UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

NORTHERN DIVISION

BERNARD J. SCHAFER,

HENRY BLOCK,

Plaintiffs, 

v. Case Number 09-10349-BC

Honorable Thomas L. Ludington

DAVID R. JOHANSON, et al.,

Defendants.

______________________________________ /

ORDER DENYING WITHOUT PREJUDICE DEFENDANT ATTORNEYS AND LAW

FIRM’S MOTION TO DISMISS CLAIMS AGAINST ATTORNEY DEFENDANTS OR

TO COMPEL ARBITRATION AGAINST THEM AND TO DISMISS TWO ATTORNEY

DEFENDANTS FOR LACK OF PERSONAL JURISDICTION, DENYING WITHOUT

PREJUDICE PLAINTIFFS’ MOTION FOR AFFIRMATIVE RELIEF THAT THE

CLAIMS BY PLAINTIFFS AGAINST THE JOHANSON DEFENDANTS ARE NOT

ARBITRABLE, AND DENYING AS MOOT WACHOVIA SECURITIES MOTION TO

DISMISS CLAIMS/COMPEL ARBITRATION

On February 2, 2009, Plaintiffs Bernard J. Schafer (“Schafer”) and Henry Block (“Block”)

filed a six-count amended complaint [Dkt. # 2] against various Defendants, alleging the following

claims under state law: (1) negligence - malpractice; (2) negligence; (3) breach of contract; (4)

fraud; (5) fraudulent concealment; and (6) concert of action. Plaintiffs have named as Defendants

four individual attorneys, the law firm for which the four attorneys work, and twelve other

individuals and entities that Plaintiffs allege participated in a fraudulent scheme with the Defendantattorneys and law firm.

Now before the Court are the following three motions: (1) Defendant-attorney and law firm’s

motion to dismiss claims against attorney Defendants or to compel arbitration of claims against them

and to dismiss two attorney Defendants for lack of personal jurisdiction [Dkt. # 9]; (2) Plaintiffs’

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motion for affirmative relief that the claims by Plaintiffs against the Johanson Defendants are not

arbitrable [Dkt. # 21]; and (3) Defendant Wachovia Securities motion to dismiss or compel

arbitration [Dkt. # 17]. Additionally, Defendant-attorneys and law firm filed a “response” [Dkt. #

44], contesting the effectiveness of Plaintiffs’ notice of voluntary dismissal [Dkt. # 39] as to

Defendant Wachovia Securities. A hearing was held on the motions on July 7, 2009.

I

Unless otherwise indicated, the following facts, as outlined hereafter, were located in

Plaintiffs’ first amended complaint:

Plaintiffs Schafer and Block are residents of Michigan. Plaintiffs allege claims against four

attorneys– David Johanson, Theresa Huang, Rachel Markun, Rhonda Connor– and the law firm for

which the attorneys work– Johanson & Berenson, LLP. The Defendant-law firm maintains offices

in Napa, California; Washington, D.C.; Cary, North Carolina; and in Arlington and Great Falls,

Virginia. The four Defendant-attorneys reside in California.

Plaintiffs allege that the Defendant-attorneys represented to Plaintiffs that they furnish

specialty advice regarding investment vehicles by which certain loan transactions can be utilized in

order to accomplish tax savings. More specifically, Plaintiffs allege that the Defendant-attorneys

and law firm represented that they are specialists in the practice of law related to employee stock

ownership plans (“ESOP”) and trusts (“ESOT”). See also Pl. Resp. Br. Ex 1; [Dkt. # 19-3] (pages

from Johanson & Berenson LLP’s website, describing the law firm’s “expertise” and “specialized

services”).

In their motion to dismiss or compel arbitration, the Defendant-attorneys and law firm

generally explain that 26 U.S.C. §§ 402 and 1042 make it possible for a corporation to contribute

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 On July 7, 2009, Plaintiffs filed a notice of voluntary dismissal as to Defendant Emerging Money

Corp. [Dkt. # 38]. Defendant had not yet filed an answer or motion for summary judgment; thus, Plaintiffs’

voluntary dismissal is effective without entry of an order by the Court. See Fed. R. Civ. P. 41(a)(1)(A)(i).

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tax deductible dollars to an ESOT, for the ESOT to pay such contributions to selling shareholders,

and for the selling shareholders to defer taxation on a capital gain if certain requirements are met.

The requirements identified by § 1042 include, inter alia, that the stock sold meets the definition of

“qualified securities,” as defined by subsection (c)(1); that the stock is sold to an ESOP or eligible

worker-owned cooperative, as defined by subsection (b)(1), which holds at least thirty-percent of

the outstanding stock of the corporation after the sale, § 1042(b)(2); and that the gain from the sale

is used to purchase “qualified replacement property” (“QRP”) as defined by subsection (c)(4), within

the “replacement period,” as defined by subsection (c)(3), § 1042(a)(2).

Plaintiffs also allege claims against several non-attorney individuals and entities who they

allege established relationships with the Defendant-attorneys and law firm and were involved in

making purported investments on behalf of Plaintiffs using a variety of investment vehicles. These

defendants include Defendant Robert Eddy, who Plaintiff alleges was employed by or an agent of

Defendants Wachovia Securities and Sierra ESOT Advisors; Defendant Jesup & Lamont Securities;

Defendant William Chapman, who appears to be somehow connected to or associated with

Defendant Alexander Capital Markets; and Defendant Jesse Churley, who the complaint suggests

is somehow connected to Defendant Emerging Money Corp.1

Plaintiffs also allege claims against Defendant Mitchell Matt Donnelly, a.k.a. “Frenchy,”

who Plaintiffs allege represents himself as a business valuation or appraisal specialist for purposes

of determining values associated with a variety of ESOP transactions. Plaintiffs also allege claims

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2

 On July 7, 2009, Plaintiffs filed a notice of voluntary dismissal as to Defendant Robert Strauss.

[Dkt. # 38]. Defendant had not yet filed an answer or motion for summary judgment; thus, Plaintiffs’

voluntary dismissal is effective without entry of an order by the Court. See Fed. R. Civ. P. 41(a)(1)(A)(i).

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against Defendants Robert Strauss,2 T&C Bank, and Business Appraisal Institute, but the amended

complaint does not provide any information as to these Defendants’ specific involvement in the acts

or omissions giving rise to Plaintiffs’ claims.

