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Spaz Beverage Company Defined Benefit Pension Plan v. Steven Douglas

August 4, 2011

SPAZ BEVERAGE COMPANY DEFINED BENEFIT PENSION PLAN, ROBERT SPAZIANI, AS TRUSTEE OF THE SPAZ BEVERAGE COMPANY DEFINED PENSION PLAN, AND AS A PARTICIPANT IN THE SPAZ BEVERAGE COMPANY DEFINED BENEFIT PENSION PLAN, PLAINTIFFS,
v.
STEVEN DOUGLAS, 1ST GLOBAL ADVISORS, INC., 1ST GLOBAL CAPITAL CORPORATION, AND 1ST GLOBAL CAPITAL ADVISORS, DEFENDANTS.



The opinion of the court was delivered by: Buckwalter, S. J.

MEMORANDUM

Presently before the Court is the Motion by Defendants Steven Douglas, 1st Global Advisors, Inc., 1st Global Capital Corporation, and 1st Global Capital Advisors (collectively "Defendants") to Stay this Action and Compel Arbitration pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1, et seq. For the following reasons, the Motion is granted.

I. FACTS AND PROCEDURAL BACKGROUND

This action concerns losses to Plaintiffs Spaz Beverage Company Defined Benefit Pension Plan ("the Plan") and Robert Spaziani, as Trustee and Participant of the Plan (collectively "Plaintiffs"), caused by Defendants' alleged mismanagement of Plan assets.

Plaintiff Spaziani is the owner and sole shareholder of Spaz Beverage Company, a corporation located in West Chester, Pennsylvania. (Compl. ¶ 11.) Defendants 1st Global Advisors, Inc., 1st Global Corporation, and 1st Global Capital Advisors ("1st Global") are commonly-owned investment advising and management companies. (Id. ¶ 14.) Defendant Steven Douglas is a certified public accountant and registered financial advisor of 1st Global. (Id. ¶ 12.)

According to the facts set forth in the Complaint, in August of 2004, the Plan, via a series of agreements signed by Plaintiff Spaziani as Trustee, contracted with Defendants for asset management and investment advisory services. (Id. ¶ 2.) Plaintiffs allege that, during the course of the relationship between the Defendants and the Plan, Defendants failed to manage the Plan's assets prudently in violation of their statutory fiduciary duties under sections 409 and 502(a)(2) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1109 and 1132(a)(2). (Id. ¶¶ 29-37.) Specifically, Plaintiffs allege that Defendants were advised in April of 2008 that the Plan was to be terminated in approximately one year, yet failed to adjust their investment strategy to effect a successful payout of all Plan participants upon the Plan's termination. (Id. ¶¶ 27-29.) Consequently, the Plan suffered losses of hundreds of thousands of dollars and was left with insufficient assets to pay out Plaintiff Spaziani's retirement savings and anticipated retirement income. (Id. ¶¶ 4, 35.)

Plaintiffs commenced this action on March 25, 2011, alleging a claim for breach of fiduciary duties under ERISA §§ 409 and 502(a)(2). Defendants, citing two arbitration provisions appearing in their agreements with the Plan, moved to stay the action and compel arbitration on April 19, 2011. Plaintiffs filed a Response in Opposition on May 3, 2011, and Defendants filed a Reply on May 19, 2011. The Court now considers Defendants' Motion.

II. STANDARD OF REVIEW

When ruling on a motion to compel arbitration under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1, et seq., a court may only determine whether the merits of the case should be arbitrated or litigated, and may not consider the merits of the underlying claims. Great W. Mortg. Corp. v. Peacock, 110 F.3d 222, 228 (3d Cir. 1997). Before compelling arbitration, a court must ensure that: (1) the parties entered into a valid arbitration agreement; and (2) the dispute between the parties falls within the language of the arbitration agreement. John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 137 (3d Cir. 1988).

Notably, courts review motions to compel under the summary judgment standard set forth in Federal Rule of Civil Procedure 56(c). Weinstein v. AT & T Mobility Corp., No. CIV.A.07-2880, 2008 WL 1914754, at *2 (E.D. Pa. Apr. 30, 2008). "Therefore, movants must prove through 'pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, . . . that there is no genuine issue as to any material fact and that they are entitled to judgment as a matter of law.'" Id. (quoting FED. R. CIV. P. 56(c)). "The Court must consider all of the non-moving party's evidence and construe all reasonable inferences in the light most favorable to the non-moving party." Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Versarge v. Twp. of Clinton N.J., 984 F.2d 1359, 1361 (3d Cir. 1993)).

III. DISCUSSION

Two arbitration provisions appear in two separate agreements between Defendants and the Plan. The first, a "Pre-Dispute Arbitration Agreement" located in the "Management Account Programs Account Application," reads:

I agree that all controversies that may arise between us concerning any order or transaction, or the continuation, performance or breach of this or any other agreement between us, whether entered into before, on, or after the date this account is opened, shall be determined by arbitration before a panel of independent arbitrators set up by either the New York Stock Exchange, Inc. or National Association of Securities Dealer, Inc. as I may designate. (Defs.' Mot. Compel, Ex. A, 4.)*fn1 The second, appearing in the "Investment Advisory Agreement," states, in relevant part:

Except as to claims arising under federal securities laws or for which available remedies at law override this provision, Advisor and Client agree that any controversy or claim arising out of or relating to this agreement, or the breach thereof, shall be settled by arbitration in accordance with the Securities Rules of the American Arbitration Association, and judgment on the award ...


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