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Adam Joshua Feeley, et al. v. Suntrust Bank

February 19, 2013


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


This case arises out of securities transactions made by defendants William Crafton, Jr. and Martin Kelly Capital Management, LLC (MKCM) on behalf of the plaintiffs, their former clients. The plaintiffs allege that these transactions breached their contractual relationship with the defendants and violated Sections 10(b) and 20(a) of the Securities Exchange Act. The defendants have moved to compel arbitration, or, in the alternative, to dismiss the case. The Court grants the defendants' motion to compel arbitration. Because it need not decide the defendants' motions to dismiss at this time, it denies those portions of the motions without prejudice. This matter is stayed pending further order from the Court.

I. Factual and Procedural Background*fn1

The plaintiffs, current or former professional athletes, engaged the financial services of defendant William Crafton, Jr., sometime in or around 2006-07. At that time, Mr. Crafton was employed at defendant Martin Kelly Capital Management, LLC (MKCM). In approximately December 2009, MKCM was purchased by defendant SunTrust Bank, and Mr. Crafton was announced as head of SunTrust's office in San Diego, CA. Compl. ¶ 11-15.

Around August 2010, the plaintiffs became aware that the Securities and Exchange Commission (SEC) was investigating the Westmoore Fund, a fund in which Mr. Crafton had made major investments on the plaintiffs' behalf. Around the same time, the plaintiffs were made aware that their investments were "essentially worthless." Mr. Crafton's position at SunTrust was terminated around February 2011. Id. ¶ 44-47.

The plaintiffs filed their complaint in federal court on August 9, 2012. They alleged that throughout the course of their relationship, Mr. Crafton misrepresented the types of investments he made on their behalf. Contrary to his representations, he made investments in high-risk, alternative fields, "which were Ponzi schemes or other fraudulent investments run, managed, controlled, operated and/or created by individuals with whom Crafton had a personal relationship, business dealings or kick-back agreements." As a result, plaintiffs seek from the defendants the full amount of their investment and fees paid out to Mr. Crafton, plus compensatory and punitive damages. Id. ¶ 31, 142.

The defendants Crafton, MKCM, and SunTrust have submitted near-identical motions to compel arbitration, or, in the alternative, to dismiss. Docket Nos. 6 (SunTrust), 7 (Crafton and MKCM). The evidence the parties have submitted with regard to the motions to compel arbitration are described below.

A. Documents Regarding Client Engagement

First, the defendants have attached a copy of executory agreements between MKCM and plaintiffs Feeley, Celek, and Curtis. Def. Crafton Mot. to Compel, exh. 4-6 (Docket No. 7). These agreements existed in two forms: Mr. Celek entered into a "client engagement agreement" and Mr. Feeley and Curtis entered into "financial services agreements" (henceforth known collectively as "services agreements"). Each agreement included a signature of the named plaintiff, and each contained an identical "Arbitration Provision," providing in relevant part "that any controversy between the Adviser and the Client arising out of Adviser business or this agreement, shall be submitted to arbitration conducted under the provisions of the commercial arbitration rules of the American Arbitration Association."*fn2 Id. The arbitration provision is located on the same page as the three plaintiffs' signatures. There is no copy of any services agreement between Mr. Crafton and the fourth plaintiff, Heather Mitts, in the record in front of the Court.

In addition to the services agreements described above, defendant SunTrust also offer as exhibits four letters dated October 26, 2009, entitled "Re: Transaction with SunTrust Bank," which were sent by Mr. Crafton on behalf of MKCM to all four plaintiffs. Def. SunTrust Mot. at exh. B (Docket No. 6-1). These letters state that "by signing below, you[] consent to the assignment of your client engagement letter to SunTrust." Id. at 2. On the same page as the language regarding the assignment of the client engagement agreements to SunTrust, all four letters are signed by the plaintiffs.

B. Certification of William Crafton

The defendants have also provided the certification of Mr. Crafton, which states his understanding as to the services agreements. Crafton Cert. (Docket No. 19). In this certification, Mr. Crafton stated that it was protocol to execute services agreements describing the company's investment services and fee structures. Id. ¶ 4-5. He further stated that "MKCM would not have provided investment-related services without an executed Agreement." Id. ¶ 5. Mr. Crafton recalls that in accordance with standard client procedure, all four plaintiffs executed services agreements with MKCM. Id. ¶ 3-4. He stated that Mr. Feeley's and Mr. Celek's agreements were executed in his presence and Mr. Curtis mailed his copy to him. Id. ¶ 6, 8-9. Mr. Crafton did not have Ms. Mitts' agreement in his possession and had no further recollection other than it being signed. Id. ¶ 7.

C. Certification of Adam Fein

The plaintiffs have provided the certification of Adam Fein, a client manager at MKCM and SunTrust and employee of Mr. Crafton. Pl. Opp., exh. A (Docket No. 15). Mr. Fein stated that Mr. Crafton "routinely instructed . . . members of his staff to use scanned images of [a] player's signatures and apply it onto documents that the player had never seen, read, or actually signed." Id. ΒΆ 7. Mr. Fein offered further clarification that "[m]ost of Billy's ...

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