Vitale v. Howard CV-90-204-B 11/02/93 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Alphonse Vitale
v. Civ. No. 90-204-B
Charles H. Howard, III
_________________________________ O R D E R
_____ Plaintiff brings this securities fraud action against his
broker. Plaintiff alleges that defendant broker wrongfully
generated commissions by "churning" securities held in
plaintiff's margin account, and that defendant wrongfully
purchased and sold these same securities to give the appearance
of an active market.1 Plaintiff premises his suit on § 10(b) of
the Securities Exchange Act of 1934 (the "Exchange Act"), 15
U.S.C. § 78j(b), rule 10b-5 promulgated thereunder, 17 C.F.R. §
240.10b-5, and § 9(e) of the Exchange Act, 15 U.S.C. § 781(e).
Defendant appears pro se. Presently before me are his motion to
dismiss plaintiff's claims and his motion to disgualify
plaintiff's counsel.
1 Plaintiff also asserts pendant claims for breach of fiduciary duty and for state securities law violations. I. The Motion to Dismiss
Defendant moves to dismiss plaintiff's claim on the ground
that plaintiff, in opening a margin account with defendant's
brokerage firm in 1985, allegedly executed an account agreement
that "clearly state[d] that should a dispute or controversy
arise, the matter is to be heard in Arbitration before the
National Association of Securities Dealers, Inc." Judged against
the "less stringent standards" applicable to pro se litigants,
see Eveland v. Director of CIA, 843 F.2d 46, 49 (1st Cir. 1988),
defendant's "motion to dismiss" is properly viewed as a motion to
compel arbitration under the Federal Arbitration Act ("FAA").
See 9 U.S.C. § 4. Defendant, however, has failed to support his
motion with any proof of the agreement's existence or content.2
While § 4 of the FAA gives federal district courts the authority
to order parties to proceed to arbitration in accordance with
their agreement, a court obviously cannot compel arbitration
unless it is satisfied that a valid agreement exists. Page v.
Moseley, Hallqarten, Estabrook & Weeden, Inc., 806 F.2d 291, 295
(1st Cir. 1989), abrogated on other grounds by Shearson/American
2Defendant has merely submitted unsigned examples of margin account agreements containing arbitration clauses.
2 Exp., Inc. v. McMahon, 482 U.S. 220, 236-38 (1957). I therefore
deny defendant's motion. For the following reasons, however, I
do so without prejudice and give defendant thirty days in which
to submit a renewed motion accompanied by the necessary proof.
First, "courts must receive the [Federal Arbitration Act]
hospitably and defend its mechanisms vigilantly and with some
fervor." Securities Ind. Ass'n v. Connolly, 883 F.2d 1114, 1119
(1st Cir. 1989), cert denied, 495 U.S. 956 (1990). Here, the
agreement that defendant refers to may very well exist.
Brokerage account agreements often contain arbitration clauses.
Plaintiff also does not expressly deny that he signed such an
agreement. By allowing defendant thirty days to come up with the
necessary proof, the strong federal policy favoring arbitration
agreements is given due weight. See Moses H.Cone Memorial Hosp.
v. Mercury Construction Corp., 460 U.S. 1, 24 (1983).
Second, plaintiff's federal securities claims and his
pendent state claims are all potentially arbitrable. See
Shearson/American Exp., 482 U.S. at 236-38 (Exchange Act does not
bar arbitration of disputes arising under its provisions,
particularly § 1 0 (b) claims); Dean Witter Reynolds, Inc. v. Byrd,
470 U.S. 213, 217 (1985) (where a motion to compel arbitration is
brought pursuant to a valid arbitration agreement, a district
3 court must compel arbitration of pendant state law claims).
