McCowan v. Sears, Roebuck and Co.
| Decision Date | 10 July 1990 |
| Docket Number | Nos. 918,1197,D,s. 918 |
| Citation | 908 F.2d 1099 |
| Parties | Blue Sky L. Rep. P 73,261, Fed. Sec. L. Rep. P 95,294, 17 Fed.R.Serv.3d 252 Horace D. McCOWAN, Jr. and Sarah E. McCowan, Plaintiffs-Appellees, v. SEARS, ROEBUCK AND CO., and Dean Witter Reynolds, Inc., Defendants-Appellants. ockets 89-9089, 90-7135. |
| Court | U.S. Court of Appeals — Second Circuit |
Charles W. Laughlin, Richmond, Va. (Thompson & McMullan, Richmond, Va., Harry H. Wise, New York City, of counsel), for plaintiffs-appellees.
Elizabeth Hoop Fay, Philadelphia, Pa. (John Linsenmeyer, John F.X. Peloso, Morgan, Lewis & Bockius, New York City, of counsel), for defendants-appellants.
Before OAKES, KEARSE and WALKER, Circuit Judges. 1
Dean Witter Reynolds Inc. ("Dean Witter") and Sears, Roebuck and Co. ("Sears") appeal from orders of the United States District Court for the Southern District of New York (Robert L. Carter, Judge ) denying their separate motions for a stay of court proceedings pending arbitration pursuant to section 3 of the Federal Arbitration Act (the "Act"), 9 U.S.C. Sec. 3. For the reasons set forth below, we reverse the order of the district court denying Dean Witter a stay.
Plaintiffs Horace D. McCowan, Jr. and Sarah E. McCowan filed two lawsuits in 1986 claiming damages arising from Dean Witter's allegedly fraudulent conduct in managing their securities account. The agreement between plaintiffs and Dean Witter under which the account was managed contained an arbitration clause.
On October 21, 1986, plaintiffs filed a complaint in the Southern District of New York against Dean Witter seeking damages for alleged violations of the Racketeering On December 31, 1986, plaintiffs filed a second complaint in the United States District Court for the Eastern District of Virginia against both Dean Witter and Sears predicated on the same transactions which form the basis of the federal claims against Dean Witter initially filed in the Southern District of New York, alleging "controlling person liability" against Sears pursuant to the Virginia Securities Act, Va.Code Ann. Sec. 13.1-501 et seq. ("McCowan II "). Although both Dean Witter and Sears were named as defendants in McCowan II, the complaint sought damages solely against Sears.
Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. Sec. 1961 et seq.; sections 12(2) and 17(a) of the Securities Act of 1933 (the "1933 Act"), 15 U.S.C. Secs. 77l (2), 77q(a); and sections 10(b) and 15(c)(1) of the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. Secs. 78j(b), 78o(c)(1). ("McCowan I ")
In April, 1987, the Virginia district court ordered McCowan II transferred to the Southern District of New York and denied without prejudice motions by Dean Witter and Sears to dismiss and for a stay of court proceedings pending arbitration. In May, 1987, McCowan I and McCowan II were consolidated before Judge Carter in the Southern District of New York. Thereafter, the district court referred the RICO and 1934 Act claims to arbitration, ordered the 1933 Act claims to be repleaded and, pending the repleading, deferred decision on the motion to dismiss the state law claims. McCowan v. Dean Witter Reynolds, Inc., 682 F.Supp. 741 (S.D.N.Y.1987). Accordingly, the plaintiffs amended their McCowan I complaint.
Thereafter, the district court dismissed the 1933 Act claims on the grounds that section 17(a) does not afford a private right of action and section 12(2) does not apply to post-distribution transactions. McCowan v. Dean Witter Reynolds, Inc., 1989 WL 38354 1989 U.S.Dist. LEXIS 3711 (April 12, 1989). This left before the district court only the Virginia state law claims as originally pleaded in McCowan II. Dean Witter and Sears subsequently moved to dismiss those claims on the grounds that: (i) as to Dean Witter, the McCowans sought no relief; (ii) as to Sears, the McCowans failed to state a claim under the Virginia Securities Act because Sears was not a "controlling person"; and (iii) as to both Sears and Dean Witter, the McCowans failed to plead fraud with particularity as required by Fed.R.Civ.P. 9(b). In the alternative, Dean Witter moved for a stay pending arbitration pursuant to section 3 of the Federal Arbitration Act. Sears also sought a discretionary stay of the claims asserted against it pending arbitration of the underlying claims against Dean Witter.
