The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge
In 1988, Ms. Catalina Garcia suffered permanent brain damage as
the result of medical malpractice. Defendant's Motion ("Def.
Motion") at 2. The personal injury settlement she received was
used to fund a trust allegedly established under the laws of
Florida, with its address in Miami, Florida, known as the
Catalina Garcia Revocable Trust U/A DTD 9/04/01 ("the Trust").
Id.; Complaint ¶ 3. Alba Perez, Ms. Garcia's daughter and the
trustee of the Trust, hired Shochet Securities, Inc.,
("Shochet"), a securities broker-dealer in Florida, to manage the
Trust funds. Def. Motion at 2. The individual Shochet broker,
Leila Shuminer, allegedly mismanaged the Trust's assets, "wiping
out the Trust Account's equity" by late October, 2001. See
Complaint Exhibit A at 2-3.
On October 17, 2003, Alba Perez Ttee Catalina Garcia Revocable
Trust U/A DTD 9/04/01 (the same Trust as above, also the
defendant in the instant case) filed a "Statement of Claim" for
arbitration with the National Association of Securities Dealers,
Inc. ("NASD") "to recover losses it sustained as a direct result
of [the] mismanagement of its investment assets." Complaint
Exhibit A at 1; Complaint ¶ 3. The respondent given in the
caption, however, was not Shochet, but Sands Brothers & Co., Ltd.
("Sands") (plaintiff in the instant case), a Delaware Corporation with its principal place of business in New York
City. Complaint Exhibit A at 1; Complaint ¶ 2. Sands is named as
respondent because on November 7, 2001, Sands acquired through a
Purchase Agreement the Trust account, along with other assets of
Bluestone Capital Corp. ("Bluestone"), of which Shochet was a
subsidiary. See Complaint ¶¶ 4, 7, 9; Complaint Exhibit B (the
Purchase Agreement). Under Section 8 of the Purchase Agreement,
Sands did not assume the liabilities of Bluestone or Shochet when
it acquired the Bluestone assets: "BlueStone acknowledges that
. . . Sands Brothers shall not assume any liabilities, debts, or
obligations of BlueStone . . . including, without limitation, any
Litigation Liabilities. `Litigation Liabilities' means any debts,
obligations, or liabilities arising from or relating to pending,
threatened and unasserted claims . . . or arbitration . . .
against BlueStone or Shochet." Complaint Exhibit B § 8. The Trust
does not oppose this contention. See Def. Motion at 6 ("[T]here
is no need to even reach the issue of successor liability.").
The Trust account remained with Sands until approximately
December 2003. However, no account activity is alleged between
November 7, 2001 and December 2003. Def. Motion at 4-5; Complaint
On January 5, 2004, Sands filed a complaint with this Court seeking a declaratory judgment, pursuant to 28 U.S.C. § 2201,
that it is not a successor in interest to Bluestone or Shochet,
and that it is not liable or responsible for transactions that
took place at either Bluestone or Shochet, as alleged in the
Statement of Claim filed by the Trust before the NASD. Also on
January 5, 2004, Sands moved this Court, by Order to Show Cause,
for an order preliminarily enjoining defendant from prosecuting
the arbitration brought by the Trust against Sands and staying
such arbitration as to Sands. Sands' Memorandum of Law submitted
in conjunction with the Order to Show Cause does not support
Sands' request for a preliminary injunction, but rather supports
Sands' request for a declaratory judgment.
The Court set the return date for the Order to Show Cause for
January 8, 2004. On January 7, 2004, counsel for both parties
sent to the Court, via facsimile, a Joint Stipulation erroneously
dated December 7, 2003 ("Stipulation"). The Stipulation provided
that the Trust would serve and file its response by January 23,
2004, and Sands would serve and file its reply by January 28,
2004. The parties requested "that the Court then rule on the
papers, with no requirement that a hearing be held." Stipulation,
¶ 2. The Stipulation further provided that "[t]he parties have
reached agreement on an extension of time for plaintiff to
respond to the arbitration claim, if required." Stipulation, ¶ 4.
This Court entered an Order on January 7, 2004, granting the parties' request to decide the Order to Show
Cause on the papers, adopting the briefing schedule set forth in
the Stipulation, and noting that the parties have agreed to
extend the time for Sands to respond to the arbitration claim.
See Order dated January 7, 2004.
On January 22, 2004, the Trust served Sands, ostensibly as its
response to the Order to Show Cause, and without requesting a
pre-motion conference in accordance with this Court's rules, with
"Defendant's Motion to Dismiss Complaint and to Compel
Arbitration." The Trust has moved to dismiss Sands' complaint
pursuant to Federal Rule of Civil Procedure 12(b) (1) ("Rule
12(b)(1)") for lack of subject matter jurisdiction, and to compel
Sands to arbitrate before the NASD. In this submission, the Trust
states that "it is believed that the parties [the Trust and
Shochet] entered into a written arbitration agreement," and
refers the Court to "Shochet's standard arbitration agreement"
without providing the Court with an affidavit as to the
authenticity of that document. Def. Motion at 3 (emphasis added);
Def. Motion Exhibit A.
Sands' reply, served on January 26, 2004, addresses several,
but not all, arguments made in the Trust's Motion, and adds a
third request for declaratory relief: that Sands is not liable to
the Trust because there were no activities in the Trust account
after November 7, 2001. Neither party requested supplemental briefing for the two added issues.
Because of the unorthodox procedural posture of this matter,
and because of the parties' agreement that the Court rule on the
papers, the Court treats the parties' submissions as a motion for
declaratory judgment and a cross-motion to dismiss and to compel
arbitration. For the reasons that follow, Sands' motion for a
declaratory judgment is granted, and the Trust's cross-motion to
dismiss under Rule 12(b) (1) and to compel arbitration is denied.
Federal Rule of Civil Procedure 12(b) (1) provides for the
dismissal of a complaint when the federal court lacks
jurisdiction over the subject matter. Because a lack of subject
matter jurisdiction renders other defenses moot, a court usually
gives first consideration to a motion to dismiss under Rule 12(b)
(1). Friedman v. United States, No. 01 Civ. 7518 (LTS) (RLE),
2003 WL 1460525 at *5 (S.D.N.Y. Mar. 18, 2003); Prestop v.
Hamlett, No. 99 Civ. 2747 (GBD), 2001 WL 363676 at *6 (S.D.N.Y.
Apr. 12, 2001). Where the defendant challenges the legal, and not
the factual, sufficiency of the plaintiff's jurisdictional
allegations, the district court takes all facts alleged in the
complaint as true, and draws all reasonable inferences in favor
of the plaintiff. Robinson v. Gov't of Malaysia, 269 F.3d 133,
140 (2d Cir. 2001) (citations omitted). However, when jurisdictional facts are called into question, id.,
"jurisdiction must be shown affirmatively, and that showing is