January 13, 2014
DAVID T. HAGGERTY, Plaintiff,
MICHAEL J. BOYLAN, Defendant.
DECISION and ORDER
LAWRENCE E. KAHN, District Judge.
Defendant Michael J. Boylan ("Defendant") sought to implead Plaintiff David T. Haggerty ("Plaintiff") into an arbitration proceeding before the Financial Industry Regulatory Authority ("FINRA") by filing a "third-party claim" against Plaintiff in that proceeding. Dkt. No. 1, Ex. B. Plaintiff, in response, brought this action seeking both a declaration that Defendant's third-party claim is not subject to arbitration and injunctive relief to that effect. Dkt. No. 1. The Court granted Plaintiff's request for a temporary restraining order ("TRO") on April 5, 2013, and issued a preliminary injunction on May 3, 2013. Dkt. Nos. 11 ("April 5 Order"); 32 ("May 3 Order").
On August 8, 2013, Plaintiff filed a Motion for summary judgment along with a supporting Memorandum and Statement of material facts. Dkt. Nos. 39 ("Motion"); 39-1 ("Memorandum"); 39-2 ("SMF"). On August 26, Defendant, proceeding pro se, filed a Response stating that the underlying FINRA arbitration claim had been withdrawn,  that he agreed not to pursue any claims in this matter before FINRA going forward, and that he therefore did not object to Plaintiff's Motion. Dkt. No. 41 ("Response") at 1. Plaintiff filed a Reply requesting that his Motion be granted as unopposed in light of Defendant's Response. Dkt. No. 42 ("Reply") ¶ 4. For the following reasons, the Court grants Plaintiff's Motion.
II. LEGAL STANDARD
To prevail on a motion for summary judgment, the movant must "show that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). The movant bears the burden of demonstrating the absence of a question of material fact. In making this determination, the Court must view all facts "in the light most favorable" to the non-moving party. Celotex Corp. v. Catrett , 477 U.S. 317 (1986); see also Holcomb v. Iona Coll. , 521 F.3d 130, 132 (2d Cir. 2008). To survive a summary judgment motion, the opposing party must establish a genuine issue of fact by "citing to particular parts of materials in the record." FED. R. CIV. P. 56(c)(1); see also Wright v. Goord , 554 F.3d 255, 266 (2d Cir. 2009). Only disputes over "facts that might affect the outcome of the suit under the governing law" will preclude a grant of summary judgment. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986). In determining whether there are genuine issues of material fact, the Court is "required to resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought." Johnson v. Killian , 680 F.3d 234, 236 (2d Cir.2012) (citing Terry v. Ashcroft , 336 F.3d 128, 137 (2d Cir.2003)). "Even when a motion for summary judgment is unopposed, the district court is not relieved of its duty to decide whether the movant is entitled to judgment as a matter of law." Vt. Teddy Bear Co. v. 1-800 Beargram Co. , 373 F.3d 241, 242 (2d Cir. 2004).
In his Reply, Plaintiff argues that the withdrawal of the underlying FINRA claim does not moot this action because Ms. McDowell could reassert that claim in the future, at which point Defendant could change course and reassert his claim for indemnification against Plaintiff before FINRA. Reply ¶¶ 4-6.
"As a general rule, in a case involving an allegation that defendant has engaged in illegal activity, a court's power to hear and decide the matter is not terminated when defendant voluntarily ceases its illegal conduct." Desiderio v. Nat'l Ass'n of Sec. Dealers, Inc. , 191 F.3d 198, 202 (2d Cir. 1999). Rather, mootness is demonstrated only where: "(1) it can be said with assurance that there is no reasonable expectation... that the alleged violation will recur, ... and (2) interim relief or events have completely and irrevocably eradicated the effects of the alleged violation.'" Id . (quoting Los Angeles Cnty. v. Davis , 440 U.S. 625, 631 (1979)).
Here, nothing in the record suggests that the reassertion of Defendant's third-party claim against Plaintiff before FINRA has been irrevocably foreclosed. Accordingly, this action is not moot and the Court can reach the merits of Plaintiff's claim.