On October 5, 1989, the district court denied defendants' motion to dismiss the claims in McCowan II. The court held that the Virginia Securities Act afforded the plaintiffs a private right of action for fraudulent security sales under section 13.1-522(A)(ii); that Sears was a controlling person within the meaning of section 13.1-522(B) and that plaintiffs' allegations on that score were sufficient to state a claim; and, finally, that these fraud allegations were pleaded with sufficient particularity to withstand scrutiny under Fed.R.Civ.P. 9(b). The court also denied Dean Witter's motion to be dismissed on the ground that no relief was sought from it. The court held that Dean Witter was an indispensable party to the action pursuant to Fed.R.Civ.P. 19 as liability existed for Sears only if the plaintiffs could demonstrate that Dean Witter violated the Virginia Act. Significant to this appeal, the court also denied the defendants' requests for a stay pending arbitration and directed them to answer the complaint.
On October 16, 1989, Sears and Dean Witter filed a Motion for Reargument and Clarification "pursuant to Local Rule 3(j) of the Civil Rules of the United States District Courts for the Southern and Eastern Districts of New York" on the grounds that the October 5, 1989 order "overlooks Dean Witter's right pursuant to the Federal Arbitration Act Sec. 3 to have all controversies among Dean Witter Reynolds and the plaintiffs herein arbitrated and proceedings before this court stayed." The defendants sought an order granting Dean Witter a On November 6, 1989, Dean Witter learned from the judge's chambers that an order would be filed denying defendants' motion to reargue. That same day, after learning of the disposition of the reargument motion, Dean Witter, acting pursuant to Federal Arbitration Act section 15(a)(1)(A), 2 filed its Notice of Appeal from the district court's October 5, 1989 order. On November 8, 1989, the district court filed and the clerk entered an order, captioned "Endorsement," denying Dean Witter's motion for reargument. On November 17, 1989, Sears--having previously moved only for a discretionary stay--moved for a mandatory stay of the McCowan II claims against it pursuant to Federal Arbitration Act section 3. The district court denied Sears' motion on January 17, 1990, 1990 WL 4024. Sears appealed from this decision and we ordered consolidation of both appeals.
stay under section 3 of the Act and granting Sears a discretionary stay.
At the outset, we must address plaintiffs' argument that Dean Witter's appeal must be dismissed pursuant to Rule 4(a)(4) of the Federal Rules of Appellate Procedure on the ground that its notice of appeal, filed on November 6, 1989, was a nullity since it was filed while a Fed.R.Civ.P. 59(e) motion to alter or amend the judgment was pending. F.R.A.P. 4(a) states in pertinent part:
* * * * * *
(2) Except as provided in (a)(4) of this Rule 4, a notice of appeal filed after the announcement of a decision or order but before the entry of the judgment or order shall be treated as filed after such entry and on the day thereof.
* * * * * *
(4) If a timely motion under the Federal Rules of Civil Procedure is filed in the district court by any party: (i) for judgment under Rule 50(b); (ii) under Rule 52(b) to amend or make additional findings of fact, whether or not an alteration of the judgment would be required if the motion is granted; (iii) under Rule 59 to alter or amend the judgment; or (iv) under Rule 59 for a new trial, the time for appeal for all parties shall run from the entry of the order denying a new trial or granting or denying any other such motion. A notice of appeal filed before the disposition of any of the above motions shall have no effect. A new notice of appeal must be filed within the prescribed time measured from the entry of the order disposing of the motion as provided above. No additional fees shall be required for such filing.
(emphasis added).
Plaintiffs argue that the district court's October 5, 1989 order was a judgment as defined by Fed.R.Civ.P. 54(a), that when Dean Witter filed its October 16 motion to reargue, it was a timely motion "under Rule 59 to alter or amend the judgment," and, since Dean Witter's November 6 Notice of Appeal was filed "before the disposition" of that motion, it had "no effect." Plaintiffs maintain that because Dean Witter never filed a timely notice of appeal after the order denying the motion for reargument was entered on November 8, we are without jurisdiction to hear the appeal.
Dean Witter responds with a welter of arguments designed to extricate itself from this apparent predicament. First it contends that the motion for reargument was not made pursuant to Rule 59(e) but pursuant to Rule 3(j) of the Local Rules of the Southern and Eastern Districts of New York. Next it argues that the October 5 order from which it appealed was not a "judgment" within the meaning of Rule 59(e) because it was interlocutory, it did not involve a reconsideration of the merits and no separate document was filed pursuant to Rule 58. Finally, Dean Witter argues that the Notice of Appeal should be treated as if filed after the district court's disposition of its post-decisional motion.
F.R.A.P. 4(a)(4) is jurisdictional and unequivocal. Spika v. Village of Lombard, 763 F.2d 282, 284 (7th Cir.1985), cert. denied, 474 U.S. 1056, 106 S.Ct. 793, 88 L.Ed.2d 771 (1986). A notice of appeal filed by any party while...
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