Dougherty v. Mieczkowski

• Decision Date: 11 May 1987
• Docket Number: Civ. A. No. 86-108 MMS.
• Citation: 661 F. Supp. 267
• Parties: James R. DOUGHERTY, Betty Dougherty, Mary Kay Hall, Stephen E. Sullivan, Stuart Snyder, Constance M. Wulfaert, Mary Tierney Gallagher, Mary Gallagher and Peter Gallagher, Plaintiffs, v. Robert John MIECZKOWSKI, Richard Camp, Frank Kane, and Prudential-Bache Securities, Inc., Defendants.
• Court: U.S. District Court — District of Delaware

661 F. Supp. 267

James R. DOUGHERTY, Betty Dougherty, Mary Kay Hall, Stephen E. Sullivan, Stuart Snyder, Constance M. Wulfaert, Mary Tierney Gallagher, Mary Gallagher and Peter Gallagher, Plaintiffs, v. Robert John MIECZKOWSKI, Richard Camp, Frank Kane, and Prudential-Bache Securities, Inc., Defendants.

Civ. A. No. 86-108 MMS.

United States District Court, D. Delaware.

May 11, 1987.

COPYRIGHT MATERIAL OMITTED

Roderick R. McKelvie, and Randall E. Robbins, of Ashby, McKelvie & Geddes, Wilmington, Del., for plaintiffs.

Robert J. Mieczkowski, pro se.

Stephen E. Herrmann, and Nathan B. Ploener, of Richards, Layton & Finger, Wilmington, Del., for defendants Prudential-Bache Securities, Inc., Richard Camp and Frank Kane.

OPINION

MURRAY M. SCHWARTZ, Chief Judge.

Plaintiffs sued Robert Mieczkowski ("Mieczkowski"), their former broker, Richard Camp ("Camp") and Frank Kane ("Kane"), the managers of the Wilmington, Delaware, office of Prudential-Bache Securities, Inc. ("Prudential-Bache") and Prudential-Bache for violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, Rule 10b-5 promulgated thereunder, § 20(a) of the Act, 15 U.S.C. § 78t, and for state common law fraud, misappropriation, and negligence. Prudential-Bache employed Mieczkowski as a broker from early 1982 until August 1985, where he managed the plaintiffs' accounts, all of which were non-discretionary. Camp was Office Manager of the Wilmington branch from March, 1982, to October, 1984, succeeded by Kane, who remained manager through the rest of Mieczkowski's tenure.

Defendants have filed motions to compel arbitration of plaintiffs' federal and state law claims under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-14, and to sever plaintiffs' claims for separate trial under Federal Rule of Civil Procedure 20. The distinct factual circumstances of each plaintiffs' dealings with Mieczkowski and Prudential-Bache will be examined before turning to the motions at issue.

I. Background¹

There are six sets of plaintiffs pursuing either individual or joint claims against the defendants. Each separate course of dealing will be described.

A. James and Betty Dougherty ("the Doughertys")

The Doughertys were long-time friends with Mieczkowski, who initially solicited their patronage while playing golf with Mr. Dougherty in 1979. Upon moving to Prudential-Bache from another firm, Mieczkowski opened an account for the Doughertys in June, 1982. Over the next three years, the Doughertys invested $88,000 through Prudential-Bache, and claim that by late 1985 their account principal had dropped to approximately $26,000. They state Mieczkowski consistently misled them as to the value of their account and failed to explain the monthly account statements. In July, 1985, Mr. Dougherty complained to Kane, the Prudential-Bache branch manager, about Mieczkowski's conflicting explanations of the value of the account. The Doughertys assert their losses are attributable to excessive trading by Mieczkowski disproportionate to the size and nature of the account. One example of this activity was an alleged unauthorized purchase of GNMA ("Ginnie Mae") bonds on margin. The Doughertys also allege Mieczkowski made an unauthorized $5,000 withdrawal from their account in August, 1983.

A "Customers Agreement," containing a clause requiring arbitration of all claims arising out of the account, contains the purported signatures of the Doughertys and is dated "3/10/83." The Doughertys assert the signatures are forgeries, and R. David Wilkinson, Chief Document Examiner for the Delaware State Police, has submitted an affidavit expressing his opinion that the signatures are not genuine. Docket ("Dkt.") 87, Wilkinson Affidavit. The Doughertys subsequently signed a standard Prudential-Bache "Joint Account Agreement" in April, 1984, with an identical arbitration clause. In August, 1985, after Mieczkowski moved to a different brokerage firm, he requested the Doughertys to switch their account.

The Doughertys claim Mieczkowski bought and sold securities on margin in an excessive amount, thereby diminishing the value of their account, and that Prudential-Bache, Camp and Kane are liable for those unauthorized trades as controlling persons under § 20(a). Plaintiffs assert Prudential-Bache and Kane knew of Mieczkowski's fraudulent acts, and had a duty to warn them when Mieczkowski solicited the account transfer ("failure to warn claim"). The Doughertys have also alleged common law fraud and negligence against Prudential-Bache and Kane, and a misappropriation claim against Camp, Kane, and Prudential-Bache ("state law claims").

