Source: https://casetext.com/case/cotton-v-slone
Timestamp: 2019-03-25 18:32:36
Document Index: 111750926

Matched Legal Cases: ['§ 78', '§ 240', '§ 36', '§ 16', '§ 15', '§ 36', '§ 2688', '§ 36', '§ 36']

Cotton v. Slone, 4 F.3d 176 | Casetext
4 F.3d 176 (2d Cir. 1993)
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Cottonv.Slone
United States Court of Appeals, Second CircuitSep 10, 1993
Anthony A. Ball, Hartford, CT (Leslee B. Ives, Gillen Ball, P.C., Hartford, CT, of counsel), for defendant-appellant-cross-appellee.
Eliot B. Gersten, Hartford, CT (Gersten Clifford, Hartford, CT, of counsel) for plaintiff-appellee-cross-appellant.
In the district court, Slone's motion to compel arbitration raised the issue of whether an arbitration agreement between a brokerage firm and a customer confers upon the firm's employees the right to compel arbitration of a dispute with the customer arising out of acts performed in the course of employment. This Court has not decided that question, although we recently noted that "[c]ourts in this and other circuits consistently have held that employees or disclosed agents of an entity that is a party to an arbitration agreement are protected by that agreement." Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1360 (2d Cir. 1993). While the district court rejected Slone's asserted right to arbitration, we do not reach that issue because we find that Slone waived whatever right he had to arbitrate this dispute. On that ground of waiver, we affirm the decision of the district court with respect to arbitrability.
Slone is a stockbroker licensed by the National Association of Securities Dealers and the State of Connecticut. At the time of the 1987 stock market crash — which indirectly precipitated this dispute — Slone was employed as a registered representative by the brokerage firm of Advest, Inc. ("Advest"). Cotton had been Slone's customer since approximately 1984 when he was employed by another brokerage firm, and she continued to invest through Slone when he moved to Advest. Cotton signed a customer agreement with Advest in March 1987 containing an arbitration clause which provides in relevant part:
The undersigned [Cotton] agrees, and by carrying an account for the undersigned you [Advest] agree, that . . . all controversies which may arise between us concerning any transaction or the construction, performance or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration in accordance with the rules then prevailing of the Arbitration Committee of the National Association of Securities Dealers, Inc., the American Arbitration Association, the Board of Arbitration of the New York Stock Exchange or the Board of Arbitration of the American Stock Exchange as I may elect.
On October 6, 1989, Cotton filed suit against Slone, alleging breach of contract and securities fraud in violation of section 10(b) of the Securities and Exchange Act of 1934 and Rules 10b-5 and 10b-16 promulgated thereunder ( 15 U.S.C. § 78j(b) and 17 C.F.R. §§ 240.10b-5 and 240.10b-16), and in violation of the Connecticut Uniform Securities Act (C.G.S. §§ 36-472, 36-498).
An appeal may be taken from —
(B) denying a petition under section 4 of this title to order arbitration to proceed. . . .
We have emphasized that there is a strong presumption in favor of arbitration, see Rush v. Oppenheimer Co., 779 F.2d 885, 887 (2d Cir. 1985), and that waiver of the right to arbitration "is not to be lightly inferred." Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir. 1968). To avoid waiver, however, it is not enough merely to assert a right without taking appropriate steps to secure it. Waiver will be inferred when a party engages in protracted litigation that results in prejudice to the opposing party. Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991) (citing Com-Tech Assocs. v. Computer Assocs. Int'l, Inc., 938 F.2d 1574, 1576 (2d Cir. 1991)); see Bowers v. Transportacion Maritima Mexicana, S.A., 901 F.2d 258, 263 (2d Cir. 1990). Sufficient prejudice to infer waiver has been found when a party seeking to compel arbitration engages in discovery procedures not available in arbitration, Liggett Myers Inc. v. Bloomfield, 380 F. Supp. 1044, 1047-48 (S.D.N.Y. 1974), makes motions going to the merits of an adversary's claims, Com-Tech, 938 F.2d at 1576, or delays invoking arbitration rights while the adversary incurs unnecessary delay or expense, Kramer, 943 F.2d at 179. The waiver determination necessarily depends upon the facts of the particular case and is not susceptible to bright line rules. Id.
