending appeal. Dean Witter appealed, and the Sixth Circuit reversed and remanded the action to this Court for further proceedings. Dean Witter Reynolds, Inc. v. McCoy, 995 F.2d 649 (6th Cir.1993).

The matter presently before the Court is a motion by Dean Witter for summary judgment. (Court File No. 41). After reviewing the record and the applicable law, the Court concludes that the motion will be GRANTED and summary judgment will be entered in favor of Dean Witter. The defendants' counterclaim will be DISMISSED.

I. Standard of Review—Summary Judgment

Fed.R.Civ.P. 56(c) provides that summary judgment will be rendered if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The burden is on the moving party to conclusively show that no genuine issue of material fact exists, and the Court must view the facts and all inferences to be drawn therefrom in the light most favorable to the nonmoving party. White v. Turfway Park Racing Ass'n, Inc., 909 F.2d 941, 943 (6th Cir.1990); 60 Ivy Street Corp. v. Alexander, 822 F.2d 1432, 1435 (6th Cir.1987).

Once the moving party presents evidence sufficient to support a motion under Rule 56, the nonmoving party is not entitled to a trial merely on the basis of allegations. The nonmoving party is required to come forward with some significant probative evidence which makes it necessary to resolve the factual dispute at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); White, 909 F.2d at 943-44; 60 Ivy Street, 822 F.2d at 1435. The moving party is entitled to summary judgment if the nonmoving party fails to make a sufficient showing on an essential element of its case with respect to which it has the burden of proof. Celotex, 477 U.S. at 323, 106 S.Ct. at 2553.

The judge's function at the point of summary judgment is limited to determining whether sufficient evidence has been presented to make the issue of fact a proper jury question, and not to weigh the evidence, judge the credibility of witnesses, and determine the truth of the matter. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); 60 Ivy Street, 822 F.2d at 1435-36. The standard for summary judgment mirrors the standard for directed verdict. The Court must determine "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. at 2511-12. There must be some probative evidence from which the jury could reasonably find for the nonmoving party. If the Court concludes that a fair-minded jury could not return a verdict in favor of the nonmoving party based on the evidence presented, it may enter a summary judgment. Id.

II. Facts

The Court has reviewed the record in the light most favorable to defendants. Defendants have filed similar claims against Dean Witter before the National Association of Securities Dealers ("NASD") Board of Arbitration. The following defendants jointly filed their arbitration claims with NASD on December 28, 1989: Wilda Faye Mays, Carolyn J. Scott, M.C. McCoy, Cecil Lance, Nan Robinson, Herman Collier, Marjorie Collier, Lois Stooksbury, Robert Worrell, Grover T. Crosslin, and Irby Lightner.¹ (Court File No. 3, Exhibit A). Arbitration claims were also subsequently filed with NASD by defendants Robert M. James, Herbert T. Wood, Jr., Audrey D. Jarratt, J. Howell Peebles, Jr., David L. Merzbacher, Mack R. Mulkey, Walter C. Swanson, James T. Hatfield, Walter C. Swanson, Wanda J. Swanson, Ronald J. Bailey, T. Moffatt Storer, and S.C. Reed.

The arbitration claims are all based on the same premise. Defendants allege that Jeffrey Hayden ("Hayden"), an agent of Dean Witter, induced them to entrust the management of their financial affairs to Hayden. Defendants contend Hayden breached a fiduciary duty owned to them under the common law of Tennessee. Hayden took control of the defendants' savings and agreed to manage the assets in a manner consistent with their best financial interests. Defendants were unsophisticated investors who had little or no previous experience with investing funds. With the exception of T. Moffatt Storer, all of the defendants are retirees from, or the widows of, former employees of Arnold Engineering Development Center in Tullahoma, Tennessee. Defendants had substantial amounts of cash from lump-sum pension settlements, insurance benefits, and the like.

It is alleged that Hayden breached his fiduciary duty of trust and confidence by pursuing various investment strategies intended to enrich Hayden and Dean Witter through larger, excessive transaction fees and commissions at the defendants' expense. Although defendants desired to make investments which would accomplish the primary objectives of safety of principal, steady income and liquidity, it is alleged that Hayden pursued high risk investments such as limited partnerships. As a result of Hayden's pursuit of such high risk investment strategies, defendants aver they have lost substantial portions of their principal investments and they seek to recover damages.

When they initially opened their accounts with Dean Witter, all of the defendants executed agreements which contain the same or substantially same language:

Any controversy between DWR and me arising out of or relating to this contract or the breach thereof, shall be settled by arbitration, in accordance with the rules, then obtaining, of either the American Arbitration Association, or the Board of Arbitration of the New York Stock Exchange, as I may elect. If I do not make such election by registered mail addressed to DWR at DWR's main office within five (5) days after receipt of notification from DWR requesting such election, then I authorize DWR to make such election on my behalf. Any arbitration hereunder shall be before at lease sic three arbitrators and the award of the arbitrators, or of a majority of them, shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.

This clause requires the parties to submit any dispute to arbitration and the decision of the arbiters will be final. Although the agreements do not specify arbitration through NASD, it is undisputed that the parties further agreed to NASD arbitration since Dean Witter is a member of NASD.

Dean Witter takes the position that certain claims are not eligible for arbitration because they were not timely filed within the six-year time limit provided in Section 15 of the NASD Code of Arbitration Procedure. The Court of Appeals for the Sixth Circuit has held that before arbitration can commence, the district court must determine from the provisions of the parties' contract whether the defendants' particular grievances are "eligible" for arbitration within the meaning of § 15. In other words, this Court must decide whether the defendants' claims are intended by the parties to be subject to arbitration. McCoy, 995 F.2d at 650; Roney and Company v. Kassab, 981 F.2d 894, 899 (6th Cir.1992).

Most of the disputed purchases of the limited partnerships made by Hayden as investments for defendants occurred in 1981-1985. The parties have stipulated to the dates when the limited partnerships were purchased for each defendant and also the dates when defendants filed their arbitration claims with NASD. (Court File No. 41, Attachment 1 to Stipulations). Dean Witter contends that the claims arising from the purchase of these limited partnerships are not eligible for arbitration under Section 15.

III. Analysis

In its opinion remanding the case to this Court, the Sixth Circuit stated:

We stress that we do not reach the question, as we did in Roney, as to whether Section 15 actually does bar the

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