NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

DAN A. DRUZ,

Plaintiff,

v.

MORGAN STANLEY, INC., (f/k/a DEAN

WITTER REYNOLDS, INC. AND MORGAN

STANLEY DW), CHRISTINE EDWARDS,

DONALD KEMPF, DAVID HELENIAK,

GARY LYNCH AND PAUL THOMAS,

Defendants.

Civil Action No.:

10-6281 (PGS)

MEMORANDUM & ORDER

This case comes before the Court on defendants Morgan Stanley& Company, Inc. (“Morgan

Stanley”), Christine Edwards, Donald Kempf, David Heleniak, Gary Lynch and Paul Thomas’s

(collectively, the “Defendants”) motion for summary judgment. Defendants’ originally filed a

motion to dismiss plaintiff Dan A. Druz’s (“Plaintiff”) complaint for failure to state claim and for

a permanent injunction precluding Plaintiff from filing further state and federal litigation [Docket

Entry No. 7]. As Defendants’ arguments necessarily incorporated matters outside the pleadings, the

Court converted the motion to dismiss into a motion for summary judgment and granted the parties

two weeks to file any additional factual material pertinent to Defendants’ motion. [Docket EntryNo.

15]. No materials were filed before the deadline.

For the reasons stated below, Defendants’ motion for summary judgment of Plaintiff’s

complaint is granted, and Defendants’ motion for a permanent injunction precluding Plaintiff from

filing further state and federal litigation is denied.

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 1 of 12 PageID: 614
I

The relevant facts in this case begin back in 1985, during a period when Plaintiff worked as

an executive for Dean Witter, a predecessor of Morgan Stanley (“Dean Witter”). In 1985, the New

Jersey School Boards Association Insurance Group (“Insurance Group”), an adjunct of the New

Jersey School Boards Association (“NJSBA”), was the largest of eight separate groups of public

school boards formed to participate in joint self-insurance funds. On July 1, 1985, the Insurance

Group expanded its coverage from workers’ compensation insurance to other lines of insurance,

including property insurance, casualty insurance, liability insurance and inland marine insurance. 

This expansion of coverage led to an increase in the premiums that Insurance Group members paid

to the Insurance Group and a proportionate increase in the funds available for the Insurance Group’s

investment. Some time after the coverage expansion, NJSBA’s then-executive director Octavius T.

“Ted” Reid, Jr. retained Plaintiff to handle the Insurance Group’s investments.

In May 1987 it came to light among the Insurance Group’s principals that, during the course

of Plaintiff’s management of the Insurance Group’s investments, the Insurance Group lost nearly a

million dollars. The reason for the loss is disputed, and Plaintiff attributes the loss to Dean Witter’s

use of derivatives to hedge their investments. Compl. ¶ 11. On June 17, 1987, before news of the

loss became public, Plaintiff voluntarily resigned from Dean Witter to accept a position as branch

manager for Shearson Lehman Hutton in Melville, New York. On December 30, 1988, the Insurance

Group brought a civil action in Federal District Court against Dean Witter and Plaintiff for

participating in high-volume, speculative trading and circumventing procedural safe guards for the

purpose of generating commissions. N.J. Sch. Bds. Ass’n Ins. Grp. v. Dean Witter Reynolds Inc., No.

2:88-cv-5584 (J. Bissell) (D.N.J., Dec. 30, 1988). Before the civil action was resolved, on April 26,

2

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 2 of 12 PageID: 615
1990, the State of New Jersey’s Commission of Investigation released a report on the alleged

improprieties at the NJSBA. The Commission found, among other things, that Plaintiff ignored

written directives and statutory investment restrictions while maintaining an improper relationship

with Mr. Reid that included an unsecured, low interest $12,000 loan.

Plaintiff faced several actions as a result of the civil litigation and the report. First, the New

Jersey Division of Consumer Affairs, Bureau of Securities (the “Bureau”) began an investigation of

Plaintiff. In January 1992, the Bureau made a criminal referral to the N.J. Division of Criminal

Justice. A New Jersey grand jury then returned an indictment against the Plaintiff. Subsequently,

Plaintiff petitioned for Pre-Trial Intervention, which was granted. Second, Plaintiff was investigated

by the New York Stock Exchange (“NYSE”). In May 1993, the NYSE censured Plaintiff and barred

him from membership for eight years. That decision was affirmed by the NYSE’s Board of

Directors, then both of those decisions were affirmed separately by both the SEC and the Third

Circuit. Third, Plaintiff was named in a related attorney ethics complaint that was ultimately

resolved in his favor.

