Vitale v. Howard CV-90-204-B 11/02/93 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Alphonse Vitale

v. Civ. No. 90-204-B

Charles H. Howard, III

_________________________________ O R D E R

_____ Plaintiff brings this securities fraud action against his

broker. Plaintiff alleges that defendant broker wrongfully

generated commissions by "churning" securities held in

plaintiff's margin account, and that defendant wrongfully

purchased and sold these same securities to give the appearance

of an active market.1 Plaintiff premises his suit on § 10(b) of

the Securities Exchange Act of 1934 (the "Exchange Act"), 15

U.S.C. § 78j(b), rule 10b-5 promulgated thereunder,

.10b-5, and § 9(e) of the Exchange Act,

(e).

Defendant appears pro se. Presently before me are his motion to

dismiss plaintiff's claims and his motion to disgualify

plaintiff's counsel.

1 Plaintiff also asserts pendant claims for breach of fiduciary duty and for state securities law violations. I. The Motion to Dismiss

Defendant moves to dismiss plaintiff's claim on the ground

that plaintiff, in opening a margin account with defendant's

brokerage firm in 1985, allegedly executed an account agreement

that "clearly state[d] that should a dispute or controversy

arise, the matter is to be heard in Arbitration before the

National Association of Securities Dealers, Inc." Judged against

the "less stringent standards" applicable to pro se litigants,

see Eveland v. Director of CIA,

(1st Cir. 1988),

defendant's "motion to dismiss" is properly viewed as a motion to

compel arbitration under the Federal Arbitration Act ("FAA").

See

. Defendant, however, has failed to support his

motion with any proof of the agreement's existence or content.2

While § 4 of the FAA gives federal district courts the authority

to order parties to proceed to arbitration in accordance with

their agreement, a court obviously cannot compel arbitration

unless it is satisfied that a valid agreement exists. Page v.

Moseley, Hallqarten, Estabrook & Weeden, Inc.,

(1st Cir. 1989), abrogated on other grounds by Shearson/American

2Defendant has merely submitted unsigned examples of margin account agreements containing arbitration clauses.

2 Exp., Inc. v. McMahon,

(1957). I therefore

deny defendant's motion. For the following reasons, however, I

do so without prejudice and give defendant thirty days in which

to submit a renewed motion accompanied by the necessary proof.

First, "courts must receive the [Federal Arbitration Act]

hospitably and defend its mechanisms vigilantly and with some

fervor." Securities Ind. Ass'n v. Connolly,

(1st Cir. 1989), cert denied,

(1990). Here, the

agreement that defendant refers to may very well exist.

Brokerage account agreements often contain arbitration clauses.

Plaintiff also does not expressly deny that he signed such an

agreement. By allowing defendant thirty days to come up with the

necessary proof, the strong federal policy favoring arbitration

agreements is given due weight. See Moses H.Cone Memorial Hosp.

v. Mercury Construction Corp.,

(1983).

Second, plaintiff's federal securities claims and his

pendent state claims are all potentially arbitrable. See

Shearson/American Exp.,

(Exchange Act does not

bar arbitration of disputes arising under its provisions,

particularly § 1 0 (b) claims); Dean Witter Reynolds, Inc. v. Byrd,

(1985) (where a motion to compel arbitration is

brought pursuant to a valid arbitration agreement, a district

3 court must compel arbitration of pendant state law claims).

Finally, I disagree with plaintiff's assertion that

defendant has waived his right to arbitration by not complying

with Magistrate Judge Barry's order reguiring defendant to seek

arbitration by July 1, 1991. To some extent, defendant has

complied with the order -- he wrote a letter to the National

Association of Securities Dealers ("NASD") on June 11, 1991,

reguesting that it arbitrate this dispute. He also alleges that

the NASD has responded, sending forms for plaintiff to complete.3

Although it appears that defendant has taken few, if any,

steps beyond his initial letter to NASD, several facts indicate

that this delay may not be entirely his fault. First, the

alleged agreement is in the possession of defendant's now-

bankrupt former employer, Thompson McKinnon Securities, Inc., who

has not responded to defendant's reguests for information.

Second, on July 5, 1991, defendant began serving a one year

sentence for insider trading. Since his imprisonment, the record

indicates that there may be some confusion as to which party has

3 The record is unclear as to whether plaintiff has received or completed these forms.

4 the burden of pursuing arbitration.4 At the very least, the

above-listed facts raise doubts as to whether defendant waived

his right to have the NASD arbite this dispute. Where

reasonable, such doubts must be resolved in favor of arbitration.

See Page,

.