Plaintiffs’ amended complaint contains several general allegations against Defendants,

“collectively.” These include the following three main allegations:

(1) The business valuation and business appraisals accomplished by the Defendants have

been challenged by the Department of Labor;

(2) Defendants, collectively, were involved in taking certain proceeds from ESOP

transactions under circumstances where they were charged with responsibility to make

certain investments utilizing “qualified replacement property”; and

(3) Defendants, collectively, have been involved in an elaborate scheme of transactions,

resulting in substantial taxes, sanctions, interest and the loss of benefit of several, serial

ESOP transactions organized, managed, supervised, documented, and processed by the

Defendants. Johanson has selected, on numerous occasions, participants in this business

relationship wherein the objective was to avoid dealing with reputable, credible professionals

and, instead, the selected participants willing to assist him in perfecting his elaborate scheme

of misconduct.

The amended complaint describes four main ESOP or ESOT transactions, labeled by the year

that the transaction is alleged to have become effective, including 2003, 2004, 2005, and 2006. The

Defendant-attorneys and law firm’s motion to dismiss or compel arbitration clarifies that the

transactions challenged by Plaintiffs involve three companies– Michigan Microtech, Inc. (“Michigan

Microtech”), a Michigan corporation; DirecTECH Southwest, Inc., formerly known as Comm-Craft,

Inc. (“DTSW/Comm-Craft”), a Louisiana corporation; and DirecTECH Delaware, Inc.

(“DirecTech”), a Delaware corporation– of which Plaintiffs were shareholders and for which the

Defendant-law firm served as outside corporate counsel. [Dkt. # 9]. Defendants represent that as

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of June 1, 2005, Plaintiffs were also shareholders in a parent corporation, DirecTECH Holding Co.,

Inc. (“DTHC”), for which the Defendant-law firm served as outside general counsel from June 1,

2005 to January 15, 2009. [Dkt. # 9]. The parties’ papers do not reflect any other information about

whether these corporations have other shareholders, their capitalization, or economic status. The

companies are represented to be involved in the sale of cable and satellite television systems.

First, in a transaction that was to be effective December 31, 2003, Plaintiffs allege that they

participated in transactions involving DirecTech, establishment of an ESOP and ESOT, and the sale

of Plaintiffs’ stock. Plaintiffs allege that the Defendant-law firm drafted the 2003 transaction

documents and supervised the closing. Plaintiffs represented at the hearing that Defendant Mitchell

Donnelly appraised Plaintiffs’ shares of DirecTech. Plaintiffs allege that each Plaintiff expected to

receive $2,800,000 in aggregate funds from the transactions. Plaintiffs allege that they received

approximately $280,000 in cash, and an unfunded promissory note from DirecTech for the balance.

At hearing, Plaintiffs represented that no lenders were involved in this aspect of the transaction;

employees have been making on-time payments to Plaintiffs.

Generally, Plaintiffs allege that the Defendant-law firm subsequently supervised and directed

the transfer of funds, the establishment of bank and brokerage accounts, and the purchase of QRP

for Plaintiffs. At hearing, Plaintiffs represented that Defendant Johanson located the lenders to

purchase QRP utilizing a non-recourse loan. Plaintiffs further allege that Defendant Eddy, then

employed by Defendant Wachovia Securities, became the trustee of the DirecTech ESOT and

participated in placement of the QRP for Plaintiffs, with Defendant Johanson’s direction and

assistance, with Defendant Alexander Capital Markets and non-defendant Optech. Plaintiffs

represented at hearing that they did not receive checks from the lenders. Plaintiffs represented that

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they do not have documentation of the loans between Plaintiffs and other entities; they generally

received documents from the Defendant-attorneys and law firm and were directed to “sign here.”

Also related to the 2003 transaction, Plaintiffs allege that in 2006, Defendant Johanson

purportedly visited Optech in Hong Kong and, notwithstanding the fact that he determined that

Optech could not prove that it still held the QRP investments that were to have been acquired after

the 2003 transaction, instructed Defendants Eddy and Sierra ESOP Advisors to make additional

QRP investments through Optech for Plaintiffs.

Second, Plaintiffs engaged in transactions taking place on or about December 7, 2004,

related to Michigan Microtech, and involving the establishment of an ESOP and ESOT and the sale

of Plaintiffs’ shares of common stock. In their amended complaint, Plaintiffs allege the details of

Plaintiff Schafer’s transaction, and allege that Plaintiff Block participated in a “similar transaction.”

Plaintiffs allege that under the terms of the transaction, Plaintiff Schafer was to receive $4.2 million

as the aggregate purchase price for the shares that were transferred by him to the ESOP. Plaintiffs

allege that Schafer received less than $100,000 in cash, and that the balance was to be paid to him

in accordance with a promissory note issued by the Michigan Microtech ESOT.

Plaintiffs allege that the purported acquisition of QRP investments was supervised by

Defendants, invested through Defendant Alexander Capital Markets and Emerging Money Fund,

in an effort to purchase QRP assets in a ten-percent down, ninety-percent loan transaction. Plaintiffs

allege that a conflict of interest developed when the Defendant-attorneys and law firm developed

an attorney-client relationship with Michigan Microtech after already developing an attorney-client

relationship with Plaintiffs, DirecTech, Woody Bilyeu, and Jay Basil Mattingly. Plaintiffs further

allege that conflicts of interest existed based on the Defendant-attorneys and law firm’s relationships

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with Defendants Eddy, Sierra ESOT Advisors, Wachovia Securities, Jesup & Lamont Securities,

Chapman, Alexander Capital, Churley, Emerging Money Corp, Mitchell Donnelly, and nondefendant First Clearing LLC. Plaintiffs allege that Defendant Eddy was named to the board of

trustees for the Michigan Microtech ESOP despite multiple conflicts of interest. Plaintiffs further

allege that these relationships were established so that Defendants could secure fees, fiduciary

relationships, management fees, referral fees, transaction fees, and to assert unlawful control over

Plaintiffs’ assets.

Third, Plaintiffs allege that the 2005 transaction involved DirecTech’s participation in an

ESOP transaction involving DTSW/Comm-Craft, on or about May 31, 2005. Plaintiffs allege that

as of that point in time, “Johanson had arranged to have himself named as a Director and Secretary

of [DTSW-Comm-Craft].” Plaintiffs allege that under the terms of the transaction, Plaintiff Schafer

was to receive $1,116,724 as the aggregate purchase price for shares that were transferred by him

to the ESOP. Plaintiffs allege that a similar transaction was processed by Defendant Johanson for

Plaintiff Block.

