Pedro Office Park Associates, West Palm/ Forum III Associates, Ltd., 850 Third Avenue Limited Partnership and The Shoreham Hotel Limited Partnership. Defs.' Motion Ex. B at P 4.9. Defendants ask that we enjoin the plaintiffs from proceeding with the NASD arbitration until they amend their Statement of Claim so as to exclude any claims based on purchases of VMS securities or any allegations or references pertaining to such purchases.
In response, the plaintiffs characterize the content of the NASD Statement of Claim differently. Plaintiffs readily admit that our prior ruling as to the arbitrability issue excludes any and all argument and recovery as to the VMS limited partnerships. Plaintiffs argue that although the VMS limited partnerships are mentioned in the Statement of Claim, they do not seek, or even represent that they seek, damages for such investments. Plaintiffs argue that the NASD would inevitably discover the VMS limited partnership litigation because documentary evidence includes numerous references to them. Nonetheless, our Order was clear: "all allegations referring to the VMS Limited Partnerships, either by name or by reference to amounts allegedly invested in such partnerships or damages . . . shall be and hereby are stricken from the Complaint and are hereby dismissed with prejudice." Order dated May 27, 1992 at P a. We do not see any evidence that the plaintiffs acted in bad faith by mentioning the limited partnerships within their Statement of Claim and we will therefore deny the request for attorneys fees in this regard. It is nevertheless appropriate that the plaintiff be ordered to follow our clear mandate and amend the Statement of Claim accordingly, so as to avoid any prejudice to the defendants.
Defendants further argue that the majority of the remaining claims submitted to arbitration are time-barred by Section 15 of the NASD Code of Arbitration Procedure ("NASD Code"), which by agreement between the parties, governs the NASD proceeding, and therefore the older claims violate our May 27, 1992 Order. Section 15 of the NASD Code renders ineligible for arbitration any claims which arose out of events or occurrences that took place more than six years before the commencement of arbitration. Plaintiffs contend that this section's "statute of limitations" does not apply to this case because it clearly states that "this section shall not . . . apply to any case which is directed to arbitration by a court of competent jurisdiction."
Defendants cite PaineWebber, Inc. v. Hofmann, 984 F.2d 1372 (3d Cir. 1993), wherein the United States Court of Appeals for the Third Circuit held that this portion of the NASD rules establishes a substantive, rather than procedural, limitation on the claims which may be submitted to arbitration and that such claims may not be submitted to arbitration for any purpose. Id. at 1378.
In response, the plaintiffs argue that the defendants should not be permitted to enjoin the arbitration of claims which they themselves moved to compel to arbitration. The plaintiffs explain that Prudential's "Client's Agreement," cited by defendants' former counsel in support of their earlier motion to compel arbitration, contains an arbitration clause which states that New York law applies. Contrary to Hofmann, the United States Court of Appeals for the Second Circuit has held that "it is up to the arbitrators, not the court, to decide the validity of time-bar defenses," including those contained in arbitration association rules. Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 121 (2d Cir. 1991). This reasoning is sound and furthers the goals of arbitration, in our view.
While the arbitration agreement provides that New York law applies to any dispute between the parties on the contract, it does not explicitly state that arbitrability disputes are governed by New York law. AT&T Technologies v. Communications Workers of America, 475 U.S. 643, 649, 89 L. Ed. 2d 648, 106 S. Ct. 1415 (1986). We hesitate to force the defendants to arbitrate any claims which they have not agreed would be subject to arbitration.
Under the law of this circuit, we must conduct a hearing to decide which of plaintiffs' claims are and which are not subject to arbitration. Hofmann, 984 F.2d at 1380. Defendants argue that any claims or causes of action arising or relating to investment transactions which occurred before December 11, 1984, six years before the commencement of this action, are ineligible for arbitration before the NASD. PaineWebber v. Hartmann, 921 F.2d 507 (3d Cir. 1990). While this is merely a restatement of the NASD rule to be applied by the arbitrators, it is also, we believe unfortunately, subject to district court interpretation and ruling under the mandate of Hofmann.
We note, respectfully, but with some dismay, that the Hofmann court stated that "arbitration's goal of resolving disputes in a timely and cost efficient manner, as well as judicial economy, counsel against determining arbitrability in [a] piecemeal fashion . . ." Hofmann, 984 F.2d at 1380. In the next paragraph, however, the court held that we must hold a hearing and hear any extrinsic evidence, if necessary, to determine whether each claim individually can be said to constitute a separate cause of action. Id. In other words, we cannot decide summarily whether or not each of plaintiffs claims should be accepted as a cause of action or are merely an "attempt to toll the six year period and thus, are not subject to arbitration." Hofmann, 984 F.2d at 1381.
We predict that most of plaintiffs' allegations would be held to be separate causes of action. "In view of the general presumption of arbitrability, the court should, as a benchmark, generally accept a party's statement as to what constitutes a cause of action and permit the arbitration of that claim as long as the asserted cause of action is not clearly a mere tolling or discovery argument." Id. at 1381. Nonetheless, to avoid an appeal on this issue at a later date, and given the fact that the parties have not had an opportunity to advance their arguments and present any evidence as to which of the numerous claims are and which are not arbitrable, we will hold a hearing to decide this issue.
We do, however, encourage the parties to resolve these problems between themselves. If they are unable to do so, we will hold the hearing.
AND NOW, to-wit, this 29th day of December, 1993, it is hereby ORDERED, ADJUDGED and DECREED that the Motion of Prudential Securities to Lift Stay, to Enforce the Terms of the Court's May 27, 1992 Order and for an Injunction against the Arbitration of Certain Claims (Doc. No. 8), and defendant Charles Vollmer's joinder in said motion (Doc. No. 9) be and hereby is GRANTED in part and DENIED in part.
IT IS FURTHER ORDERED that the Motion to Lift Stay be and hereby is GRANTED;
IT IS FURTHER ORDERED that the Motion to Enforce the Terms of the Court's May 27, 1992 Order be and hereby is GRANTED to the extent that the plaintiffs are ORDERED to amend their Statement of Claim to exclude any and all references to the VMS limited partnerships at the appropriate time after the decision on arbitrability has been rendered;
IT IS FURTHER ORDERED that if the parties are unable to resolve between themselves which issues shall be arbitrated, the parties shall appear before this court on March 3, 1994 at 9:00 a.m. in Courtroom B, Erie, Pennsylvania for a hearing regarding the arbitrability of the claims and shall file briefs on this issue ten days prior to said hearing;
IT IS FURTHER ORDERED that the Motion for an Injunction Against Arbitration of Certain Claims be and hereby is GRANTED pending the outcome of the Arbitration Hearing; and
IT IS FURTHER ORDERED that defendants' motion for attorneys fees be and hereby is DENIED.
Maurice B. Cohill, Jr.
© 1992-2004 VersusLaw Inc.