July 31, 1995
PaineWebber instituted this action to enjoin Charles Deegan ("Deegan"), the executor of the Estate of Zelda T. Westlake ("Mrs. Westlake"), from arbitrating claims against PaineWebber before the National Association of Securities Dealers ("NASD"). The parties have filed cross-motions for summary judgment. There are no disputes of material fact.
Back on July 3, 1991, Deegan filed suit in this court against PaineWebber, Shearson, Lehman Brothers, Inc. ("Shearson"), and Henry Faragalli ("Faragalli") under federal securities law as well as state law. Deegan v. Faragalli, No. 91-4270 (E.D. Pa. filed July 3, 1991). According to that complaint, Mrs. Westlake maintained an account at PaineWebber with Faragalli acting as her broker. Mrs. Westlake terminated her association with PaineWebber in January of 1988, when she transferred her account to Shearson where Faragalli had obtained a new position. Deegan alleged that PaineWebber and Shearson failed to supervise Faragalli and engaged in improper practices which resulted in diminished value for Mrs. Westlake's account.
In October of 1991, this court stayed Deegan's claims against Shearson pending the outcome of arbitration and, on March 6, 1992, dismissed all of Deegan's federal and state law claims against PaineWebber and Faragalli. Thereafter, the Court of Appeals dismissed Deegan's appeal from this court's March 6, 1992 order because it was not final. The March 6, 1992 order did not dispose of the entire case since Deegan's claims against Shearson remained. See Rule 54 of the Federal Rules of Civil Procedure. In March of 1992, this court placed Deegan's action in the civil suspense docket where it has remained ever since. On December 28, 1994, Deegan filed with the NASD a Statement of Claim for arbitration against PaineWebber. Deegan's claims before the NASD are essentially the same as those set forth in the 1991 complaint in this court.
No one disputes that Deegan's claims, set forth in his December 28, 1994 Statement of Claim, would be subject to NASD arbitration. However, PaineWebber contends that they are time barred. PaineWebber relies on section 15 of the NASD code ("section 15"), which provides that all claims must be submitted within six years of the events underlying the claim:
No dispute, claim, or controversy shall be eligible for submission to arbitration under this Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim, or controversy. This section shall not extend applicable statutes of limitations, nor shall it apply to any case which is directed to arbitration by a court of competent jurisdiction.
The Court of Appeals has interpreted section 15 of the NASD code to be a substantive bar rather than a procedural requirement for arbitration. PaineWebber Inc. v. Hofmann, 984 F.2d 1372, 1378-79 (3d Cir. 1993) (citations omitted). If there is a substantive bar, a court has the authority to forbid claims from going to arbitration. A procedural requirement leaves this decision to the arbitrator and not the court. See PaineWebber Inc. v. Hartmann, 921 F.2d 507, 512 (3d Cir. 1990) (citations omitted).
Mrs. Westlake severed all ties with PaineWebber no later than January of 1988, more than six years and eleven months before Deegan, the executor of her estate, filed the December, 1994 Statement of Claim with the NASD. Since Deegan did not comply with the time limits of section 15, PaineWebber believes section 15 bars Deegan's right to arbitrate his claims.
In response, Deegan argues that the time limit of section 15 has not expired. He points to section 18(b) NASD code ("section 18(b)") which states: "The six (6) year time limitation upon submission to arbitration shall not apply when the parties have submitted the dispute, claim, or controversy to a court of competent jurisdiction. The six (6) year time limitation shall not run for such period as the court shall retain jurisdiction upon the matter submitted. " (emphasis added). Without tolling, section 15 would bar Deegan's arbitration claims against PaineWebber. Thus, we must decide whether the July 1991 action was pending for a sufficient time to allow Deegan to file his arbitration claims against PaineWebber in December 1994.
PaineWebber argues that this court did not retain jurisdiction after it dismissed Deegan's claims against PaineWebber and Faragalli on March 6, 1992. If this is so, any tolling under section 18(b) would not save Deegan's arbitration claims. Deegan, on the other hand, contends that this court retains jurisdiction to this day. Deegan relies on Rule 54(b) of the Federal Rules of Civil Procedure, which states:
The court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. In the absence of such determination and direction, any order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action as to any of the claims or parties, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties.