Ungerland v. Morgan Stanley & Co.

• Decision Date: 05 April 2010
• Docket Number: No. CV–09–5030785.,CV–09–5030785.
• Court: Connecticut Superior Court
• Parties: Brenda UNGERLAND v. MORGAN STANLEY AND COMPANY, INC., et al.*

35 A.3d 1095

49 Conn. L. Rptr. 823

52 Conn.Supp. 164

Brenda UNGERLAND

v.MORGAN STANLEY AND COMPANY, INC., et al.*

No. CV–09–5030785.

Superior Court of Connecticut, Judicial District of Hartford.

April 5, 2010.

Thomas P. Willcutts, Hartford, for the plaintiff.

George D. Sullivan, for the defendants.

PECK, J.

The plaintiff, Brenda Ungerland, filed the two count complaint in this action on June 12, 2009. The defendants are Morgan Stanley & Company, Inc. (Morgan Stanley), a provider of securities brokerage services, and Sharon Kells, an agent of Morgan Stanley, The pertinent facts as alleged by the plaintiff or as set forth in the exhibits are as follows: Ungerland was a customer of Morgan Stanley until August, 2001, during which time she received “false and fraudulent” investment recommendations from the defendants that resulted in her sustaining $400,000 in principal losses. Ungerland instituted an arbitration against the defendants with the National Association of Securities Dealers, Inc. (NASD), seeking damages based on Morgan Stanley's “false and fraudulent misrepresentations” to her concerning her investments. During the NASD arbitration, the defendants “falsely claimed that records pertaining to the plaintiff's accounts, transactions and the defendants' investment recommendations were destroyed as a result of terrorist attacks against the World Trade Center [t]owers on September 11, 2001....” Thereafter, the defendants, with knowledge of the arbitration claims, destroyed these records in bad faith, which evidenced “their making false and fraudulent misrepresentations to the plaintiff ... with the intent of thereby depriving the plaintiff, as well as other victims of the defendants' fraudulent conduct, the evidence necessary for [the plaintiff] to prove her claims against them” in the arbitration. As a result, Ungerland was unable to establish a prima facie case in support of her arbitration claims; her arbitration claims failed; and she was denied her claims for damages. In December, 2006, NASD publicly declared that it had discovered that Morgan Stanley and its agents had purposefully destroyed evidence relevant to arbitration proceedings brought by the plaintiff and others with similar claims from October, 2001, and through March, 2005, and instituted regulatory charges against Morgan Stanley. In 2007, NASD was merged with the New York Stock Exchange to form the Financial Industry Regulatory Authority (FINRA), which assumed NASD's regulatory responsibilities. On September 24, 2007, FINRA accepted Morgan Stanley's “Letter of Acceptance, Waiver and Consent,” arising out of Morgan Stanley's alleged failure to produce pre-September 11, 2001, e-mail and other documents during the discovery phase of the arbitration.¹

On the basis of this alleged misconduct during the arbitration, Ungerland alleges against both defendants a claim of intentional spoliation of evidence (count one) and a claim of violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42–110a et seq. (count two).

On July 23, 2009, the defendants filed a motion to dismiss the complaint for lack of subject matter jurisdiction. The motion is accompanied by a memorandum of law and a supporting affidavit by the defendants' counsel. The defendants attached the following documents related to the NASD arbitration between the parties to their counsel's affidavit: Ungerland's statement of claim, Ungerland's uniform submission agreement and the arbitration award. Ungerland filed an objection to the motion to dismiss on October 19, 2009. The objection is accompanied by a supporting affidavit by Ungerland's counsel, dated October 19, 2009, to which Ungerland attached a FINRA press release, dated September 27, 2007, announcing Morgan Stanley's settlement with FINRA regarding the regulatory charges, and a notice of settlement, dated March 20, 2009, received by Ungerland as a result of the settlement. She filed a memorandum of law in opposition to the motion to dismiss on November 10, 2009. The memorandum is accompanied by a second affidavit by her counsel, dated November 9, 2009, to which Ungerland again attached the items appended to the previous affidavit as well a FINRA press release, dated November 17, 2007, announcing the Morgan Stanley settlement to its members, and Morgan Stanley's letter of acceptance, waiver and consent to FINRA.² On December 2, 2009, the defendants filed a reply memorandum of law. The matter was heard at the short calendar on December 7, 2009. None of the evidence submitted by the parties is contested by the other. There was no request for an evidentiary hearing.

