United States District Court, S.D. New York
For Frank Christensen, individually, Frank Christensen, derivatively on behalf of KCCI LTD., Plaintiffs: Anthony Paduano, Matthew S Hackell, LEAD ATTORNEYS, Paduano & Weintraub, New York, NY.
For Mark Nauman, William Gollner, KCCI LTD., Defendants: Michael Robert Futterman, LEAD ATTORNEY, McCusker, Anselmi, Rosen & Carvelli, P.C., New York, NY; Paul Francis Carvelli, LEAD ATTORNEY, PRO HAC VICE, McCusker, Anselmi, Rosen & Carvelli, P.C., Florham Park, NJ.
OPINION & ORDER
PAUL A. ENGELMAYER,
United States District Judge
In this diversity action, Frank Christensen (" Christensen" ) brings claims against KCCI, Ltd. (" KCCI" ), and two of its officers, Mark Nauman (" Nauman" ) and William Gollner (" Gollner" ). As pled, Christensen's claims involve both direct and derivative claims, the latter brought in Christensen's capacity as a KCCI shareholder. Christensen's claims are to the effect that he was deprived of money, value, or procedural rights to which he was entitled as an owner and/or shareholder of KCCI.
Defendants now move to compel arbitration under the auspices of the Financial Industry Regulatory Authority (" FINRA" ), pursuant to a binding arbitration provision in Christensen's Form U-4 Uniform Application for Securities Industry Registration or Transfer (" Form U-4" ). For the following reasons, the Court grants the motion to compel arbitration, and stays this action pending the outcome of that arbitration.
A. The Parties
KCCI is a New York corporation with its principal place of business in Jersey City, New Jersey. Id. ¶ 2. Christensen, a Florida citizen, is KCCI's founder. Compl. ¶ ¶ 1, 9. Nauman, a New Jersey citizen, is KCCI's president, treasurer, and chief executive officer. Id. ¶ ¶ 3, 20. Gollner, a New York citizen, is KCCI's vice president. Id. ¶ ¶ 4, 21. Christensen, Nauman, and Gollner are the three directors of KCCI. Id. ¶ 22.
B. Factual Background
In 1976, Christensen founded F.A. Christensen, Inc., a stock brokerage firm, which in 2006 was renamed KCCI and which the Court refers to as such. Id. ¶ ¶ 9, 11, 24. In 1991, Christensen hired Nauman as a clerk. Id. ¶ 12. In October 1996, Nauman bought 10 shares, equating to a 50% ownership interest, in KCCI, and he and Christensen began serving as KCCI's only directors. Id. ¶ ¶ 14, 15. During that year, Nauman became KCCI's president, treasurer, and CEO, and Christensen retired to Arizona. Id. ¶ ¶ 15, 20.
After Christensen retired from KCCI in 1996, he began leasing his seat on the New York Stock Exchange (" NYSE" ) to KCCI, which, to trade securities on the NYSE,
was required to own or lease a seat. Id. ¶ 16. Between 1996 and March 2006, Christensen leased that seat to KCCI for between about $200,000 and $350,000 per year. Id. ¶ 17. During these years, Christensen continued to provide advice to Nauman and other colleagues, but he did not request or receive any other compensation or distributions from the company. Id. ¶ ¶ 18, 19.
In 2001, Gollner became KCCI's vice president. Id. ¶ 21. In 2004, Nauman asked Christensen to sell a portion of his ownership interest in the company to Gollner, id. ¶ 22; on December 14, 2004, Christensen sold Gollner a 10% ownership interest in KCCI for $140,000 through a stock purchase agreement. Id. In 2004 or early 2005, Christensen, Nauman, and Gollner began serving as the company's three directors. Id.
During that same year, the NYSE demutualized. Id. ¶ 25. As a result, after March 8, 2006, a securities trader no longer needed to own or lease a seat to trade on the NYSE. Id. ¶ 26. KCCI therefore stopped paying Christensen for the use of his seat. Id.
