Petition for Writ of Certiorari — Allen v. PaineWebber, Inc.

Supreme Court, y.

FILED o

941831 May 51995

In Che OFFICE OF THE CLERK

Supreme Court Of Che United States

OCTOBER TERM, 1994

No.

BILLIE H. ALLEN, et al.,'

Petitioner,

PAINEWEBBER, INCORPORATED,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Harold J. Bender Wayne G. Johnson

BIFULCO, BENDER GIFFORD, LAY &

& SCARPITTI JOHNSON

1300 G. Daniel Baldwin 558 West Sixth Street

Building Errie, PA 16507

Erie, PA 16501 (814) 452-6468

(814) 452-2271

Counsel for Petitioner Counsel for Petitioner

“Counsel of Record

LAWYERS PRINTING COMPANY 7th & Franklin Bidg Richmond, Virginia 23219 (804) 648-3664 ui4

i

QUESTION PRESENTED

Whether the split of authority

between the circuits relative to

their interpretation of the National

Association of Securities Dealers,

Inc. Code of Arbitration Procedure

§ 15 based on a substantive/

procedural dichotomy serves the best

interest of the investing public in

attempting to resolve disputes

between investors and the brokerage

industry; in this specific case,

whether the ruling of the Fourth

Circuit Court of Appeals affirming

the lower circuit court’s dismissal

effectively interpreting § 15 as a

statute of limitations should be

reversed.

ii

‘Billie H. Allen; Eleanor K. Benson,

a/k/a Eleanor K. Fuller; Charles Brotman;

Elizabeth Domino; Joseph S. Domino; Ruth

H. Gray; Bruce G. Harris; Edith B. Harris,

Constance N. Kalkhof, Barbara B. Lewis,

Robert Hall Lewis; Joan F. McDonald; Marie

O. Newberger; Gertha Pollard; Linda M.

Safyan; Vernon Lee Thompson; Charles J.

Toner, Jz .3 Delores Weinberger; Hal

Weinberger, a/k/a Harold Weinberger

and

E. Jean Metcalf,

Withdrawn Petitioner

cr

iii

TABLE OF CONTENTS

QUESTION PRESENTED

FOOTNOTE TO COVER (LIST OF PARTIES)

TABLE OF AUTHORITIES

OPINIONS BELOW

JURISDICTION

STATEMENT OF THE CASE

ARGUMENT

CONCLUSION

Page

-~_-

iv

TABLE OF AUTHORITIES

Page

AT&T h ine. we.

Communications Workers of

America, 475 U.S. 643, 648,

106 S.Ct. 1415, 1418,

SS 1. BG.2e@ C46 419806) 468s Ge 98

Automotive, Petroleum and Allied

Industries v. Town and Country

Ford, 709 F.2d 509

[eee aes BE 8 ke ae er ee

Belke v. Merrill Lynch, Pierce,

Fenner & Smith, 693 F.2d 1023

(TJith Cir. 1962) aE SEs Pe ea ea er eee

Conticommodity Services Inc. v.

Philipp & Lion, 613 F.2d 1222,

po Bi CORR 5 ER aie a reas ~

Hanes Corp v. Millard,

Sst Fiee See, to.%. Cir, 2976) rag oan

Edward D. Jones & Co. v. Sorrells,

S57 F.20 Bees. tree Ges Bee sw SS

Miller v. Prudential Bache

Securities Inc., 884 F.2d 128 (4th

Cir. 1989), cert. denied, 497 U.S.

1004, 110 S. Ct. 3240 (1990) ewe

O’Neel v. National Association of

Securities Dealers, Inc.,

667 7.20. 806, (Fem Car. 29688) . .. 5

PaineWebber Inc. v. Hartmann,

94i Fine Ber, (ae Cars Bee) 2 40s 8

NS cI Ea ce HOA LSI MD ak SR RARER, ia BE, pets tss )

Rodrige Lj hear

American Express, “490 U.S. 477

(1989) aes See a oe ge

Ron & Co. v. Kassab,

562 7.26 See; teen can. 29392) . .. 3

Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220 (1987) BoA race a

STATUTES

Page

Federal Arbitration Act,

$ U.S.C.8. § 1, @t. seq. Meee eo

National Association of

Securities Dealers Code of

Arbitration Procedure .. . 1,3,6,7,8

Be Ap

Racketeer Influenced and

Corrupt Organizations Act,

6° 058.0. 2.3964, OCs COG. 2s a ee 8

SEC Rel. No. 34-34442, 57 S. E. C.

