John Hancock Life Ins. v. Wilson
| Decision Date | 01 August 2000 |
| Docket Number | 00-9525,Docket Nos. 00-9505 |
| Citation | 254 F.3d 48 |
| Parties | (2nd Cir. 2001) JOHN HANCOCK LIFE INSURANCE COMPANY, SIGNATOR INVESTORS, INC., Plaintiffs-Appellants-Cross-Appellees, v. JOSEPH A. WILSON, Defendant-Counter-Claimant-Appellee- Cross-Appellant, SUSAN ALECCA, MICHAEL J. ALECCA, WARREN NEALS, EILEEN M. ATTELLO, JOSEPH ATTELLO, EUNICE BYCZEK, JOSEPH BYCZEK, MARGARET NOLL, ANTOINETTE McNERLIN, JAMES McNERLIN, ANGELINE SIMPSON, FRANK SIMPSON, LAURA BROWN, Consolidated-Defendants-Counter-Claimants-Appellees-Cross-Appellants |
| Court | U.S. Court of Appeals — Second Circuit |
DANIEL HURTEAU, Albany, NY (Carolyn G. Nussbaum, Nixon Peabody, Albany, NY, Katherine C. Lake, Fowler, White, Gillen, Boggs, Villareal and Banker, Tampa, FL, of counsel), for Appellants.
KALJU NEKVASIL, Clearwater, FL (Goodman & Nekvasil, Clearwater, FL, of counsel), for Appellees.
Before: MESKILL, PARKER and KATZMANN, Circuit Judges.
Judge Katzmann concurs in a separate opinion.
Plaintiffs John Hancock Life Insurance Co. and Signator Investors, Inc. (collectively, "John Hancock") appeal an order and judgment of the United States District Court for the Northern District of New York, McAvoy, J., granting defendants' motion to compel arbitration, denying defendants' motion to stay the action pending arbitration and dismissing the complaint and counterclaims in their entirety. Defendant Joseph A. Wilson and the defendants in ten consolidated actions (collectively, the "Investors") appeal the same order and judgment.
The parties present three issues on appeal: (1) whether the district court erred in determining whether the Investors' claims were arbitrable or whether that determination should have been made in the first instance by the arbitrators; (2) whether the district court erred in finding that the Investors' claims fell within the scope of the arbitration provisions of the National Association of Securities Dealers, Inc. (NASD); and (3) whether, after holding that the Investors' claims were subject to arbitration, the district court erred in dismissing, rather than staying, the action pending arbitration.
For the reasons that follow, we affirm the district court's judgment in its entirety.
The Investors' underlying claims arise out of their purchase of fraudulent promissory notes from Frank P. Fucilo (Fucilo) and Fucilo's associate, Michael A. Palladino, Sr. (Palladino). The Investors seek to hold John Hancock liable for Fucilo's and Palladino's wrongful actions.
The relevant facts regarding the relationships between John Hancock, Fucilo and the Investors are not complex and are largely undisputed.
Fucilo, an independent insurance agent and investment broker, maintained an office at his home in Kingston, New York. John Hancock is a member of the NASD. In April 1997, Fucilo and John Hancock entered into a Sales Representative Agreement, which authorized Fucilo to sell certain life insurance and annuities on behalf of John Hancock. As a result, Fucilo is an "associated person" under NASD regulations. See NASD By Laws, Art. I (ee) ().
Beginning in or about early 1998, Fucilo sold fraudulent promissory notes to the Investors. The Investors are customers of Fucilo. They are not customers of John Hancock. There is no evidence that Fucilo represented to the Investors that he was affiliated with John Hancock, or that the Investors knew that Fucilo was affiliated with John Hancock. Fucilo had no authority from John Hancock to sell the fraudulent investment products, nor did John Hancock have any knowledge that Fucilo was selling these products.
The only possible connection between John Hancock and the Investors was through their independent relationships with Fucilo. To summarize in the district court's words, "there is an abundance of unrefuted evidence demonstrating that [John Hancock was] in no way involved with the instant transactions; that defendants may not have known Fucilo to be a representative of [John Hancock]; and that defendants may not have been [John Hancock's] customers."
