Walzer v. Muriel, Siebert & Co. ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
4-4-2007
Walzer v. Muriel Siebert Co
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-3680
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 05-3680, 05-4698, 05-5215, & 05-5490
________________
ANDREW WALZER,
v.
MURIEL, SIEBERT & CO., INC.;
NATIONAL FINANCIAL SERVICES, LLC;
GERARD KOSKE; RONALD BONO; MURIEL SIEBERT
____________________________________
On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civ. No. 04-cv-05672)
District Judge: Honorable Dickinson R. Debevoise
_______________________________________
Submitted Under Third Circuit LAR 34.1(a)
April 3, 2007
Before: FISHER, ALDISERT AND WEIS, CIRCUIT JUDGES
(Filed: April 4, 2007)
_______________________
OPINION
_______________________
PER CURIAM
Andrew Walzer appeals from the District Court’s order granting the Defendants’
motion to dismiss. For the reasons that follow, we will affirm in part and vacate in part.
Walzer opened a personal brokerage account with Muriel Siebert, Co. (“Siebert”),
a New Jersey a brokerage firm, in 1980, and continued investing with Siebert for 20
years. In 1982, Walzer signed an options agreement with Siebert giving him margin
privileges, and, at least since 1996, Walzer purchased securities on margin through this
account. In 2002, Siebert notified Walzer that he must increase the percentage of equity
maintained in his account. As a result, Walzer faced numerous margin calls and requests
from Siebert to deposit cash in his account to avoid a forced sale of his securities.
Walzer claimed that the percentage equity in his account was sufficient under the
New York Stock Exchange (“NYSE”) and Federal Reserve requirements and refused to
deposit additional cash. Siebert claimed that, under Walzer’s most recent option
agreement, Siebert was allowed to raise his equity requirements above the NYSE
minimums. Walzer requested a copy of the agreement and eventually was provided with
an agreement dated August 29, 1996. Eventually Siebert sold approximately $802,000
worth of securities in Walzer’s account at a loss. Walzer claimed that the 1996
agreement was a forgery and that Siebert forced the sale of his securities because, due to
the market downturn, the firm’s finances were weak.
Walzer then commenced a suit in the New York State Supreme Court against
Siebert for breach of contract, fraud, and breach of fiduciary duty. Walzer claimed that
Siebert had forged the 1996 agreement on which its authority to raise Walzer’s equity
2
requirements rested. Siebert moved to compel arbitration under the 1996 agreement. In
January 2005, the court granted Siebert’s motion and stayed the case pending arbitration.
Justice Walter Tolub of the New York Supreme Court found that, even if the 1996
agreement was a forgery, and thus void, Walzer’s prior agreement from 1992 included an
arbitration clause which mandated arbitration of his claims. Walzer appealed the order,
but appears to have abandoned the appeal.
In November 2004, while his state suit was pending, Walzer filed this suit in the
United States District Court for the District of New Jersey. In addition to Siebert,
Walzer named as defendants Muriel Siebert, the CEO of Siebert & Co.; National
Financial Services, LLC (“NFS”), the clearing broker which underwrote Siebert’s
margin investments, Gerard Koske; a compliance officer at Siebert who allegedly
covered up the fact that the 1996 agreement was a forgery; and Ronald Bono, a vice
president at Siebert who gave Walzer the 1996 agreement. In his complaint Walzer
reiterated the state-law claims that he raised in his New York lawsuit and also claimed
that Siebert violated the Securities and Exchange Act (“Exchange Act”), 15 U.S.C. § 78a
et seq., and accompanying regulations, as well as NASD rules. The Defendants filed a
motion to dismiss, claiming that the New York judgment compelling arbitration barred
the federal action on the grounds of res judicata and collateral estoppel. The District
Court granted the motion and dismissed the suit with prejudice as to the arbitration issue.
3
Walzer appealed.1
We have jurisdiction pursuant to 28 U.S.C. § 1291. Our review of the District
Court’s application of res judicata and collateral estoppel is plenary. See Venuto v.
Witco Corp., 117 F.3d 754, 758 (3d Cir. 1997).2 Although res judicata and collateral
estoppel are affirmative defenses, they may be raised in a motion to dismiss under F ED.
