Kidder, Peabody & Co., Inc. v. Brandt

• Decision Date: 22 December 1997
• Docket Number: No. 97-2123,97-2123
• Citation: 131 F.3d 1001
• Parties: RICO Bus.Disp.Guide 9405, 11 Fla. L. Weekly Fed. C 910 KIDDER, PEABODY & CO., INCORPORATED, Plaintiff-Appellant, v. Robert BRANDT, as trustee, Selma Brandt, John H. Gary, Donna L. Gary, Irwin Goldstein, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1001

131 F.3d 1001

RICO Bus.Disp.Guide 9405, 11 Fla. L. Weekly Fed. C 910

KIDDER, PEABODY & CO., INCORPORATED, Plaintiff-Appellant, v. Robert BRANDT, as trustee, Selma Brandt, John H. Gary, Donna

L. Gary, Irwin Goldstein, et al., Defendants-Appellees.

No. 97-2123.

United States Court of Appeals, Eleventh Circuit.

Dec. 22, 1997.

Keith Olin, Jason M. Murray, Bennett Falk, Morgan Lewis Bockius, Miami, FL, for Appellants.

Robert Dyer, Allen Dyer, et al., Orlando, FL, for Appellees.

Appeal from the United States District Court for the Middle District of Florida.

Before COX, DUBINA and CARNES, Circuit Judges.

CARNES, Circuit Judge:

This case involves a claim arising under the Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962. The issue before us, however, involves less the intricacies of RICO law and more § 15 of the National Association of Securities Dealers Code of Arbitration (the "NASD Code"). That section provides that no dispute, claim or controversy is eligible for arbitration where six years have elapsed from the "occurrence or event giving rise to the act or the dispute, claim or controversy." This appeal turns on the definition of the quoted language.

We hold that the occurrence or event giving rise to a claim for purposes of § 15 of the NASD Code is the one necessary to make the claim viable, the occurrence or event after which a complaint specifying the facts would withstand a Federal Rule of Civil Procedure 12(b)(6) motion. Our holding requires a remand of this case for further proceedings in the district court.

I. FACTS AND PROCEDURAL HISTORY

Kidder, Peabody & Co., Inc. ("Kidder") is a securities broker. Around 1987, a group of individuals (the "defendants") purchased shares in a limited partnership through Kidder. As a condition of purchasing securities through Kidder, each of the defendants agreed to submit any dispute or claim arising out of or relating to their Kidder accounts to arbitration. That agreement specified that the NASD Code would govern any arbitration claim they brought.

In 1994, the defendants filed a seven-count arbitration complaint against Kidder alleging, among other things, that Kidder had violated RICO, 18 U.S.C. § 1962. Before any action could be taken on that complaint, Kidder filed suit in federal district court, based upon diversity jurisdiction, seeking a declaration that the defendants' claims were ineligible for arbitration and an injunction forbidding the defendants from pursuing their claims in arbitration.

Kidder filed a motion for summary judgment contending that the "occurrence or event" which gave rise to the defendants' claims did not occur within six years of the date defendants filed their arbitration complaint as required by § 15 of the NASD Code. The district court granted Kidder's motion in part and denied it in part. Relevant to this appeal, the district found that the "occurrence or event" which gave rise to defendants' RICO claim was a "pattern of racketeering activity" which began more than six years before the defendants filed their arbitration complaint but ceased inside the six-year window. Based on that finding, the court denied Kidder's motion with respect to defendants' RICO claim. As to that claim, the court entered summary judgment for the defendants, declaring that the RICO claim was eligible for arbitration. Kidder filed a motion to alter or amend the judgment which the court denied. Kidder appeals from the district court's order on summary judgment and its order denying Kidder's motion to alter or amend the judgment.

II. STANDARD OF REVIEW

We review the district court's denial of injunctive relief under an abuse of discretion standard, see Simmons v. Conger, 86 F.3d 1080, 1085 (11th Cir.1996), but "we review de novo determinations of law made by the district court en route," Teper v. Miller, 82 F.3d 989, 993 (11th Cir.1996). "The standard of review for the district court's denial of a motion to amend final judgment is abuse of discretion." Armstead v. Coler, 914 F.2d 1464, 1466 (11th Cir.1990) (citation omitted).