Moreover, even if these doubts were resolved in plaintiff's

favor, plaintiff at best has alleged that defendant's behavior

caused some delay. To prevail on a claim of waiver, however,

plaintiff "must show not only that defendant[] delayed in seeking

arbitration, but also that such delay caused plaintiff[]

prejudice." JCd. at 294. As plaintiff has not alleged or shown

facts indicating such prejudice, his arguments of waiver must be

rej ected.5

4 Initially, the court clerk reguired defendant to provide status reports. After defendant's incarceration, however. Judge Devine Court ordered that these reports be provided by plaintiff.

5 Defendant also moves for dismissal on the grounds that plaintiff offered to settle the suit if defendant would help plaintiff in a similar action against defendant's employer, Thomson McKinnon Securities, Inc. Defendant contends that, because that action has since been settled, the action here should be dismissed because plaintiff has already recovered and no longer needs his help. I reject this argument summarily. First, defendant seeks to benefit from a settlement offer he rejected. Second, the fact that plaintiff has received some compensation from Thomson McKinnon's bankruptcy estate does not

5 II. The Motion to Disqualify Plaintiff's Counsel

Defendant also moves to disqualify plaintiff's counsel on

conflict of interest grounds. Defendant contends that counsel

represented defendant and/or his company "on numerous issues over

the last several years," and has "had access to the defendant's

and/or his company's most personal, private and financial

records." In support of his motion, defendant includes a copy of

one $7,769.70 bill from plaintiff's counsel for approximately one

month of work done in connection with defendant's attempts to

gain control of a New Hampshire bank in 1987 .6 Plaintiff's

counsel counters that the representation involved matters bearing

absolutely no relation to defendant's employment as a broker for

Thomson Mckinnon or to his management of plaintiff's margin

affect defendant's potential liability for the claims presently before the Court.

6 Defendant also attaches a copy of a bill from plaintiff's counsel relating to its representation of the First New Hampshire Bank as an intervenor co-defendant in a suit against Howard for reformation of several promissory notes payable to Howard's company. Occasions, Ltd (First New Hampshire was the assignee of the promissory notes). As the client number on this bill is different from that listed on the bill for the bank-takeover services, it appears that this was First New Hampshire's bill, not Howard's. Indeed, plaintiff points out that during the course of the promissory note litigation, Howard was represented by different counsel or appeared pro se.

6 account.7

In a conflict of interest situation, "the relevant inquiry

is whether the subject matter of the two representations is

'substantially related'; could the attorney have obtained

confidential information in the first suit that would have been

relevant to the second." Borges v. Our Lady of the Sea Corp.,

(1st Cir. 1991); see also Kevlik v.

Goldstein,

(1st Cir. 1984) . At least on

their face, the subject matter of the two representations at

issue here appear completely distinct. The first representation

involved the takeover of a New Hampshire bank; the case at hand

involves "churning" and other wrongful activities relating to

plaintiff's margin account. Defendant's bill, which provides no

description of the information conveyed by defendant to

plaintiff's counsel, does nothing to contradict this impression.

Defendant also has not pointed out any particular item of

confidential information that plaintiff's counsel obtained during

the prior representation. See Borges,

. Instead,

7 Plaintiff's counsel also asserts that the information that defendant provided during this representation is no longer confidential -- it was filed with governmental regulatory agencies and thus has become a matter of public record.

7 he has merely made sweeping assertions that he disclosed

"personal, private and financial" information to plaintiff's

counsel. Given the above factors, I cannot conclude that the two

matters are "substantially related". I therefore deny

defendant's motion to disqualify plaintiff's counsel. However,

given the importance of preventing unethical conduct, Kevlik,

, and the fact that defendant appears pro se, I will

give defendant fifteen days to supplement his motion with an

affidavit or other form of proof setting out the similarity

between the two representations with more particularity.

III. Conclusion

Defendant's motion to dismiss (document no. 25) is denied

without prejudice, subject to the following two conditions: (1)

the motion must be renewed within thirty (30) days of the date of

this order; and (2) it must be accompanied by appropriate proof

of a validly executed Margin Account Agreement between plaintiff

and Thompson McKinnon Securities, Inc. and appropriate proof of

the existence and content of the arbitration clause allegedly

contained therein. I also deny without prejudice defendant's

motion to disqualify the firm representing plaintiff (document

no. 26). Defendant has fifteen (15) days from the date of this order to supplement his motion in the manner specified in Section

II of this order. Any renewed motion which does not satisfy the

standard established in this order will be denied. Moreover, no

extensions of the deadlines established in this order will be

granted.

SO ORDERED.

Paul Barbadoro United States District Judge

November 2, 1993

cc: Charles Dunn, Esg. Charles H. Howard, III, pro se