Deputy v. Lehman Bros., Inc., 02-C-0718.

• Decision Date: 16 June 2005
• Docket Number: No. 02-C-0718.,02-C-0718.
• Citation: 374 F.Supp.2d 695
• Parties: Doris DEPUTY, Plaintiff, v. LEHMAN BROTHERS, INC., S.G. Cowen Securities Corporation, Cowen & Company, Hambrecht & Quist, Inc., and J.P. Morgan Chase & Co., Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

374 F.Supp.2d 695

Doris DEPUTY, Plaintiff, v. LEHMAN BROTHERS, INC., S.G. Cowen Securities Corporation, Cowen & Company, Hambrecht & Quist, Inc., and J.P. Morgan Chase & Co., Defendants.

No. 02-C-0718.

United States District Court, E.D. Wisconsin.

June 16, 2005.

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Steven J. Berryman, Michael H. Schaalman, Quarles & Brady LLP, Milwaukee, WI, for Plaintiff.

H. Nicholas Berberian/Patrick G. King, August H. Schupp, Neal Gerber & Eisenberg, Chicago, IL, Sean O. Bosack & John L. Kirtley, Godfrey & Kahn SC, Michael J. Aprahamian/Paul Bargren, Nancy J. Sennett, Foley & Lardner, Milwaukee, WI, P. Benjamin Duke/Philip A. Irwin, Laurence A. Silverman, Covington Burling, New York City, D. Grayson Yeargin, Covington & Burling, Washington, DC, Harris A. Senturia/Michael T. Sprenger, Charna E. Sherman/David C. Weiner, Squire Sanders & Dempsey, Cleveland, OH, K. Scott Wagner, Hale & Wagner SC, Russell S. Long/Michael R. Wherry, Davis & Kuelthau, S.C., Milwaukee, WI, for Defendants, [Lehman Brothers, Inc.], [S.G. Cowen Securities Corporation], [Cowen & Company], [Hambrecht & Quist, Inc.].

DECISION AND ORDER

RANDA, Chief Judge.

Doris Deputy ("Deputy") is suing Lehman Brothers ("Lehman") and its co-defendants for various state law claims, including misrepresentation, negligent supervision, violation of fiduciary duty, and conversion. Deputy's action originated in Wisconsin state court, but was removed to federal court on the basis of diversity jurisdiction. In 2003, Lehman appealed, inter alia, a district court's determination that an arbitration clause in agreements entered into by the parties was not enforceable. See Deputy v. Lehman Bros., Inc., No. 02-CV-00718 (E.D.Wis. Jan. 7, 2003) (Clevert, J.). The Seventh Circuit found that Deputy's claims clearly fell within the scope of the agreements' arbitration clauses and remanded the case for further proceedings.¹ Since that remand, a jury determined that Deputy's signature on one agreement was forged, but her signature on a custodial account opened for her grandson was found to be authentic. Lehman seeks to enforce the arbitration clause in this custodial account agreement and compel arbitration for claims arising from accounts that Deputy holds in an individual, non-custodial capacity. Lehman has moved for a new trial pursuant to Fed.R.Civ.P. 59, and Deputy has renewed her motion for judgment as a matter of law according to Fed.R.Civ.P. 50(b).

I. BACKGROUND

Deputy's complaint chronicles an unfortunate series of events. In the 1980's, Deputy and her husband (now deceased) began investing with a broker dealer named Frank Gruttadauria ("Gruttadauria"), who was employed, at various stages, by the Defendants to this action. Over several years, Deputy sent hundreds of thousands of dollars to Gruttadauria and he seemed to invest that money with extraordinary foresight and acumen, as evidenced by the burgeoning value of Deputy's accounts. But Deputy was deceived. Gruttadauria defrauded Deputy and numerous other investors out of millions of dollars. Gruttadauria had sent his clients falsified account statements that overstated the worth of their accounts. Deputy's accounts were, in fact, worth only a fraction of the value that had been represented to her. As a result of his misdeeds, Gruttadauria is now serving a prison sentence. Deputy's amended complaint contends that Gruttadauria's employers are, in part, responsible for Gruttadauria's activities and the resulting damages to her.

The parties disputed whether Deputy's claims must be submitted to arbitration consistent with an arbitration provision found in two of Deputy's Lehman Client Agreements, dated April 21, 2001 and July 26, 2001 respectively. The former is a custodial account that Deputy opened for her grandson, Casey. The latter-the July 26th account-is an account that Deputy opened for herself in an individual capacity. There was a twist, however. Deputy contested the authenticity of the signatures appearing on those documents. She claimed that Gruttadauria forged her signatures on the account agreements as part of his illegal enterprise. Lehman maintained that the signatures were Deputy's own and, therefore, she was bound to arbitrate her grievances against them.