Docket 614, 1994 WL 398693 at

*6 (July 26, 1994) 2 ea sae ak kage en ae

Supreme Court Rules, Rule 10.1. (a)

SG Se Was Cie Gee is ee ee eae

1

OPINIONS BELOW

On April 29, 1993 the United States

District Court for the Eastern District of

Virginia, Richmond Division, entered a

Memorandum Opinion denying Petitioners’

rights to proceed to arbitration under the

National Association of Securities Dealers

Code of Arbitration Procedure. (Civil

Action No. 3:92CV591)

Appeal was taken to the Fourth

Circuit Court of Appeals and argued

October 27, 1993. The Court decided the

case January 10, 1995, affirming the lower

court’s opinion. (#93-1575)

A petition for rehearing was filed

and the rehearing denied February 6, 1995,

and a Mandate issued February 13, 1995.

Pe ea ae ee eS

2

JURISDICTION

The decision of the Fourth Circuit

Court of Appeals and its denial of

rehearing on February 6, 1995, denied the

petitioners their right to proceed to

arbitration. Thus, the Court has

jurisdiction under Supreme Court Rules,

Rule 10.1.(a) and 28 U.S.C.A. § 1291.

3

STATEMENT OF THE CASE

On July 17, 1992, the Petitioners,

Billie H. Allen and other claimants, filed

a consolidated statement of claim with the

National Association of Securities

Dealers, Inc. (NASD) arising out of their

purchase of PaineWebber Equity Partners I

- Limited Partnership. Prior to filing

any answer, the Respondent filed a motion

to dismiss, asserting that pursuant to

NASD Code of Arbitration Procedure

("Code"), § 15 more than six years had

elapsed from the event or occurrence

giving rise to petitioners’ claims. This

argument is founded on the date of

purchase being the event or occurrence

giving rise to the claim. An amended

complaint was filed raising issues

pursuant to the Racketeer Influenced and

Corrupt Organizations Act, 18 U.S.C.

§ 1961, et. seq. No discovery occurred in

+

the case, but a stipulation of certain

facts and publicly available documents was

entered into to assist the Court in

understanding the generic background of

the case.

The essence of the Petitioners’

claims as investors in the limited

partnership was that the Respondent failed

to disclose or adequately disclose

information about the investment and that

Respondent then committed wire fraud and

mail fraud by sending out information

indicating that the investment was

performing consistent with its’ sales

literature when in fact it was not meeting

those standards.

5

ARGUMENT

I. THE COURTS CONTINUE TO BE DIVIDED

AS TO WHETHER THE COURT OR THE

ARBITRATORS DECIDE WHETHER A CLAIM IS

SUBJECT TO ARBITRATION UNDER THE SIX

YEAR ELIGIBILITY REQUIREMENT OF NASD

CODE OF ARBITRATION PROCEDURE § 15.

The Third, Sixth, and Seventh

Circuits Hold that the question of

eligibility is a question for the courts

to decide.* The majoritv of circuits, the

Second, Eighth, Ninth, Eleventh and the

District of Columbia, find that

eligibility is a question for. the

arbitrators.

1PaineWebber Inc. v. Hartmann, 921

F.2d 507 (3rd Cir. 1990); Roney & Co. v.

Kassab, 981 F.2d 894 (6th Cir. 1992);

Edward D. Jones & Co. v. Sorrells, 957

F.2d 509 (7th Cir. 1992).

*Automotive, Petroleum and Allied

Industries v. Town and Country Ford, 709

F.2d 509 (8th Cir. 1983); Belke v. Merrill

Lynch, Pierce, Fenner & Smith, 693 F.2d

1023 (11th Cir. 1982), partially abrogated

on other grounds; OQO’Neel v. National

Association of Securities Dealers, Inc.,

667 F.2d 804 (9th on 1982);

(continued...)

Che S Ni a a ot

. Ji - aki

is bla ain tan RR ee lle a ll hn rt a.

6

Prior to its decision in this case,

the Fourth Circuit was believed to have

been in the majority of circuits in

holding that arbitrability was an issue

for the arbitrators.?

