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GRANDON v. MERRILL LYNCH AND CO.

United States District Court, S.D. New York


April 6, 2005.

DR. STANLEY C. GRANDON, for himself and the Grandon Family Irrevocable Trust, and MICHAEL CAFFERTY, as Trustee for the Grandon Family Irrevocable Trust, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
MERRILL LYNCH AND CO., INC., and MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendants.

The opinion of the court was delivered by: SHIRLEY KRAM, Senior District Judge

OPINION AND ORDER

Defendants Merrill Lynch & Co., ("ML & Co.") and Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S") move to compel arbitration of the claims of plaintiffs Dr. Stanley C. Grandon and Michael Cafferty, as Trustee for the Grandon Family Irrevocable Trust (the "Trustee") against MLPF&S. Defendants also request, pursuant to Section 3 of the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 3, that this action be stayed pending arbitration. For the reasons set forth below, the motion is granted.

I. Background

  This action involves claims asserting that MLPF&S committed securities fraud and breached its fiduciary duties by charging excessive markups on municipal bonds sold to Dr. Grandon and the Trustee in four transactions in 1994 and 1995.*fn1 Between 1984 and 1994, Dr. Grandon opened several brokerage accounts with Merrill Lynch, including individual accounts, accounts for his family, and various trust accounts. Two of the accounts are at issue here.*fn2

  For each account, plaintiffs executed a standard form account agreement containing a provision to arbitrate all disputes relating to the account and the transactions therein, to be conducted only before the New York Stock Exchange, Inc. ("NYSE"), the American Stock Exchange, Inc. ("AMEX"), or arbitration facility provided by any other exchange, the National Association of Securities Dealers, Inc. ("NASD") or the Municipal Securities Rulemaking Board.*fn3 See McLaughlin Aff. Ex. A, B & C. Plaintiffs filed their initial Class Action Complaint on December 20, 1995, and filed an Amended Class Action Complaint on April 4, 1996. Following two dismissals for deficient pleading, the first of which was reversed by the Second Circuit, plaintiffs filed a Second Amended Class Action Complaint on November 16, 1999. After a six-month delay, the parties engaged in discovery on the issue of class certification. Plaintiffs then moved for class certification. The Court denied the motion for certification of a class on September 11, 2003.

  On September 26, 2003, plaintiffs filed a motion with the Court of Appeals for the Second Circuit requesting leave to appeal the denial of class certification. The Second Circuit denied that request on August 9, 2004. There have been no official proceedings since that date.

  On October 8, 2004, plaintiffs' counsel informed defendants that plaintiffs intended to pursue their individual claims. Defendants requested, both orally and in writing, that plaintiffs consent to arbitration of their claims against MLPF&S. Plaintiffs refused. This motion followed.

  II. Discussion

  The FAA embodies a strong federal policy favoring arbitration. See Thomas James Associates, Inc. v. Jameson, 102 F.3d 60, 65 (2d Cir. 1996). Under the FAA, written agreements to arbitrate controversies in contracts involving commerce shall be valid, irrevocable and enforceable. 9 U.S.C. § 2. All doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 24, 25 (1983). Further, arbitration is preferred "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Threlkeld & Co. v. Metallgesellchaft, 923 F.2d 245, 250 (2d Cir. 1991), cert. dismissed, 501 U.S. 1267 (1991). Any defenses to arbitration, such as allegations of waiver or delay constitute "procedural questions which grow out of the dispute and bear on its final disposition" and are "presumptively not for the judge, but for an arbitrator, to decide." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84-85 (2002) (emphasis in original).

  Here, plaintiffs do not deny that they entered into a valid and enforceable arbitration agreement with MLPF&S. Rather, they contest arbitration on two grounds: (1) it should be denied because under the rules of NASD, NYSE and AMEX, no arbitration agreement shall be enforced against a customer that has initiated a "putative class action;" and (2) even if this action is no longer a putative class action, defendants have waived their right to arbitrate. See generally Plaintiffs' Memorandum Of Law In Opposition To Defendants' Motion To Compel Arbitration And For A Stay, dated January 14, 2005. Plaintiffs are wrong on both counts. With respect to the first argument, because this action, as of the Second Circuit's denial of leave to appeal class certification, is no longer a putative class action, plaintiffs' position is unsustainable. As to the second argument against arbitration, plaintiffs fare no better since, by explicit agreement of the parties, the question of whether the defendants waived their right to arbitrate is for the arbitrator to decide, not this Court. See McLaughlin Aff. Ex. A, B & C.

  Because plaintiffs entered into a valid and enforceable arbitration agreement and because they have failed to demonstrate any reason not to honor that agreement, the defendants' motion to compel arbitration is granted. Additionally, the claims in this action are hereby stayed pending arbitration.

  SO ORDERED.


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