B. Mary Kay Hall ("Hall")

Hall, the Doughertys' daughter, opened an account at Prudential-Bache through Mieczkowski in 1983, investing $25,000. She claims Mieczkowski entered into a pattern of unauthorized and excessive purchases and sales for her account, including unauthorized Ginnie Mae bond transactions on margin totaling $400,000. She also states Mieczkowski delayed sending her a $3,000 check she requested and failed to explain the monthly account statements, and misled her regarding the value of her account. A Customers Agreement with Hall's purported signature is alleged to be a forgery, and Mr. Wilkinson opines that the signature is not genuine. Dkt. 87. Upon moving to the new firm, Mieczkowski solicited Hall to change her account. Plaintiff Hall also asserts § 20(a) liability, failure to warn, and state law claims.

C. Stephen Sullivan ("Sullivan")

Sullivan invested over $60,000, funds he had received in a personal injury settlement, with Prudential-Bache in March, 1984. He states he instructed Mieczkowski to invest the money in long-term growth securities. It is not clear from the record what securities Sullivan authorized Mieczkowski to trade. The account declined in value, however, and when queried about this, Mieczkowski informed Sullivan that the monthly account statements did not reflect the true worth of the investment. On April 9, 1985, Mieczkowski wrote a letter detailing the account and putting the total value at $77,639.93. A new Prudential-Bache broker told Sullivan in September, 1985, that the monthly account statements were accurate, as opposed to the April 9 letter. Sullivan claims Mieczkowski bought and sold securities in a manner inconsistent with his investment objectives and in an amount disproportionate to the account. He also asserts § 20(a) liability and state law violations.

D. Stuart Snyder ("Snyder")

Snyder, a college friend of Mieczkowski, invested $14,000 in a Prudential-Bache account in January, 1983. Snyder claims Mieczkowski made unauthorized investments in Ginnie Mae bonds on margin in an excessive amount in relation to the size of the account. When questioned by Snyder, Mieczkowski denied having made the investments, stating the monthly account statements were incorrect, and later told Snyder the account had greater value than the statements reflected. After taking the account with him to another brokerage firm, Mieczkowski delayed closing Snyder's account because its value was less than Mieczkowski had stated. Snyder also asserts § 20(a) liability, failure to warn, and state law claims.

E. Constance Wulffaert ("Wulffaert")

Wulffaert invested over $160,000, her life savings, in a Prudential-Bache account in March, 1985. She instructed Mieczkowski to invest in safe, income producing securities that would cover her living expenses. She claims Mieczkowski told her the value of her investment was greater than the amount stated in the monthly account statements, and that Mieczkowski entered into a series of unauthorized and excessive trades causing the account to diminish in value. After Mieczkowski transferred to a new firm, Wulffaert states he made an unauthorized purchase of an interest in a tax sheltered real estate limited partnership for $40,000, and sold her share in a mutual fund, again without authorization. Wulffaert also asserts § 20(a) liability, failure to warn, and state law claims, except the latter claims do not encompass Camp because he was not branch manager during the period plaintiff maintained her account with Prudential-Bache.

F. Mary Tierney Gallagher ("Mrs. Gallagher"), Mary Gallagher ("Ms. Gallagher"), and Peter Gallagher ("The Gallaghers")

Mrs. Gallagher, an 81 year-old widow, invested over $191,000 in a joint account with her two children, Mary and Peter, at Prudential-Bache in the fall, 1983. She authorized Mieczkowski to invest the funds in three specific securities. Mieczkowski subsequently made unauthorized margin purchases of Ginnie Mae bonds and other unauthorized and excessive trades diminishing the value of the account. After receiving a margin call from Prudential-Bache, the Gallaghers met with Mieczkowski on March 18, 1985. Mieczkowski wrote and signed a statement that "This is to guaranty that this is not a margin account," and on April 4, 1985, delivered a letter stating that the account's value was $239,414.50. Ms. Gallagher thereafter complained about Mieczkowski to Kane and their attorney began negotiations to recover Mrs. Gallagher's losses. In July, 1985, Prudential-Bache represented that Mrs. Gallagher had deposited a total of $181,000 in the account, and the parties agreed the company would restore that amount to the account. The Gallaghers also signed a general release settling their claim. The Gallaghers were subsequently informed by an accountant that Mrs. Gallagher had deposited a total of $191,453 in the account. The Gallaghers contest the validity of the release, and assert § 20(a) liability and state law claims.

II. Motion to Compel Arbitration

Defendant alleges that among the plaintiffs, the Doughertys, Hall and Snyder have signed Customer Agreements mandating arbitration of all their claims.² Defendants argue the FAA compels this Court to stay these plaintiffs' claims pending arbitration of the disputes.³ Snyder agrees the Agreement applies to...