The basis for the majority of

circuits’ holdings is in large part that

the language of the NASD Code of

Arbitration Procedure § 35 provides the

arbitrators with authority to interpret

the Code. Additionally, these decisions

rely heavily on the fact that the Federal

Arbitration Act (FAA) is to be liberally

construed.

7(...continued)

Conticommodity Services Inc. v. Philipp &

Lion, 613 F.2d 1222 (2nd Cir. 1980); and

Hanes Corp v. Millard, 531 F.2d 585 (D.c.

Gixr,.. 197e?.

*Miller v. Prudential Bache Securities

inc., 884 F.2d 128 (4th Cir. 1989), cert.

denied, 497 U.S. 1004, 110 S. Ct. 3240

(1990).

While this Court in AT&T

Technologies, Inc. Vv. Communications

Workers of America, 475 U.S. 643, 648, 106

S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986)

reaffirmed that the question of

arbitrability is usually an issue to be

decided by the courts, it also indicated

that, if the parties had clearly and

unmistakably provided otherwise, then the

issue was not for the courts. The

Respondent is a member of NASD and as such

bound by its Code of Arbitration

Procedure. If a public customer then

chooses that Code of Arbitration Procedure

as its vehicle to resolve disputes between

the customer and the brokerage firm, all

parties are bound by the entire Code of

Arbitration Procedure.

This Court indicated its preference

for arbitration as a way to reduce the

8

time burdens of the court system in AT&T

Technologies, supra.

This Court estublished its deference

to arbitration in security cases in

Shearson/American Express, Inc. Vv.

McMahon, 482 U.S. 220 (1987); and further

indicated that RICO actions were

appropriate in Rodriges de Quijas v.

Shearson/American Express, 490 U.S. 477

(1989).

The industry, in an attempt to limit

its exposure even in arbitration, has

attacked securities purchasers via the use

of Code § 15. Certain circuits have

bought into the industry’s position. In

the interim, the NASD has unequivocally

indicated that Code § 15 "never was

intended to serve as an election of remedy

provision that would eviscerate any

surviving causes of action under

applicable law after six years. have

9

elapsed." SEC Rel. No. 34-34442, 57S. E.

C. Docket 614, 1994 WL 398693 at *6 (July

26, 1994).

The Respondent has, like its industry

brethren, attempted to make the six year

eligibility requirement for NASD

arbitration into a statute of limitations

based on date of purchase. Code § 15

Says:

Time Limitation on Submission

Sec. 15. No dispute,

claim, or controversy shall be

eligible for submission to

arbitration under this Code

where six (6) years have elapsed

from the occurrence or event

giving rise to the act or

dispute, claim, or controversy.

This section shall not extend

applicable statutes of

limitations, nor shall it apply

to any case which is directed to

arbitration by a court of

competent jurisdiction.

[Amended effective October l,

1984.]

The language of § 15 does not

specifically say "date of purchase," a

phrase common in the securities industry

10

and various security acts. Instead, it

addresses the "occurrence or event giving

606. 26: 0 sc: Cie kc What

occurrence or event triggers the

eligibility period is an issue for the

arbitrators. Code § 35 says:

Interpretation of Provisions of

Code and Enforcement of

Arbitrator(s) Rulings

Sec. 35. The arbitrators

shall be empowered to interpret

and determine the applicability

of all provisions under this

Code and to take appropriate

action to obtain compliance with

any ruling by the arbitrator(s).

Such interpretations and actions

to obtain compliance shall be

final and binding upon. the

parties. [Amended November 16,

1992.]

Code § 35 provides for the panel to

re interpret and determine the

applicability of all provisions under this

code ...." While an interpretation of the

Code is the appropriate subject of review

under the FAA if abuse of discretionary

powers is asserted after an arbitration

11

hearing, such review is significantly

different than a court becoming involved

at the beginning of an arbitration

procedure without authority to do so. The

result of the respondent’s, and the

industry as a whole’s, use of Code § 15 is

to get the court system involved

immediately in an interpretation of Code §

15 as opposed to reviewing a completed

arbitration on limited grounds. This

attempt to use Code § 15 as a defensive

weapon eviscerates this Court’s

predilection in favor of arbitration. As

such this Court is reqested to resolve the

split among the circuits in favor of the

petitioners and investor claimants in

arbitration procedures.

