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Credit Suisse Securities LLC v. Hilliard

January 3, 2007

CREDIT SUISSE SECURITIES (USA) LLC, PLAINTIFF,
v.
RUSSELL G. HILLIARD, ELIZABETH T. HILLIARD, KARYN HILLIARD, KARYN HILLIARD REVOCABLE TRUST, AND STUART GILBERTSON, DEFENDANTS.



The opinion of the court was delivered by: Cedarbaum, J.

OPINION

This diversity action was instituted for breach of contract. Defendants move, pursuant to Fed. R. Civ. P. 12(b)(2), to dismiss the action for lack of personal jurisdiction. They also move, pursuant to Fed. R. Civ. P. 12(b)(6), to dismiss the action for failure to state a claim upon which relief can be granted, and, pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., to dismiss or stay the action in favor of arbitration. Alternatively, defendants move, pursuant to 28 U.S.C. § 1404(a), to transfer the action to the United States District Court for the District of Nebraska. For the following reasons, defendants' motion to dismiss for lack of personal jurisdiction is denied and their motion to transfer is granted. In view of this, I do not reach defendants' other motions.

BACKGROUND

Plaintiff, a financial services company, is a Delaware corporation with its principal place of business in New York City. When this action was commenced, all defendants were domiciled in states other than Delaware and New York. This action arises out of defendants' ownership and sale of 400,000 shares of Series A Convertible Preferred Stock issued by Charter Communications Inc. ("Charter").

In February 2005, all defendants with the exception of Stuart Gilbertson entered into an agreement with plaintiff ("the February Agreement"). The February Agreement gave plaintiff "the exclusive right to sell the [s]tock" from February 28, 2005 to March 21, 2005 (LaCivita Decl., Ex. A, ¶ 1), but did not restrict "communications, sale, or any other potential transactions between [defendant signatories] and Charter" (La Civita Decl., Ex. A, App. I). It also gave plaintiff a partial right of first refusal for an additional 120 days, until July 19, 2005. (LaCivita Decl., Ex. A, ¶ 1.) The February Agreement contained a clause pursuant to which the parties agreed to "irrevocably and unconditionally submit to the non-exclusive jurisdiction of any State or Federal court sitting in New York City over any suit, action or proceeding arising out of or relating to the Agreement." (LaCivita Decl., Ex. A, ¶ 7.) It also contained a clause pursuant to which the parties agreed to "irrevocably and unconditionally waive any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum." (Id.) Neither plaintiff nor any of the defendants sold the stock between February 28, 2005 and July 19, 2005, the period during which the February Agreement was in effect.

In April 2005, each defendant opened a new investment account with plaintiff by executing a Credit Suisse form entitled "New Account Form." (Gilbertson Decl., Ex. A.) Attached to each New Account Form was a Credit Suisse form entitled "New Account Agreement," which provided in relevant part:

14. AGREEMENT TO ARBITRATE CONTROVERSIES: IT IS AGREED THAT ANY CONTROVERSY BETWEEN US ARISING OUT OF YOUR BUSINESS OR THIS AGREEMENT SHALL BE SUBMITTED TO ARBITRATION CONDUCTED BEFORE ANY NATIONAL SECURITIES EXCHANGES ON WHICH A TRANSACTION GIVING RISE TO SUCH CLAIM TOOK PLACE (AND ONLY BEFORE SUCH EXCHANGE) OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. AND IN ACCORDANCE WITH ITS RULES. ARBITRATION MUST BE COMMENCED BY SERVICE UPON THE OTHER PARTY OF A WRITTEN DEMAND FOR ARBITRATION OR A WRITTEN NOTICE OF INTENTION TO ARBITRATE.

(Gilbertson Decl., Ex. A, ¶ 14.) Four months later, on August 19, 2005, plaintiff and defendants executed a document entitled "Trade Confirmation." (Gilbertson Decl., Ex. D.) The document describes defendants as "sellers" and plaintiff as "buyer" and purports to confirm the sale by defendant to plaintiff of 400,000 shares of Charter stock at a price of $22.4 million. The document also lists March 31, 2005 as the "trade date." (Id.) Plaintiff alleges that the Trade Confirmation was a legally binding agreement. Defendants allege that they did not understand the Trade Confirmation to be a legally binding agreement but rather an expression of an intent to enter into such an agreement when certain terms were more fully delineated.

In any event, defendants sold the stock back to Charter in October 2005.

On March 10, 2006, defendants sued plaintiff in Nebraska state court, asserting several state law claims and requesting a declaratory judgment that the Trade Confirmation is unenforceable as a matter of law. Four days later, on March 14, 2006, plaintiff filed this action for breach of contract and promissory estoppel. Plaintiff also removed the Nebraska action from state court to the United States District Court for the District of Nebraska, and moved to dismiss the claim.

While plaintiff's motion to dismiss the Nebraska action was pending in Nebraska federal court, defendants initiated arbitration of the claim before the National Association of Securities Dealers (NASD). Pursuant to NASD rules, all requests to arbitrate before the NASD are processed through the New York office of the NASD Director of Arbitration. Thus, although defendants' initiating papers requested arbitration in Nebraska, defendants filed those papers in New York. After doing so, defendants moved in Nebraska district court to compel arbitration. Defendants then moved to dismiss the New York action, or transfer it to the United States District Court for the District of Nebraska, or compel arbitration. I reserved decision pending the decision of the Nebraska court.

On August 3, 2006, the Nebraska court granted plaintiff's motion to dismiss the Nebraska action in favor of the New York action. Hilliard v. Credit Suisse First Boston LLC, No. 8:06 CV 285, 2006 WL 2239014 (D.Neb. Aug. 3, 2006). The Nebraska court based its decision on the first-filed rule and did not consider whether defendants are subject to personal jurisdiction in New York. Id.

DISCUSSION

I: Defendants' Motion to Dismiss for Lack of ...


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