Similar to the 2003 and 2004 transactions, Plaintiffs further allege that Defendants directed

the transfer of funds, were responsible for directing the purchase of QRP assets, and caused the

transactions to be accomplished through Defendants Alexander Capital Markets, Emerging Money

Corp, and non-defendant Optech. Plaintiffs allege that Defendant Eddy, “in concert with”

Defendant-attorney Connor, negotiated with Defendants Emerging Money Corp. and Strauss to

determine placement of QRP.

Fourth, Plaintiffs allege that the 2006 transaction involved another ESOT sale coordinated

by Defendants, through which Plaintiff Schafer was to receive $1,010,084 as the aggregate purchase

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price for shares that were transferred by him to the ESOP. Plaintiffs allege that the sale resulted in

an exchange of stock between DTHC and the Bernard J. Schafer Trust, LLC, which was established

by Defendants. Plaintiffs allege that the purported purchase of QRP related to the transaction was

accomplished through an Optech account. Plaintiffs allege that a similar transaction was processed

by Defendant Johanson for Plaintiff Block.

Plaintiffs also generally allege that the Defendant-attorneys participated in the following

additional activities on their behalf through 2008: (1) supervising extensions for tax filings by

Plaintiffs; (2) determining when and whether to file for § 1042 elections; (3) management of the

ninety-percent equities loans; (4) supervision of the filing of applications for non-recognition of

gain; and (5) purchase, placement, and acquisition of QRP, including the selection of brokers and

companies with whom Plaintiffs were directed to conduct business. Plaintiffs also allege that

Defendant Markun “and others” undertook responsibility and communicated directly with an IRS

agent on behalf of Plaintiff Schafer, and managed the responses to tax inquiries by the IRS agent and

Plaintiff Schafer’s accountant.

Plaintiffs allege that Defendants induced Plaintiffs to invest in Ricor North America Holding

LLC, notwithstanding conflicts of interest between Plaintiffs and Defendants. Plaintiffs allege that

Defendant Johanson invested himself as President of RICOR North America Holding LLC and

identified Defendant Markun as the Secretary. Plaintiffs allege that through the establishment of

the LLC, Defendants continued to secure investments from Plaintiffs and to obtain undue control

over Plaintiffs’ access to their investments, eventually diverting those funds to Defendants’ own

interests. Plaintiffs make similar allegations as to Futuretek LLC.

Plaintiffs’ brief in response to the Defendant-attorneys and law firm’s motion to dismiss or

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compel arbitration sets forth several more factual allegations. [Dkt. # 19]. Plaintiffs contend that

over the years, Defendant Johanson directed Plaintiffs to wire funds for their personal investment

portfolio to a number of entities that had been selected by Johanson to purchase QRP for Plaintiffs.

These entities included Defendants Eddy, Wachovia Securities, Alexander Capital Markets, Jesup

& Lamont, Sierra ESOT Advisors, and non-defendants Optech and PNC Bank. Plaintiffs contend

that Defendant Johanson and the Defendant-law firm repeatedly assured Plaintiffs that the law firm

had confirmed the good standing of the brokerage firms and lenders involved in the transactions, and

confirmed the tax treatment of the QRP transactions.

Plaintiffs contend that they later discovered that the QRP did not qualify because it was

either sold too soon, without Plaintiffs’ knowledge or authorization, or it had never been purchased.

Plaintiffs contend that the Defendant-attorneys and law firm eventually furnished advice to Plaintiffs

through their Michigan accountants, in an attempt to convince Plaintiffs to engage in evasive tactics

with the IRS. Plaintiffs contend that, at this point, they do not have access to any purported QRP

investments, nor access to the funds turned over to brokers at Defendant Johanson’s direction.

Plaintiffs contend that Defendant Johanson and the law firm not only set up the ESOP

transactions, they also provided services for Plaintiffs individually, including: (1) advice and

recommendations of tax deferral strategies to Plaintiffs for their individual tax returns; (2) advice

regarding what qualifies as QRP for tax purposes; (3) selection of brokerage houses to purchase and

hold QRP for Plaintiffs; and (4) representation of each Plaintiff in their later dispute with the IRS

over the tax deferral scheme recommended and implemented by Defendant Johanson.

Count 1 of the amended complaint, entitled “negligence - malpractice” appears to be directed

at the Defendant-attorneys and alleges they committed the following negligent acts:

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1. Negligently secured advice and counsel, and furnished advise (sic) and counsel, from

a variety of brokers, investment managers, and financial planners regarding the

acquisition of certain “qualified replacement property” under circumstances where

the consultants failed to comply with the rules and regulations governing QRP,

acquisition and holding of QRP, and the related rules and regulations;

2. Negligently structured the ESOP transaction and the ESOT loan payments, resulting

in the accrual of tax liability and tax exposure, where the ESOP purchases could

have and should have been structured in an alternative plan in order to defer the

accrual of tax liability;

3. Established the ESOP plans and the ESOT loans in a manner that was designed to

maximize attorney fees, consulting fees, and to permit the defendants to assume

control over plaintiffs’ assets, rather than designing the ESOP plans and the ESOT

loans for the maximum benefit and opportunity of the plaintiff;

4. Negligently structured the ESOP plan, ESOT loans and acquisition of the QRP,

resulting in the imposition of tax obligations, penalties and interest, attorney fees and

accounting fees, that would otherwise not have been incurred by the plaintiff;

5. Engaged in multiple, conflicted relationships with a variety of individuals and

business entities, resulting in the ultimate destruction of any benefit that might have

been enjoyed by plaintiffs from the transfer of the shares of stock into the ESOP

programs;

6. Squandered plaintiffs’ investment by dealing with Optech, Derivium and other

brokerage firms under circumstances where the “accounts” that were established

were improperly organized, improperly supervised, failed to adhere to the

requirements of § 1042, and furnished others with an opportunity to profit from

brokerage fees, commissions, acquisition fees, and fraud, all at the expense of the

plaintiff;

7. Negligently ingratiated representatives of the law firm, and other Defendants named

herein, into positions of authority, management and control of the various ESOP

funds and ESOT loans, at the expense of plaintiff; and

8. Other acts of negligence and malpractice to be more fully described as discovery is

completed.

