Kidder, Peabody & Co. v. Brandt

131 F.3d 1001

• Court: Court of Appeals for the Eleventh Circuit
• Decided: December 22, 1997
• Docket: 97-2123
• Status: Published

Opinion

PUBLISH

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

No. 97-2123 ________________________

D.C. Docket No. 94-1510-CIV-T-17A

KIDDER, PEABODY & CO., INCORPORATED,

Plaintiff-Appellant,

versus

ROBERT BRANDT, as trustee, SELMA BRANDT, JOHN H. GARY, DONNA L. GARY, IRWIN GOLDSTEIN, et al.,

Defendants-Appellees.

Appeal from the United States District Court for the Middle District of Florida ________________________

(December 22, 1997)

Before COX, DUBINA and CARNES, Circuit Judges. CARNES, Circuit Judge:

This case involves a claim arising under the Racketeer Influenced Corrupt

Organizations Act (“RICO”), 18 U.S.C. § 1962. The issue before us, however, involves less

the intricacies of RICO law and more § 15 of the National Association of Securities Dealers

Code of Arbitration (the “NASD Code”). That section provides that no dispute, claim or

controversy is eligible for arbitration where six years have elapsed from the “occurrence or

event giving rise to the act or the dispute, claim or controversy.” This appeal turns on the

definition of the quoted language.

We hold that the occurrence or event giving rise to a claim for purposes of § 15 of the

NASD Code is the one necessary to make the claim viable, the occurrence or event after

which a complaint specifying the facts would withstand a Federal Rule of Civil Procedure

12(b)(6) motion. Our holding requires a remand of this case for further proceedings in the

district court.

I. FACTS AND PROCEDURAL HISTORY

Kidder, Peabody & Co., Inc. (“Kidder”) is a securities broker. Around 1987, a group

of individuals (the “defendants”) purchased shares in a limited partnership through Kidder.

As a condition of purchasing securities through Kidder, each of the defendants agreed to

submit any dispute or claim arising out of or relating to their Kidder accounts to arbitration.

That agreement specified that the NASD Code would govern any arbitration claim they

brought.

2 In 1994, the defendants filed a seven-count arbitration complaint against Kidder

alleging, among other things, that Kidder had violated RICO, 18 U.S.C. § 1962. Before any

action could be taken on that complaint, Kidder filed suit in federal district court, based upon

diversity jurisdiction, seeking a declaration that the defendants’ claims were ineligible for

arbitration and an injunction forbidding the defendants from pursuing their claims in

arbitration.

Kidder filed a motion for summary judgment contending that the “occurrence or

event” which gave rise to the defendants’ claims did not occur within six years of the date

defendants filed their arbitration complaint as required by § 15 of the NASD Code. The

district court granted Kidder’s motion in part and denied it in part. Relevant to this appeal,

the district found that the “occurrence or event” which gave rise to defendants’ RICO claim

was a “pattern of racketeering activity” which began more than six years before the

defendants filed their arbitration complaint but ceased inside the six-year window. Based on

that finding, the court denied Kidder’s motion with respect to defendants’ RICO claim. As

to that claim, the court entered summary judgment for the defendants, declaring that the

RICO claim was eligible for arbitration. Kidder filed a motion to alter or amend the

judgment which the court denied. Kidder appeals from the district court’s order on summary

judgment and its order denying Kidder’s motion to alter or amend the judgment.

II. STANDARD OF REVIEW

We review the district court's denial of injunctive relief under an abuse of discretion

standard, see Simmons v. Conger, 86 F.3d 1080, 1085 (11th Cir. 1996), but “we review de

3 novo determinations of law made by the district court en route,” Teper v. Miller, 82 F.3d 989,

993 (11th Cir. 1996). “The standard of review for the district court's denial of a motion to

amend final judgment is abuse of discretion.” Armstead v. Coler, 914 F.2d 1464, 1466 (11th

Cir. 1990) (citation omitted).