In his complaint, Plaintiff alleges that Morgan Stanley (as successor to Dean Witter) and the

individual defendants (all of whom were or are high ranking members of Morgan Stanley’s legal

department) committed fraud, conspired to commit fraud, and effected malicious prosecution by

blaming Plaintiff for Dean Witter’s improper conduct. Plaintiffs’ litigation of these and similar

matters has a long and complicated history.

Plaintiff first began pressing claims against Dean Witter and its employees back in April

1995 when Plaintiff filed an arbitration with the NYSE (“Druz I”). In Druz I, Plaintiff charged Dean

Witter and several of its employees with provoking the civil, criminal, and regulatory proceedings

3

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 3 of 12 PageID: 616
against him. See Dean Witter Reynolds, 71 Fed. App’x 941, 943 (3d Cir. 2003). Druz I was either

stayed or delayed for ten years, although the precise reasons for the stay/delay are not entirely clear

from the record. On May 13, 2005, Plaintiff filed an amended statement of claim for essentially the 1

same activities. On April 4, 2007, following a two-week hearing, the NYSE panel dismissed the

majority of Plaintiff’s claims and ruled in Plaintiff’s favor for an amount roughly equivalent to the

book of business Plaintiff left at Dean Witter. See Marino Cert., Ex. B, 4/4/07 Award of NYSE Panel

in Druz I.

In November 2007, Plaintiff filed a second arbitration before the Financial Industry

Regulatory Authority (“FINRA”) in which Plaintiff reiterated the conspiracy allegations from the

previous arbitration (“Druz II”). Thereafter, a FINRApanel fullyconsidered those allegations during

an arbitration hearing that spanned fortysessions. Ultimately, the FINRA panel dismissed Plaintiff’s

claims in their entirety. Marino Cert., Ex. D Druz II Award.

On June 25, 2009, Plaintiff filed an action in the Superior Court of New Jersey, Law

Division, Monmouth County to vacate the Druz II award (the “Vacatur Action”). In the Vacatur

Action, Plaintiff argued that the Druz II award should be vacated because (1) the Druz II award was

procured by corruption, fraud, or other undue means; (2) the arbitrators refused to consider material

evidence; and (3) the arbitrators manifestly disregarded the law. Marino Cert, Ex. G, Druz Vacatur

Br.

1

In 1995, Dean Witter sought an injunction in the District Court for the District of New Jersey

against the matter going forward. The District Court held that the arbitration on the malicious

prosecution claims could not go forward until the New Jersey criminal case was resolved. No appeal

was filed, and the criminal case appears to have resolved by 1998, when Plaintiff completed his PreTrial Intervention.

4

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 4 of 12 PageID: 617
On September 16, 2009—while Plaintiff’s motion to vacate the Druz II award in the Vacatur

Action was still pending—Plaintiff filed a second FINRA arbitration against Morgan Stanleyand the

individual Defendants named in this action (“Druz III”). Once again, Plaintiff alleged that Morgan

Stanley (as successor to Dean Witter) and its employees conspired to frame him.

In response to Druz III, the Defendants filed a summary action in the Superior Court of New

Jersey, Law Division, Monmouth County, applying for an Order to Show Cause with Temporary

Restraints (“Summary Action”). Specifically, the Defendants sought (1) a temporary restraining

orderstaying Druz III and (2) a permanent injunction precluding Plaintiff from pursuing Druz III or

otherwise seeking to vacate and rearbitrate the Druz II award. Essentially, the Defendants argued

that the Druz III arbitration was an attempt by the Plaintiff to use a subsequent arbitration to appeal,

vacate, and rearbitrate the Druz II award.

Both the Vacatur Action and the Summary Action were assigned to the Honorable Daniel M.