Count 2 of the complaint, entitled “negligence” appears to be directed at all of the Defendants, with

the possible exception of the Defendant-attorneys and law firm. For the most part, count 2 repeats

the allegations of count 1.

Count 3 is entitled “breach of contract,” and alleges that “Defendants entered into contracts

with the plaintiff, under the terms of which the Defendants were, each of them, obligated to acquire

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and hold Qualified Replacement Property, consistent with the rules and regulations governing §

1042 exchange.” Plaintiffs allege that Defendants breached this contract, resulting in the IRS

disallowing certain transactions; the imposition of taxes, interest, attorney fees, and accounting fees;

and the inability of Plaintiffs to reclaim QRP.

Count 4 is entitled “fraud,” and generally alleges that each Defendant made multiple

representations of material fact, which were false when they were made, and were intended to induce

Plaintiffs’ reliance; Plaintiffs relied on the misrepresentations when they acted. Count 5 is entitled

“fraudulent concealment,” and generally alleges that each Defendant intentionally withheld

information from Plaintiffs that would otherwise have allowed Plaintiff to discover the negligence,

malpractice, breaches of contract, and fraud of the various Defendants.

Finally, count 6 is entitled “concert of action,” and alleges that Defendants acted “pursuant

to a common design intended to acquire plaintiffs’ funds, to feign the acquisition of [QRP], to secure

commissions, profits, attorney fees, consulting fees, and other remuneration from the plaintiff, with

the intention and expectation that plaintiffs would not receive the [QRP] that he was induced to

purchase by the concert of action.”

The Defendant-attorneys and law firm’s motion to dismiss or compel arbitration appears to

clarify certain aspects of Plaintiffs’ allegations. [Dkt. # 9]. In February 2004, the Defendant-law

firm entered into a written attorney-client fee agreement with DirecTech, which was signed by

Defendant Johanson as managing partner of the Defendant-law firm and Woody Bilyeu as President

of DirecTech. The fee agreement provides:

DirecTech and the Attorney hereby agree that any and all disputes arising pursuant to any

of the terms of this agreement or which relate in any manner whatsoever to the Services

provided by the attorney to or on behalf of DirecTech which cannot be resolved in a

reasonable time by discussions between the Attorney and DirecTech shall be submitted to

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binding arbitration, pursuant to the Federal Arbitration Act, before the American Arbitration

Association pursuant to its then existing rules. The Arbitration shall be held in Napa County

of the State of California.

Def. Br. Ex. C; [Dkt. # 9-5].

On or about January 14, 2004, the Defendant-law firm entered into a written attorney-client

fee agreement with Comm-Craft, which was signed by Defendant Johanson as managing partner of

the Defendant-law firm and Woody Bilyeu as President of Comm-Craft. Def. Br. Ex. D; [Dkt. # 9-

6]. The agreement contained the same arbitration provision as the DirecTech agreement, discussed

above.

Finally, in June 2004, the Defendant-law firm sent a written attorney-client free agreement

to Plaintiff Schafer at Michigan Microtech. Def. Br. Ex. E; [Dkt. # 9-7]. The fee agreement

contains the same arbitration provision as the DirecTech and Comm-Craft agreements, discussed

above. Unlike the other two agreements, however, Defendants have not provided a signed copy of

the agreement. Defendants state that while they have been unable to locate a signed copy, Michigan

Microtech received and paid for a substantial amount of legal services in accordance with the terms

of the fee agreement.

Defendants represent that in November 2007, the IRS notified Plaintiffs that it did not agree

with the positions that Plaintiffs had taken with respect to the ESOP transactions outlined in

Plaintiffs’ amended complaint. Defendants represent that Plaintiffs requested that the Defendantlaw firm represent them. Initially, the law firm issued invoices to Plaintiffs and sent Plaintiffs

retainer agreements containing arbitration provisions. Def. Br. Ex. F; [Dkt. # 9-8]. The retainer

agreements mailed to each Plaintiff on January 17, 2008, are attached to Defendants’ brief, but are

not signed by Plaintiffs. Def. Br. Ex. G; [Dkt. # 9-9]. An affidavit of Defendant Johanson states that

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after paying initial invoices, Plaintiffs requested that the Defendant-law firm provide its legal

services solely in its capacity as corporate counsel to the corporations, not the individuals. Def. Br.

Ex. A; [Dkt. # 9-3]. Defendant-attorneys and law firm contend that all of the work performed by

them related to Plaintiffs’ claims was performed in its capacity as corporate counsel to the corporate

clients. They contend that the corporate clients paid for all of the legal fees and expenses; Plaintiffs

and other shareholders did not pay for the services. Defendant-attorneys and law firm represent that

they did not have fee-splitting or other arrangements with any of the other Defendants and that the

law firm did not have any economic interest in Plaintiffs investing in loans with Optech.

In their brief in response to the Defendant-attorneys and law firm’s motion to dismiss or

compel arbitration [Dkt. # 19], Plaintiffs contend that Johanson billed Plaintiffs individually for

certain services, the invoices were paid by Plaintiffs individually, and the conduct of Johanson and

the law firm demonstrates that an attorney-client relationship existed with the Plaintiffs individually.

Plaintiffs acknowledge that Johanson sent a proposed engagement letter to them individually in

January 2008, but contends that the law firm had already begun representing them as individuals

before the IRS as early as October 2007. Plaintiffs contend that they intentionally did not sign the

engagement letter because they did not want to agree to arbitration. They contend that they called

Johanson, informed him that they would not sign the agreement, that he had already agreed to

represent them, and that he “got them into this mess, so he should get them out.” Plaintiffs represent

that Johanson agreed to continue their representation without additional fees so long as they did not

disclose the arrangement. An email sent by Johanson to Plaintiffs on February 1, 2008, confirms

free representation, but does not discuss the previously mailed engagement letter or arbitration

provision. Pl. Resp. Br. Ex. 54.

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In their response to Plaintiffs’ motion for affirmative relief, the Defendant-attorneys and law

firm contend that they advised Plaintiffs of the risk that the IRS would challenge the characterization

of the loans as sales and assess taxes, but Plaintiffs chose to assume the risk of the tax advantage.

[Dkt. # 37]. Defendants also emphasize that the taxes that were eventually assessed are the same

taxes that Plaintiffs would have paid on the ESOP sales in the absence of a § 1042 election.

