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WALTMAN v. FAHNESTOCK & CO.

June 11, 1992

JOSEPH WALTMAN V. FAHNESTOCK & CO., INC.


The opinion of the court was delivered by: BY THE COURT; J. WILLIAM DITTER

 DITTER, J.

 June 11th, 1992

 Pursuant to Fed.R.Civ.P. 12(b)(6), defendant, Fahnestock & Co., Inc., filed a motion to dismiss the plaintiff's complaint. Having considered the parties' briefs, I will grant Fahnestock's motion.

 This motion is the latest episode in a long running drama. The story began when Fahnestock discharged Joseph Waltman in December, 1988. Before that time, Mr. Waltman worked for the firm in two capacities. He was the head of Fahnestock's retirement division, and he also ran a general insurance agency in Pennsylvania as a sub-licensee for Fahnestock.

 In conjunction with the discharge, Fahnestock filed a termination notice with the National Association of Securities Dealers. Fahnestock then tried to obtain certain files from Mr. Waltman, but Mr. Waltman claimed the files were his and refused to release them. After this dispute, Fahnestock filed a claim with the director of arbitration of the New York Stock Exchange seeking the files, damages, costs, and other expenses.

 Fahnestock also amended Mr. Waltman's termination notice. The first one simply said Mr. Waltman left the firm because of a "business consolidation." The amended copy reported Mr. Waltman was under "internal review for fraud or wrongful taking of property, or violating investment related statutes, regulations, rules, or industry standards of conduct."

 When Mr. Waltman answered the arbitration complaint, he included a counterclaim for defamation, wrongful discharge, harassment, and malicious and reckless conduct designed to damage his good name and destroy his career. In January, 1990, the arbitrators awarded Mr. Waltman compensatory damages, damages for defamation, legal fees, and punitive damages.

 Mr. Waltman sought to confirm and enter his judgment here in the Eastern District of Pennsylvania, but I stayed that action while Fahnestock attempted to vacate the arbitration award in the Southern District of New York. The Honorable Peter K. Leisure vacated the punitive damages award, but allowed the compensatory damages to stand. The Second Circuit affirmed Judge Leisure's decision in Fahnestock & Co. v. Waltman, 935 F.2d 512 (2d Cir. 1991). Essentially, Judge Leisure and the Second Circuit held that New York law governed the arbitration and that New York law prohibited arbitrators from awarding punitive damages. See id. at 517-9. See also Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 386 N.Y.S.2d 831, 353 N.E.2d 793 (1976).

 One petition for certiorari and several collection proceedings later, Mr. Waltman filed this complaint. He seeks punitive damages because he was unable to get them during arbitration. Fahnestock, on the other hand, argues the doctrine of res judicata bars this claim.

 II. ANALYSIS

 Since this is a motion to dismiss, I must accept all of Mr. Waltman's allegations as true and I must accept all reasonable inferences that flow from his allegations. Nevertheless, because I find the doctrine of res judicata ...


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