Waldman, J.S.C. On August 13, 2010, Judge Waldman decided both actions in favor of the

Defendants. See Druz v. Morgan Stanley Inc., MON-L-3100-09 (N.J. Super. Ct. Law Div. Aug. 13,

2010); Morgan Stanley & Co., Inc. v. Druz, MON-L-6065-09 (N.J. Super. Ct. Law Div. Aug. 13,

2010). In the Vacatur Action, the court confirmed the Druz II award, considering and rejecting each

of Plaintiff’s arguments for vacatur, including the argument that the Druz II award was procured by

fraud. In the Summary Action, the court entered an order (1) declaring that Druz III presented a nonarbitrable dispute and that any other arbitration seeking to vacate and re-arbitrate the Druz II award

would present a non-arbitable dispute; (2) enjoining Plaintiff from pursuing Druz III and from

otherwise seeking to vacate and re-arbitrate the Druz II award; and (3) permanently staying Druz III. 

The court explaining its reasoning in the Summary Action as follows:

5

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 5 of 12 PageID: 618
Druz III is merely [Plaintiff’s] attempt to challenge the loss in Druz

II and re-arbitrate the Druz II decision on the grounds that same was

procured by fraud. Such an allegation does not arise out of

[Plaintiff’s] employment with Morgan Stanley. Thus, the Druz III

arbitration falls outside the scope of the arbitration agreement. . . . 

Defendant’s claims in Druz III, that Morgan Stanley and several of its

employees committed acts of fraud during the course of the Druz II

FINRA arbitration, thereby causing [Plaintiff] to lose that arbitration,

are allegations that were more appropriately made in the vacatur

action . . . , not in a third arbitration. The court will not permit

[Plaintiff] to circumvent the vacatur process by having a third FINRA

panel re-arbitrate the Druz II award.

Morgan Stanley & Co., Inc. v. Druz, MON-L-6065-09, at 10 (N.J. Super. Ct. Law Div. Aug. 11,

2010). On August 27, 2010, Plaintiff filed a Notice of Appeal of both the Vacatur Action and the

Summary Action with the Superior Court of New Jersey, Appellate Division. Both appeals are still

pending.

On December 6, 2010, Plaintiff filed the complaint in this action [Docket Entry No. 1]. In

their motion for summary judgment, Defendants argue that this complaint rests on the precise

contentions resolved adversely to Plaintiff in Druz II: that Morgan Stanley and its employees

conspired to frame Plaintiff for the conduct for which he was indicted and barred from the securities

industry. In response, Plaintiff argues that the present issue is “the tort of Malicious Prosecution as

against the former attorneys for [Morgan Stanley], an issue that was dismissed from consideration

in the arbitration proceeding known as Druz II.” Opp’n Br. 2.2

2

Defendants also moved for a permanent injunction enjoining Plaintiff from filing against

Morgan Stanley, its affiliated entities and its employees in any further federal or state lawsuits based

on the contention that they conspired to frame him and provoke his malicious prosecution. Plaintiff

did not address this issue in his opposition brief.

6

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 6 of 12 PageID: 619
II

Summary judgment is appropriate when the moving party demonstrates that “there is no

genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”

Fed. R. Civ. P. 56(a). A genuine dispute as to a material fact exists only if a reasonable jury could

return a verdict for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986). Such a fact is considered material only if the fact may affect the outcome of the litigation

based on the substantive law. Id. “In considering a motion for summary judgment, a district court

may not make credibilitydeterminations or engage in anyweighing of the evidence; instead, the nonmoving party’s evidence ‘is to be believed and all justifiable inferences are to be drawn in his

favor.’” Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477

U.S. at 255).

After a party files a motion for summary judgment along with supporting papers, the nonmoving partymust produce specific facts showing that there is a genuine issue for trial. Jersey Cent.

Power & Light Co. v. Twp. of Lacey, 772 F.2d 1103, 1109 (3d Cir.1985) (citation omitted).

“[U]nsupported allegations . . . and pleadings are insufficient to repel summary judgment.” Schoch

v. First Fid. Bancorporation, 912 F.2d 654, 657 (3d Cir.1990) (citing Fed. R. Civ. P. 56(e)).