R. C IV. P. 12(b)(6). See Connelly Found. v. Sch. Dist. of Haverford Twp., 461 F.2d 495,
496 (3d Cir. 1972).3 For the purposes of reviewing a motion to dismiss, we accept as
true all allegations of the complaint and all reasonable inferences that can be drawn
1
Walzer also filed a motion for reconsideration, which was ruled on after he filed his
notice of appeal. Walzer’s appeal of the District Court’s order denying his first motion
for reconsideration, as well as his appeals of two subsequent motions have been
consolidated with this case. Because his first motion for reconsideration was untimely,
the District Court’s order denying reconsideration, to the extent that it modified the
original order, is a nullity. See Smith v. Evans, 853 F.2d 155, 159 (3d Cir. 1988).
2
Walzer also appeals the District Court’s decision to deny his motion for a default
judgment. We review the order denying a default judgment for abuse of discretion. See
Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir. 2000). With respect to the default
judgment, a delay in responding does not necessarily require the entry of a default
judgment. See Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1147-48 (3d Cir. 1990).
Considering that NFS filed its response before Walzer filed his motion for a default
judgment, and examining the factors in Poulis v. State Farm Fire and Cas. Co., 747 F.3d
863, 868 (3d Cir. 1984), we conclude that the District Court did not abuse its discretion.
3
Other than Walzer’s complaint and the documents attached thereto, the District Court
only appears to have considered Justice Tolub’s memorandum and order in deciding the
motion. See Lum v. Bank of America, 361 F.3d 217, 222 (3d Cir. 2004)(“To decide a
motion to dismiss, a court generally should consider only the allegations in the
complaint, exhibits attached to the complaint, matters of public record, and documents
that form the basis of a claim.”).
4
therefrom. See Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2006).
Under 28 U.S.C. § 1738, the rulings of state courts “shall have the same full faith
and credit in every court within the United States . . . as they have by law or usage in the
courts of such state . . . from which they are taken.” In determining the preclusive effect
of a state court judgment, we apply the rendering state's law of res judicata and collateral
estoppel. See Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373,
380 (1985). Thus, whether Walzer’s suit is precluded turns on the law of New York.
The purpose of res judicata is to avoid piecemeal litigation of claims arising from
the same events. See Bd. of Trs. of Trucking Employees of N. Jersey Welfare Fund, Inc.
v. Centra, 983 F.2d 495, 504 (3d Cir. 1992). “Under both New York law and federal
law, the doctrine of res judicata, or claim preclusion provides that a final judgment on the
merits of an action precludes the parties or their privies from relitigating issues that were
or could have been raised in that action.” Maharaj v. Bankamerica Corp., 128 F.3d 94,
97 (2d Cir. 1997)(internal quotations omitted). The doctrine of collateral estoppel, or
issue preclusion, is a narrower species of res judicata; it bars “a party from relitigating in
a subsequent action or proceeding an issue clearly raised in a prior action or proceeding
and decided against that party.” Ryan v. N.Y. Tel. Co., 62 N.Y.2d 494, 500, 467 N.E.2d
487, 490 (1984). Unlike the doctrine of claim preclusion, “collateral estoppel effect will
only be given to matters ‘actually litigated and determined’ in a prior action.” Kaufman
v. Eli Lilly & Co., 65 N.Y.2d 449, 456, 482 N.E.2d 63 (1985)(quoting Restatements
5
(Second) of Judgments § 27 (1982)).
Walzer’s state claims are precluded by collateral estoppel against all of the
defendants because the issue of their arbitrability was clearly raised and decided against
him in state court. However, neither claim preclusion nor issue preclusion act as a bar to
his federal claims.
Issue preclusion is no bar to Walzer’s federal claims because their arbitrability
under the 1992 agreement was never actually litigated in the New York proceeding. The
only issue actually litigated in Walzer’s state case was whether the 1992 agreement
mandated arbitration of the fraud, breach of contract, and breach of fiduciary duty claims
that he had brought.
The scope of the arbitration clause in Walzer’s 1992 agreement with Siebert was
not at issue in the state-court action; the issue there was whether the arbitration clause
was valid. Justice Tolub based his ruling on the 1992 margin account application which
stated “[t]his account is governed by a pre-dispute arbitration agreement which is
enclosed. I acknowledge the receipt of the pre-arbitration clause.” (JA at 189.)