B. Merits of Plaintiff's Claim
The Court has considered the merits of this case on two previous occasions. In both the April 5 and May 3 Orders, the Court found that Plaintiff was likely to succeed on the merits of his claim. More specifically, the Court found that no portion of the FINRA arbitration rules that compel arbitration-i.e., neither the "Customer Arbitration Code" nor the "Industry Arbitration Code"-covers Defendant's claim against Plaintiff. April 5 Order at 5-9; May 3 Order at 8-14.
1. Customer Arbitration Code
Under the Customer Arbitration Code, a member can be compelled to arbitrate under only two circumstances: (1) where arbitration is "[r]equired by a written agreement, " or (2) where arbitration is "[r]equested by the customer." FINRA R. 12200; see also UBS Sec., LLC v. Voegeli, 405 F.Appx. 550, 551-52 (2d Cir. 2011). Plaintiff asserts that no written agreement exists requiring arbitration, SMF ¶ 14; Mem. at 8, and that Defendant is not a customer under Rule 12100(i), SMF ¶ 5; Mem. at 8. The Court found these assertions sufficient in issuing the TRO. April 5 Order at 7. Defendant has not refuted the assertion that no written agreement exists. Mem. at 6-7; see generally Dkt. No. 38. Furthermore, the FINRA Rules exclude broker-dealers from the definition of "customer." FINRA R. 12100(i). Defendant, as a broker-dealer, is therefore not a "customer, " and arbitration of his claim against Plaintiff cannot be "requested by the customer." Mem. at 8; SMF ¶ 5.
Plaintiff has met his burden of demonstrating that there is no genuine issue of material fact as to whether the Customer Arbitration Code covers Defendant's third-party claim.
2. Industry Arbitration Code
FINRA Rule 13200(a) provides that "[e]xcept as otherwise provided in the Code, a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among Members; Members and Associated Persons; or Associated Persons." Rule 13100(o) defines the term "member" to include
any broker or dealer admitted to membership in FINRA, whether or not the membership has been terminated or cancelled; and any broker or dealer admitted to membership in a self-regulatory organization that, with FINRA consent, has required its members to arbitrate pursuant to the Code and/or to be treated as members of FINRA for purposes of the Code, whether or not the membership has been terminated or cancelled.
"Associated Person" is defined as "a natural person who is registered or has applied for registration under the Rules of FINRA" or
[a] sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with FINRA under the By-Laws or the Rules of FINRA.
FINRA R. 13100(a), (r).
Plaintiff was not a member of FINRA at the time of the relevant transactions in 2004, SMF ¶ 12, nor was he an "associated person" of a member. Plaintiff was not a "sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions." See SMF ¶¶ 13-22. Furthermore, neither Plaintiff's receipt of referral fees from McGinn Smith & Co., Inc. ("McGinn Smith"), nor the possibility that Plaintiff's complaints instigated a personnel move at McGinn Smith, demonstrate that Plaintiff controlled or was controlled by McGinn Smith. May 3 Order at 13-14; see also Mem. at 11-12. The Court therefore finds that there is no genuine issue of material fact as to whether the Industry Arbitration Code covers Defendant's third-party claim against Plaintiff.
Because Defendant's third-party claim against Plaintiff is not arbitrable, Plaintiff is entitled to judgment as a matter of law.
Accordingly, it is hereby:
ORDERED, that Plaintiff's Motion (Dkt. No. 39) for summary judgment is GRANTED; and it is further
ORDERED, that Plaintiff's request for declaratory judgment is GRANTED. The Court hereby declares that the causes of action set forth in the "Third-Party Claim" filed by Michael J. Boylan in the FINRA arbitration (FINRA Dispute Resolution Number 09-5163) are not subject to arbitration before FINRA; and it is further
ORDERED, that Defendant is ENJOINED from prosecuting the causes of action set forth in his "Third-Party Claim" against David T. Haggerty in arbitration before FINRA; and it is further
ORDERED, that the Clerk of the Court enter judgment for Plaintiff and close this case; and it is further
ORDERED, that the Clerk of the Court serve a copy of this Decision and Order on the parties in accordance with the Local Rules.
IT IS SO ORDERED.