Ifg Network Securities, Inc. v. King

• Decision Date: 03 September 2003
• Docket Number: No. 6:03CV103-ORL-22KRS.,6:03CV103-ORL-22KRS.
• Citation: 282 F.Supp.2d 1344
• Parties: IFG NETWORK SECURITIES, INC., Plaintiff, v. Rua L. KING, individually, and as personal representative of the Estate of Rex T. King, Defendant.
• Court: U.S. District Court — Middle District of Florida

282 F.Supp.2d 1344

IFG NETWORK SECURITIES, INC., Plaintiff, v. Rua L. KING, individually, and as personal representative of the Estate of Rex T. King, Defendant.

No. 6:03CV103-ORL-22KRS.

United States District Court, M.D. Florida, Orlando Division.

September 3, 2003.

Burton Wiand, Elaine Rice, Fowler, White, Gillen, Boggs, Villareal & Banker, Tampa, FL, Counsel for Plaintiff/Brokerage Firm, IFG Network Securities, Inc.

Joel A. Goodman, Stephen Krosschell, FL, Goodman & Nekvasil, P.A., Clearwater, Counsel for Defendant/Investor, Rua L. King.

ORDER

CONWAY, District Judge.

I. INTRODUCTION

This cause comes before the Court for consideration of the Plaintiff's, IFG Network Securities, Inc. ("IFG Securities"), Motion for Preliminary and Permanent Injunction (Doc. No. 2, filed Jan. 27, 2003), and the Defendant's, Rua L. King, individually, and as personal representative of the Estate of Rex T. King ("Defendant"), Motion to Compel Arbitration (Doc. No. 15, filed Mar. 7, 2003). Oral argument on the parties' motions was held on March 27, 2003 (Doc. No. 34), and United States Magistrate Judge Karla R. Spaulding issued a Report and Recommendation (R & R) on June 6, 2003 (Doc. No. 48). In her memorandum opinion, Judge Spaulding recommends that the undersigned judge deny IFG Securities' Motion for Preliminary and Permanent Injunction (Doc. No. 2). In addition, she recommends that this Court deny without prejudice the Defendant's Motion to Compel Arbitration (Doc. No. 15) pending the outcome of a jury trial. See Doc. No. 48 at 20-21. The parties filed Objections (Docs. No. 49 & 50) to Judge Spaulding's R & R on June 16, 2003 and June 20, 2003, respectively, and responses to the objections (Docs. No. 51 and 52) on June 30, 2003 and July 7, 2003, respectively. Having reviewed the R & R, the parties' objections thereto, and the responses to the objections, this Court APPROVES IN PART and DISAPPROVES IN PART Judge Spaulding's recommendations. The R & R is APPROVED insofar as it recommends that this Court deny IFG Securities' Motion for Preliminary and Permanent Injunction. The R & R is DISAPPROVED insofar as it recommends that this Court deny the Defendant's Motion to Compel Arbitration pending the outcome of a jury trial.

II. BACKGROUND

The Plaintiff, IFG Securities, is a securities broker organized under the laws of Florida with its principal place of business located in Georgia.¹ It is a member of the National Association of Securities Dealers (NASD).² The Defendant, Rua L. King, is a citizen of Florida,³ and is the personal representative of the Estate of Rex T. King,⁴ her late husband.⁵ This action concerns the existence of an agreement to arbitrate between the Plaintiff and the Defendant in connection with the sale of securities.⁶

Following the advice of Anthony Micciche, a registered representative of IFG securities⁷, the Defendant entered into a trust agreement with Intrados, S.A. ("Intrados"), a Panamanian company.⁸ Although the trust agreement accorded Intrados broad powers to invest trust assets, in a "Letter of Wishes for Trust" the Defendant indicated a desire to invest in government securities.⁹

On May 2, 1999, the Defendant tendered two checks totaling $45,800 to Intrados.¹⁰ Intrados, in turn, invested that money in Evergreen Securities, Ltd. ("Evergreen Securities").¹¹ Evergreen Securities is now in bankruptcy, and the Defendant lost her entire investment. In connection with his association with Evergreen Securities, the Plaintiff's registered representative, Anthony Micciche, pleaded guilty to the sale of unregistered securities in violation of 15 U.S.C. 77e(a).¹²

According to the Defendant, at all relevant times herein she believed that Anthony Micciche was a licensed representative of IFG Securities.¹³ She also claims that she relied on his affiliation with IFG in making the investment at issue.¹⁴ On that subject, the Defendant submitted a copy of a business card which Anthony Micciche allegedly provided her in the course of their business dealings.¹⁵ On its face, the business card indicates that Anthony Micciche is affiliated with IFG Securities.¹⁶

Micciche counters that he never represented he was acting on behalf of IFG Securities in this transaction.¹⁷ In that regard, his affidavit states as follows: "I did not provide the [Defendant] with a business card or correspond with the [Defendant] on letterhead referring to IFG ... I did not provide the [Defendant] with any documents referring to IFG ... or indicating that IFG ... was involved with their offshore trust, its trustee ... or the Evergreen Security Ltd. investment the trustee made in their trust."¹⁸