In late 1999 and early 2000, the Investors filed four substantially similar Statements of Claim1 against John Hancock under the auspices of the NASD in Florida. Fucilo and Palladino were not named as parties to any of the arbitrations. The Investors invoked the jurisdiction of the NASD Arbitration Tribunal on the basis of John Hancock's membership in the NASD, the NASD Code of Arbitration Procedure (the "NASD Code") and the Form U-4s of Fucilo and Palladino.2 They assert claims against John Hancock for violations of federal securities laws, breach of contract, common law fraud, breach of fiduciary duty, negligence and gross negligence, and seek, inter alia, actual damages and rescission.
We need not recount the details of the Investors' arbitration claims, which range from 97 to 108 pages each, to resolve this appeal. It suffices to say that the Investors allege that John Hancock breached various duties that it owed to the Investors with respect to the actions of John Hancock's registered representatives. As a result, the Investors seek to hold John Hancock liable under a number of alternative theories, e.g., failure to supervise and respondeat superior, for the losses they incurred as a result of Fucilo's and Palladino's wrongful actions.
On April 21, 2000, John Hancock filed eleven separate actions against the Investors.3 In each, John Hancock sought a declaration that the parties had not entered into a valid arbitration agreement and a preliminary and permanent injunction staying the arbitration proceedings. The district court joined the cases for pretrial purposes on May 12, 2000.
In its complaints, John Hancock acknowledges that, as a member of the NASD, it is bound by the NASD Code to arbitrate certain disputes arising out of or in connection with its business. John Hancock argues, however, that the Investors' claims do not fall within the scope of the NASD Code because the promissory notes Fucilo sold to the Investors were in no way related to John Hancock's business and because the Investors were not customers of John Hancock at the time they purchased the promissory notes.
On May 30, 2000, the Investors moved pursuant to the Federal Arbitration Act (FAA) to stay the district court actions and compel arbitration. See 9 U.S.C. §§3 and 4. On August 1, 2000, the Investors filed an Amended Answer and Counterclaim, in which they generally denied the allegations in the Complaint and asserted as counterclaims the identical causes of action and sought the identical relief as they had in the arbitration proceedings. Rather than set forth those claims anew, the Investors attached and adopted the Statements of Claim that they had submitted to the arbitrators. The Investors stated that they would pursue their counterclaims "only if [the district court] or the arbitrators determine that the disputes between the parties are not arbitrable."
On September 11, 2000, the district court issued a decision from the bench granting the Investors' motion to compel arbitration, denying the Investors' motion to stay the action pending arbitration and dismissing John Hancock's complaint and the Investors' counterclaims in their entirety. As a threshold matter, the district court held that the parties had not manifested a clear and unmistakable intent to submit the question of arbitrability to the arbitrators. Accordingly, the district court undertook that determination, holding that John Hancock had agreed to arbitrate the Investors' claims by virtue of its status as an NASD member. The district court found that because Fucilo was an "associated person," John Hancock was bound by the NASD Code to arbitrate any disputes with the Investors "arising out of or in connection with" Fucilo's business. In addition, the district court held that "[b]ecause defendants expressly conditioned their counterclaims upon a determination that the disputes are not arbitrable, and, as noted, the Court has found the disputes to be arbitrable, the counterclaims are also dismissed" (internal citation omitted). Alternatively, the district court held that the Investors had violated Rule 8 of the Federal Rules of Civil Procedure because their Counterclaims did not contain a short and plain statement of their claims and prayer for relief. See Fed. R. Civ. P. 8(a) and (c).
The Investors moved for reconsideration of the district court's denial of its motion to stay the action pending arbitration. On November 1, 2000, the district court issued a written decision and order denying the Investors' motion. The district court entered final judgment on November 8, 2000. After John Hancock and the Investors timely filed notices of appeal, we ordered an expedited briefing schedule on December 22, 2000, and heard oral argument on February 20, 2001.
We first address whether the district court properly undertook the arbitrability determination. Because we hold that it did, we next discuss whether the district court properly compelled arbitration...
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