Lawrence v. Wilder Richman Securities Corp., 3:04cv538 (JBA).

• Decision Date: 28 December 2006
• Docket Number: No. 3:04cv538 (JBA).,3:04cv538 (JBA).
• Citation: 467 F.Supp.2d 228
• Court: U.S. District Court — District of Connecticut
• Parties: John F. LAWRENCE, Plaintiff, v. WILDER RICHMAN SECURITIES CORP., Defendant.

467 F.Supp.2d 228

John F. LAWRENCE, Plaintiff, v. WILDER RICHMAN SECURITIES CORP., Defendant.

No. 3:04cv538 (JBA).

United States District Court, D. Connecticut.

December 28, 2006.

Appeal from the District Court, 359 F.Supp.2d 161, Arterton, J Brian P. Daniels, David R. Schaefer, Brenner, Saltzman & Wallman, New Haven, CT, for Plaintiff.

David A. Ball, Richard Slavin, Stuart M. Katz, Cohen & Wolf, P.C., Bridgeport, CT, Robert W. Turken, Bilzin Sumberg Dunn Baena Price & Axelrod, Miami, FL, for Defendant.

RULING ON PLAINTIFF'S OBJECTIONS TO SANCTIONS RULING [DOC. # 80]

ARTERTON, District Judge.

As detailed in the Court's ruling denying plaintiff's motion for preliminary injunction and granting defendant's motion to dismiss (see [Doc. # 55] ), plaintiff John F. Lawrence ("Lawrence") instituted this action seeking a declaratory judgment that the Statement of Claim filed by defendant Wilder Richman Securities Corp. ("WRSC") with the National Association of Securities Dealers, Inc. ("NASD") was not arbitrable, and seeking injunctive relief (including a preliminary injunction) enjoining WRSC from proceeding with the arbitration.

WRSC subsequently moved for sanctions against plaintiff and his attorneys for violation of Fed.R.Civ.P. 11(b) as a result of plaintiffs filing and refusing to withdraw his complaint and subsequent papers filed in this action, including his request for a preliminary injunction, Magistrate Judge Joan Glazer Margolis (on referral from this Court) granted defendant's sanctions motion, see Sanctions Ruling [Doc. # 56], and plaintiff moved for reconsideration, which motion Magistrate Judge Margolis granted, but adhered to her initial ruling in part but clarified that the sanctions award was limited to plaintiff's claim for injunctive relief, see Reconsideration Ruling [Doc. # 77]. Plaintiff has now filed objections to this reconsideration ruling. See [Doc. # 80]. For the reasons that follow, plaintiffs objections are sustained in part and overruled in part, and the sanctions ruling will be modified, as described below.

I. Procedural Background

A. This Court's Ruling

In its Ruling [Doc. # 55], this Court denied plaintiffs motion for a preliminary injunction, on the basis that plaintiff had not established any irreparable harm that would result if the injunction were not granted, and dismissed plaintiffs complaint on its merits, conditioned upon defendant's filing an amended Statement of Claim in the NASD, arbitration eliminating its request for return of the $650,194 payment it had made to plaintiff.

The Court determined that the harm identified by plaintiff was "no more than the consequence of his own choice," finding "untenable" plaintiff's position that he was entitled to "first proceed with his suit against the other Richman entities in this Court, and arbitrate before NASD only if after full discovery and a trial on the merits, the jury concludes that [WRSC] is the only Richman Group entity which could be liable to Lawrence," since "whether [WRSC] is liable to Lawrence is not the subject of any pending action." Ruling a 7-8. Further, the Court found that the mandatory arbitration clause in the Form U-4 signed by plaintiff was enforceable, noting that "the Second Circuit has squarely rejected the argument that the mandatory arbitration clause in the Form U-4 unconstitutionally requires a plaintiff to forfeit his Fifth Amendment due process right, Seventh Amendment right to a jury trial, or his right to an Article HI judicial forum." Id. at 9 (citing Desiderio v. Nat'l Ass'n of Sec. Dealers, 191 F.3d 198, 207 (2d Cfr.1999)). The Court also noted that "the Federal Arbitration Act, which governs the NASD arbitration at issue here, requires arbitration `even where the result would be the possibly inefficient maintenance of separate proceedings in different forums." Id. (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985)).

The Court dismissed plaintiffs complaint, on the basis that, inter alia, plaintiff had agreed to arbitrate with defendant and had conceded that "if he ever determines that he has a dispute with [WRSC], that dispute will be subject to mandatory arbitration at [WRSC]'s request." Id. at 15. The Court found no support for plaintiffs contention "that a request for declaratory judgment and claim for restitution [such as, those asserted by WRSC in the NASD arbitration] are not arbitrable." Id. at 16.

