Fazio v. Lehman Brothers, Inc.
| Citation | 340 F.3d 386 |
| Decision Date | 13 August 2003 |
| Docket Number | No. 02-3873.,No. 02-3820.,No. 03-3045.,No. 03-3112.,No. 02-3821.,No. 02-3874.,No. 02-3823.,No. 02-3867.,No. 03-3041.,No. 02-3824.,No. 03-3113.,No. 02-3868.,No. 02-3870.,No. 02-3825.,No. 03-3042.,No. 02-3826.,No. 03-3043.,No. 03-3258.,No. 02-3822.,No. 02-3869.,02-3820.,02-3821.,02-3822.,02-3823.,02-3824.,02-3825.,02-3826.,02-3867.,02-3868.,02-3869.,02-3870.,02-3873.,02-3874.,03-3041.,03-3042.,03-3043.,03-3045.,03-3112.,03-3113.,03-3258. |
| Parties | Robert FAZIO, et al., Plaintiffs-Appellees, v. LEHMAN BROTHERS, INC.; Lehman Brothers Holdings, Inc., Defendants, S.G. Cowen Securities Corporation; Societe Generale, Defendants-Appellants, Hambrecht & Quist, Inc.; J.P. Morgan Chase & Company, Defendants. Robert Fazio, et al., Plaintiffs-Appellees, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc., Defendants-Appellants, S.G. Cowen Securities Corporation; Societe Generale; Hambrecht & Quist, Inc.; J.P. Morgan Chase & Company, Defendants. Robert Fazio, et al., Plaintiffs-Appellees, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc.; S.G. Cowen Securities Corporation; Societe Generale, Defendants, Hambrecht & Quist, Inc.; J.P. Morgan Chase & Company, Defendants-Appellants. Robert Fazio, et al., Plaintiffs, Samuel Glazer, Plaintiff-Appellee, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc., Defendants, S.G. Cowen Securities Corporation; Societe Generale, Defendants-Appellants. Robert Fazio, et al., Plaintiffs, Samuel Glazer, Plaintiff-Appellee, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc., Defendants-Appellants, S.G. Cowen Securities Corporation; Societe Generale; Hambrecht & Quist, Inc.; J.P. Morgan Chase & Company, Defendants. Robert Fazio, et al., Plaintiffs, Dominic A. Visconsi, Sr., et al., Plaintiffs-Appellees, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc., Defendants, S.G. Cowen Securities Corporation; Societe Generale, Defendants-Appellants. Robert Fazio, et al., Plaintiffs, Dominic A. Visconsi, Sr., et al., Plaintiffs-Appellees, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc., Defendants-Appellants, S.G. Cowen Securities Corporation; Societe Generale, Defendants. Peter A. Spitalieri, Plaintiff-Appellee, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc., Defendants, S.G. Cowen Securities Corporation; Societe Generale, Defendants-Appellants. Peter A. Spitalieri, Plaintiff-Appellee, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc., Defendants-Appellants, S.G. Cowen Securities Corporation; Societe Generale, Defendants. Richard Lopardo, et al., Plaintiffs-Appellees, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc., Defendants, S.G. Cowen Securities Corporation, Defendant-Appellant. Richard Lopardo, et al., Plaintiffs-Appellees, v. Lehman Brothers, Inc., Defendant-Appellant, S.G. Cowen Securities Corporation, Defendant. Peter M. Bonutti, M.D., Plaintiff-Appellee, v. Lehman Brothers, Inc., Defendant, S.G. Cowen Securities Corporation, Defendant-Appellant. Peter M. Bonutti, M.D., Plaintiff-Appellee, v. Lehman Brothers, Inc., Defendant-Appellant, S.G. Cowen Securities Corporation, Defendant. Robert Fazio, et al., Plaintiffs-Appellees, v. Cowen & Company, Defendant-Appellant. Dominic A. Visconsi, Sr., et al., Plaintiffs-Appellees, v. Cowen & Company, Defendant-Appellant. Richard Lopardo, et al., Plaintiffs-Appellees, v. Cowen & Company, Defendant-Appellant. Peter M. Bonutti, M.D., et al., Plaintiffs-Appellees, v. Cowen & Company, Defendant-Appellant. Dominic A. Visconsi, Sr., et al., Plaintiffs-Appellees, v. Lehman Brothers, Inc.; Lehman Brothers Holdings, Inc., Defendants-Appellants. Dominic A. Visconsi, Sr., et al., Plaintiffs-Appellees, v. S.G. Cowen Securities Corporation; Societe Generale, Defendants-Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
Byron S. Krantz, Ari H. Jaffe (argued and briefed), Kohrman, Jackson & Krantz, Cleveland, OH, for Plaintiff-Appellee in 02-3820 to 02-3822.
Robert P. Duvin (argued and briefed), Suellen Oswald, Brett S. Krantz, Kenneth D. Schwartz (briefed), Duvin, Cahn & Hutton, Cleveland, OH, for Plaintiffs-Appellees in 02-3823, 02-3824.
Daniel P. Mascaro, Baker & Hostetler, Cleveland, OH, Hugh E. McKay (briefed), Porter, Wright, Morris & Arthur, Cleveland, OH, David E. Ross (briefed), Antonia Apps (briefed), K. Chris Todd (briefed), David Charles Frederick (argued), Kellogg, Huber, Hansen, Todd & Evans, Washington, DC, for Plaintiffs-Appellees in 02-3825, 02-3826.
