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MORGAN STANLEY DEAN WITTER REYNOLDS, INC. v. GEKAS

March 15, 2004.

MORGAN STANLEY DEAN WITTER REYNOLDS, INC., Plaintiff/Petitioner
v.
PETER N. GEKAS and VERONICA P. GEKAS, Defendants/Respondents



The opinion of the court was delivered by: JOHN JONES, District Judge

MEMORANDUM AND ORDER

Currently pending before this Court is Plaintiff/Petitioner's Motion for an Order Compelling Arbitration and for a Preliminary Injunction. For the reasons discussed below, we will deny Defendants' motion and dismiss the proceedings in this Court.

PROCEDURAL HISTORY

  Defendants/Respondents Peter and Veronica Gekas ("Gekases" or "Federal Defendants") filed a writ of summons on February 1, 2002, and a complaint on January 31, 2003, in the Court of Common Pleas of York County, Pennsylvania ("State-Court Action"), against Morgan Stanley Dean Witter Reynolds, Inc. ("Morgan Stanley" or "Federal Plaintiff"), a Delaware Corporation with its principal place of business in New York; Dean Witter Reynolds Commodity Partners ("Commodity Page 2 Partners"), a York County-based company that serves as a local office of Morgan Stanley, and Richard Wolf ("Wolf" or "Broker"), a securities broker formerly employed by Commodity Partners, (collectively "State-Court Defendants").

  In June 1999, the Gekases opened a joint account with Morgan Stanley and Commodity Partners, with Richard Wolf serving as their broker.*fn1 They allege that Wolf made inappropriate investments on their behalf and that he "churned" their account to increase his commissions.

  The Gekases asserted claims of negligence, breach of contract, breach of covenant of good faith and fair dealing, misrepresentation, and violations of the Pennsylvania Securities Act, 70 P.S. §§ 1-401 through 1-404, and § 1-501, and the Pennsylvania Unfair Trade Practices Consumer Protection Law ("UTPCPL"), 72 P.S. §§ 201-1 through 201-3. The State-Court Defendants filed preliminary objections on March 13, 2003 that included a motion to compel arbitration, asserting that all of the Gekases' claims were subject to arbitration under the terms of the Page 3 contract. The Gekases filed their opposition to the preliminary objections on April 1, 2003.

  On July 28, 2003, Morgan Stanley filed the above captioned case in the U.S. District Court, Middle District of Pennsylvania, seeking an order to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 4 ("FAA"),*fn2 and to enjoin the pending State-Court Action initiated by the Gekases.*fn3 Quite clearly, Morgan Stanley could not remove the State-Court Action to federal court because complete diversity of citizenship between the Gekases and the other State-Court Defendants was lacking under 28 U.S.C. § 1332, and because the FAA does not provide an independent basis for federal subject matter jurisdiction. See Moses H. Cone Memorial Hospital v. Mercury Construction Co., 460 U.S. 1, 25 n.32 (1983) ("Section 4 provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order Page 4 can issue."). See also, Southland Corp. v. Keating, 465 U.S. 1, 15 n.9 (1984) ("While the Federal Arbitration Act creates federal substantive law requiring the parties to honor arbitration agreements, it does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise); Brown v. Monahan, No. 97-7245, 1997 U.S. Dist. LEXIS 19793, *5-*6 (E.D. Pa. 1997) (Section 4 of the FAA does not confer federal question jurisdiction).

  Within a few days of the filing of the instant suit, on August 2, 2003, President Judge John H. Chronister of the Court of Common Pleas of York County issued an opinion directing counsel for both parties to develop a factual record to assist the court in deciding the State-Court Defendants' pending Motion to Compel Arbitration. The court also directed counsel to re-list the matter with the court once the factual record had been developed, and denied the State-Court Defendants' request for a stay as premature, due the pendency of their federal petition. The parties, following the suggestion of the court, voluntarily stayed the State-Court Action to allow this Court to decide the jurisdictional questions before us.

  The jurisdictional issues have been briefed by both parties and are ripe for disposition. Page 5

 DISCUSSION

  Federal Defendants contend that we lack jurisdiction in this case because the absent State-Court Defendants are indispensable parties under Fed.R.Civ.P. 19. Alternatively, they argue that we should abstain from exercising jurisdiction based on "considerations of wise judicial administration,"*fn4 as adequate and complete relief is available in the pending State-Court Action. If we determine that it is appropriate for us to abstain in this case, we need not consider whether the absent State-Court Defendants are indispensable parties necessitating their joinder.*fn5 Page 6

 [EDITORS NOTE: THIS PAGE IS BLANK.] Page 7

  Federal Plaintiff asks this Court to 1) compel Federal Defendants to arbitrate all of their claims and 2) enjoin Federal Defendants' pending State-Court ...


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