The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge
Defendant Todd Eberhard ("Eberhard") has moved for a stay of certain
securities arbitration proceedings until the conclusion of the criminal
case pending against him in this Court, renewing an application
previously denied without prejudice by the Honorable Richard M. Berman in
the related civil enforcement proceedings, SEC v. Eberhard,
S.D.N.Y., No. 03 Civ. 0813 (RMB).*fn1 For the reasons set forth below,
Eberhard's motion to stay the pending securities arbitrations is
Prior Proceedings and Background
On February 4, 2003, the government commenced a criminal action against
Eberhard, alleging that over the span of several years he defrauded
certain individual investors for whom he performed investment advisory
and security brokerage services, and charging him with conspiracy,
investment advisor fraud, and wire fraud. Eberhard is alleged to have
conducted investment advisory business through Eberhard Investment
Associates and its predecessor
entity Eberhard Investment Advisers (collectively, "EIA"), and
managed client accounts through Clearing Services of America, inc.
("CSA"), a registered broker-dealer, and through Park South Securities,
LLC ("PSS"), a limited liability company of which he was a part owner.
On February 5, 2003, the Securities and Exchange Commission ("SEC")
commenced a civil enforcement action against Eberhard, alleging that he,
along with his broker-dealer firm, PSS, and his investment advisory firm,
EIA, violated various federal securities laws. On that same date, the SEC
also obtained an order to show cause and temporary restraining order
("the February 5, 2003 Order") according to which assets belonging to
Eberhard and EIA were frozen pending a preliminary injunction hearing.
On February 13, 2003, the court in the related civil action granted the
SEC's unopposed request, and issued a preliminary injunction and order
freezing assets and granting other relief ("the February 13, 2003 Order")
to keep the asset freeze in place indefinitely and to appoint a Receiver
for EIA, among other items. The February 13, 2003 Order enjoins all
creditors and claimants from taking "any action" that would interfere
with the Court's jurisdiction over the Receivership estate. (February 13,
2003 Order at ¶ XI.)
The February 13, 2003 Order was thereafter amended on April 18, 2003,
when the court in SEC v. Eberhard issued an order amending
preliminary receivership order ("the April 18, 2003 Order"). This third
order provides for the receiver to take possession and control over all
of Eberhard's assets, including his personal assets.
On October 16, 2003, Eberhard moved the court in the civil enforcement
proceeding for a stay of certain securities arbitration proceedings then
pending before the National Association of Securities Dealers, Inc.
("NASD").*fn3 Following briefing by the SEC and the receiver as well as
by various non-party claimants involved in the NASD arbitration
proceedings ("the NASD arbitrations" or "the arbitrations"), the court
denied Eberhard's motion without prejudice to the renewal of his
application in this Court. In denying Eberhard's motion, the court stated
that the NASD arbitrations " (at least prior to the entry of judgment) do
not conflict with the Court's prior orders, dated February 5, 2003,
February 13, 2003, and April 18, 2003." (December 9, 2003 Order at ¶
Eberhard renewed his application for a stay of the pending NASD
arbitrations on January 12, 2004, and oral arguments were held on January
22, 2004. At the Court's direction, Eberhard thereafter submitted an
order to show cause why a stay of the NASD arbitrations should not issue,
setting a return date of February 4, 2004 to ensure that all interested
parties received appropriate notice prior to the entry of any stay.
Following receipt by this Court of the motion papers filed on the
previous application as well as various materials in opposition to
Eberhard's request submitted on behalf of non-party claimants in the
arbitration proceedings, oral argument on the renewed application was
held on February 4, 2004. The instant motion was marked fully submitted
at that time.
Eberhard argues that the NASD arbitrations should be stayed on the
grounds that the NASD claimants are covered by the February 5, 2003
Order, the February 13, 2003 Order and the April 18, 2003 Order ("the
Receivership Orders"), and that any further arbitration action would
violate these Orders. Eberhard also argues that this Court should issue a
stay of the NASD arbitrations because he otherwise will be compelled to
assert his Fifth Amendment privilege during the course of the NASD
arbitrations, thereby rendering him unable to defend himself effectively
therein. Finally, Eberhard contends that any findings made in the course
the NASD arbitrations could be considered res judicata or
collateral estoppel and would therefore undermine Eberhard's ability to
have a full and fair trial in either of the civil or criminal actions
pending against him, thus justifying a stay of the NASD arbitrations.
Eberhard has not moved to enjoin the NASD arbitrations, but instead
would have this Court stay the arbitrations pursuant to either the
Federal Arbitration Act or the inherent powers of the district court.
I. The Receivership Orders
In response to Eberhard's previous application to stay the NASD
arbitrations, the court in the civil enforcement proceedings held that
the arbitrations "do not conflict with the Court's prior orders."
(December 9, 2003 Order at ¶ 1.) Even assuming this Court were
inclined to disturb Judge Herman's considered conclusion, which it is
not, Eberhard has demonstrated no basis for doing so.
By their own terms, the Receivership Orders prohibit creditors or
claimants from taking any action "to interfere with the taking control,
possession, or management of the Receivership Assets . . . nor
interfere in any way with the exclusive jurisdiction of this Court over
the receivership estate." (April 18, 2003
Order at ¶ XI; see also February 13, 2003 Order at
¶ XI.) Thus, the Receivership Orders prohibit interference with the
Receivership itself. They do not, as Eberhard argues, bar "any claimants
from seeking claims against the defendants in any place other than the
District Court." (Def. Mem. at 2.) Nor do the Receivership Orders
prohibit claimants from establishing in arbitration the dollar amount of
any purported liability. ...