Morgan Stanley & Co. v. Couch, 134 F. Supp. 3d 1215

Background

Couch was employed by Morgan Stanley (MSSB) under an Employment Agreement containing an arbitration clause that excepted "statutory employment claims." Couch initialed the arbitration provisions.
Couch sued MSSB in federal court (the Couch case), pleading tort-based interference and other claims; the parties litigated for ~1 year (discovery, depositions, mediation, summary judgment motion).
While that federal litigation was pending, Couch filed a FINRA arbitration claim asserting non‑statutory tort and contract causes of action similar to his federal complaint.
MSSB moved for summary judgment in the federal case and then filed this separate action seeking declaratory relief and a preliminary injunction to enjoin the FINRA arbitration, arguing Couch is barred by res judicata and has waived arbitration rights by litigating in federal court.
The district court held it had jurisdiction over MSSB’s declaratory judgment claim, found the court (not an arbitrator) decides waiver of arbitration here, concluded Couch waived his right to arbitrate, and preliminarily enjoined Couch from pursuing the FINRA arbitration pending resolution of the case.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Court's jurisdiction over declaratory claim	MSSB: federal jurisdiction exists because a motion to compel arbitration would present a federal question and the underlying claims are removable (diversity).	Couch: Complaint fails to state a claim; no pending motion to compel arbitration so no jurisdiction.	Court: Jurisdiction exists (diversity would attach to the arbitration claims if brought in federal court).
Who decides waiver of arbitration rights	MSSB: Court should decide waiver of arbitration (defenses to enforceability are for courts).	Couch: FINRA rules (as incorporated) should decide arbitrability/waiver.	Court: Presumptively the court decides waiver; FINRA rules do not provide clear and unmistakable evidence delegating arbitrability to arbitrator.
Whether Couch waived arbitration	MSSB: Couch knowingly litigated non‑statutory tort claims for ~1 year (discovery, depositions, motions) and then filed FINRA arbitration → waiver, causing prejudice.	Couch: His federal claims were statutory and thus exempt; FINRA Rule 13803 permits arbitration; no prejudice to MSSB.	Court: Waiver found under Ninth Circuit three‑prong test (knowledge, inconsistent acts, prejudice); tort claims are non‑statutory; MSSB prejudiced by delay and discovery.
Availability of preliminary injunction to stop FINRA arbitration	MSSB: Court can enjoin arbitration when there is no valid right to arbitrate and to prevent undermining court orders.	Couch: MSSB has adequate remedies and cannot enjoin FINRA; FINRA rules protect arbitration rights.	Court: Federal courts have authority to enjoin arbitration where a party waived or has no enforceable arbitration right; injunction granted.

Key Cases Cited

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (court presumption governs who decides arbitrability unless parties clearly and unmistakably agree otherwise)
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (procedural questions of arbitrability presumptively for arbitrator absent clear delegation)
Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (parties may clearly and unmistakably delegate threshold issues to arbitrator)
Oracle America, Inc. v. Myriad Group A.G., 724 F.3d 1069 (9th Cir. 2013) (incorporation of arbitral rules can supply clear and unmistakable evidence delegating arbitrability)
United States v. Park Place Assocs., Ltd., 563 F.3d 907 (9th Cir. 2009) (arbitration rights are waivable like other contract rights)
In re American Express Fin. Advisors Securities Litig., 672 F.3d 113 (2d Cir. 2011) (district courts may enjoin arbitration that a party had no contractual right to pursue)
Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134 (2003) (tort of intentional interference is a common‑law cause of action, not a statutory employment claim)