WMA Securities, Inc. v. Wynn

32 F. App'x 726
CourtCourt of Appeals for the Sixth Circuit
DecidedApril 1, 2002
DocketNo. 00-4232
StatusPublished
Cited by6 cases

This text of 32 F. App'x 726 (WMA Securities, Inc. v. Wynn) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
WMA Securities, Inc. v. Wynn, 32 F. App'x 726 (6th Cir. 2002).

Opinions

JONES, Circuit Judge.

Plaintiff WMA Securities, Inc. (‘WMAS”) appeals the district court’s judgment for defendants Dean Wynn, Margaret Wynn, and Quentin Fields, confirming a 1999 arbitration award. The district court denied WMAS’ Motion to Vacate Arbitration Award (regarding award of attorney fees), denied WMAS’ Motion to Confirm Award (regarding arbitrator’s directive that defendant Fields return securities to WMAS), and granted the defendants’ Motion to Confirm Award. For the following reasons, we affirm the district court’s judgment.

I. BACKGROUND

WMAS is a Georgia-based securities broker and a member of the National Association of Securities Dealers (“NASD”). WMAS employs registered agents who provide investment advice and brokerage services to WMAS customers. This dispute involves the defendants’ investment losses from their professional relationships with former WMAS agent Scott Rothfuss (“Rothfuss”).

Rothfuss was a registered representative of WMAS from September 1995 to May 1997. During this period, Rothfuss recommended to the defendants that they purchase First Lenders Indemnity Corporation (“FLIC”) securities and the defendants agreed. On April 2, 1996, Rothfuss purchased an FLIC promissory note on Fields’ behalf in the amount of $60,000. On April 29, 1996, Rothfuss bought an FLIC promissory note on the Wynns’ behalf in the amount of $26,831.75. Finally, on May 2,1996, Rothfuss purchased another FLIC note on Dean Wynn’s behalf in the amount of $141,516.02.

These purchases were not favorable for the Wynns and Fields. In May 1997, FLIC filed for bankruptcy. These proceedings caused the Wynns and Fields to lose 100 percent of their investment. On January 28, 1998, defendants filed an arbitration claim against WMAS with the NASD in an effort to recover their losses. Defendants alleged that: (i) WMAS failed [728]*728to supervise its registered representative, Rothfuss; and, (ii) through Rothfuss, WMAS sold them fraudulent, unregistered FLIC promissory notes based on misstatements and omissions of material facts. According to defendants, they invested in FLIC on Rothfuss’ recommendation, but he never indicated that FLIC was not an approved WMAS product or that WMAS had restricted his license to sell securities in any way.

In a March 1999 arbitration award to defendants, NASD arbitrators denied WMAS’ Motion to Dismiss on jurisdictional grounds and required WMAS to pay $199,000 to the Wynns as compensatory damages, $65,000 to Fields as compensatory damages, and $80,000 to the Wynns and Fields as attorneys’ fees and costs. On June 8, 1999, the NASD arbitrators wrote a letter (“the June 1999 letter”) to WMAS in which the NASD ordered the following change to their award:

It was the opinion of the arbitration panel that its decision was final. However, this matter is being submitted to the arbitration panel post-hearing for clarification. [I]t is the unanimous decision of the panel that its award be based on the claimants’ recission [sic] claim. Regardless of value, the securities shall be returned to [WMAS].

J.A. at 213.

On December 30, 1999, WMAS filed suit in the United States District Court for the Southern District of Ohio, seeking to vacate the NASD arbitration award. After the NASD arbitrators stated in the June 1999 letter that defendants should return the FLIC securities to WMAS, WMAS amended its Complaint to demand that Fields return the promissory notes. Subsequently, WMAS moved to confirm, as a separate award, the arbitrators’ June 1999 letter to force the return of the securities, and also to vacate the award of attorneys’ fees. In turn, defendants moved to confirm the arbitration award.

The motions were designated to Magistrate Judge Timothy Hogan. In his February 22, 2000 Report and Recommendation, the Magistrate recommended the denial of both WMAS’ Motion to Confirm the arbitrators’ June 1999 letter and its Motion to Vacate the award of legal fees. In his February 28, 2000 Report and Recommendation, the Magistrate recommended granting the defendants’ Motion to Confirm the Arbitration Award. On June 7, 2000, the district court entered judgment in accordance with the Magistrate’s recommendations. WMAS now challenges the NASD’s jurisdiction over this dispute, and requests that the arbitration panel’s order that the securities be returned be confirmed and that the award of attorney fees be vacated.

II. ANALYSIS

A. Standards of Review

The initial issue focuses on whether the district court properly determined that the claims against WMAS were subject to arbitration. We review de novo a district court’s determination that a dispute is arbitrable. EEOC v. Frank’s Nursery & Crafts, Inc., 177 F.3d 448, 454 (6th Cir. 1999). To the extent to which the remaining issues deal with an arbitration award, we review such awards only for manifest disregard of the law. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir.1995).

B. Jurisdiction

The first issue on appeal concerns whether the current dispute is subject to arbitration, thus granting jurisdiction to the arbitration panel. The district court judge adopted the Magistrate’s finding that the dispute was arbitrable because the [729]*729Wynns were customers under NASD Rule 10301. WMAS disagrees with the classification of the Wynns as “customers.” "WMAS asserts that it was not aware of the transactions that were made through other broker-dealers such that a customer relationship with WMAS was ever established. Moreover, it asserts that none of the investors had written contracts with WMAS requiring that disputes be arbitrated with the NASD. Thus, WMAS contends, as the Wynns were not customers of WMAS, the NASD did not have jurisdiction over this dispute.

We agree with the district court’s finding that the arbitration panel had jurisdiction. NASD Rule 10301 states in pertinent part:

Any dispute, claim or controversy ... between a customer and a member and/or associated person arising in connection with the business of such member or in connection with the activities of such associated persons shall be arbitrated under this Code ... upon the demand of the customer.

NASD Rule 10301(a). Recently, in a case virtually identical to this one, this court specifically held that persons who discuss investment possibilities with a registered representative of a NASD member but do not open accounts with the NASD member are “customers” under NASD Rule 10301(a). Vestax Securities Corporation v. McWood, 280 F.3d 1078 (6th Cir.2002). In so holding, we determined that the fact that an investor never established an account with the brokerage firm or purchased securities through the brokerage firm was irrelevant to the issue of whether or not the investors were customers under Rule 10301(a). Id. at 1082. We found the investors were indeed customers because they established accounts with the firm’s associated persons and the investors purchased securities based upon the agents’ recommendations. Id. at 1082; see Oppenheimer v.

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32 F. App'x 726, Counsel Stack Legal Research, https://law.counselstack.com/opinion/wma-securities-inc-v-wynn-ca6-2002.