Morgan Stanley v. Babu

Citation448 F.Supp.3d 497
Decision Date23 March 2020
Docket NumberCase No.: GJH-19-489
Parties MORGAN STANLEY, Plaintiff, v. Nirav BABU, Defendant.
CourtUnited States District Courts. 4th Circuit. United States District Court (Maryland)

Timothy C. Bass, Greenberg Traurig LLP, McLean, VA, for Plaintiff.

Jacob Shaye Frenkel, Ryan Kane Hart, Scott A. MacGriff, Pro Hac Vice, Dickinson Wright PLLC, Washington, DC, for Defendant.

MEMORANDUM OPINION

GEORGE J. HAZEL, United States District Judge

Plaintiff Morgan Stanley brought this action to compel Defendant Nirav Babu to arbitrate a third-party claim for contribution and indemnification related to an improper transfer of funds from Morgan Stanley accounts. ECF No. 1. Pending before the Court is Defendant's Motion to Dismiss, ECF No. 14, Plaintiff's Cross-Motion for Summary Judgment, ECF No. 20, and Defendant's Motion to Quash Service of Process, ECF No. 25. No hearing is necessary. See Loc. R. 105.6 (D. Md. 2016). For the following reasons, Defendant's Motion to Dismiss is denied, Plaintiff's Cross-Motion for Summary Judgment is granted, and Defendant's Motion to Quash Service of Process is denied as moot.

I. BACKGROUND
A. Factual Background

On May 2, 2018, under the rules of the Financial Industry Regulatory Authority ("FINRA"), Morgan Stanley customers Darrell S. Newcomb and Karen R. Newcomb filed an arbitration claim against Plaintiff alleging that a former employee of Plaintiff, Sumitro Pal, improperly convinced the Newcombs to wire $4 million to a Wells Fargo account owned by an entity known as "DH Investments LLC" (the "FINRA Action"). ECF No. 4-1 at 5–19.1

On August 8, 2018, Plaintiff filed a third-party claim for contribution and indemnification against Defendant, alleging that he "is the beneficial owner of the Wells Fargo account for ‘DH Investments LLC" and that the Newcombs’ funds were "misappropriated at the directions of [Defendant]" or the misappropriation "was enabled by [Defendant's] negligent or reckless conduct in managing the DH Investments LLC account." ECF No. 4-1 at 45. Plaintiff contended that Defendant, who was also a Morgan Stanley customer, was subject to arbitration in the FINRA Action by virtue of the Arbitration Clause in various Customer Agreements he had signed with Morgan Stanley:

You agree that all claims or controversies, whether such claims or controversies arose prior, on or subsequent to the date hereof, between you and MSSB and/or any of its present or former officers, directors, or employees concerning or arising from (i) any account maintained by you with MSSB individually or jointly with others in any capacity; (ii) any transaction involving MSSB or any predecessor or successor firms by merger, acquisition or other business combination and you, whether or not such transaction occurred in such account or accounts; or (iii) the construction, performance or breach of this or any other agreement between you and us, any duty arising from the business of MSSB or otherwise, shall be determined by arbitration before, and only before, any self-regulatory organization or exchange of which MSSB is a member.

Id. at 55–56, 68–69, 80–81, 93–94, 105–6.

Defendant refused to submit to arbitration, and his counsel requested that FINRA dismiss the third-party complaint in four separate letters between October 22, 2018 and November 13, 2018. Id. at 109–24. On November 20, 2018, Plaintiff's counsel responded to Defendant's letters by referencing the Arbitration Clause in the Customer Agreements; Plaintiff's counsel argued that the indemnification and contribution claims were claims between Plaintiff and Defendant arising from a transaction involving Plaintiff and Defendant, and therefore fell within Clause (ii) of the Arbitration Agreement, because they were based on the contention that the money transferred from the Newcomb's Morgan Stanley account was misappropriated by Plaintiff. Id. at 127–28. On January 24, 2019, the Director of FINRA's Office of Dispute Resolution determined that Defendant was "not compelled by the Code of Arbitration Procedure to arbitrate" Plaintiff's contribution and indemnification claims, but that he could voluntarily agree to FINRA's jurisdiction (the "FINRA Order"). Id. at 154. "In the absence of such a voluntary submission, or a court order compelling his submission to arbitration this dispute," FINRA ordered that the matter proceed without Defendant's participation. Id.

B. Procedural Background and Service of Process

On February 19, 2019, Plaintiff filed a Complaint and Petition to Compel Arbitration in this Court requesting an order to compel in Count I and an award of attorney fees in Count II. ECF No. 1. On April 5, 2019, an Affidavit of Service was filed reflecting that Vincent Piazza, a private process server, had served Bhupesh Babu, Plaintiff's father, on March 13, 2019 at 2518 Moores Boulevard, Upper Marlboro, Maryland 20774 (the "Upper Marlboro" address). ECF No. 11. The Affidavit stated that Mr. Bhupesh Babu was "a person of suitable age and discretion, who stated that he/she resides therein with Nirav Babu." Id.

