Opinion
3-02-MC-002-L
April 24, 2002
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Pursuant to the District Court's orders of reference the following motions have been referred to the magistrate judge:
1. Plaintiffs' Motion to Confirm Arbitration Award filed on January 23, 2002.
2. SWS Securities, Inc.'s Motion to Dismiss for Improper Venue or to Transfer Venue filed on February 22, 2002.
3. Defendant James E. Moldermaker's Motion to Dismiss for Lack of Personal Jurisdiction filed on March 13, 2002.
4. Defendant Fox Company Investments, Inc.'s Motion to Dismiss or Transfer filed on March 13, 2002.
5. Defendant David Gwynn's Motion to Vacate Default Judgment filed on March 21, 2002.
6. Defendant David Gwynn's Motion to Dismiss for Lack of Personal Jurisdiction filed on March 21, 2002.
7. Defendant David Gwynn's Motion to Dismiss or Transfer for Improper Venue filed on March 21, 2002.
8. Defendant James E. Moldermaker's Motion to Quash Notice or for Protective Order filed on March 26, 2002.
Statement of the Case: The disputes between Plaintiffs, on the one hand, and Defendants, on the other hand, arose as a result of alleged acts and omissions attributed to Defendants in the context of securities transactions. These disputes were presented in the context of an arbitration proceeding brought by Plaintiffs against the Defendants before the National Association of Securities Dealers (NASD). Following a hearing before a panel of NASD arbitrators, the arbitration panel made an award on December 26, 2001, in favor of Plaintiffs and against the Defendants, jointly and severally. On January 23, 2002, Plaintiffs filed their pleadings in this action seeking an order confirming the arbitration panel's award.
Plaintiffs, the complainants in the arbitration proceeding, are citizens of Canada. They were represented in twelve days of hearing which took place in Buffalo, New York over a one-year period by their counsel of record in the present proceeding. Each of the Defendants was represented at arbitration by the same counsel who have entered appearances in this action except for David Gwynn.
Gwynn's counsel in the arbitration proceeding has filed an action on Gwynn's behalf in the Buffalo Division of the Western District of New York in Cause No. 02-CV-73.
Apparently shortly after the parties' attorneys received notice of the arbitration award counsel for William R. Clubine, et al. began drafting their motion to confirm the arbitration award while counsel for each party as to whom the award was unfavorable began drafting petitions to vacate the arbitration award. SWS Securities, Inc. filed its petition to vacate the arbitration award in the Buffalo Division of the Western District of New York on January 25, 2002, in Cause No. 02-CV-70. On the same date Fox Company Investments, Inc. and James Moldermaker filed a similar petition in the same federal court in Cause No. 02-CV-72, as did David Gwynn as well in No. 02-CV-73.
Findings and Conclusions:
1. Motions to dismiss and/or transfer: As noted above SWS Securities, Inc., Fox Company Investments, Inc. and David Gwynn have all filed motions to dismiss for improper venue or alternatively for an order transferring this case to the Buffalo Division of the Western District of New York
In their motions to dismiss or for transfer the moving parties point to the fact that 9 U.S.C. § 9 specifically provides that an application for confirmation of an arbitration award may be made to the United States court in and for the district within which such award was made. William R. Clubine, et al. concede that venue is proper in Buffalo, but point out that this provision of the Federal Arbitration Act is permissive, not mandatory. Cortez Byrd Chips. Inc. v. Harbert Construction Co., 529 U.S. 193, 196, 120 S.C. 1331, 1334 (2000). As the Supreme Court made clear, a motion to confirm, vacate or modify an arbitration award may also be brought in a district in which venue is proper under the general venue statute, i.e. 28 U.S.C. § 1391.
The Court in Cortez also observed that "under principles of deference to the court of first filing the [adjudicating] court should have considered staying its hand." 199, 120 S.Ct. at 1335-36.
