Salomon Smith Barney Inc. v. Harvey

• Decision Date: 09 August 2001
• Docket Number: No. 00-12627,00-12627
• Citation: 260 F.3d 1302
• Parties: (11th Cir. 2001) SALOMON SMITH BARNEY, INC., Plaintiff-Appellee, v. ARTHUR HARVEY, M.D., individually, and as beneficiary of the Arthur Harvey, M.D. Inc. Employee Defined Benefit Plan, DELORES E. THOMAS, Defendants-Appellants, MARGARET G. OSTRANDER, Defendant
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1302

260 F.3d 1302 (11th Cir. 2001)

SALOMON SMITH BARNEY, INC., Plaintiff-Appellee, v. ARTHUR HARVEY, M.D., individually, and as beneficiary of the Arthur Harvey, M.D. Inc. Employee Defined Benefit Plan, DELORES E. THOMAS, Defendants-Appellants, MARGARET G. OSTRANDER, Defendant.

No. 00-12627

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

August 9, 2001

[Copyrighted Material Omitted] Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT and DUBINA, Circuit Judges, and SHAPIRO^*, District Judge.

DUBINA, Circuit Judge:

The central issue in this appeal concerns the propriety of a district court's review of the timeliness of claims sought to be arbitrated pursuant to the National Association of Securities Dealers Code of Arbitration. Because the extent of a court's review is clearly articulated in both Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cohen, 62 F.3d 381 (11th Cir. 1995), and Kidder Peabody & Co., Inc., v. Brandt, 131 F.3d 1001 (11th Cir. 1997), we hold that the district court properly analyzed whether the alleged claims were timely for purposes of arbitration; accordingly, we affirm.

I. FACTS AND PROCEDURAL HISTORY

Between 1985 and 1990, appellants Delores Thomas, Margaret Ostrander, and Arthur Harvey (collectively referred to as "Appellants") purchased limited partnerships through Salomon Smith Barney Inc. ("Smith Barney"). On or about July 22, 1997, the Appellants filed an amended Statement of Claim and joined a Florida arbitration proceeding before the National Association of Securities Dealers ("NASD") that was initially filed by a claimant who is not a party to this suit. Appellants filed another NASD Statement of Claim on or about May 12, 1998. The arbitration claim alleged that Smith Barney recommended the purchase of investments in limited partnerships that were unsuitable and inappropriate for the investment objectives of the Appellants.

Since the individual Appellants resided in different states and made different investments with Smith Barney, Smith Barney requested that the NASD sever the claims. On November 14, 1997, the NASD Director of Arbitration granted the request to sever, but the NASD arbitration panel, at the Appellants' urging, reconsidered the matter and disregarded the Director's ruling by permitting the separate claims to proceed as one arbitration in Florida.

Simultaneous with the filing of the amended NASD claim, Appellants filed a state court action in Broward County, Florida. Appellants sought a declaration that the NASD panel, not the courts, should rule on the six-year eligibility requirement articulated in the NASD Code of Arbitration. In response, Smith Barney moved to sever the claims against it and/or dismiss the action on grounds of forum non conveniens. The trial judge denied Smith Barney's motion to sever and/or dismiss, and Smith Barney appealed that order to the Florida Fourth District Court of Appeal ("4th DCA"). On January 20, 1999, the Florida 4th DCA concluded that the Appellants engaged in impermissible forum shopping, dismissed Appellants' claims, and directed the trial court to enter orders to ensure that the Appellants could reinstate their suit in an alternative forum. Smith Barney v. Potter, 725 So. 2d 1223, 1226-27 (Fla. 4th DCA 1999).

In light of the Florida appellate court's ruling in Potter, Smith Barney again petitioned the NASD arbitration panel to sever the arbitration. On March 25, 1999, the panel again denied Smith Barney's motion to sever.

Back in October of 1997, in anticipation of an NASD ruling to sever the claims, Smith Barney filed a complaint with the state court in California, where it believed that Appellant Harvey's claims would have to be arbitrated once the NASD severed them. Smith Barney requested declaratory and injunctive relief staying the underlying arbitration as to Appellant Harvey until the California court had an opportunity to determine which of Harvey's claims, if any, were eligible for arbitration. Appellant Harvey, however, moved to stay the California proceeding in light of the similar proceeding in Florida already underway. The California court granted Harvey's motion and deferred to the pending Florida action.

On July 14, 1999, Smith Barney filed this action in the Southern District of Florida for declaratory and injunctive relief to enjoin Appellants from arbitrating claims that are ineligible for arbitration under the NASD's six-year eligibility rule. The district court granted a preliminary injunction, and on appeal, we dismissed the case as moot because the district court had subsequently entered an order granting permanent injunctive relief.