Defendants contend that they merely provided legal services for hourly fees, while the business and

investment decisions were made by independent corporations and Plaintiffs. Defendants contend

that Plaintiffs’ allegations that they have been deprived of their QRP investments are false because

Plaintiffs chose to enter into contracts that grant them return of the QRP only if they repay the loans

in amounts that exceed the value of the QRP, in order to minimize taxes.

II

On April 3, 2009, the Defendant-attorneys and law firm filed a motion to dismiss the claims

against attorney defendants or to compel arbitration of claims against them, and to dismiss two

attorney defendants for lack of personal jurisdiction [Dkt. # 9]. On May 4, 2009, Plaintiffs filed a

response [Dkt. # 19] to Defendants’ motion. The same day, Plaintiffs also filed a motion for

affirmative relief that the claims by Plaintiffs against the Johanson Defendants are not arbitrable

[Dkt. # 21]. On June 12, 2009, the Defendant-attorneys and law firm filed a response [Dkt. # 37]

to Plaintiffs’ motion for affirmative relief. No replies were filed. Other than the specific request for

affirmative relief, Plaintiffs’ motion does not identify any additional substantive issues not raised

by Defendants’ motion to dismiss or compel arbitration; thus, the two motions will be discussed in

tandem.

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3

 State contract law governs “provided the contract law applied is general and not specific to

arbitration clauses.” Fazio, 340 F.3d at 393. This is because the FAA preempts “state laws applicable only

to arbitration provisions.” Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) (emphasis in

original) (explaining that “Congress precluded States from singling out arbitration provisions for suspect

status, requiring instead that such provisions be placed upon the same footing as other contracts”).

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A

The FAA requires a federal court to stay an action when an issue in the proceeding is

referable to arbitration, see 9 U.S.C. § 3, and to compel arbitration when one party fails or refuses

to comply with the provisions of an enforceable arbitration agreement. See 9 U.S.C. § 4; Highlands

Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 573 (6th Cir.2003)

(observing that “any doubts regarding arbitrability must be resolved in favor of arbitration”). The

United States Supreme Court has found that these provisions “manifest a ‘liberal federal policy

favoring arbitration agreements.’ ” EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002); see also

Fazio v. Lehman Bros., Inc., 340 F.3d 386, 392 (6th Cir. 2003) (noting that there is “a

well-established rule that any doubts regarding arbitrability should be resolved in favor of

arbitration”).

Nonetheless, “[b]efore compelling an unwilling party to arbitrate, the court must engage in

a limited review to determine whether the dispute is arbitrable; meaning that a valid agreement to

arbitrate exists between the parties and that the specific dispute falls within the substantive scope

of that agreement.” Javitch v. First Union Securities, Inc., 315 F.3d 619, 624 (6th Cir. 2003).

“Because arbitration agreements are fundamentally contracts, [federal courts] review the

enforceability of an arbitration agreement according to the applicable state law of contract

formation.” Seawright v. Am. Gen. Fin. Servs., Inc., 507 F.3d 967, 972 (6th Cir. 2007).3

Under Michigan law, the elements of a valid contract are (1) parties competent to enter into

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a contract, (2) a proper subject matter; (3) legal consideration; (4) mutuality of agreement; and (5)

mutuality of obligation. Thomas v. Leja, 468 N.W.2d 58, 60 (Mich. Ct. App. 1991). “In order to

form a valid contract, there must be a meeting of the minds on all the material facts.” Kamalnath

v. Mercy Memorial Hosp. Corp., 487 N.W.2d 499, 503 (Mich. Ct. App. 1992). “ ‘Meeting of the

minds’ is a figure of speech for mutual assent.” Id. at 503. “A contract is made when both parties

have executed or accepted it, and not before.” Id. The party seeking to enforce the contract has the

burden to show the existence of the contract. Id. Notably, the absence of a signature is not

necessarily fatal to a finding of an agreement. Michigan law permits an inference that an offeree

accepted the terms of the agreement when assent is signaled through conduct. Pakideh v. Franklin

Commercial Mortgage Group, Inc., 540 N.W.2d 777, 780 (Mich. Ct. App. 1995) (“If an offer does

not require a specific form of acceptance, acceptance may be implied by the offeree’s conduct.”)

(internal citation omitted). See also Seawright, 507 F.3d at 978 (finding that “arbitration agreements

under the FAA need to be written, but not necessarily signed”) (emphasis in original) .

Defendants contend in their motion that “[f]ive theories for binding nonsignatories to

arbitration agreements have been recognized: (1) incorporation by reference, (2) assumption, (3)

agency, (4) veil-piercing/alter ego, and (5) estoppel,” quoting Javitch, 315 F.3d at 629. Defendants

propose that “a nonsignatory may be bound to an arbitration agreement under an estoppel theory

when the nonsignatory seeks a direct benefit from the contract while disavowing the arbitration

provision,” quoting id. (explaining the holding in Thomson-CSF v. Am. Arbitration Ass’n, 64 F.3d

773 (2d Cir. 1995), without necessarily adopting the holding) (emphasis in original). In other words,

a nonsignatory cannot seek to enforce contract rights while avoiding that contract’s requirement of

arbitration. See Int’l Paper Co. v. Schwabedissen Maschinen & Anlangen GMBH, 206 F.3d 411,

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418 (4th Cir. 2000).

Defendants contend that in this case, Plaintiffs’ claims arise out of the attorney-client

relationship created by the attorney-client fee agreements between the corporations and the

Defendant-law firm. Even though Defendants have not advanced a signed copy of the Michigan

Microtech agreement, they contend that the arbitration provision is enforceable because the

corporation performed, namely by payment of attorney fees, pursuant to the contract, and

Defendants performed their services pursuant to the contract. Defendants further contend that

Plaintiffs personally stood to gain by deferring or even eliminating significant tax liability as a result

of the legal services provided to the corporate clients pursuant to the fee agreements, making them

direct beneficiaries of the agreement for professional services. Thus, Defendants conclude that

Plaintiffs should be bound by the arbitration provisions even though they are not signatories as

individuals.

In contrast, Plaintiffs contend that the arbitration agreements relied on by the Defendantattorneys and law firm do not govern the professional services that were provided to them. Plaintiffs

emphasize that invoices were furnished to Plaintiffs individually and paid for by Plaintiffs, not the

corporate clients. Plaintiffs identify invoices dated December 19, 2007, and February 20, 2008, sent

to each Plaintiff. Plaintiffs contend that the services reflected by these invoices were provided to

Plaintiffs individually concerning tax and estate planning and their respective disputes with the IRS.

