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WEINRAUB v. GLEN RAUCH SECURITIES

October 11, 2005.

MARK B. WEINRAUB, Plaintiff,
v.
GLEN RAUCH SECURITIES, INC., BEAR STEARNS & CO., NASD DISPUTE RESOLUTION, INC., VALLEY NATIONAL BANK, MARK MENDLEY, DAVID C. CARTER, and DAVID R. BOLNICK, Defendants.



The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

I. INTRODUCTION

Mark B. Weinraub brings this action, asserting a plethora of federal and state-law claims, to recover from his former broker over half a million dollars in trading losses resulting from the demise of Weinraub's margin trading account in 2000. Many of these claims have already been rejected by a panel of arbitrators, the New York trial court, and the New York appellate court. Plaintiff now invokes this Court's jurisdiction to press essentially the same allegations yet again, as well as new allegations of malfeasance committed by the arbitrators who ruled against him, and the bank that collected a judgment against him based on the arbitration award. For the following reasons, the motions to dismiss brought by all defendants are granted. Furthermore, the Court must consider sanctions against plaintiff and plaintiff's counsel pursuant to the Private Securities Litigation Reform Act of 1995 ("PSLRA"), and Rule 11 of the Federal Rules of Civil Procedure.

  II. BACKGROUND

  A. The Parties

  Weinraub, a New Jersey resident, is a dissatisfied customer of broker Glen Rauch Securities ("Glen Rauch"), which along with Bear Stearns & Company ("Bear Stearns"), will be referred to collectively as the "Broker Defendants."*fn1 Weinraub is also suing the National Association of Securities Dealers ("NASD") Dispute Resolution, Inc., and individual defendants Mark Mendley, David Carter and David Bolnick (collectively, the "Arbitrator Defendants"), who conducted an arbitration proceeding from June 2000 to April 2002 initiated by Weinraub against, inter alia, Glen Rauch and Bear Stearns.*fn2 Finally, Weinraub alleges that defendant Valley National Bank ("Valley") "improperly collected" a judgment of $143,827 obtained by Glen Rauch in the arbitration proceeding and subsequent proceedings in the New York state courts.*fn3

  Weinraub invokes this Court's jurisdiction on numerous grounds: diversity;*fn4 federal question based on violations of the securities laws;*fn5 the Federal Arbitration Act;*fn6 federal question jurisdiction based on violations of federal civil rights law;*fn7 original jurisdiction based on violations of Weinraub's Equal Protection and Due Process rights; and pendent and ancillary jurisdiction.*fn8

  B. Weinraub's Margin Account In October 1992, Weinraub opened a brokerage account with a firm called Jonathan Foster.*fn9 Weinraub's broker at this firm was his cousin Michael Weinraub.*fn10 When Michael Weinraub joined Glen Rauch in 1995, he took plaintiff's account with him.*fn11 Although plaintiff faults Glen Rauch for failing to execute a written "customer agreement" with him,*fn12 he continued to trade there.*fn13

  Plaintiff contends that Glen Rauch (and Michael Weinraub) ignored his desire to stop trading speculative securities on margin and transition into more conservative investments, and instead continued to recommend risky "tech stocks."*fn14 Indeed, Weinraub's account "consisted essentially entirely of speculative stocks purchased on margin."*fn15 This left him vulnerable to a decline in the high tech sector, which wiped out his margin account in 2000, costing him over $500,000.*fn16 Weinraub alleges that his losses would have been prevented if the Broker Defendants had fulfilled their obligations to advise him of the virtues of a diversified portfolio, and reducing Weinraub's reliance on margin trading.*fn17

  C. The Arbitration Proceeding

  In June 2000, plaintiff commenced an arbitration proceeding against the Broker Defendants, and Michael Weinraub, before the NASD.*fn18 The gravamen of Weinraub's allegations in the arbitration was that, by allowing Weinraub to maintain "a highly leveraged" and "unreasonably risky" margin position, the Broker Defendants were negligent and breached their fiduciary duty, and also "failed to provide Plaintiff with material information [and] misstated [] material information."*fn19 Glen Rauch asserted a counterclaim against Weinraub for the outstanding debit balance in his margin account.*fn20 The case was heard by defendants Mendley, Carter and Bolnick.*fn21

  Weinraub hurt his cause during the arbitration by failing to comply with deadlines for document production — failures he blamed on his former lawyer, who became ill soon after the filing of the claim.*fn22 As a result of this deficiency, the arbitration panel ruled on July 3, 2001 that Weinraub was "enjoined from presenting further evidence to the panel for consideration. Any such documents will be precluded."*fn23 Accordingly, aside from the testimony of Weinraub himself, the arbitrators considered only evidence submitted by the Broker Defendants.*fn24 The arbitrators denied Weinraub's claims and granted judgment for Glen Rauch on its counterclaim.*fn25 In the aftermath of this ruling, Weinraub asserts that defendant Valley damaged his credit and caused him embarrassment in its attempts to collect the judgment on behalf of Glen Rauch.*fn26

  D. Proceedings in New York Courts

  Glen Rauch and Michael Weinraub commenced a special proceeding in the New York Supreme Court to confirm the arbitration award, and plaintiff filed a cross-motion to vacate the award.*fn27 The Supreme Court confirmed the award and denied Weinraub's cross-motion.*fn28 The court held that the arbitrators' preclusion of Weinraub's evidence was appropriate in light of Weinraub's continued refusal to provide discovery.*fn29 The court also held that Weinraub failed to meet his burden under New York law to show that misconduct in the arbitration resulted in prejudice to the party seeking to vacate,*fn30 as he ...


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