III

Plaintiffs’ complaint is barred by res judicata. The doctrine of res judicata, also known as

claim preclusion, embodies “[t]he concept that a party is required to bring all possible claims in one

proceeding.” McNeil v. Legislative Apportionment Comm’n of the State of N.J., 828 A.2d 840, 858

(N.J. 2003). Thus, “[c]laim preclusion ‘gives dispositive effect to a prior judgment in the particular

issue, albeit not litigated in the prior action, could have been raised.” Witkowski v. Welch, 173 F.3d

7

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 7 of 12 PageID: 620
192, 199 n.8 (3d Cir. 1999) (citing Bradley v. Pittsburgh Bd. of Educ., 913 F.2d 1064, 1070 (3d Cir.

1990)). Under principles of claim preclusion, “a judgment on the merits in a prior suit bars a second

suit involving the same parties or their privies based on the same cause of action.” Parklane Hosiery

Co. v. Shore, 439 U.S. 322, 327 n.5 (1979). Moreover, “[c]laim preclusion applies not only to

matters actually determined in an earlier action, but to all relevant matters that could have been so

determined.” McNeil, 828 A.2d at 859 (internal quotations omitted).

UnderNew Jerseylaw, claim preclusion applies to bar subsequent claims when the following

requirements are met:

(1) the judgment in the prior action must be valid, final, and on the

merits; (2) the parties in the later action must be identical to or in

privity with those in the prior action; and (3) the claim in the later

action must grow out of the same transaction or occurrence as the

claim in the earlier one.

Id. (quoting Watkins v. Resorts Int’l Hotel &Casino, Inc., 591 A.2d 592, 599 (N.J. 1991)). All three

of those requirements are met with respect to the Druz II award that was confirmed in the Vacatur

Action.

As to the first requirement, it is well settled that an arbitration award such as the FINRA

Panel’s ruling in Druz II is deemed a “final judgment” when it is confirmed by a court. See Gruntal

& Co., Inc. v. Steinberg, 854 F. Supp. 324, 337 (D.N.J. 1994). In addition to being “final,” the Druz

II award and the confirmation order were valid and “on the merits” as the FINRA Panel dismissed

all of Druz’s claims and Judge Waldman confirmed that dismissal and rejected Druz’s grounds for

vacatur. See Druz v. Morgan Stanley Inc., MON-L-3100-09, at 10-11 (N.J. Super. Ct. Law Div. Aug.

13, 2010).

8

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 8 of 12 PageID: 621
The second requirement for application of res judicata is also met here, as the parties in this

action are either identical to or in privity with those in Druz II and the Vacatur Action. Plaintiff was

the claimant in Druz II and the plaintiff in the Vacatur Action. Plaintiff named Morgan Stanley as

a respondent in Druz II, the Vacatur Action, and in the instant action. While the individual

Defendants in this action were not parties to Druz II or the Vacatur Action, they are all Morgan

Stanley employees in privity with Morgan Stanley. See, e.g., Jones v. Holvey, 29 F.3d 828, 830 (3d

Cir. 1994).

Finally, the third requirement for application of res judicata, that the claims in this action

grow out of the same transaction or occurrence as those in Druz II and the Vacatur Action, is

satisfied. In determining whether this final prong has been met, the New Jersey Supreme Court has

instructed courts to consider:

(1) whether the acts complained of and the demand for relief are the

same (that is, whether the wrong for which redress is sought is the

same in both actions); (2) whether the theory of recovery is the same;

(3) whether the witnesses and documents necessary at trial are the

same (that is, whether the same evidence necessary to maintain the

second action would have been sufficient to support the first; and (4)

whether the material facts alleged are the same.

Culver v. Ins. Co. of N. Am., 559 A.2d 400 (N.J. 1989) (internal citations omitted).

In the instant case, Plaintiff complains of a twenty-two year conspiracy to frame Plaintiff.

