Dillard v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

• Decision Date: 15 May 1992
• Docket Number: Nos. 90-2722,90-2761 and 91-2135,s. 90-2722
• Citation: 961 F.2d 1148
• Parties: Fed. Sec. L. Rep. P 96,817, 1992-1 Trade Cases P 69,844 C.G. DILLARD, Plaintiff-Appellant, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., et al., Defendants-Appellees. Carvel G. DILLARD, Plaintiff-Appellant, v. SECURITY PACIFIC CORP., et al., Defendants-Appellees. Carvel DILLARD, Plaintiff-Appellant, v. SECURITY PACIFIC BROKERS, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1148

961 F.2d 1148

Fed. Sec. L. Rep. P 96,817, 1992-1 Trade Cases P 69,844

C.G. DILLARD, Plaintiff-Appellant, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., et al.,

Defendants-Appellees.

Carvel G. DILLARD, Plaintiff-Appellant, v. SECURITY PACIFIC CORP., et al., Defendants-Appellees.

Carvel DILLARD, Plaintiff-Appellant, v. SECURITY PACIFIC BROKERS, INC., et al., Defendants-Appellees.

Nos. 90-2722, 90-2761 and 91-2135.

United States Court of Appeals, Fifth Circuit.

May 15, 1992.

Carvel Gordon Dillard, pro se.

Karl S. Stern, Vinson & Elkins, Houston, Tex., for Merrill Lynch.

Michael S. Goldberg, Bennett S. Bartlett, Baker & Botts, Houston, Tex., for Sec. Industries Ass'n.

Steve Stewart, Collyn Peddie, Edward Fudge, Jenkins & Gilchrist, Houston, Tex., for Sec. Pacific Corp.

Steve Stewart, Edward Fudge, Jenkens & Gilchrist, Houston, Tex., for Sec. Brokers, Inc.

Appeals from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, BROWN and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

In this consolidated appeal, Carvel Dillard challenges an order compelling arbitration of his 1985 case and orders dismissing his 1986 and 1988 cases. We affirm the order compelling arbitration, affirm in part the dismissals, and remand the 1986 and 1988 cases to the respective district courts.

I.

Dillard maintained an account with Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch") for the purpose of trading securities. The brokerage agreement contained a provision by which the parties agreed to settle any disputes through arbitration. ¹ In December 1983, Merrill Lynch partially liquidated some stock held in Dillard's account--an action Dillard claims it took over his objection.

Dissatisfied with Merrill Lynch, Dillard entered into an agreement with the Financial Clearing Services Corporation (FCSC), Security Pacific Brokers, Inc., and Security Pacific Corporation (collectively "Security Pacific") ² on February 14, 1984, whereby Security Pacific agreed to purchase put and call options for Dillard upon request and Dillard agreed to open an account with Security Pacific and keep it fully margined. On February 16, 21, and 23, Dillard delivered to Security Pacific three drafts on his Merrill Lynch account totaling $56,256 to finance Security Pacific's trading on his behalf. Merrill Lynch failed to honor the drafts, however, as Dillard's account then had a deficit in excess of $5,000. On February 27, Dillard directed Security Pacific to purchase certain options. Security Pacific did not carry out this order; nor did it carry out a subsequent order for the same options at a different price.

Security Pacific sued Dillard to recover on the bad Merrill Lynch drafts. Although Dillard answered Security Pacific's complaint, he failed to comply with the court's discovery orders, and a default judgment was entered against him. After he filed his answer, Security Pacific (along with Merrill Lynch) instigated a criminal prosecution against him with regard to the bad drafts.

Dillard then filed three pro se federal lawsuits--respectively, in 1985, 1986, and 1988--against Merrill Lynch, Security Pacific, and other parties involved in the securities transactions and the criminal prosecution. All three of Dillard's lawsuits are at issue in this consolidated appeal.

A.

On July 16, 1985, Dillard filed suit ("the 1985 case") against Merrill Lynch, alleging that it had committed certain fraudulent acts in handling securities transactions on his behalf. His complaint alleged that Merrill Lynch violated section 17(a) of the Securities Act of 1933 ("the 1933 Act"), 15 U.S.C. § 77q(a); section 10(b) of the Securities Exchange Act of 1934 ("the 1934 Act"), 15 U.S.C. § 78j(b), and rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; and the Texas Deceptive Trade Practices Act (DTPA), Tex.Bus. & Com.Code Ann. § 17.41 et seq.

Merrill Lynch moved to dismiss the complaint for failure to state a claim as required by Fed.R.Civ.P. 12(b)(6); in the alternative, it moved for a more definite statement on the ground that Dillard had failed to plead fraud with sufficient particularity as required by Fed.R.Civ.P. 9(b). In addition, Merrill Lynch moved to compel arbitration pursuant to the arbitration provisions of his trading agreement with Merrill Lynch and requested a stay pending arbitration.

