The opinion of the court was delivered by: SWEET
In this action, Frank Murray ("Murray") seeks to recover $1,424,000 in compensatory damages and $2,000,000 in punitive damages based on the alleged fraud, breach of fiduciary duties and gross negligence of Dominick Corporation of Canada, Ltd. ("Dominick Canada"), John Jenkins ("Jenkins") and John Halsey ("Halsey") with regard to their handling of his securities accounts. The defendants have brought a motion for summary judgment based on the doctrine of res judicata. For the following reasons the motion of Halsey will be granted, and the motion of Dominick Canada and Jenkins denied.
In his complaint, Murray alleges the following facts. In November, 1979, Murray went to the offices of Dominick and Dominick, Inc. ("DDI"), located in New York City, seeking advice with respect to his portfolio of securities. At DDI, he met with defendant Halsey, a registered stockbroker and was introduced to Jenkins by telephone. Jenkins was the president and chairman of the Board of Dominick Canada and was represented to be an expert on Canadian securities. Following these discussions, Murray opened a cash account in the amount of $10,000.
Several weeks later, Jenkins telephoned Murray and recommended that he open a margin account by delivering his portfolio of securities to Halsey. By January, 1980, Murray delivered securities and cash valued at approximately $120,000 and directed that $60,000 be placed in an account managed by Halsey and $60,000 in an account to be managed by Jenkins. Murray alleges that some of these securities, which were jointly held by himself and his son, were not to be deposited in any account but merely retained until substitute securities could be delivered. He asserts that Halsey and Jenkins ignored these instructions and that all these securities were transferred to Canada and deposited there.
During the next year, Murray alleges that he received frequent telephone calls from Jenkins for the purpose of recommending securities transactions but without disclosing full information regarding the nature of the securities involved. Murray asserts that these transactions were overly speculative and thus unsuited for his investment needs and goals. To pay for these additional transactions, Murray deposited additional securities worth approximately $360,000.
Murray further contends that Jenkins refused to follow his instructions with regard to account limitations and stop-loss orders. After discovering these alleged improprieties in December, 1980, Murray requested of both Halsey and Jenkins that all of his Canadian accounts and securities be returned to Dominick Investor Services Corporation ("DISC") in New York. Nevertheless he asserts that Jenkins and Halsey refused to honor this request until August, 1982, at which time his account was worth only $70,000.
On October 18, 1982, Murray executed a Uniform Submission Agreement to initiate an arbitration proceeding against DDI and DISC before the New York Stock Exchange ("NYSE"). By this agreement, Murray agreed to submit the matter in controversy, as well as "all related counterclaims and/or third party claims which may be asserted" to arbitration in accordance with the rules of the NYSE. In particular, NYSE Rule 600 provides that:
(a) Any dispute, claim or controversy between a customer or non-member and a member, allied member, member organization and/or associated person arising in connection with the business of such member, allied member, member organization and/or associated person in connection with his activities as an associated person shall be arbitrated . . . as provided by any duly executed and enforceable written agreement or denial of the customer or non-member.
Murray's complaint before the NYSE arbitration panel alleged that DDI and DISC, acting alone and in conjunction with Dominick Canada, had defrauded Murray. The complaint set forth the same allegations of churning and unsuitability that appear in the complaint to this action. Moreover, the very same transactions formed the basis for the arbitration proceeding since these are the only transactions and accounts which Murray has had with either Dominick Canada, DDI or DISC. All of the allegedly wrongful transactions occurred on exchanges and in the over the counter markets in Canada although account statements were issued both by Dominick Canada and DDI.
At the arbitration proceeding, DDI and DISC initially sought the dismissal of the proceeding on the basis that the New York respondents in that action, while affiliates of Dominick Canada, were separate entities and had committed no wrongdoings in connection with the transactions in Canada. In opposition, Murray argued that while Dominick Canada was not a party to the arbitration, DDI had participated extensively in the transactions by steering him to the Canadian office, by their extensive knowledge of and participation in the transactions and therefore acted as the agent of Dominick Canada.
The arbitration panel denied the motion to dismiss, held five days of hearings and then issued the following standard form award on May 23, 1983:
And having heard and considered the proofs of the parties, have decided and determined that in full and final settlement of the above matter, respondents shall ...