Finally, I disagree with plaintiff's assertion that
defendant has waived his right to arbitration by not complying
with Magistrate Judge Barry's order reguiring defendant to seek
arbitration by July 1, 1991. To some extent, defendant has
complied with the order -- he wrote a letter to the National
Association of Securities Dealers ("NASD") on June 11, 1991,
reguesting that it arbitrate this dispute. He also alleges that
the NASD has responded, sending forms for plaintiff to complete.3
Although it appears that defendant has taken few, if any,
steps beyond his initial letter to NASD, several facts indicate
that this delay may not be entirely his fault. First, the
alleged agreement is in the possession of defendant's now-
bankrupt former employer, Thompson McKinnon Securities, Inc., who
has not responded to defendant's reguests for information.
Second, on July 5, 1991, defendant began serving a one year
sentence for insider trading. Since his imprisonment, the record
indicates that there may be some confusion as to which party has
3 The record is unclear as to whether plaintiff has received or completed these forms.
4 the burden of pursuing arbitration.4 At the very least, the
above-listed facts raise doubts as to whether defendant waived
his right to have the NASD arbite this dispute. Where
reasonable, such doubts must be resolved in favor of arbitration.
See Page, 806 F.2d at 293.
Moreover, even if these doubts were resolved in plaintiff's
favor, plaintiff at best has alleged that defendant's behavior
caused some delay. To prevail on a claim of waiver, however,
plaintiff "must show not only that defendant[] delayed in seeking
arbitration, but also that such delay caused plaintiff[]
prejudice." JCd. at 294. As plaintiff has not alleged or shown
facts indicating such prejudice, his arguments of waiver must be
rej ected.5
4 Initially, the court clerk reguired defendant to provide status reports. After defendant's incarceration, however. Judge Devine Court ordered that these reports be provided by plaintiff.
5 Defendant also moves for dismissal on the grounds that plaintiff offered to settle the suit if defendant would help plaintiff in a similar action against defendant's employer, Thomson McKinnon Securities, Inc. Defendant contends that, because that action has since been settled, the action here should be dismissed because plaintiff has already recovered and no longer needs his help. I reject this argument summarily. First, defendant seeks to benefit from a settlement offer he rejected. Second, the fact that plaintiff has received some compensation from Thomson McKinnon's bankruptcy estate does not
5 II. The Motion to Disqualify Plaintiff's Counsel
Free access — add to your briefcase to read the full text and ask questions with AI
Vitale v. Howard CV-90-204-B 11/02/93 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Alphonse Vitale
v. Civ. No. 90-204-B
Charles H. Howard, III
_________________________________ O R D E R
_____ Plaintiff brings this securities fraud action against his
broker. Plaintiff alleges that defendant broker wrongfully
generated commissions by "churning" securities held in
plaintiff's margin account, and that defendant wrongfully
purchased and sold these same securities to give the appearance
of an active market.1 Plaintiff premises his suit on § 10(b) of
the Securities Exchange Act of 1934 (the "Exchange Act"), 15
U.S.C. § 78j(b), rule 10b-5 promulgated thereunder, 17 C.F.R. §
240.10b-5, and § 9(e) of the Exchange Act, 15 U.S.C. § 781(e).
Defendant appears pro se. Presently before me are his motion to
dismiss plaintiff's claims and his motion to disgualify
plaintiff's counsel.
1 Plaintiff also asserts pendant claims for breach of fiduciary duty and for state securities law violations. I. The Motion to Dismiss
Defendant moves to dismiss plaintiff's claim on the ground
that plaintiff, in opening a margin account with defendant's
brokerage firm in 1985, allegedly executed an account agreement
that "clearly state[d] that should a dispute or controversy
arise, the matter is to be heard in Arbitration before the
National Association of Securities Dealers, Inc." Judged against
the "less stringent standards" applicable to pro se litigants,
see Eveland v. Director of CIA, 843 F.2d 46, 49 (1st Cir. 1988),
defendant's "motion to dismiss" is properly viewed as a motion to
compel arbitration under the Federal Arbitration Act ("FAA").
See 9 U.S.C. § 4. Defendant, however, has failed to support his
motion with any proof of the agreement's existence or content.2
While § 4 of the FAA gives federal district courts the authority
to order parties to proceed to arbitration in accordance with
their agreement, a court obviously cannot compel arbitration
unless it is satisfied that a valid agreement exists. Page v.
