338 F. Supp. 3d 170
S.D. Ill.2018Background
- Jan Harris (pro se) owns 2,420,000 Bancorp International Group shares held in "street name" at TD Ameritrade (TDA) and Scottrade; she seeks physical stock certificates and to reregister the shares.
- Bancorp shares have been subject to a DTC "global lock" since 2005; Bancorp was delisted and has little-to-no market value.
- Harris repeatedly pursued FINRA arbitrations against the broker-defendants (lost on the merits in 2011 against Scottrade and in 2014 against TDA); later refiled FINRA claims were summarily dismissed as precluded.
- Harris sued (pro se) the Brokerage Defendants and the DTC Defendants in federal court asserting state-law claims for an accounting and trespass to chattels; she also invoked federal jurisdiction (diversity and federal question theories).
- Magistrate Judge Moses recommended granting brokerage motions to compel arbitration and dismissing the DTC defendants for failure to state claims; Judge Swain adopted the Report, stayed the case as to the brokers for arbitration, and dismissed the DTC defendants with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Harris's claims against the broker-defendants are subject to arbitration | Harris: her constitutional due process theory and FINRA's dismissals mean FINRA/arbitration is unavailable for these claims | Brokers: broad arbitration clauses require FINRA arbitration; FINRA dismissals were preclusion-based, not a bar to arbitrability | Court: Arbitration compelled; clauses are broad and FINRA's dismissals reflected preclusion/previous adverse awards, not non-arbitrability |
| Whether FINRA's summary dismissals demonstrate arbitral forum unavailable for Harris's claims | Harris: FINRA found claims "not eligible for arbitration," so court forum is proper | Brokers: FINRA dismissed refiled claims under Rule 12203(a) because they were identical to prior decided claims; prior arbitrations show FINRA can resolve these disputes | Held: FINRA rulings do not show a categorical inability to arbitrate; arbitration remains appropriate |
| Whether Harris states an accounting claim against DTC/DTCC/Cede | Harris: defendants act as agents/nominees and owe fiduciary duties; seeks accounting of legal title | DTC: Harris is an entitlement holder under UCC Article 8; DTC and Cede hold fungible interests and plaintiff lacks a direct fiduciary relationship with them | Held: Accounting dismissed with prejudice — plaintiff fails to plead fiduciary relationship; Article 8 displaces common-law claims and bars direct claims up the holding chain |
| Whether Harris states a trespass-to-chattels claim against DTC defendants | Harris: defendants interfere with her right to exclusive possession/stock certificates; trespass can apply to electronic/intangible securities | DTC: trespass requires possession and physical interference or impairment; Harris never had physical certificates and holds only an entitlement; Article 8 governs | Held: Trespass dismissed with prejudice — no possession or alleged physical/intermeddling harm; Article 8 limits direct tort remedies against upstream intermediaries |
Key Cases Cited
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (U.S. 1985) (FAA mandates district courts compel arbitration where agreement applies)
- Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S. 1983) (ambiguities in scope of arbitrable issues resolved in favor of arbitration)
- Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218 (2d Cir. 2001) (two-step inquiry: classify clause broad or narrow; broad clauses create presumption of arbitrability)
- David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245 (2d Cir. 1991) (strong evidence required to exclude a grievance from arbitration)
- Katz v. Cellco P'ship, 794 F.3d 341 (2d Cir. 2015) (when all claims are referable to arbitration and stay is requested, stay—not dismissal—is required)
- Nat'l Union Fire Ins. Co. of Pittsburgh v. Belco Petroleum Corp., 88 F.3d 129 (2d Cir. 1996) (claim preclusion is a defense, not a question of arbitrability)
- In re Salomon Shareholders' Derivative Litig., 68 F.3d 554 (2d Cir. 1995) (NYSE declined to arbitrate shareholder derivative claims; parties' forum-selection limited to NYSE)
- Thyroff v. Nationwide Mut. Ins. Co., 8 N.Y.3d 283 (N.Y. 2007) (New York recognizes conversion/trespass claims to electronic records; intangible property can be subject to tort claims)
- Perma-Line Corp. of Am. v. Sign Pictorial & Display Union, 639 F.2d 890 (2d Cir. 1981) (an arbitral award may be set aside if it compels violation of law)