Plaintiffs also emphasize that, under Michigan law, the “benchmark” of an attorney-client

relationship is the “rendering of legal advice and legal services by the attorney and the client’s

reliance on that advice or those services,” quoting Macomb County Taxpayers Ass’n v. L’Anse

Creuse Pub. Schs., 564 N.W.2d 457, 462 (Mich. 1997) (also noting that “[t]he attorney’s right to be

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compensated for his advice and services arises from that relationship; it is not the definitional basis

of that relationship”). Plaintiffs contend that they individually sought and received tax advice on

their personal income taxes from Defendants in connection with the § 1042 purchases of QRP from

2003 to 2007.

Plaintiffs further contend that the ESOP transactions that provided the funds that

“Defendants stole” are only “tangentially connected,” if not unrelated to this action. Plaintiffs

contend that they do not seek a benefit from or to enforce the fee agreements related to the ESOP

transactions. Thus, they conclude that any benefit they received as individuals under the fee

agreements between the Defendant-law firm and the corporations was indirect, and that, as

nonsignatories, they cannot be compelled to arbitrate their claims. Additionally, they contend that

their claims are outside of the scope of the arbitration agreement because their malpractice and fraud

claims arise out of the “defective tax advice regarding § 1042 deferral treatment of QRP, and not

the ESOP transactions services.” Finally, Plaintiffs emphasize that the action does not involve

damages to the corporations, it involves damages incurred by Plaintiffs as individuals and caused

by Defendants.

In their response to Plaintiffs’ motion for affirmative relief, Defendants emphasize that

Plaintiffs or their trusts each paid approximately $4,000 for the limited legal services performed

between October 10, 2007 and January 2, 2008, which is reflected by the invoices sent directly to

Plaintiffs individually. Defendants contend that those limited services are not related to the

wrongdoing alleged in the pleadings; the majority of Plaintiffs’ allegations in the first amended

complaint describe the ESOP transactions. The corporations that entered the arbitration agreements

paid more than $500,000 for the legal services related to the transactions. Defendants contend that

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Plaintiffs were direct beneficiaries because unless the ESOPs and the ESOTs were created through

the legal services provided under the agreements with arbitration clauses, Plaintiffs could never have

become eligible to make an investment in QRP to defer taxes on the sale of the common stock to the

ESOTs. Finally, Defendants emphasize that the corporations paid for these services in conformity

with the written, signed agreements, which suggests that the Defendant-attorneys and law firm

performed their services pursuant to the written agreements.

At this juncture, the structure of the transactions and the portions of the transactions,

conduct, or advice challenged by Plaintiffs is sufficiently vague such that the Court is unable to

determine the scope of the arbitration agreements entered by the corporations of which Plaintiffs

were shareholders or entered by Plaintiffs themselves, and whether Plaintiffs claims fall within the

scope of the arbitration agreement. However, Plaintiffs have advanced facts, which if true, would

substantiate Plaintiffs’ allegations that they were incidental, if not direct, intended beneficiaries of

the Defendant-attorneys’ legal advice, in addition to the corporate clients. Additionally, Defendantattorneys and law firm have not advanced an explanation of any effort to address the issue of their

professional responsibility to Plaintiffs. If any written waivers of conflicts of interest limiting the

scope of the Defendants professional responsibility to their corporate clients exist, they have not

been proffered.

It would appear that at least a certain amount of discovery is necessary before the Court is

able to make a determination whether Plaintiffs’ claims are subject to the arbitration agreements.

Based on the above, the Defendant-attorneys and law firm’s motion [Dkt. # 9] will be denied without

prejudice as to this issue. Likewise, Plaintiffs’ motion for affirmative relief that the claims by

Plaintiffs against the Johanson Defendants are not arbitrable [Dkt. # 21] will be denied without

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prejudice.

B

The Defendant-attorneys and law firm contend in their motion that the Court does not have

personal jurisdiction over Defendants Connor and Huang. A motion to dismiss for lack of personal

jurisdiction is brought pursuant to Rule 12(b)(2). In deciding a Rule 12(b)(2) motion, courts may

consider matters outside of the pleadings, such as affidavits, without converting the motion to

dismiss into a summary judgment motion under Rule 56. If the district court rules on a Rule

12(b)(2) motion before trial, as in this case, it has the discretion to adopt any of the following

courses of action: (1) to determine the motions based on affidavits alone; (2) to permit discovery,

which would aid in resolution of the motion; or (3) to conduct an evidentiary hearing on the merits

of the motion. Serras v. First Tenn. Bank Nat’l Ass’n., 875 F.2d 1212, 1214 (6th Cir. 1989).

The burden rests on the plaintiff to establish the existence of personal jurisdiction over the

defendant. Welsh v. Gibbs, 631 F.2d 436, 438 (6th Cir. 1980). In satisfying this burden, the

“plaintiff may not stand on his pleadings but must, by affidavit or otherwise, set forth specific facts

showing that the court has [personal] jurisdiction.” Theunissen v. Matthews, 935 F.2d 1454, 1458

(6th Cir. 1991). However, when determining whether there have been sufficient contacts with the

forum state to establish personal jurisdiction, the court must interpret the pleadings and affidavits

in the light most favorable to the plaintiff. Id. at 1459.

A federal court sitting in diversity may exercise personal jurisdiction over an out-of-state

defendant only after confirming that the state long-arm statute authorizes jurisdiction over the

nonresident defendant, and that the exercise of personal jurisdiction would not deny the defendant

the constitutional right to due process of law. Omni Capital Int’l v. Rudolf Wolff & Co., Ltd., 484

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U.S. 97, 104 (1987). Generally, there are two types of personal jurisdiction: general personal

jurisdiction and specific or limited personal jurisdiction. The principles of general jurisdiction are

applied when the plaintiff’s cause of action is unrelated to the defendant’s in-state activities.

Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.9 (1984). Specific

jurisdiction is applied when the plaintiff’s cause of action arises out of the defendant’s transactions

of business with the forum state. Id. at 414 n.8.