III. DISCUSSION

Kidder contends that the district court erroneously interpreted and applied § 15 of the

NASD Code to the facts of this case. That section provides:

No dispute, claim or controversy shall be eligible for submission to arbitration under this Code where six (6) years shall have elapsed from the occurrence or event giving rise to the act or the dispute, claim or controversy. This section shall not extend applicable statutes of limitation, nor shall it apply to any case which is directed to arbitration by a court of competent jurisdiction.

The district court found that the “occurrence or event” giving rise to the defendants’ RICO

claim was a pattern of racketeering activity, “at least a portion of [which] allegedly occurred

within the Section 15 time frame.” On the basis of that finding, the court concluded that the

defendants’ RICO claim was eligible for arbitration.

Kidder argues that under § 15 the defendants’ RICO claim was not eligible for

arbitration, unless all of the predicate acts upon which that claim was based occurred within

six years of the date defendants filed their arbitration complaint. Specifically, Kidder states:

“Defendants’ Federal RICO claim is eligible for arbitration only if each act or fact which

forms each of the elements of their Federal RICO claim -- including those underlying the

pattern element -- took place within the six year period preceding the initiation of

arbitration.” If Kidder’s interpretation of § 15 is correct, the defendants’ RICO claim was

4 not eligible for arbitration, because the district court found that some of the predicate acts

supporting the claim took place outside the six-year window.

Kidder asserts that its interpretation of § 15 is supported by our decision in Merrill

Lynch, Pierce, Fenner & Smith, Inc. v. Cohen, 62 F.3d 381 (11th Cir. 1995). However, in

Cohen, we did not define the phrase “occurrence or event giving rise to the . . . claim.”

Instead, we merely recognized, under facts similar to those here, that “[i]t is not a foregone

conclusion . . . that the purchase date is the relevant occurrence or event giving rise to the

Cohens’ claims, as neither § 15 nor any other provision of the NASD Code so provides.” Id.

at 385.

Far from supporting Kidder’s interpretation of § 15, Cohen is actually inconsistent

with Kidder’s position. In that case, the Cohens began purchasing securities from the

defendant in 1985. They alleged that from 1985 through 1991 the defendant had

misrepresented the value of their investments in statements it sent to them. The Cohens filed

an arbitration complaint in 1993 asserting a claim for breach of fiduciary duty. Because the

existence of a fiduciary duty was one element of the Cohens' claim, they had to prove that

the defendants owed them a fiduciary duty. That duty was born when the Cohens purchased

securities from the defendant in 1985, more than six years before the Cohens filed their

arbitration complaint. Under Kidder’s interpretation of § 15, the Cohens’ claim would have

been ineligible for arbitration because one of the acts upon which their claim was based

occurred outside the six-year window. However, we did not adopt that interpretation of §

15. Instead, we recognized that, if the defendant had made misrepresentations within the six-

5 year window, the Cohens could have claims for breach of fiduciary duty that would be

eligible for arbitration. See id. at 385. We stated that “each misrepresentation [e.g., the

statements the defendant sent out] might be an event or occurrence giving rise to a claim for

breach of fiduciary duty.” Id. at 385 n.7; see also Osler v. Ware, 114 F.3d 91, 92-93 (6th Cir.

1997) (plaintiff who opened securities account in 1984 and filed arbitration complaint in

1993 could have an arbitrable claim based on defendant's misrepresentations made within the

six-year window); PaineWebber Inc. v. Hofmann, 984 F.2d 1372, 1381 (3d Cir. 1993)

(misrepresentation could be the act or occurrence giving rise to arbitrable claim).

Therefore, we reject Kidder’s interpretation of the “occurrence or event giving rise

to the . . . claim” language of § 15. Instead, we hold that under § 15 the “occurrence or

event” which “gives rise to the . . . claim” is the last occurrence or event necessary to make

the claim viable. A claim is viable when all the elements of that claim can be established

such that it could withstand a motion to dismiss for failure to state a claim for relief pursuant

to Federal Rule of Civil Procedure 12(b)(6).

