Zandford v. National Ass'n of Securities Dealers, Inc., CIV.A. 95-1621(GK).

• Decision Date: 16 July 1998
• Docket Number: No. CIV.A. 95-1621(GK).,CIV.A. 95-1621(GK).
• Parties: Charles ZANDFORD, Plaintiff, v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., et al., Defendants.
• Court: U.S. District Court — District of Columbia

19 F.Supp.2d 4

Charles ZANDFORD, Plaintiff, v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., et al., Defendants.

No. CIV.A. 95-1621(GK).

United States District Court, District of Columbia.

July 16, 1998.

COPYRIGHT MATERIAL OMITTED

Francis Joseph Warin, Gibson, Dunn & Crutcher, L.L.P., Washington, DC.

MEMORANDUM OPINION

KESSLER, District Judge.

This is Plaintiff Charles Zandford's third suit against Defendants relating to actions taken under the regulatory and disciplinary authority of the National Association of Securities Dealers, Inc. ("NASD"). Both prior cases have been dismissed.

This case arises from a 1994 indictment and subsequent conviction of Zandford on thirteen counts of wire fraud. Zandford alleges that, in pursuing its investigation against him, Defendants abused process in violation of common law (Count I) and violated the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1962(c), 1962(d), and 1964(c) ("RICO") (Count II).

This matter is before the Court upon the Defendants' Motion to Dismiss [# 25] pursuant to Fed.R.Civ.P. 12(b)(6). Upon consideration of the Defendants' Motion, Plaintiff's Opposition, Defendants' Reply, and the entire record herein, Defendants' motion is hereby granted.

I. BACKGROUND¹

Charles Zandford was employed as a registered representative by Dominick and Dominick, Inc. ("Dominick"), a securities brokerage firm, in its Bethesda, Maryland retail sales office from May 1987 until February 1991. Zandford and Dominick were subject to regulation by the NASD, a national securities association responsible for bringing disciplinary proceedings against member firms and their registered representatives. The NASD was subject to direct oversight by the Securities and Exchange Commission ("SEC").

In early 1987, a NASD District Business Conduct Committee ("DBCC") filed an administrative complaint against Zandford. (Compl.¶ 42(A).) In October 1988, the DBCC conducted a hearing and found Zandford guilty of securities violations.² (Compl.¶ 42(C), (E).) In March 1989, Zandford appealed the DBCC decision to NASD's Board of Governors. (Compl.¶ 42(F).) The Board of Governors dismissed the excessive trading charge and affirmed the violation of improper deposit of funds. (Compl.¶ 42(G).) Zandford then appealed the Board of Governor's ruling to the SEC. In November 1991, the SEC reversed the NASD Board of Governors' decision and set aside all charges against Zandford. (Compl.¶ 42(I).)

In 1991, the NASD initiated a new investigation of Dominick. (Compl.¶ 42(J).) During the course of its investigation of Dominick, the NASD discovered information leading them to initiate an investigation of Zandford for theft and embezzlement. (Compl.¶¶ 42(K), 42(L).)

On February 2, 1994 Zandford filed Civil Complaint No. 94-180(GK), in this District Court, against the NASD, Brian Hobbs, and David Bender, alleging defamation, false light invasion of privacy, and continuing interference with business relations, all claims being based on the 1991 investigation of Zandford and Dominick.³ (Compl.¶¶ 12, 13.) On February 3, 1994, the NASD, Hobbs, Bender, Roger Sherman, James Lindsay, Jr., and Lynn Nellius referred Zandford to the Federal Bureau of Investigation ("FBI") for investigation of suspected securities violations.⁴ (Compl.¶ 42(R).)

In July 1995, Zandford was convicted by a federal jury of thirteen counts of wire fraud in violation of 18 U.S.C. § 1343. He was sentenced to fifty-two months in federal prison. On April 8, 1996, this Court stayed Civil Action No. 94-180(GK) pending a review of Zandford's conviction by the Fourth Circuit. Zandford's conviction was affirmed by the Fourth Circuit Court of Appeals on April 3, 1997. See United States v. Zandford, 110 F.3d 62, 1997 WL 153822 (4th Cir.1997) (unpublished disposition). On May 7, 1997, the stay was lifted. Thereafter, this Court dismissed Civil Action No. 94-180(GK) for failure to state a claim, Fed.R.Civ.P. 12(b)(6).

In Count I of his current Complaint, Zandford alleges abuse of process. Zandford argues that his referral to the FBI, indictment, and subsequent prosecution were caused by the Defendants in order to leverage their defense to Civil Action No. 94-180(GK). (Compl.¶¶ 9, 15, 23, 30.) Zandford claims the Defendants used his indictment as grounds to dismiss Civil Action No. 94-180(GK) by arguing that the indictment vindicated their tortious conduct. (Compl.¶ 21.)