In 2008, KCCI gave Christensen a $40,000 dividend and a $15,000 commission. Id. ¶ 28. Christensen did not receive notice of a directors' meeting regarding these distributions, id., and that $55,000 distribution was the last payment Christensen received from KCCI. Id. ¶ 29. Christensen was untroubled by the lack of distributions during 2008 and 2009, which he attributed to the contemporaneous recession. Id. ¶ 30. In 2014, however, Christensen discovered that, during that period, Nauman, Gollner, and Marshall Maddox (" Maddox" ), KCCI's chief financial officer, had all received million-dollar payments from KCCI. Id. ¶ ¶ 23, 31, 32. KCCI's board did not approve these payments; Christensen, a director, was never notified of a directors' meeting. Id. ¶ 33.
In 2010 and 2011, Christensen attempted to sell his remaining 40% ownership interest in KCCI to Tom Caldwell (" Caldwell" ), a Canadian businessman. Id. ¶ ¶ 35, 36. In May 2011, Christensen met with Nauman and Caldwell in KCCI's offices to discuss selling Christensen's remaining ownership interest to Caldwell. Id. ¶ 37. Caldwell offered to buy Christensen's stake for $500,000, id.; Christensen expressed interest in accepting that offer. Id. ¶ 38. But, about a week later, instead of permitting Christensen to sell his stake in KCCI to Caldwell, Nauman proposed selling a 25% ownership interest of KCCI from the owners collectively to Caldwell for $500,000. Id. ¶ 39. Caldwell rejected Nauman's offer. Id. ¶ 40.
On August 1, 2011, KCCI's membership with the NYSE was effectively terminated, but KCCI maintained its FINRA membership. Id. ¶ 41. In 2011, KCCI's offices moved from New York City to Jersey City, New Jersey. Id.
In April 2013, in connection with estate planning, Christensen emailed Nauman to request KCCI's tax returns for the previous three years and its financial and operation status (" FOS" ) reports for the prior six quarters. Id. ¶ 42. Nauman provided Christensen with only four FOS reports and audited annual reports for 2011 and 2012. Id. ¶ 43. He did not provide Christensen with any tax returns or with the FOS report for the first quarter of 2013. Id.
On September 13, 2013, Nauman sent Christensen an e-mail, which attached March 29, 2013 and August 28, 2013 documents titled " Written Action of Directors in Lieu of Meeting" that purported to authorize the issuance of eight additional shares of KCCI stock to Nauman. Id. ¶ 45. Christensen had not previously heard of the issuance of additional KCCI stock to Nauman. Id. ¶ 47. The two attached
documents were signed by Nauman and Gollner. Id. ¶ 46. The line provided in each document for Christensen's signature was left blank. Id.
In December 2013, Nauman and Gollner sold KCCI to Lampert Capital Markets, Inc. (" Lampert" ). Id. ¶ 48. Christensen did not approve of the sale, and was not notified of it at the time, nor was a meeting or vote of KCCI's directors ever held. Id. ¶ ¶ 48, 51. Nauman and Gollner, with Maddox's help, negotiated the sale with representatives of Lampert. Id. ¶ 50. Christensen did not receive any proceeds from the sale despite his 40% ownership stake in KCCI. Id. ¶ 48.
On December 31, 2013, KCCI terminated its FINRA registration. Id. ¶ 55. In December 2013 or January 2014, Nauman and Gollner registered with FINRA as employees of Lampert. Id. In 2014, Christensen learned of the sale of KCCI to Lampert via public documents provided to him by his counsel. Id. ¶ 54. Lampert has been identified in SEC filings as " the successor to KCCI, Ltd." Id. ¶ 55.
C. Christensen's Form U-4
On June 30, 2009, Christensen executed a Form U-4, which generally requires the arbitration of disputes between Christensen and the defendants under FINRA. Nauman Rep. ...