Moseley, Hallqarten, Estabrook & Weeden, Inc., 806 F.2d 291, 295
(1st Cir. 1989), abrogated on other grounds by Shearson/American
2Defendant has merely submitted unsigned examples of margin account agreements containing arbitration clauses.
2 Exp., Inc. v. McMahon, 482 U.S. 220, 236-38 (1957). I therefore
deny defendant's motion. For the following reasons, however, I
do so without prejudice and give defendant thirty days in which
to submit a renewed motion accompanied by the necessary proof.
First, "courts must receive the [Federal Arbitration Act]
hospitably and defend its mechanisms vigilantly and with some
fervor." Securities Ind. Ass'n v. Connolly, 883 F.2d 1114, 1119
(1st Cir. 1989), cert denied, 495 U.S. 956 (1990). Here, the
agreement that defendant refers to may very well exist.
Brokerage account agreements often contain arbitration clauses.
Plaintiff also does not expressly deny that he signed such an
agreement. By allowing defendant thirty days to come up with the
necessary proof, the strong federal policy favoring arbitration
agreements is given due weight. See Moses H.Cone Memorial Hosp.
v. Mercury Construction Corp., 460 U.S. 1, 24 (1983).
Second, plaintiff's federal securities claims and his
pendent state claims are all potentially arbitrable. See
Shearson/American Exp., 482 U.S. at 236-38 (Exchange Act does not
bar arbitration of disputes arising under its provisions,
particularly § 1 0 (b) claims); Dean Witter Reynolds, Inc. v. Byrd,
470 U.S. 213, 217 (1985) (where a motion to compel arbitration is
brought pursuant to a valid arbitration agreement, a district
3 court must compel arbitration of pendant state law claims).
Finally, I disagree with plaintiff's assertion that
defendant has waived his right to arbitration by not complying
with Magistrate Judge Barry's order reguiring defendant to seek
arbitration by July 1, 1991. To some extent, defendant has
complied with the order -- he wrote a letter to the National
Association of Securities Dealers ("NASD") on June 11, 1991,
reguesting that it arbitrate this dispute. He also alleges that
the NASD has responded, sending forms for plaintiff to complete.3
Although it appears that defendant has taken few, if any,
steps beyond his initial letter to NASD, several facts indicate
that this delay may not be entirely his fault. First, the
alleged agreement is in the possession of defendant's now-
bankrupt former employer, Thompson McKinnon Securities, Inc., who
has not responded to defendant's reguests for information.
Second, on July 5, 1991, defendant began serving a one year
sentence for insider trading. Since his imprisonment, the record
indicates that there may be some confusion as to which party has
3 The record is unclear as to whether plaintiff has received or completed these forms.
4 the burden of pursuing arbitration.4 At the very least, the
above-listed facts raise doubts as to whether defendant waived
his right to have the NASD arbite this dispute. Where
reasonable, such doubts must be resolved in favor of arbitration.
See Page, 806 F.2d at 293.
Moreover, even if these doubts were resolved in plaintiff's
favor, plaintiff at best has alleged that defendant's behavior
caused some delay. To prevail on a claim of waiver, however,
plaintiff "must show not only that defendant[] delayed in seeking
arbitration, but also that such delay caused plaintiff[]
prejudice." JCd. at 294. As plaintiff has not alleged or shown
facts indicating such prejudice, his arguments of waiver must be
rej ected.5
4 Initially, the court clerk reguired defendant to provide status reports. After defendant's incarceration, however. Judge Devine Court ordered that these reports be provided by plaintiff.