12

CONCLUSION

WHEREFORE, for the reasons set forth

by Petitioner Billie H. Allen, et mi

counsel respectfully requests this Court

to overturn the Fourth Circuit Court of

Appeals and remand this case directly to

NASD arbitration.

Respectfully submitted,

arold J. Bender

(Counsel of Record)

Bifulco, Bender & Scarpitti

1300 G. Daniel Baldwin Bldg.

Erie, Pennsylvania 16501

(814) 452-2271

Counsel for Petitioner

Wayne G. Johnson

Gifford, Lay & Johnson

558 West Sixth Street

Erie, Pennsylvania 16507

Counsel for Petitioner

PROOF OF SERVICE

In accordance with Rule 29(3)(c) of

the Rules of the United States Supreme

Court, I hereby certify under penalty of

perjury that on this 5th day of May, 1995

three (3) copies of this Petition for a

Writ of Certiorari were mailed, first-

class, postage prepaid to James E.

Farnham, Esq., Hunton & Williams,

Riverfront Plaza, East Tower, 951 East

Byrd Street, Richmond, Virginia

23219-4074.

APPENDIX

TABLE OF CONTENTS

Page

Unpublished Opinion of the United

States Court of Appeals for

the Fourth Circuit,

COUaEY 30; S9ee « * 6 ee ee ee 8

Order of the United States District

Court for the Eastern District

of Virginia, Richmond Division,

iets BO. S008 eo es ee

Memorandum Opinion of the United

States District Court for the

Eastern District of Virginia,

Richmond Division,

eS I ee. Se es Sa

Order of the United States Court

of Appeals for the Fourth

Circuit Denying Rehearing,

Peeeuasy @, S9ee ac Se «ee ct SO

Mandate of the United States Court

of Appeals for the Fourth

Cirouit, Fepruary i3, i895 .. - «48

1

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

PAINEWEBBER,

INCORPORATED,

Plaintiff-Appellee

Vv.

BILLIE ALLEN; ELEANOR K.

BENSON, a/k/a ELEANOR K.

FULLER; CHARLES BROTMAN ;

ELIZABETH DOMINO; JOSEPH

S. DOMINO; RUTH H. GRAY ;

BRUCE G. HARRIS; EDITH

B. HARRIS; CONSTANCE N.

KALKHOF; BARBARA B.

LEWIS; ROBERT HALL

LEWIS; JOAN F. McDONALD ;

MARIE O. NEWBERGER;

GERTHA POLLARD; LINDA

M. SAFYAN; VERNON LEE

THOMPSON; CHARLES J.

TONER, JR.; DELORES

WEINBERGER; HAL WEIN-

BERGER, a/k/a HAROLD

WEINBERGER,

Defendants-

Appellants,

and

E. JEAN METCALF,

Defendant.

)

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No.

93-1575

2

Appeal from the United States District

Court for the Eastern District of

Virginia, at Richmond.

James R. Spencer, District Judge.

(CA-92-591-R)

Argued: October 27, 1993

Decided: January 10, 1995

Before WIDENER and WILKINS,

Circuit Judges, and

SPROUSE, Senior Circuit Judge.

Affirmed by unpublished per curiam

opinion.

COUNSEL

ARGUED: Harold John Bender, BIFULCO,

BENDER & SCARPITTI, Erie, Pennsylvania,

for Appellants. Lonnie Dayton Nunley,

rE e HUNTON & WILLIAMS, Richmond,

Virginia, for Appellee. ON BRIEF: Wayne

G. Johnson, GIFFORD, LAY & JOHNSON, Erie,

Pennsylvania, for Appellants. James E.

Farnham, HUNTON & WILLIAMS, Richmond,

Virginia, for Appellee.

Unpublished opinions are not’ binding

precedent in this circuit. See I1.0.P.

36.5 and 36.6.

3

OPINION

PER CURIAM:

The defendants in this case bought

partnership interests in PaineWebber

Equity Partners I Limited Partnership

(EP-I), a Virginia limited partnership,

from the plaintiff, PaineWebber, Inc.

(PaineWebber). The defendants appeal from

the district court’s grant of summary

judgment in favor of PaineWebber in its

declaratory judgment action brought to bar

arbitration of the defendants’ claims by

the National Association of Securities

Dealers (NASD).