Dillard then filed a "Motion To Declare Compulsory Arbitration Provisions of Defendant's Adhesion Contracts To Be Invalid, and Unenforceable and To Enjoin Enforcement of Same." In the motion, Dillard for the first time raised allegations of an antitrust conspiracy among brokerage firms to include arbitration clauses in all brokerage contracts.

On March 23, 1987, Judge Ross Sterling held a motions hearing. From the bench he ruled that Dillard had no private right of action under section 17(a) of the 1933 Act; that he had not properly pleaded a cause of action under rule 10b-5; and that the claims he had properly pleaded were subject to arbitration and should be stayed pending arbitration. He also ruled that Dillard had not properly raised the requests for declaratory and injunctive relief in his pleadings. Judge Sterling died before entering the order, and the case was assigned to Judge Sim Lake.

On February 1, 1990, Judge Lake "concur[red] with Judge Sterling's finding of a contract requiring arbitration" and ordered the parties to begin arbitration within thirty days. He went on to state that Dillard had made no claim "that creates any question of law, equity or fact that cannot be arbitrated." ³ He also noted that Dillard's request for declaratory and injunctive relief was not properly raised in his pleadings, stating that "[p]laintiff's motions objecting to arbitration on the grounds of federal antitrust law or adhesion contracts are irrelevant because they are beyond the scope of his pleadings." In addition, he denied Dillard's "Motion for Findings of Fact and Conclusions of Law Concerning Injunctive Relief and Other Previously Filed Motions" that had been filed on October 11, 1989. Finally, he dismissed the entire action without prejudice.

On February 14, 1990, Dillard filed a motion under Fed.R.Civ.P. 59(e) to alter or amend the judgment. Although he took issue with the court's refusal to consider his antitrust allegations as a separate cause of action, he did not amend his complaint to add these allegations. He also filed a motion for trial by jury. These motions were denied.

On March 3, 1990, Dillard initiated arbitration proceedings before the Chicago Board Options Exchange by filing a Statement of Claim, which was a copy of his first amended complaint in the 1985 case. The matter was referred to the National Association of Securities Dealers, which dismissed all of Dillard's claims after an arbitration hearing on January 4, 1991. Dillard now appeals, challenging the district court's arbitration order and dismissal of the case as well as its refusal to enter findings of fact and to enjoin the enforcement of the arbitration provisions.

B.

On August 20, 1986, Dillard filed his second federal lawsuit ("the 1986 case")--this time against Security Pacific. ⁴ In his original complaint, Dillard brought claims relating to (1) the securities transactions (under federal securities law) and (2) the criminal prosecution (under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., and the Hobbs Act, 18 U.S.C. § 1951; he also accused Security Pacific of "false swearing" and "bribery"). ⁵

On May 20, 1987, the court dismissed the suit on res judicata grounds. Judge Sterling reasoned that all of the claims asserted in Dillard's complaint should have been raised as compulsory counterclaims to Security Pacific's suit to recover on the bad Merrill Lynch drafts.

Dillard appealed, and on January 15, 1988, we affirmed the dismissal as to all claims arising prior to Dillard's answer to Security Pacific's complaint but reversed as to all claims arising after the answer was filed. Specifically, we concluded that the res judicata bar of the default judgment (entered after Dillard had failed to comply with discovery orders) did not encompass Dillard's claims arising out of the criminal prosecution, as the prosecution was instituted after Dillard filed his answer. Dillard v. Security Pacific Brokers, 835 F.2d 607, 609 (5th Cir.1988) ("Dillard I "). We therefore vacated the dismissal as to Dillard's claims arising from the criminal prosecution and remanded for further proceedings.

Dillard filed a supplemental complaint on July 18, 1988. Judge James DeAnda, to whom the suit had been transferred, struck the supplemental complaint on August 2, 1988, reasoning that Dillard had failed to request leave to file. In his attempted supplemental complaint, Dillard added claims under the federal antitrust laws; he also accused Security Pacific of "malicious prosecution" and of "undertak[ing] an illegal, improper and perverted use of criminal process." Finally, he made accusations against Security Pacific Corporation (the parent company of Security Pacific Brokers, Inc., and the FCSC), Jenkens & Gilchrist (counsel for Security Pacific), Merrill Lynch, and the Securities Industry Association (SIA). The suit subsequently was transferred to Judge Lake.

After a status conference on September 15, 1989, Judge Lake ordered Dillard to file an amended complaint by October 15, 1989. Dillard did not file an amended complaint; instead, he filed a motion for a stay pending our decision in the 1988 case discussed infra. Judge Lake granted the stay on October 27, 1989. We then disposed of the first appeal of the 1988 case on May 22, 1988, and Judge Lake ordered Dillard to file an amended complaint by October 5, 1990, or face dismissal.

Dillard complied with Judge Lake's order. His amended complaint added Merrill Lynch, Jenkens & Gilchrist, and the Securities Pacific Corporation as defendants. He also...