In this case, Plaintiffs do not allege that Defendants Connor and Huang engaged in any

ongoing in-state activities upon which general jurisdiction could be based. Therefore, this Court

must determine whether specific personal jurisdiction exists over Defendants Connor and Huang

individually. Under Michigan’s long-arm statute regarding specific jurisdiction over individuals,

Mich. Comp. Laws § 600.705(1), personal jurisdiction will attach if a cause of action arises out of

the defendant’s “transaction of any business within the state.” The phrase, “any business within the

state,” has been interpreted broadly because the term “any” includes “each” and “every” and

comprehends even “the slightest” business transactions. Sifers v. Horen, 188 N.W.2d 623, 624 n.2

(Mich. 1971). Thus, the Michigan long-arm statute is generally interpreted to reach to the limits of

due process.

The due process inquiry asks whether a defendant has established such “minimum contacts”

with the forum state, “that the maintenance of the suit does not offend ‘traditional notions of fair

play and substantial justice.’ ” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). This

standard is satisfied, and a defendant is subject to in personam jurisdiction, when contacts with the

“forum State are such that [the defendant] should reasonably anticipate being haled into court there.”

World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).

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The Sixth Circuit has further refined the due process analysis by setting forth a three-part test

to determine whether specific jurisdiction exists over a nonresident defendant. In Cole v. Mileti, the

court outlined the analysis:

First, the defendant must purposefully avail himself of the privilege of conducting activities

within the forum state; second, the cause of action must arise from the defendant’s activities

there; and third, the acts of the defendant or consequences caused by the defendant must

have a substantial enough connection with the forum state to make its exercise of jurisdiction

over the defendant fundamentally fair.

133 F.3d 433, 436 (6th Cir. 1998) (internal citations omitted).

First, “purposeful availment” occurs when “the defendant’s contacts with the forum state

‘proximately result from actions by the defendant himself that create a ‘substantial connection’ with

the forum State.’ ” Bridgeport Music, Inc. v. Still N the Water Publ’g, 327 F.3d 477, 478 (6th Cir.

2003) (quoting CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1263 (6th Cir. 1996)). “This

purposeful availment requirement ensures that a defendant will not be haled into a jurisdiction solely

as a result of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts, or of the ‘unilateral activity of another

party or a third person.’ ” Id. “Purposeful availment” is “more than a passive availment of the forum

state’s opportunities,” it is a “deliberate undertaking.” Id.

Second, a cause of action clearly arises from purposeful availment if the cause of action

would not exist but for the contacts cited. See Theunissen, 935 F.2d at 1461; Payne v. Motorists’

Mutual Ins. Cos., 4 F.3d 452, 456 (6th Cir. 1993). Although this does not require that Plaintiffs’

claims arise “formally and directly” from Defendants’ contacts with Michigan, the claims must still

“have a substantial connection with the defendant’s in-state activities.” Dean v. Motel 6 Operating

L.P., 134 F.3d 1269, 1275 (6th Cir. 1998). “[W]hen the operative facts of the controversy are not

related to the defendant’s contact with the state,” the cause of action does not arise from that contact.

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Id.

Third, and finally, the reasonableness of asserting jurisdiction is assessed by considering “the

burden on the defendant, the interest of the forum state, the plaintiff’s interest in obtaining relief,

and the interest in other states in securing the most efficient resolution of controversies.” Cole, 133

F.3d at 435.

In their motion, and in declarations of Defendants Connor and Huang, Defendants assert that

neither Defendant Connor nor Huang has transacted any business within Michigan, within the

meaning of § 600.705(1). Defendants do not explain the basis for their assertion; rather, Defendants

focus on whether Defendants Connor or Huang “cause[d] an act to be done, or consequences to

occur, in the state resulting in an action for tort.” § 600.705(2). According to Defendants, both

Defendants Connor and Huang were both “very junior associates” and did not cause any act to be

done in Michigan. Defendants represent that neither Defendant Connor nor Defendant Huang were

licensed attorneys at the time of the 2003 ESOP transaction identified in Plaintiffs’ amended

complaint. Additionally, Defendants represent that Defendant Huang was not even an attorney or

employed by the Defendant-law firm at the time of the 2004 and 2005 ESOP transactions identified

in Plaintiffs’ amended complaint.

Defendant Connor’s declaration states that she is a California resident and has never been

to Michigan and has never met either Plaintiff in person. Def. Br. Ex. H. Her declaration states that

she performed all of her legal services related to this case while located in California. Similarly,

Defendant Huang’s declaration states that she has never been to Michigan. Def. Br. Ex. I. Her

declaration states that she performed the majority of her legal services related to this case while

located in California; she met the Plaintiffs in September 2006, in Maysville, Kentucky, and in

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October 2007, in Chicago, Illinois.

Defendants also contend that the Court’s exercise of jurisdiction would not comport with due

process. Defendants contend that Defendants Connor and Huang did not purposefully avail

themselves of the privilege of doing business in Michigan because they have never been to Michigan

or transacted business within Michigan. Defendants describe Defendants Connor and Huang’s

connection as “fortuitous” based on the fact that the law firm they chose to work for has some clients

who happen to be in Michigan, and they happened to be assigned to work for those clients.

Defendants contend that the claims pled by Plaintiffs are not related to the minimal contacts

that Defendants Connor or Huang had with Michigan. Defendants explain that the 2005 transaction

was performed for DirecTech, a Delaware corporation, and DTSW/Comm-Craft, a Louisiana

corporation. The 2006 transaction involved DTHC, which is a Delaware corporation. Additionally,

neither Defendant Connor nor Huang were licensed attorneys when services were performed for the

2004 transaction involving Michigan Microtech, a Michigan corporation. Thus, Defendants contend

that because connections between Defendants Huang and Connor and Michigan are few, and not

directly related to Plaintiffs’ claims, Plaintiffs’ claims do not “arise from” Defendant Connor’s and

Defendant Huang’s activities in Michigan.

Finally, Defendants contend that exercise of personal jurisdiction would not be “reasonable”

because there would be a substantial burden on Defendants Connor and Huang when they are junior

attorneys, the legal services referenced in the complaint were provided before they became

attorneys, their legal services were not performed in Michigan, and their primary legal work was for

Delaware and Louisiana corporations.