Perhaps application of the "first filed" rule is more appropriately an issue to be addressed by the New York court since the cases filed in that district were filed subsequently to the Dallas case albeit not more than 48 hours later. However, to the extent that the Clubine parties rely on this rule in urging this court to retain jurisdiction, it is without merit.
The authority to stay a proceeding is an inherent power of the court which is addressed to sound discretion. See e.g. Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183-184, 72 s. Ct. 219, 221 (1952) — "Wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation, does not counsel rigid mechanical solution of such problems. The factors relevant to wise administration are equitable in nature. Necessarily, an ample degree of discretion, appropriate for disciplined and experienced judges, must be left to the lower courts."
In Cortez, supra, there was no dispute between the parties that if venue could be predicated on § 1391, supra, as well as § 9,supra, venue was equally proper in either district in which cases were filed. In the present case the propriety of venue in this court is hotly disputed as well as whether this court can exercise personal jurisdiction over Messrs. Moldermaker and Gwynn.
Such preliminary issues cannot be decided until some discovery on these issues is undertaken. Indeed the Clubine parties have already noticed Mr. Moldermaker for deposition. The necessity for such pre-merits discovery is inimical to both the underlying policies supporting dispute resolution by arbitration and Rule 1, Federal Rules Civil Procedure, particularly where it is clear that the federal court in Buffalo has jurisdiction over all disputants in this controversy. At bottom the only convenience which would be served by keeping this case in the Northern District of Texas would be that of the Clubine parties' Dallas counsel.
A New York attorney has entered an appearance on behalf of the Clubine parties in each of the pending Buffalo Division cases.
2. Defendant Gwynn's Motion to Vacate Defaulft Judgment. As reflected in the affidavit of Alan J. Bozer, who represented Gwynn in the arbitration proceeding, the answer date to Plaintiffs' complaint was erroneously calendered for sixty days after service by mail, after which Gwynn was personally served. Plaintiffs' motion for default judgment was filed on the twenty-first day after personal service was effected on Gwynn and more than a month after Plaintiffs had been served with process in Gwynn's case filed in Buffalo.
Federal courts generally disfavor default judgments, preferring to resolve disputes on the merits. Harper Macleod Solicitors v. Keaty Keaty, 360 F.3d 389, 393 (5th Cir. 2001) (collecting cases). In addressing whether good cause exists for setting aside a default judgment a court should consider (1) whether the default was willful; (2) whether the opponent would be prejudiced; and (3) whether a meritorious defense is presented. E.g. Lacy v. Sitel Corp., 227 F.3d 290, 292 (5th Cir. 2000). Under the facts of this case the initial two factors must be answered in the negative. Also Gwynn has raised a meritorious defense.
In this forum Gwynn has asserted that this court does not have personal jurisdiction. However, in light of the action which he filed in Buffalo he is also raising a defense to confirmation of the arbitration award.
Finally, Gwynn filed his motion to set aside the default judgment within two weeks of the clerk's entry of default. See Dierscke v. O'Cheskey (In re: Dierscke), 975 F.2d 181, 184 (5th Cir. 1992).
RECOMMENDATION:
For the foregoing reasons it is recommended that the District Court enter its order granting David Gwynn's Motion to Vacate Default Judgment and directing the Clerk to file his original answer submitted with his motion in the papers and pleadings in this action.
It is further recommended that the District Court grant James F. Moldermaker's motion to quash and for protective order in part to the extent that his deposition be stayed pending further order of the court for the Western District of New York, Buffalo Division.
It is further recommended that the District Court grant Defendants SWS Securities, Inc.'s, Fox Company Investments, Inc.'s and David Gwynn's motions to dismiss and/or transfer and further ordering that this action be transferred to the United States District Court for the Western District of New York, Buffalo Division for further proceedings.
It is further recommended that the District Court deny Defendants James E. Moldermaker's and David Gwynn's motion to dismiss for lack of personal jurisdiction, the same being moot.
A copy of this recommendation shall be transmitted to counsel for the parties.