At any rate, it is undisputed (1) that Anthony Micciche never reported his activities involving the Defendant, Intrados, or Evergreen Securities to IFG Securities; (2) that IFG Securities did not approve of the sale of Evergreen Securities by its representatives; (3) that IFG Securities does not have any record of the purchase of this investment by or for the Defendant; (4) that the Defendant never opened an account with IFG Securities; (5) that the Defendant does not have any agreement with IFG Securities; and (6) that IFG Securities did not receive or disburse funds for this transaction.¹⁹

On September 4, 2002, the Defendant initiated an arbitration proceeding against IFG Securities in connection with the Evergreen Securities investment.²⁰ In her statement of claims, the Defendant charges: (1) violations of federal securities laws; (2) violations of the Florida Securities and Investor Protection Act; (3) breach of contract; (4) common law fraud; (5) breach of fiduciary duty; and (6) negligence and/or gross negligence.²¹ Inasmuch as there is no written agreement to arbitrate between the parties, the Defendant seeks arbitration under the NASD Code of Arbitration Procedure, which compels IFG Securities to arbitrate, as a condition of its membership in the NASD, upon the demand of a customer.²²

In relevant part, the NASD Code of Arbitration Procedure provides as follows:

Any dispute, claim, or controversy eligible for submission under the Rule 10100 Series between a customer and a member and/or associated person arising in connection with the business of such member or in connection with the activities of such associated persons shall be arbitrated under this Code ... upon the demand of the customer.

NASD Code of Arbitration Procedure Rule 10301(a) (emphasis added).

The Rule 10100 series provides, in pertinent part, as follows:

This Code of Arbitration Procedure is prescribed and adopted ... for the arbitration of any dispute, claim, or controversy arising out of or in connection with the business of any member of the Association, or arising out of the employment or termination of employment of associated person(s) with any member.

NASD Code of Arbitration Procedure Rule 10101 (emphasis added).

On January 27, 2003, IFG Securities filed the instant case against the Defendant seeking a declaratory judgment that there is no valid agreement to arbitrate between IFG Securities and the Defendant.²³ On that topic, the Complaint recites that the Defendant's arbitration action exceeds the scope of the NASD Arbitration Procedure because IFG Securities "only agreed to arbitrate those disputes, claims or controversies that arise out of or in connection with its business between members or associated persons and customers."²⁴ The Complaint also seeks preliminary and permanent injunctive relief to stay the pending arbitration proceedings.²⁵ In response to that action, the Defendant filed a Motion to Compel Arbitration.²⁶

On March 11, 2003, the undersigned judge referred this matter to Magistrate. Spaulding for a R & R.²⁷ Following that order, Judge Spaulding held a hearing on March 27, 2003, and issued an R & R on June 6, 2003.²⁸ In the R & R, Judge Spaulding recommends denying IFG Securities' motions for preliminary and permanent injunctive relief.²⁹ In addition, she recommends denying the Defendant's Motion to Compel Arbitration because "there is disputed evidence on the question of whether Micciche told the [Defendant] that he was affiliated with IFG, or gave [her] other indicia of his affiliation with IFG" which precludes "a finding at this juncture that the [Defendant] [is][a] ... customer[] of IFG within the meaning of Rule 10301."³⁰ On that point, Judge Spaulding recommends that the undersigned judge conduct a jury trial on the issue of the Defendant's customer status.³¹ Both parties now object to the recommendations contained in the R & R.³²

III. ASSIGNMENTS OF ERROR

In their Objections (Docs. No. 49 and 50) to Magistrate Judge Spaulding's Report and Recommendation (Doc. No. 48), the parties assign five points of error.

The Defendant contends that the Magistrate Judge erred in failing to find, as a matter of law, that the Defendant is a customer entitled to force IFG Securities into arbitration.³³

The Plaintiff, on the other hand, contends that Judge Spaulding erred (1) in finding that the instant dispute arose out of or in connection with the business of the Plaintiff; (2) in denying the Plaintiff's motion for a preliminary injunction, or alternatively, in failing to grant a stay of the upcoming arbitration; (3) in finding that the Defendant has standing to pursue this litigation; and (4) in presupposing disputed facts with respect to statements allegedly made by Anthony Micciche to the Defendant without affording the parties sufficient discovery.³⁴

IV. STANDARD OF REVIEW

When a magistrate judge issues a report and recommendation, the district judge must make a de novo determination of the findings and/or recommendations to which any party objects. See 28 U.S.C. § 636(b)(1)(C) (2003). "This requires that the district judge `give fresh consideration to those issues to which specific objection has been made by a party.'" Lacy v. Apfel, 2000 WL 33277680, *1, 2000 U.S. Dist. Lexis 21437, *2-3 (M.D.Fla. Oct. 20, 2000) (quoting Jeffrey...