Compl. Frauds 1-223. These are the same issues decided by the FINRA Panel in Druz II and in the

Confirmation Order. Druz himself summarized his demand in Druz II as alleging that respondents

“conspired to frame him, then they engaged in a massive cover up of their misconduct.” Vacatur

Compl. ¶ 15. Druz’s complaint in this action likewise theorizes that the Defendants “blamed

Plaintiff for [Morgan Stanley’s] allegedly improper conduct” in an effort “to ruin Plaintiff’s

9

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 9 of 12 PageID: 622
securities and law careers; to cause his suspension from the brokerage business; to cause his

disbarment; and to secure his incarceration.” Compl. ¶ 18. Further, the Druz II demand and

complaint allege the same specific actions as constituting the efforts of Morgan Stanley and its

employees to frame Plaintiff. Here, the first 217 alleged frauds are identical to the alleged fraudulent

acts in Druz II. Moreover, the four claims Plaintiff asserts in the Complaint in this action—fraud,

malicious prosecution, conspiracyto commit malicious prosecution, and failure to supervise in-house

and outside counsel—were all pled in the Druz II Demand. Furthermore, although the last six frauds

set forth in Druz’s Complaint were not pled in the Amended Druz II demand (because they allegedly

occurred during the arbitration) theymirror the grounds on which Plaintiff sought to vacate the Druz

II award. Also of note, in the Summary Action, the issue of why claims against Morgan Stanley’s

legal staff were not incorporated into Druz II was directly addressed by Judge Waldman:

It should also be noted that, when the court questioned [Plaintiff] at

oral argument on August 11, 2010 as to why he never named the

members of Morgan Stanley’s legal department in Druz I or Druz II,

[Plaintiff] had no explanation and specifically stated that he did not

know why he did not name these individuals.

Morgan Stanley & Co. Inc. v. Druz, MON-L-6065-09, at 10 (N.J. Super. Ct., Law Div. Aug. 11,

2010). These facts clearly grow out of the same transaction or occurrence as those in Druz II and

the Vacatur Action. In Plaintiff’s Opposition Brief, Plaintiff argues that “[i]n order to demonstrate

that the claims and issues have been previously litigated, Defendants must cite to the Award in Druz

II.” Opp’n Br. 6. Plaintiff does not cite to any law to support this claim. Additionally, the materials

that are in the record, including Plaintiff’s complaints, Plaintiff’s brief and the award itself, provides

ample proof that the claims and issues have been previously litigated. Finally, Plaintiff was given

10

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 10 of 12 PageID: 623
an opportunityto provide anyadditional relevant information to develop the factual record and failed

to do so. Thus, Defendants’ motion for summary judgment is granted.

IV

Defendants alsomove for a permanent injunction precluding Plaintiff from filing furtherstate

and federal litigation. [Docket Entry No. 7]. District courts have the power “to issue injunctions

restricting the filing of meritless pleadings by litigants where the pleadings raise issues identical or

similar to those that have already been adjudicated.” In re Packer Avenue Assoc’s., 884 F.2d 745,

747 (3d Cir. 1989). However, while Defendants have provided proof that Plaintiff has been litigious,

Plaintiff has only filed one federal claim related to this matter and one arguably frivolous arbitration

proceeding (Druz III). Cf. Gilgallon v. Carroll, 153 Fed. App’x 853, 855-56 (3d Cir. 2005). In the

absence of additional frivolous or vexatious claims, the equities weigh against the requested

injunction.

ORDER

This matter, having come before the Court on Defendants’ motion to dismiss and for a

permanent injunction precluding Plaintiff from filing further state and federal litigation [Docket

Entry No. 7], and Defendants’ motion to dismiss having been converted into a motion for summary

judgment by the Court [Docket Entry No. 15], and this Court having considered the parties’

submissions without oral argument; and for the reasons stated above,

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 11 of 12 PageID: 624
IT IS on this 6th of March, 2012,

ORDERED that Defendants’ motion for summary judgment is granted; and

ORDERED that Defendants’ motion for a permanent injunction precluding Plaintiff from

filing further state and federal litigation is denied; and

ORDERED that Plaintiff’s complaint is dismissed and this case is closed.

s/Peter G. Sheridan 

PETER G. SHERIDAN, U.S.D.J. 

12

Case 3:10-cv-06281-PGS -TJB Document 16 Filed 03/08/12 Page 12 of 12 PageID: 625