III. DISCUSSION

Kidder contends that the district court erroneously interpreted and applied § 15 of the NASD Code to the facts of this case. That section provides:

No dispute, claim or controversy shall be eligible for submission to arbitration under this Code where six (6) years shall have elapsed from the occurrence or event giving rise to the act or the dispute, claim or controversy. This section shall not extend applicable statutes of limitation, nor shall it apply to any case which is directed to arbitration by a court of competent jurisdiction.

The district court found that the "occurrence or event" giving rise to the defendants' RICO claim was a pattern of racketeering activity, "at least a portion of [which] allegedly occurred within the Section 15 time frame." On the basis of that finding, the court concluded that the defendants' RICO claim was eligible for arbitration.

Kidder argues that under § 15 the defendants' RICO claim was not eligible for arbitration, unless all of the predicate acts upon which that claim was based occurred within six years of the date defendants filed their arbitration complaint. Specifically, Kidder states: "Defendants' Federal RICO claim is eligible for arbitration only if each act or fact which forms each of the elements of their Federal RICO claim--including those underlying the pattern element--took place within the six year period preceding the initiation of arbitration." If Kidder's interpretation of § 15 is correct, the defendants' RICO claim was not eligible for arbitration, because the district court found that some of the predicate acts supporting the claim took place outside the six-year window.

Kidder asserts that its interpretation of § 15 is supported by our decision in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cohen, 62 F.3d 381 (11th Cir.1995). However, in Cohen, we did not define the phrase "occurrence or event giving rise to the ... claim." Instead, we merely recognized, under facts similar to those here, that "[i]t is not a foregone conclusion ... that the purchase date is the relevant occurrence or event giving rise to the Cohens' claims, as neither § 15 nor any other provision of the NASD Code so provides." Id. at 385.

Far from supporting Kidder's interpretation of § 15, Cohen is actually inconsistent with Kidder's position. In that case, the Cohens began purchasing securities from the defendant in 1985. They alleged that from 1985 through 1991 the defendant had misrepresented the value of their investments in statements it sent to them. The Cohens filed an arbitration complaint in 1993 asserting a claim for breach of fiduciary duty. Because the existence of a fiduciary duty was one element of the Cohens' claim, they had to prove that the defendants owed them a fiduciary duty. That duty was born when the Cohens purchased securities from the defendant in 1985, more than six years before the Cohens filed their arbitration complaint. Under Kidder's interpretation of § 15, the Cohens' claim would have been ineligible for arbitration because one of the acts upon which their claim was based occurred outside the six-year window. However, we did not adopt that interpretation of § 15. Instead we recognized that, if the defendant had made misrepresentations within the six-year window, the Cohens could have claims for breach of fiduciary duty that would be eligible for arbitration. See id. at 385. We stated that "each misrepresentation [e.g., the statements the defendant sent out] might be an event or occurrence giving rise to a claim for breach of fiduciary duty." Id. at 385 n. 7; see also Osler v. Ware, 114 F.3d 91, 92-93 (6th Cir.1997) (plaintiff who opened securities account in 1984 and filed arbitration complaint in 1993 could have an arbitrable claim based on defendant's misrepresentations made within the six-year window); PaineWebber Inc. v. Hofmann, 984 F.2d 1372, 1381 (3d Cir.1993) (misrepresentation could be the act or occurrence giving rise to arbitrable claim).

Therefore, we reject Kidder's interpretation of the "occurrence or event giving rise to the ... claim" language of § 15. Instead, we hold that under § 15 the "occurrence or event" which "gives rise to the ... claim" is the last occurrence or event necessary to make the claim viable. A claim is viable when all the elements of that claim can be established such that it could withstand a motion to dismiss for failure to state a claim for relief pursuant to Federal Rule of Civil Procedure 12(b)(6).

Of course, the last "occurrence or event" necessary to make a claim viable depends on the nature of a particular claim. In some instances, a single "occurrence or event" will establish all the elements of a claim. For example, the single act of striking another may establish all the elements of a claim for battery. In that instance, the act of striking another may be the "occurrence...