“A motion to dismiss ... properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court.... A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction.” (Internal quotation marks omitted.) Caruso v. Bridgeport, 285 Conn. 618, 627, 941 A.2d 266 (2008). “The motion to dismiss shall be used to assert ... lack of jurisdiction over the subject matter....” Practice Book § 10–31(a).

“Jurisdiction over the person, jurisdiction over the subject-matter, and jurisdiction to render the particular judgment are three separate elements of the jurisdiction of a court. Each element of jurisdiction is dependent upon both law and fact.” (Internal quotation marks omitted.) Castro v. Viera, 207 Conn. 420, 433, 541 A.2d 1216 (1988). “Jurisdiction of the subject-matter is the power [of the court] to hear and determine cases of the general class to which the proceedings in question belong.... A court has subject matter jurisdiction if it has the authority to adjudicate a particular type of legal controversy. Such jurisdiction relates to the court's competency to exercise power, and not to the regularity of the court's exercise of that power.” (Citation omitted; internal quotation marks omitted.) Id., at 427, 541 A.2d 1216.

“[T]he plaintiff bears the burden of proving subject matter jurisdiction, whenever and however raised.” (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. New London, 265 Conn. 423, 430 n. 12, 829 A.2d 801 (2003). “[I]n determining whether a court has subject matter jurisdiction, every presumption favoring jurisdiction should be indulged.” (Internal quotation marks omitted.) Connor v. Statewide Grievance Committee, 260 Conn. 435, 443, 797 A.2d 1081 (2002). “The motion to dismiss ... admits all facts which are well pleaded, invokes the existing record and must be decided upon that alone.... Where, however ... the motion is accompanied by supporting affidavits containing undisputed facts, the court may look to their content for determination of the jurisdictional issue and need not conclusively presume the validity of the allegations of the complaint.” (Internal quotation marks omitted.) Ferreira v. Pringle, 255 Conn. 330, 346–47, 766 A.2d 400 (2001).

The defendants argue that their motion to dismiss should be granted because the court lacks subject matter jurisdiction over the action because it is an improper collateral attack on a prior arbitration award between the parties. Ungerland argues in opposition that the complaint is not an improper collateral attack on a prior arbitration award, and instead, alleges separate and independent claims from the underlying arbitration.

“Arbitration agreements are contracts and their meaning is to be determined ... under accepted rules of [state] contract law.... Judicial construction of an arbitration agreement, however, is not guided solely by the principles of relevant state contract law. The [Federal] [A]rbitration [A]ct; 9 U.S.C. §§ 1 through 16; governs written arbitration agreements that pertain to contracts involving interstate commerce.... The arbitration act creates a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [a]ct.... As federal substantive law ... the arbitration act is to be applied by state courts as well as by federal courts.... The purpose of the arbitration act is to ensure that private agreements to arbitrate are enforced according to their terms.... The arbitration act establishes a strong federal policy favoring arbitration.... [W]hen Congress passed the [a]rbitration [a]ct in 1925 ... [i]t intended courts to enforce [arbitration] agreements into which parties had entered ... and to place such agreements upon the same footing as other contracts....” (Citations omitted; internal quotation marks omitted.) Hottle v. BDO Seidman, LLP, 268 Conn. 694, 702–703, 846 A.2d 862 (2004). “Section 1 of the [Federal Arbitration Act] defines ‘commerce’ to include ‘commerce among the several States....' 9 U.S.C. § 1. The United States Supreme Court has construed § 1 broadly. The court has explained that ‘involving commerce’ is the equivalent of ‘affecting commerce,’ and accordingly, the term ‘signals an intent to exercise Congress' commerce power to the full.’ ... Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995).” Hottle v. BDO Seidman, LLP, 74 Conn.App. 271, 276, 811 A.2d 745 (2002), aff'd, 268 Conn. 694, 846 A.2d 862 (2004).

The parties do not make it abundantly clear whether the substantive law of Connecticut's arbitration statutes, General Statutes § 52–408 et seq., or the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (2008), applies to this case as necessary to resolve the motion before the court. Neither the plaintiff nor the defendants submit any contract, arbitration agreement or any other evidence indicating whether the arbitration at issue was conducted under Connecticut law, federal law or the law of another jurisdiction. If the original contract between the parties involved only intrastate commerce conducted in Connecticut, then the substantive law of the Connecticut...