On February 28, 2000, Appellant Thomas filed a motion for appointment of a guardian ad litem at Smith Barney's expense. Appellant Thomas was 76 years old at the time, and her treating physician completed an affidavit attesting to her incompetency. Smith Barney objected to paying the expenses of a guardian. A magistrate judge granted Thomas's request for appointment of a guardian ad litem but denied her request that such appointment be at Smith Barney's expense. Appellant Thomas objected to the magistrate judge's order.

Smith Barney and Appellants filed cross-motions for summary judgment, each contesting whether Appellants' claims were eligible for arbitration. The district court granted Smith Barney's motion for summary judgment and denied all other pending motions as moot, including Appellant Thomas' motion for an appointment of a guardian ad litem at Smith Barney's expense. This appeal followed.

III. ISSUES

1. Whether the district court properly reviewed the arbitrability of this case.

2. Whether the district court should have been judicially estopped from hearing this case.

3. Whether the district court should have abstained from exercising jurisdiction over this case.

4. Whether the district court committed reversible error by granting summary judgment in favor of Smith Barney prior to ruling on Appellant Thomas's motion for appointment of a guardian ad litem at Smith Barney's expense.

III. STANDARDS OF REVIEW

This court reviews the district court's order granting permanent injunctive relief under an abuse of discretion standard. Simmons v. Conger, 86 F.3d 1080, 1085 (11th Cir. 1996). We review the district court's application of judicial estoppel for abuse of discretion. Talavera v. School Board of Palm Beach Co., 129 F.3d 1214, 1216 (11th Cir. 1997). The district court's legal determinations are reviewed de novo. Kidder, Peabody & Co., Inc. v. Brandt, 131 F.3d 1001, 1003 (11th Cir. 1997). This court also reviews a district court's order granting summary judgment de novo. Bivens Gardens Office Bldg., Inc. v. Barnett Banks of Fla., Inc., 140 F.3d 898, 905 (11th Cir. 1998).

IV. DISCUSSION

It is well settled that the NASD eligibility requirement is a substantive requirement, and, absent clear and unmistakable evidence, the court determines whether claims are timely under the NASD Code. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) ("Courts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clea[r] and unmistakabl[e]' evidence that they did so.") (quoting AT&T Technologies, Inc., v. Communications Workers of America, 475 U.S. 643, 649 (1986)); see also Dean Witter Reynolds, Inc., v. Fleury, 138 F.3d 1339, 1342 (11th Cir. 1998) ("[Section] 15 of the NASD Code is not a procedural statute of limitations, but a substantive eligibility requirement, determining the arbitrability of a given claim.").¹

Since the record reflects no clear and unmistakable evidence of the parties' intent to arbitrate issues of arbitrability, we adhere to our admonition in Cohen and conclude that "the presumption that courts determine arbitrability" controls. Cohen, 62 F.3d at 384. Having determined that the case was properly before the district court, we now turn to the extent of the district court's review of arbitrability and to the propriety of the court's findings.

Section 10304 of the NASD Code provides: "No dispute, claim, or controversy shall be eligible for submission to arbitration under this Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim or controversy."

Smith Barney posits that the "occurrences or events" giving rise to Appellants' claims were the purchase dates of the limited partnerships. Conversely, Appellants aver that their claims are based on events that occurred less than six years before they filed their Statement of Claim. Appellants further argue that when the court analyzed and adjudicated their allegations of injuries suffered within the six year period, the district court impermissibly passed upon the very issues that the parties had previously agreed to arbitrate. In other words, the Appellants assert that the district court's review should be limited to resolving the six-year eligibility issue and should not infringe on the parties' agreement to arbitrate the merits of the case.

Although Smith Barney sold the last limited partnership to Appellants over six years prior to the Appellants' filing of their Statement of Claim, Appellants maintain that numerous other arbitrable events or occurrences transpired within six years of submission to arbitration, including: issuance of false monthly statements, failure to disclose that the limited partnership portfolio was losing value, failure to diversify accounts, affirmative advice not to sell the limited partnerships, etc.

Similar allegations were at issue in Cohen. There, we stated that "[i]t is not a foregone conclusion [] that the purchase date is the relevant occurrence or event giving rise to the Cohens' claims." 62 F.3d at 385. Indeed, we remanded the case so that the district court could "examine each of the Cohen's claims in order to determine what is the 'occurrence or event' giving rise to that claim." Id. When...