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McCowan v. Reynolds

decided: November 15, 1989.

HORACE D. MCCOWAN, JR. AND SARAH E. MCCOWAN, PLAINTIFFS-APPELLANTS,
v.
DEAN WITTER REYNOLDS INC., DEFENDANT-APPELLEE



Appeal from orders of the United States District Court for the Southern District of New York, Robert L. Carter, J.

Feinberg and Cardamone, Circuit Judges, Charles M. Metzner, District Judge.*fn*

Author: Feinberg

FEINBERG, Circuit Judge.

Plaintiffs Horace D. McCowan, Jr. and Sarah E. McCowan (the McCowans) appeal from two orders of the United States District Court for the Southern District of New York, Robert L. Carter, J., which required arbitration of two of the McCowans' four claims against defendant-appellee Dean Witter Reynolds Inc. (Dean Witter) and dismissed the others. We dismiss the appeal for lack of appellate jurisdiction.

Background

In late 1984, the McCowans entered into a "Customer's Agreement" with Dean Witter. Dean Witter agreed to open a securities account for the McCowans; in return, the McCowans agreed, among other things, to arbitrate in one of several forums "any controversy . . . arising out of or relating to this contract or the breach thereof."

In late 1986, the McCowans sued Dean Witter in the Southern District. The complaint contained four causes of action, which alleged violations of § 10(b) of the Securities Exchange Act of 1934 (1934 Act), 15 U.S.C. § 78j(b), sections 12(2) and 17(a) of the Securities Act of 1933 (1933 Act), 15 U.S.C. §§ 77l(2) and 77q(a), and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c). Dean Witter responded by moving to dismiss the complaint for failure to state a claim, for failure to allege fraud with particularity and for lack of subject matter jurisdiction. Alternatively, Dean Witter moved to stay the action pending arbitration.

In late 1987, the district court partially granted Dean Witter's motion. McCowan v. Dean Witter Reynolds, Inc., 682 F. Supp. 741 (S.D.N.Y. 1987). Citing the arbitration provision of the Customer's Agreement, the district court "referred" the two claims under RICO and § 10(b) of the 1934 Act to arbitration (the 1987 Order). Id. at 745. It also dismissed the § 12(2) and § 17(a) claims under the 1933 Act as deficiently pleaded, but granted the McCowans leave to replead. Id. at 744-45.

The McCowans then filed an amended complaint. Dean Witter moved to dismiss the amended complaint, and in early 1989, the district court once again dismissed the McCowans' two claims under the 1933 Act (the 1989 Order). See McCowan v. Dean Witter Reynolds Inc., [1989] Fed.Sec.L.Rep. (CCH) P94,423. at 92,727 (S.D.N.Y. 1989). This time, however, the district court reached the merits of the McCowans' claims. It ruled that there is no private right of action under § 17(a) of the 1933 Act, and that § 12(2) did not apply to the McCowans' claims. Id. In May 1989, the McCowans filed a notice of appeal from the district court's 1987 and 1989 Orders "and from the entry herein of final judgment" for Dean Witter.

Discussion

The McCowans attack the orders of the district court on a number of substantive grounds. However, we believe that we should not deal with these arguments. Dean Witter argues that we lack jurisdiction over this appeal, and we agree. The notice of appeal refers to a "final judgment" and to the 1987 and 1989 Orders. However, no final judgment has been entered. Also, as will be seen below, the 1987 and 1989 Orders are not appealable.

1. The 1987 Order

The 1987 Order, which referred the claims under RICO and § 10(b) of the 1934 Act to arbitration, is not final under 28 U.S.C. § 1291. See Steele v. L.F. Rothschild & Co., 864 F.2d 1 (2d Cir. 1988). Also, the opinion in Steele makes clear that the 1987 Order is not appealable as an interlocutory order under 28 U.S.C. § 1292, after the Supreme Court's decision in Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 108 S. Ct. 1133, 99 L. Ed. 2d 296 (1988). Indeed, the McCowans state that they are not relying on § 1292 at all to justify appealability here.

As an additional bar to this appeal, Dean Witter points to § 15 of the United States Arbitration Act, 9 U.S.C. § 15, which is reproduced in the margin.*fn1 Dean Witter emphasizes that § 15(b) states that "an appeal may not be taken from an interlocutory order . . . granting a stay of any action," except as provided in 28 U.S.C. § 1292(b). 9 U.S.C. § 15(b)(1). While the district court stated that it had "referred" the McCowans' RICO and 1934 Act claims, 682 F. Supp. at 745, and did not explicitly stay their action based on these claims, we are nevertheless persuaded that the effect of the district court's 1987 Order was to stay litigation of these claims. Dean Witter did move to stay proceedings in the district court pending arbitration, id. at 743, and the judge held that "plaintiffs must arbitrate their claims arising under RICO and the 1934 Act." Id. at 744. Moreover, the judge most probably used "referred" as the operative ...


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