5 Defendant also moves for dismissal on the grounds that plaintiff offered to settle the suit if defendant would help plaintiff in a similar action against defendant's employer, Thomson McKinnon Securities, Inc. Defendant contends that, because that action has since been settled, the action here should be dismissed because plaintiff has already recovered and no longer needs his help. I reject this argument summarily. First, defendant seeks to benefit from a settlement offer he rejected. Second, the fact that plaintiff has received some compensation from Thomson McKinnon's bankruptcy estate does not
5 II. The Motion to Disqualify Plaintiff's Counsel
Defendant also moves to disqualify plaintiff's counsel on
conflict of interest grounds. Defendant contends that counsel
represented defendant and/or his company "on numerous issues over
the last several years," and has "had access to the defendant's
and/or his company's most personal, private and financial
records." In support of his motion, defendant includes a copy of
one $7,769.70 bill from plaintiff's counsel for approximately one
month of work done in connection with defendant's attempts to
gain control of a New Hampshire bank in 1987 .6 Plaintiff's
counsel counters that the representation involved matters bearing
absolutely no relation to defendant's employment as a broker for
Thomson Mckinnon or to his management of plaintiff's margin
affect defendant's potential liability for the claims presently before the Court.
6 Defendant also attaches a copy of a bill from plaintiff's counsel relating to its representation of the First New Hampshire Bank as an intervenor co-defendant in a suit against Howard for reformation of several promissory notes payable to Howard's company. Occasions, Ltd (First New Hampshire was the assignee of the promissory notes). As the client number on this bill is different from that listed on the bill for the bank-takeover services, it appears that this was First New Hampshire's bill, not Howard's. Indeed, plaintiff points out that during the course of the promissory note litigation, Howard was represented by different counsel or appeared pro se.
6 account.7
In a conflict of interest situation, "the relevant inquiry
is whether the subject matter of the two representations is
'substantially related'; could the attorney have obtained
confidential information in the first suit that would have been
relevant to the second." Borges v. Our Lady of the Sea Corp.,
935 F.2d 436, 439-40 (1st Cir. 1991); see also Kevlik v.
Goldstein, 724 F.2d 844, 850-51 (1st Cir. 1984) . At least on
their face, the subject matter of the two representations at
issue here appear completely distinct. The first representation
involved the takeover of a New Hampshire bank; the case at hand
involves "churning" and other wrongful activities relating to
plaintiff's margin account. Defendant's bill, which provides no
description of the information conveyed by defendant to
plaintiff's counsel, does nothing to contradict this impression.
Defendant also has not pointed out any particular item of
confidential information that plaintiff's counsel obtained during
the prior representation. See Borges, 935 F.2d at 440. Instead,
7 Plaintiff's counsel also asserts that the information that defendant provided during this representation is no longer confidential -- it was filed with governmental regulatory agencies and thus has become a matter of public record.
7 he has merely made sweeping assertions that he disclosed
"personal, private and financial" information to plaintiff's
counsel. Given the above factors, I cannot conclude that the two
matters are "substantially related". I therefore deny
defendant's motion to disqualify plaintiff's counsel. However,
given the importance of preventing unethical conduct, Kevlik, 724
F.2d at 849, and the fact that defendant appears pro se, I will
give defendant fifteen days to supplement his motion with an
affidavit or other form of proof setting out the similarity
between the two representations with more particularity.
III. Conclusion
Defendant's motion to dismiss (document no. 25) is denied
without prejudice, subject to the following two conditions: (1)
the motion must be renewed within thirty (30) days of the date of
this order; and (2) it must be accompanied by appropriate proof
of a validly executed Margin Account Agreement between plaintiff
and Thompson McKinnon Securities, Inc. and appropriate proof of
the existence and content of the arbitration clause allegedly
contained therein. I also deny without prejudice defendant's
motion to disqualify the firm representing plaintiff (document
no. 26). Defendant has fifteen (15) days from the date of this order to supplement his motion in the manner specified in Section
II of this order. Any renewed motion which does not satisfy the
standard established in this order will be denied. Moreover, no
extensions of the deadlines established in this order will be
granted.
SO ORDERED.
Paul Barbadoro United States District Judge
November 2, 1993
cc: Charles Dunn, Esg. Charles H. Howard, III, pro se