Count II of Zandford's Complaint alleges that the Defendants engaged in a pattern of racketeering activity, beginning with the 1987 DBCC complaint and continuing through Zandford's 1995 wire fraud conviction, in violation of RICO. (Compl.¶¶ 10, 38.) He seeks compensatory and punitive damages. (Compl.¶ 36.)

II. STANDARD OF REVIEW

"[A] complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). As noted earlier, the factual allegations of the complaint must be presumed true and liberally construed in favor of the plaintiff. Shear v. National Rifle Ass'n of Am., 606 F.2d 1251, 1253 (D.C.Cir. 1979).

III. ANALYSIS

Given the absence of any citeable controlling authority from this Circuit, the Court will assume, arguendo, Defendants have not established immunity and will decide the merits of the case.⁵

A. Abuse of Process Claim

The parties do not dispute that the substantive law of the District of Columbia governs Zandford's common law tort claim. See Ideal Elec. Sec. Co., v. International Fidelity Ins. Co., 129 F.3d 143, 148 (D.C.Cir. 1997); Rafferty v. NYNEX Corp., 60 F.3d 844, 850 (D.C.Cir.1995); Williams v. Williams, Jr., 390 A.2d 4, 5 (D.C.1978).

Zandford argues that in causing his indictment and prosecution, Defendants have abused process in violation of the common law. (Compl.¶ 9.) Defendants respond, however, that Zandford has substantively pled the tort of "malicious prosecution" while erroneously labeling it "abuse of process". (Defs.' Mot. to Dismiss at 15.)

The torts of abuse of process and malicious prosecution are similar in that each involves improper use of the courts and the judicial process. They differ, however, in one important respect:

The significant distinction between these two causes of action is the point at which malice becomes involved in the prior proceeding; if a defendant maliciously causes process to issue without probable cause, the plaintiff will have a claim sounding in malicious prosecution, but if a defendant causes process to issue, even where there is probable cause, and later misuses that process, the plaintiff will have a claim sounding in abuse of process.

1 Am.Jur.2d Abuse of Process § 3, at 412 (1994).

A plaintiff thus states a claim for malicious prosecution when "the alleged tort is based upon a lack of sound foundation for the instigation of the ... action." Bown v. Hamilton, 601 A.2d 1074, 1079 n. 14. (D.C. 1992).

It is well-established that a plaintiff's characterization of his claim is not necessarily controlling. Morfessis v. Baum, 281 F.2d 938, 940 (D.C.Cir.1960); Saunders v. Nemati, 580 A.2d 660, 661 (D.C.1990). The Court must thus examine the elements of Zandford's cause of action to determine whether he alleges the tort of malicious prosecution or abuse of process. Saunders, 580 A.2d at 661.

Zandford's Complaint alleges that "there was no cause for investigation [or] indictment". (Compl. ¶ 18; see also ¶¶ 23, 30.) Since he has alleged that the Defendants lacked a "sound foundation for the instigation [rather than the prosecution] of the ... action", Count I of Zandford's Complaint states a claim for malicious prosecution, rather than abuse of process, under District of Columbia law. Bown, 601 A.2d at 1079 n. 14.

In order to prevail on a malicious prosecution claim, a plaintiff "must plead and prove four things: (1) the underlying suit terminated in plaintiff's favor; (2) malice on the part of the defendant; (3) lack of a probable cause for the underlying suit; and (4) special injury occasioned by plaintiff as the result of the original action." Morowitz v. Marvel, 423 A.2d 196, 198 (D.C.1980).

Zandford was convicted on all counts by a jury in Baltimore, Maryland in July 1995, and his conviction was affirmed by the Fourth Circuit Court of Appeals. See Zandford, 110 F.3d at 62, 1997 WL 153822. Since the underlying suit was not terminated in Zandford's favor, and there was no lack of probable cause for its instigation, he cannot sustain a claim for malicious prosecution. Therefore, Claim I must be dismissed pursuant to Fed.R.Civ.P. 12(b)(6).

Even if Zandford's Complaint is construed as abuse of process, he would have to "allege and prove that there has been a perversion of the judicial process and achievement of some end not contemplated in the regular prosecution of the charge." Morowitz, 423 A.2d at 198 (citing Hall v. Hollywood Credit Clothing Co., 147 A.2d 866, 868 (D.C.1959)). "The mere issuance of the process is not actionable, no matter what ulterior motive may have prompted it; the gist of the action lies in the improper use after issuance." Hall, 147 A.2d at 868.

Zandford only alleges that Defendants abused process after the indictment by informing this Court of Zandford's indictment and conviction in an attempt to have Civil Action No. 94-180(GK) dismissed. (Compl.¶¶ 25, 27.) The Court finds that Defendants' action was perfectly proper, and was not an abuse of process or "perversion of the judicial process".

B. RICO Claim

Zandford alleges that by engaging in an eight-year period of racketeering activity against him, Defendants have violated RICO §§ 1964(c), 1962(d), and 1962(c). Section 1962(c) states:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or...