Donald S. Scherzer (briefed), Robert B. Casarona (argued and briefed), Roetzel & Andress, Cleveland, OH, for Plaintiff-Appellee in 02-3867, 02-3868.
John T. Murray (argued and briefed), Barbara Quinn Smith (briefed), Murray & Murray, Sandusky, OH, for Plaintiff — Appellee in 02-3869, 02-3870 and 03-3043.
Daniel R. Warren (argued and briefed), Melissa M. Eckhause (briefed), Baker & Hostetler, for Plaintiff-Appellee in 02-3873, 02-3874 and 03-3045.
Ari H. Jaffe (argued and briefed), Kohrman, Jackson & Krantz, Cleveland, OH, for Plaintiff-Appellee in 03-3041.
David E. Ross (briefed), Antonia Apps (briefed), K. Chris Todd (briefed), David Charles Frederick (argued and briefed), Kellogg, Huber, Hansen, Todd & Evans, Washington, DC, Hugh E. McKay (briefed), Porter, Wright, Morris & Arthur, Cleveland, OH, for Plaintiff-Appellee in 03-3042, 03-3112, 03-3113 and 03-3258.
Mark O'Neill (briefed), Daniel A. Richards (briefed), Weston, Hurd, Fallon, Paisley & Howley, Cleveland, OH, Laurence A. Silverman (briefed), Aaron R. Marcu (argued), Covington & Burling, New York, NY, for Defendants-Appellants in 02-3820, 02-3823, 02-3825, 02-3867, 02-3869, 02-3873 and 03-3113.
P. Benjamin Duke, Covington & Burling, New York, NY, for Defendants-Appellants in 03-3113.
James Joseph Bartolozzi (briefed), Kahn, Kleinman, Yanowitz & Arnson, Cleveland, OH, H. Nicholas Berberian, Neal, Gerber & Eisenberg, Chicago, IL, for Defendants-Appellants in 02-3821, 02-3824, 02-3826, 02-3868, 02-3870, 02-3874, 03-3112.
Marvin L. Karp (briefed), Michael N. Ungar (briefed), Elin B. Young (briefed), Christopher P. Fisher (briefed), Ulmer & Berne, Cleveland, OH, for Defendants-Appellants in 02-3822.
David C. Weiner (briefed), Charna E. Sherman (briefed), Squire, Sanders & Dempsey, Cleveland, OH, Pierre H. Bergeron (briefed), Squire, Sanders & Dempsey, Cincinnati, OH, for Defendant-Appellant in 03-3041, 03-3042, 03-3043, 03-3045 and 03-3258.
Mark E. Staib, Elizabeth W. Andrews, Hahn, Loeser & Parks, Cleveland, OH, for Defendant-Appellant in 03-3258.
Before: NORRIS, DAUGHTREY, and ROGERS, Circuit Judges.
This dispute arises from a massive fraud in which Frank Gruttadauria, a Cleveland stockbroker, misappropriated at least $54 million of his clients' money. The plaintiffs, all clients of Gruttadauria, brought this action against the brokerage houses for which he worked over the course of his career. The defendants moved to stay the proceedings and compel arbitration pursuant to arbitration clauses in the account agreements. The district court, relying largely on the gross nature of the fraud, ruled that the arbitration clauses in the agreements did not apply to the dispute and set the case for trial. The defendants appeal this decision. Thus, the only question of law in this interlocutory appeal is whether similarly worded arbitration clauses in the plaintiffs' brokerage account agreements mandate arbitration of their claims.
Frank Gruttadauria was a stockbroker for the defendant brokerage houses or firms that were purchased by them. As early as 1987, Gruttadauria began to send falsified statements to his clients that significantly overstated the value of their accounts. Gruttadauria had incurred significant losses in some of these accounts, and he falsified statements to cover this up.
To make good when clients requested withdrawals from their inflated accounts, Gruttaduaria either used new deposits by other clients or withdrew funds from other clients' accounts to make payments. In a separate criminal proceeding against him, Gruttaduaria entered into a plea agreement in which he admitted taking $54 million in "unauthorized withdrawals" between 1996 and 2002 alone. He also admitted that he gained at least $1 million personally from the fraud.
Gruttaduaria's scheme eventually collapsed. According to the plea agreement, by 2001 Gruttadauria's clients' accounts had a paper value of $278 million, while their actual value was only $1.8 million. Gruttadauria fled after leaving a letter of confession. In the letter, he claimed that he was the only person involved in the scheme but implied that the brokerage houses were grossly negligent for not monitoring his activities. He later surrendered to authorities and pleaded guilty to a multi-count federal indictment.
Plaintiffs brought this action against defendants alleging numerous securities law violations including outright theft from their accounts. Most plaintiffs also allege churning, unauthorized trading, and excessive risk taking as well as a number of other common law and statutory claims. In denying the defendants' motions to stay the proceedings and compel arbitration, the district court did not provide a separate analysis for each arbitration agreement. However, the parties agree that each contains roughly the same language. The typical arbitration clause in the account agreements reads, "Any controversy arising out of or relating to any of my accounts, to transactions with you for me, or to this or any other agreement or the construction, performance or breach thereof, shall be settled by arbitration."
The district court held that the arbitration clauses were not binding because, given the nature of the fraud, the agreements were void ab intitio and there were effectively no accounts. In the alternative, the district court held that the fraud alleged here was not covered by the arbitration clauses. We reverse the district court and remand with instructions to consider the particular claims of the parties regarding the...
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