Opinion
No. 95 Civ. 10742 (SWK).
April 6, 2005
OPINION AND ORDER
Defendants Merrill Lynch Co., ("ML Co.") and Merrill Lynch, Pierce, Fenner Smith Inc. ("MLPFS") 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 MLPFS. 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 MLPFS 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. 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.
Both the facts and procedural background have been set forth in greater detail in numerous opinions by this Court and the Second Circuit. See Grandon v. Merrill Lynch Co., Inc., No. 95 Civ. 10742 (SWK), 2003 WL 22118979 (S.D.N.Y. Sept. 11, 2003); Grandon v. Merrill Lynch Co., Inc., No. 95 Civ. 10742 (SWK), 85857, 2001 WL 826092 (S.D.N.Y. July 20, 2001); Grandon v. Merrill Lynch Co., Inc., No. 95 Civ. 10742 (SWK), 1999 U.S. Dist. LEXIS 16837, at *14 (S.D.N.Y. Nov. 1, 1999); Grandon v. Merrill Lynch Co., Inc., 147 F.3d 184 (2d Cir. 1998); Grandon v. Merrill Lynch Co., Inc., No 95 Civ. 10742 (SWK), 1997 U.S. Dist. LEXIS 10573, at *2 (S.D.N.Y. June 22, 1997).
The two accounts are Merrill Lynch Account #619-09003 and Merrill Lynch Account #619-40M10.
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. See McLaughlin Aff. Ex. A, B C.
The Municipal Securities Rulemaking Board no longer maintains a forum for arbitration.
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 MLPFS. 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 MLPFS. 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.