Of course, the last “occurrence or event” necessary to make a claim viable depends

on the nature of a particular claim. In some instances, a single “occurrence or event” will

establish all the elements of a claim. For example, the single act of striking another may

establish all the elements of a claim for battery. In that instance, the act of striking another

may be the “occurrence or event” which “gives rise” to a claim for battery.

In other instances, separate “occurrences or events” establish the various elements of

a claim. For example, an action for negligence based on the defective design of a product

6 is not viable until an injury is caused by that product. Although the duty and breach elements

of such a claim are established by the company’s act of marketing the product, that act does

not establish the causation and injury elements of the claim. The incident in which the

product causes injury, not the company’s act of marketing a defective product, is the

“occurrence or event which gives rise to the . . . claim” within the meaning of § 15.

Hypothesizing some dates for the occurrences or events in this example reveals the flaw in

Kidder’s position. Suppose that the company marketed the defectively designed product in

year one and that, as a result of that defective design, the product caused injury in year eight.

Under Kidder’s theory, even if a claimant filed an arbitration complaint the moment after his

or her claim arose--the moment after he or she was injured--the claim would be ineligible for

arbitration. We decline to adopt an interpretation of § 15 that would render some claims

ineligible for arbitration before they even come into existence.

Having discussed the meaning of § 15's “occurrence or event giving rise to the . . .

claim” language, we turn now to the district court’s application of that language to the facts

of this case. The district court found that the “occurrence or event” which gave rise to

defendants’ RICO claim was a “pattern of racketeering activity.” Because a “pattern of

racketeering activity” is, by definition, a composition of multiple distinct “occurrences or

events,” we conclude that the district court failed to identify precisely the last “occurrence

or event” necessary to make the defendants’ RICO claim viable. Therefore, we remand the

case to the district court with instructions to identify the occurrence or event which created

a viable RICO claim for the defendants. If the occurrence or event which made the claim

7 viable took place more than six years from the date the defendants filed their arbitration

complaint, the claim is ineligible for arbitration.

The thrust of defendants’ position is that the district court incorrectly identified the

“occurrence or event” giving rise to their claims. In essence, the defendants argue that they

have multiple RICO claims, each occasioned by an injurious act which took place within the

six-year window. The defendants assert that it is those acts, not a “pattern of racketeering

activity” which is the “occurrence or event” giving rise to their RICO claims. We do not

foreclose that possibility. On remand, the district court should consider whether the

defendants have proved that Kidder committed acts within the six-year window that caused

the defendants injury, and if so, whether those injurious acts created independent RICO

causes of action. See Bivens Gardens Office Bldg., Inc. v. Barnett Bank of Florida, Inc., 906

F.2d 1546, 1554-55 (11th Cir. 1990) (“We hold, therefore, that with respect to each

independent injury to the plaintiff, a civil RICO action begins to accrue as soon as the

plaintiff discovers, or reasonably should have discovered, both the existence and source of

his injury and that the injury is part of a pattern.”) (emphasis added). If the facts reveal that

the defendants have multiple RICO claims, it is possible that some will be ineligible for

arbitration because they arose outside the six-year window, while others may be eligible for

arbitration because they arose inside the six-year window.

We recognize that the district court’s task on remand may not be a simple one. To

determine whether defendants’ RICO claim or claims are eligible for arbitration, the court

must go beyond the allegations of the complaint and examine the evidence the parties offer,

8 if any. The burden of production and persuasion is on the plaintiff, Kidder. Although it

might be necessary for the court to hold a “mini-trial” to identify the last occurrence or event

necessary to make the defendants’ RICO claim or claims viable, as we noted in Cohen, that

burden is “[in]sufficient to justify interference with the binding agreement of the parties [to

arbitrate their claims].” 62 F.2d at 385.

IV. CONCLUSION

For the reasons set forth above, we VACATE the judgment of the district court and

REMAND the case with the instruction that the district court make detailed findings of facts

concerning the occurrence or event giving rise to defendants’ RICO claim.