In response, Plaintiffs contend that Defendant Connor was highly involved in the purchasing

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of QRP and in defending Plaintiffs in their disputes with the IRS. For example, on November 21,

2005, Defendant Connor emailed Block certain loan documents drafted by Defendant Johanson. On

August 21, 2006, Defendant Connor furnished instructions to Plaintiff Schafer regarding the initial

round of QRP purchases and directing sales through Jesup & Lamont Securities. Similarly,

Plaintiffs assert that Defendant Huang was involved in responding to the Department of Labor

subpoenas on behalf of Plaintiffs in connection with investigation of the 2004 Michigan Microtech

ESOT transaction. For example, on August 14, 2007, Defendant Huang emailed Plaintiffs a draft

response to the subpoena. Plaintiffs contend that Defendant Huang also represented Plaintiff

Schafer in his dispute with the IRS, including preparing a summary of the transaction to give to the

IRS. Finally, Defendant Huang communicated via telephone, email, facsimile, private courier

services, and via first class mail while Plaintiff Schafer was in Michigan.

Plaintiffs contend that it is well-settled that jurisdiction may not be avoided simply because

a defendant has never physically been present in a forum state, citing Jeffrey v. Rapid Am. Corp.,

529 N.W.2d 644 (Mich. 1995). Plaintiffs contend that due process is met because Defendants

purposefully directed legal advice to a Michigan resident, to be acted on in Michigan, resulting in

a fraud on the Michigan client, the Michigan State Tax Department, and the IRS. Additionally,

Plaintiffs contend that their claims arise out of Defendants’ activities, consisting of “the fraudulent

tax scheme and improper handling of state and federal investigations of that scheme.” Finally,

Plaintiffs contend that jurisdiction is “reasonable” because Plaintiffs contend that the State of

Michigan has a strong interest in this dispute and protecting Michigan residents from fraudulent tax

shelters promoted by out of state “tax experts” such as Defendants. Michigan also has a strong

public policy interest in holding professionals who solicit business from Michigan and agree to serve

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Michigan residents to their common-law and statutory responsibilities.

Similar to the issue of compelling arbitration, the Court is unable to determine whether

personal jurisdiction exists at this time, and finds that discovery is necessary to resolve the question.

See Serras, 875 F.2d at 1214 (noting the court’s discretion to allow discovery to resolve the issue

of personal jurisdiction). The contours of Defendants Connor and Huang’s involvement in the law

firm’s activities giving rise to Plaintiffs’ claims are unclear. However, Plaintiffs have alleged

purposeful contacts by Defendants, which, if true, would justify at least limited personal jurisdiction.

While Defendants may not have been involved at the time that the earlier transactions originated,

significant involvement in the later transactions may be enough to confer personal jurisdiction,

particularly if Defendants were involved with representing Plaintiffs in regards to Plaintiffs’ dispute

with the IRS arising from the Michigan Microtech transaction. Thus, Defendants’ motion as to

personal jurisdiction will be denied without prejudice.

III

Defendant Wachovia Securities filed a “motion to dismiss claims/compel arbitration” [Dkt.

# 17] on May 4, 2009. On July 7, 2009, Plaintiffs filed a notice of voluntary dismissal as to

Defendant Wachovia Securities. Pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i), a

plaintiff may dismiss a party to an action without a court order by filing “a notice of dismissal before

the opposing party serves either an answer or a motion for summary judgment.” “During that

period, the court has no discretion to deny such a dismissal.” Aamot v. Kassel, 1 F.3d 441, 443 (6th

Cir. 1993). Thus, assuming that Defendant Wachovia Securities has not filed an answer or motion

for summary judgment, Plaintiffs’ notice of dismissal is effective without a court order.

On July 21, 2009, the Defendant-attorneys and law firm filed a “response” [Dkt. # 44] to

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Plaintiffs’ notice of dismissal, contending that Defendant Wachovia Securities cannot be voluntarily

dismissed by Plaintiffs. The Defendant-attorneys and law firm contend that the motion to dismiss

claims/compel arbitration filed by Defendant Wachovia Securities should be construed as a motion

for summary judgment because exhibits are attached that were not attached to Plaintiffs’ complaint.

Notwithstanding the attachment of any additional materials, Defendant Wachovia Securities’

motion is not construed as a motion for summary judgment precluding voluntary dismissal under

Rule 41. See, e.g., Aamot, 1F.3d at 44-45 (reasoning that “a 12(b)(6) motion accompanied by

extraneous materials” is only converted to a motion for summary judgment “at the discretion of the

court, and at the time the court affirmatively decides not to exclude the extraneous matters”). See

also Brown v. T-Ink, LLC, No. 07-13111, 2007 WL 4098207, at *3-4 (E.D. Mich. Nov. 16, 2007)

(determining that a motion to compel arbitration is not considered a motion for summary judgment,

and relying on Hamilton v. Shearson-Lehman Am. Express, Inc., 813 F.2d 1532, 1535 (9th Cir.

1987); Merit Ins. Co. v. Leatherby Ins. Co., 581 F.2d 137, 142 (7th Cir. 1978); Aggregates

(Carolina), Inc. v. Kruse, 134 F.R.D. 23, 25 (D.P.R. 1991)).

The Court has not yet considered Defendant Wachovia Securities’ motion, thus, there is no

justification for concluding that the motion has been converted to a motion for summary judgment.

Accordingly, Plaintiffs’ notice of voluntarily dismissal is effective as to Defendant Wachovia

Securities without further order of the Court. In light of this conclusion, Defendant Wachovia

Securities motion to dismiss claims/compel arbitration will be denied as moot.

IV

Accordingly, it is ORDERED that Defendant-attorney and law firm’s motion to dismiss

claims against attorney Defendants or to compel arbitration of claims against them and to dismiss

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two attorney Defendants for lack of personal jurisdiction [Dkt. # 9] is DENIED WITHOUT

PREJUDICE.

It is further ORDERED that Plaintiffs’ motion for affirmative relief that the claims by

Plaintiffs against the Johanson Defendants are not arbitrable [Dkt. # 21] is DENIED WITHOUT

PREJUDICE.

It is further ORDERED that Defendant Wachovia Securities motion to dismiss or compel

arbitration [Dkt. # 17] is DENIED AS MOOT.

s/Thomas L. Ludington 

THOMAS L. LUDINGTON

United States District Judge

Dated: August 17, 2009

PROOF OF SERVICE

The undersigned certifies that a copy of the foregoing order was served

upon each attorney or party of record herein by electronic means or first

class U.S. mail on August 17, 2009.

s/Tracy A. Jacobs 

TRACY A. JACOBS

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