On April 16, 2019, Plaintiff filed a Motion for Entry of Default and Default Judgment. ECF No. 12. On April 24, 2019, Defendant filed a Motion to Dismiss Complaint Pursuant to Rule 12(b)(1), 12(b)(5), and 12(b)(6), which included a response to Plaintiff's Motion for Entry of Default and Default Judgment. ECF No. 14. In that Motion, Defendant stated that his actual address is 801 Key Highway, Unit 335, Baltimore, Maryland 21230 (the "Baltimore address"), not the Upper Marlboro address at which Mr. Piazza had allegedly effected service. ECF No. 14-17 at 2.

On May 8, 2019, Plaintiff filed a Cross-Motion for Summary Judgment, which included a response to Defendant's Motion to Dismiss and a reply in support of its Motion for Entry of Default and Default Judgment. ECF No. 20. On May 21, 2019, Defendant filed a reply in support of his Motion to Dismiss, which included a response to Plaintiff's Cross-Motion for Summary Judgment. ECF No. 21.

On May 31, 2019, a Second Affidavit of Service was filed acknowledging Defendant's assertion in his Motion to Dismiss that he did not live at the Upper Marlboro address, but rather at the Baltimore address. ECF No. 22. The Affidavit reflected the following attempts at service by Mr. Piazza:

• On May 8, 2019, Mr. Piazza was greeted by the concierge at the entrance to the secure building located at the Baltimore address. The concierge called Unit 335, but he received no answer.
• On May 9, 2019, Mr. Piazza once again had the concierge call Unit 335, but he received no answer. The concierge stated that Plaintiff had moved out of Unit 335 and the building a few months prior.
• On May 10, 2019, Mr. Piazza interacted with a concierge named Jhayson, who called Unit 335 and spoke to a woman through the front desk phone. The woman stated that Plaintiff had moved out of her apartment months ago and that she did not have a forwarding address for him.
• On May 14, 2019, Mr. Piazza returned to the Baltimore address, but Jhayson refused to call Unit 335 because he had already informed Mr. Piazza that Plaintiff was not a resident. At that time, Mr. Piazza served Jhayson with this action.
• On May 17, 2019, between 7:30 a.m. and 10:30 a.m. and between 12:30 pm and 2:00 p.m., Mr. Piazza returned to the Baltimore address, but he was unable to locate Plaintiff, or the vehicle registered to Plaintiff, entering or exiting the building.

Id.

On June 20, 2019, Defendant filed a Motion to Quash the Second Affidavit of Service. ECF No. 25. Plaintiff filed a response on July 5, 2019. ECF No. 26. That same day, a Supplemental Affidavit was filed reflecting that, in connection with the First Affidavit of Service, Mr. Piazza was no longer certain that Mr. Bhupesh Babu had stated to him that Plaintiff lived at the Upper Marlboro address. ECF No. 27. Defendant filed a reply in support of his Motion to Quash on July 18, 2019. ECF No. 28.

II. STANDARD OF REVIEW

Defendant has moved to dismiss for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), for lack of service of process pursuant to Federal Rule of Civil Procedure 12(b)(5), and for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiff has moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. The Court will present the relevant standards of review below.

A. Motion to Dismiss Pursuant to Rule 12(b)(1)

"A district court should grant a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) ‘only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.’ " Upstate Forever v. Kinder Morgan Energy Partners, L.P. , 887 F.3d 637, 645 (4th Cir. 2018) (quoting Evans v. B.F. Perkins Co. , 166 F.3d 642, 647 (4th Cir. 1999) ). "The burden of establishing subject matter jurisdiction rests with the plaintiff." Demetres v. East West Constr. , 776 F.3d 271, 272 (4th Cir. 2015). "When a defendant challenges subject matter jurisdiction pursuant to Rule 12(b)(1), ‘the district court is to regard the pleadings as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment.’ " Evans , 166 F.3d at 647 (quoting Richmond, Fredericksburg & Potomac R.R. Co. v. United States , 945 F.2d 765, 768 (4th Cir. 1991) ). Where jurisdiction "ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause." Steele Co. v. Citizens for a Better Env't , 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (quoting Ex parte McCardle , 74 U.S. 506, 7 Wall. 506, 19 L.Ed. 264 (1868) ).

B. Motion to Dismiss Pursuant to Rule 12(b)(5)

Plaintiffs bear the burden of establishing the validity of service under Federal Rule of Civil Procedure 4. O'Meara v. Waters , 464 F. Supp. 2d 474, 476 (D. Md. 2006). The Fourth Circuit has provided that in cases where service of process...

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