Following a trial on the authenticity of the signatures appearing on the agreements, a jury found that the signature on the July 26, 2001 agreement, a personal account of Deputy's, was not her own. However, the jury also found that Deputy's authentic signature did appear on the April 26th Agreement, the account opened by her and for her grandson. That Client Agreement clearly designates Deputy's signatory capacity pursuant to the Wisconsin Uniform Transfers to Minors Act ("the Wisconsin UTMA") and identifies her as the custodian for her grandson.

On June 14, 2004, the Court received Lehman's Motion for a New Trial and, on the next day, Deputy's Rule 50(b) Motion for Judgment as a Matter of Law After Trial.² Deputy asks this Court to find, as a matter of law, that her signature on her grandson's Client Agreement, and the arbitration provision contained therein, does not bind her to arbitrate her complaints against Lehman as Gruttadauria's employer. Lehman, in its motion, states that, if the Court should rule in Deputy's favor on her Rule 50(b) motion, it is entitled to a new jury trial because the Court erred in allowing Deputy to present an expert witness whose testimony misled and confused the jury, thereby impermissibly tainting the jury's verdict.

II. ANALYSIS

Federal Rule of Civil Procedure Rule 50(b) states that a party may renew a motion for judgment as a matter of law if made within 10 days of the entry of judgment. Fed.R.Civ.P. 50(b). A party must move for judgment as a matter of law at the close of evidence or, by failing to do so, waive its right to file a renewed motion following the return of a verdict, regardless of the absence of prejudice to the non-movant. Laborers' Pension Fund v. A & C Envtl., Inc., 301 F.3d 768, 775-76 (7th Cir.2002). Insofar as this is a case in diversity, the Court applies the standard of the State of Wisconsin for renewed judgments as a matter of law. See Winger v. Winger, 82 F.3d 140, 143 (7th Cir.1996); Sokol Crystal Prods., Inc. v. DSC Communications., Corp., 15 F.3d 1427, 1434 (7th Cir.1994) ("The rule in the Seventh Circuit is that in diversity cases, a district court should look to state law to determine the standard to be applied to a motion for judgment as a matter of law."). Wisconsin law, specifically section 805.14(5)(d) of the Wisconsin Statutes, states that "[a] party who has made a motion for directed verdict or dismissal on which the court has not ruled pending return of the verdict may renew the motion after the verdict." Wis. Stat. § 805.14(5)(d).

The crux of the argument between the parties is whether Deputy's signature on her grandson's account (i.e., the April 26, 2001, Agreement) binds her to arbitrate her grievances against Lehman.³ To support their respective positions, the parties rely on different legal theories. Lehman invokes contract law and asserts that Deputy cannot evade the plain wording of the Agreement she signed, regardless of her signatory capacity as custodian. Deputy, by contrast, claims that her status as custodian on the account acts as a unique legal identity that prevents Lehman from imposing the terms of the Agreement onto her own personal, individual accounts. She also argues that Lehman has never produced those pages, which purportedly contain the Agreement's arbitration clause and, therefore, she cannot be bound by the arbitration clause supposedly contained in those missing pages.

The Court first considers Deputy's argument that she is not bound to arbitrate because Lehman has failed to produce those pages of the Agreement containing the relevant arbitration clause. Testimony elicited at trial showed that Lehman did not have, and likely never possessed, the third or fourth pages of the Agreement. The contested arbitration clause is found in Paragraph 22 of the photocopied third page of the Agreement, or, more precisely, the photocopied pages of a standard Lehman agreement which were offered in lieu of the Agreement's original pages (assuming they existed). The question before the Court is whether Lehman's inability to produce the third and fourth pages of the Agreement precludes any attempts to enforce the arbitration provision contained therein.⁴

There is a fundamental problem with Deputy's position: the Agreement states that the affixed signature (Deputy's) confirms that the signor received a copy of the arbitration provision. ("I (We) acknowledge that I(we) have received a copy of the agreement which contains a pre-dispute arbitration clause at Paragraph 22; I(we) have read it and agree to its terms.")⁵ Deputy's own signature acknowledges that the parties agreed to an arbitration provision as part of their agreement. Deputy could contest what, exactly, that provision stated, but she has not advanced this argument. In any event, Deputy cannot contest that she received the whole Agreement-her signature indicates that she did. Thus the arbitration provision was in contemplation of the parties, they intended to contract for it, and there was a meeting of the minds on that term. See Goossen v. Standaert, 189 Wis.2d 237, 525 N.W.2d 314, 318 (1994). The Court now turns to consider the substance of the Agreement with Lehman and the parties' arguments related thereto.

Deputy devotes the first section of her supporting brief to the position that a legal custodian is not individually and personally bound to the terms of a contract signed in a custodial capacity. (See Pl. D. Deputy's Br. in Supp. of her Rule 50(b) Mot. for J. as a Matter of Law after Trial ("Supp.Br.") at 8-11.) This proposition, grounded in agency law, seems virtually axiomatic and immune from attack.⁶ Deputy is on firm ground in her assertions...