Lastly, the Court addressed plaintiffs argument that defendant induced him into accepting a $655,194 payment to trap him into submitting to arbitration and that therefore defendant should be equitably estopped from asserting its Statement of Claim, which sought, inter alia, return of any portion of such payment that the arbitrator found it did not owe plaintiff. The Court examined the December 29, 2003 letter which plaintiff claimed formed the basis for his equitable estoppel argument and concluded that "the Statement of Claim's request that Lawrence return any portion of the amount [WRSC] paid him that the arbitrator found it did not owe Lawrence may be viewed as the attachment of a `condition' on Lawrence's acceptance of the funds," where the December 2003 letter explicitly stated WRSC "did not place any conditions on [plaintiff's] acceptance of [the money]." Id. at 22. The Court thus acknowledged that defendant's request for return of payment in the arbitration could indicate a "misrepresentation" in the December 2003 letter, a necessary element of an estoppel claim, but found that because defendant had agreed it would amend its Statement of Claim to omit this request, the letter could not be construed as containing any such misrepresentation. Accordingly, the Court dismissed plaintiffs complaint "conditioned on [WRSC]'s amendment of its Statement of Claim." Id. at 22-23. WRSC subsequently gave notice to the Court that it had so amended its Statement of Claim. See Notice [Doc. # 57].¹

B. Magistrate Judge Margolis's Sanctions Rulings

In granting defendant's motion for sanctions, Magistrate Judge Margolis noted that "[i]n denying plaintiffs Motion for Preliminary Injunction, Judge Arterton flatly rejected plaintiffs contention that he will suffer irreparable harm," reiterating this Court's observation that the harm identified by plaintiff "is no more than the consequence of his own choice" and characterizing plaintiffs position concerning inconsistency of judgments "untenable." See Sanctions Ruling [Doc. # 56] at 5. Magistrate Judge Margolis concluded that since any argument concerning the constitutionality of enforcement of the mandatory arbitration clause (admittedly executed by plaintiff) had been "squarely rejected" by the Second' Circuit and "as [this Court's] harsh" language indicates," "plaintiffs claims for declaratory judgment and a preliminary and permanent injunction were not warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law." Id. at 5-6. Magistrate Judge Margolis left open for later determination against whom sanctions would be assessed and in what amount, and directed defendant to file an affidavit detailing the monetary sanctions sought. Id. at 7.

Plaintiff subsequently filed a motion for reconsideration, contending: (1) that he had a good faith basis for alleging irreparable harm in connection with his preliminary injunction motion; (2) that he had a good faith basis for filing his complaint, as this Court expressly found a basis for plaintiffs equitable estoppel claim, and plaintiff also had a basis for his claim that a declaratory judgment request is not arbitrable; (3) that defendant violated the Rule 11 "safe harbor" requiring 21 days' notice to the opposing party before filing a sanctions motion;, and (4) that defendant's payments to plaintiff negated any Rule 11 claim as a matter of law. See Reconsideration Ruling [Doc. # 77] at 3-4 (characterizing plaintiffs, arguments). The challenged ruling acknowledges that Rule 11 sanctions are' rare, but nevertheless rejected plaintiffs arguments for reconsideration. Specifically, Magistrate Judge Margolis found that plaintiffs "good faith basis" claims were contradicted by this Court's ruling denying the preliminary injunction motion and dismissing the complaint, and that plaintiffs subsequent filing of a counterclaim against WRSC in the arbitration proceeding did not alter her original ruling granting sanctions.

As to plaintiffs argument regarding the Rule 11 "safe harbor" requirement, Magistrate Judge Margolis found that Rule 11 "affords counsel the opportunity to withdraw the lawsuit or withdraw or appropriately correct the `challenged paper, claim, defense, contention, allegation, or denial,'" and thus "defendant's demand that plaintiff withdraw the operative complaints does not violate the `safe harbor' provisions of Rule 11." Id. at 5 (citing Fed. R.Civ.P. 11(c)(1)(A)). Magistrate Judge Margolis also rejected plaintiffs argument concerning the $655,194 payment on the basis "that defendant did not make these payments in response to plaintiff's claims in the instant action," and based on plaintiffs repeated concession "that he does not have a dispute with this defendant and certainly does not have a dispute that could justify the payment of $650,000 in the form of a settlement." Id. at 6.

C. Plaintiffs Objections

Plaintiff now objects to Magistrate Judge Margolis's Reconsideration Ruling on the grounds that: (1) "[plaintiff] had a reasonable basis for his irreparable harm argument, including the fact that United States Supreme Court, Second Circuit, Connecticut Supreme Court and Connecticut Superior Court authorities directly supported [his] position and no controlling authority existed to the contrary"" (2) "WRSC violated the Rule 11 safe harbor provisions by demanding that [plaintiff] withdraw his operative complaints in this and the related actions in...