However, Siebert did not produce the 1992 arbitration clause in the New York case, and
it is unclear what the enclosed arbitration agreement said. Siebert has only produced a
1994 form agreement that it claimed was identical in all material aspects to the 1992
agreement that controlled the outcome of the New York case. (See JA at 367.) Walzer
disagreed, and claimed that the 1992 agreement’s arbitration clause expressly exempted
6
federal claims.4 (Pl.’s Mot. to Withdraw as Pro Se at 3, 17, Docket entry No. 20.)
Accepting as true all allegations of the complaint and based on the records from the New
York case, it appears that the issue of the arbitrability of Walzer’s federal claims was not
actually litigated and Walzer is not collaterally estopped by Justice Tolub’s order from
bringing these claims in federal court.
Nor is claim preclusion a bar to Walzer’s federal claims in this action. Under
New York law, a prior judgment between the parties generally bars any subsequent cause
of action arising out of the same occurrence or transaction. See O’Brien v. City of
Syracuse, 54 N.Y.2d 353, 357, 429 N.E.2d 1158 (1981). However, the prior judgment
will not act as res judicata if the current claim could not have been asserted in the
previous action. Yoon v. Fordham Univ. Faculty and Admin. Ret. Plan, 236 F.3d 196,
206 (2d Cir. 2001) (J. Kaplan concurring). If the current claim is in the exclusive
jurisdiction of the federal courts, then the New York state court would not have had
jurisdiction to hear it and a judgment will not act as res judicata. See Cullen v.
Margiotta, 811 F.2d 698, 732 (2d Cir. 1987) (holding RICO claim was not barred by
prior New York judgment), overruled on other grounds, Agency Holding Corp. v.
4
Siebert claimed that, in the New York litigation, Walzer stipulated that the 1992 and
1994 arbitration clauses were identical, but Walzer disagreed and the stipulation does not
appear in the record. (JA at 374.) Further, Walzer produced a 1991 agreement with
Siebert from a separate account with an arbitration clause that exempted federal claims,
which he said is identical to the 1992 agreement. (Pl. Mot. to Withdraw as Pro Se at 17.)
7
Malley-Duff & Assocs., Inc., 483 U.S. 143 (1987); see also RX Data Corp. v. Dept. of
Social Servs., 684 F.2d 192, 198 (2d Cir. 1982)(finding that copyright infringement
claim was not barred by previous litigation in New York state courts because copyright
infringement claims are within the exclusive jurisdiction of the federal courts).
Under 15 U.S.C. § 78aa, jurisdiction to entertain suits under the Exchange Act
rests solely in the federal courts. See Matsushita Elec. Indus. Co. v. Epstein, 516 U.S.
367, 370 (1996). Accordingly, Walzer could not have brought his Exchange Act claims
in his previous action. See id. Thus, the New York state courts would not accord the
judgment preclusive effect, and neither should the District Court. Because the New York
judgment does not act as res judicata with regard to the Exchange Act claims, the issue
becomes whether arbitration of the federal claims is mandated by the 1992 agreement.5
For the foregoing reasons, the District Court erred in granting the Defendants’
motion to dismiss. Although we agree with the District Court that Walzer’s state claims
are barred by the New York judgment compelling arbitration, we disagree regarding
whether the New York judgment mandates arbitration of his Exchange Act claims.
5
Regarding the District Court’s denial of Walzer’s motion to withdraw as pro se and
adjourn in order to obtain counsel and amend his complaint, we find no error. Should
Walzer wish to amend his complaint, he may as of right because the Defendants have yet
to file a responsive pleading. See Centifanti v. Nix, 865 F.2d 1422, 1431 n. 9 (3d Cir.
1989)(“[N]either a motion to dismiss, nor a motion for summary judgment, constitutes a
responsive pleading under F ED. R. C IV. P. 15(a).”)
8
Accordingly, the District Court’s judgment will be affirmed in part and vacated in part.6
We will remand for further proceedings.
6
During the pendency of this appeal, Walzer filed numerous motions with this Court
to amend his appendix and extend time for filing briefs. These motions are denied.
9