In the present case, Slone was fully aware of his alleged right to compel arbitration, having raised it three times: in his motion to compel arbitration made at the outset of the litigation, in his answer (according to the appellate briefs), and in his motion for reconsideration of the denial of his motion to compel arbitration. Slone was also demonstrably familiar with the Federal Arbitration Act, which he cited numerous times in his submissions to the district court. Yet he failed to use section 16(a) of the Act to obtain immediate interlocutory appellate review of the denial of his motion to compel arbitration. See 9 U.S.C. § 16(a)(1).
The House Report concerning § 15 states that the section provides for interlocutory appeals "when a trial court rejects a contention that a dispute is arbitrable," but "specifically prohibit[s]" interlocutory appeals "when the trial court finds that the parties have agreed to arbitrate." H.R.Rep. No. 100-889, 100th Cong., 2d Sess. 36-37, reprinted in 1988 U.S.Code Cong. Admin.News 5982, 5997. Section 15 thus furthers the "liberal federal policy favoring arbitration," Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983), because it "explicitly permits immediate appeals from orders giving litigation precedence over arbitration," but forbids immediate appeals from "[o]rders favoring arbitration." Janneh v. GAF Corp., 887 F.2d 432, 436 n. 5 (2d Cir. 1989).
Attorney's fees mandated by state statute are available when a federal court sits in diversity. See Alyeska Pipeline Service Co. v. Wilderness Soc., 421 U.S. 240, 259 n. 31, 95 S.Ct. 1612, 1622-23 n. 31, 44 L.Ed.2d 141 (1975). The same principle applies in the context of pendent jurisdiction: "it is the source of the right sued upon, and not the ground on which federal jurisdiction over the case is founded, which determines the governing law." Maternally Yours, Inc. v. Your Maternity Shop, Inc., 234 F.2d 538, 540 n. 1 (2d Cir. 1956). Accordingly, although attorney's fees are not permitted in actions brought solely under section 10(b) of the Securities and Exchange Act, attorney's fees may be awarded on a pendent state law claim if the claim permits such an award and if the claimant has established the elements necessary for recovery on the pendent state law claim.
In addition to a section 10(b) claim, Cotton's complaint alleged state law securities fraud under C.G.S. § 36-498(a)(2), which proscribes substantially the same conduct as federal law:
[A]ny person who . . . offers or sells a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, the buyer not knowing of the untruth or omission, and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission, is liable to the person buying the security from him . . . for . . . reasonable attorneys' fees. . . .
The complaint's factual allegations are taken as true in light of the general default judgment and in the absence of any findings by the district court concerning liability. See Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981); 10 Wright, Miller Kane, Federal Practice Procedure: Civil 2d § 2688, at 444 (1983). We must presume therefore that Cotton has established all theories of recovery alleged in her complaint, including state law securities fraud, and that her entitlement to attorney's fees on her state law claim is governed by state law.
Section 36-498 of the Connecticut General Statutes mandates the award of attorney's fees to a prevailing plaintiff "in order to encourage the enforcement of [the Connecticut Uniform Securities Act] by victims of improper securities transactions who might not otherwise be able to afford to do so." Russell v. Dean Witter Reynolds, Inc., 200 Conn. 172, 196, 510 A.2d 972, 985 (1986). The only issue within the court's discretion on a request for attorney's fees under C.G.S. § 36-498 is the reasonableness of the amount requested. Id. The district court here denied the request for attorney's fees, stating only that "in the exercise of its discretion, . . . an award of attorney's fees is not appropriate in this case." The district court did not specifically address the availability of attorney's fees under the Connecticut statute. Therefore, it is unclear whether the district court misunderstood the governing law or affirmatively awarded zero as the appropriate amount. Accordingly, we remand the issue of attorney's fees to the district court with instructions to reconsider Cotton's request in light of her entitlement to such fees under C.G.S. § 36-498, and to place on the record the district court's reasoning for whatever amount is awarded.