The facts, which are undisputed, are

Stated briefly as follows.' The defendants

bought limited partnerships in EP-I prior

to July 17, 1986. On July 17, 1992, the

‘The parties largely stipulated to the

facts. See JA 204-14.

+

defendants filed a Statement of Claim with

NASD against PaineWebber and_ sought

arbitration of their claims, based on

their purchase of partnerships in EP-I.

The Statement of Claim, as amended,

asserted several theories of recovery,

including a claim based on violations of

the Racketeer Influenced and Corrupt

Organizations Act, 18 U.S.C. § 1961

(RICO) . NASD granted the defendants’

request to arbitrate. PaineWebber then

filed a complaint, seeking a declaratory

judgment that the claims asserted by the

defendants were not eligible for

arbitration, pursuant to § 15 of the NASD

Code of Arbitration, which states:

Sec. 15. No dispute, claim or

controversy shall be eligible

for submission to arbitration

under this Code where six (6)

years have elapsed from the

occurrence or event giving rise

to the act or dispute, claim, or

controversy. This section shall

not extend applicable statutes

5

of limitations, nor shall it

apply to any case which is

directed to arbitration by a

court of competent jurisdiction.

The defendants filed a motion to

dismiss PaineWebber’s complaint on grounds

appealed here that tthe court lacked

diversity jurisdiction under 28 U.S.C.

§ 1332 or other subject matter

jurisdiction under the Federal Arbitration

Act since that Act does not, in and of

itself, create such jurisdiction. The

district court denied the motion to

dismiss, holding that it had diversity

jurisdiction and the issue of

arbitrability was "undeniably an issue for

judicial determination." PaineWebber v.

Allen, No. 3:92CV591, slip op. at 4 (E.D.

Va. Nov. 12, 1992) (Order and Memorandum

Opinion denying Motion to Dismiss),

quoting AT&T Technologies, Inc. v. Commun-

6

ications Workers of America, 475 U.S. 643,

649 (1986).

The defendants filed a second motion

to dismiss, pursuant to Fed. R. Civ. P.

19(b), claiming that PaineWebber failed to

join one of the claimants who filed the

Statement of Claims with NASD. Defendants

contended that this claimant was an

indispensable party who would, if joined,

have defeated diversity jurisdiction. The

district court held that the qualification

of a person as a necessary party under

Rule 19 (a) was a prerequisite to

dismissing an action under Rule 19(b) for

failure to join an indispensable party.

The district court found that’ the

defendants did not demonstrate that the

non-joined claimant was necessary under

Rule 19(a) (2) in that she did not claim an

interest relating to the subject of the

action within the meaning of the Rule

7

because the limited partners were not in

privity with one another with respect to

the underlying investments, and an

injunction against defendants would have

no effect upon the non-joined investor’s

interest in EP-I. It also found that the

non-joined investor’s interest was

adequately represented by the current

parties to the litigation. Therefore, the

district court denied the second motion to

dismiss, finding that if the Claimant was

not a necessary party under Rule 19 (a),

she could not be an indispensable party

under Rule 19(b). PaineWebber v. Allen,

No. 3:92CV591, (E.D. Va. Mar. 16, 1993).

The parties filed cross-motions for

summary judgment, with PaineWebber seeking

a determination that the defendants’

claims were not eligible for NASD

arbitration and the defendants seeking a

denial of PaineWebber’s motion for summary

8

judgment, thus permitting NASD to

arbitrate their claims. The district

court granted summary judgment in favor of

PaineWebber. As to the pre-sale claims of

the defendants, the district court

determined that the claims were not

eligible for arbitration under NASD Code

§ 15, since the occurrence or event giving

rise to the claim was the defendants’

purchase of the limited partnership

interests, which was more than six years

prior to the arbitration demand. As for

the RICO claim, the district court also

applied the NASD § 15 eligibility

requirement of six years from the sale

date of EP-I limited partnerships to the

claimants, and held that such a claim’s

alleged fraudulent occurrence or events

relating to PaineWebber’s sale of limited

partnerships other than and subsequent to

the sale of EP-I could not extend this

9

eligibility since none of the defendants

invested in any PaineWebber limited

partnerships offered subsequent to EP-I.

The defendants appeal, claiming error

on the basis that 1) no subject matter

jurisdiction existed under the Federal

Arbitration Act, 9 U.S.C. § 1; 2) the

applicable statute of limitations on a

RICO claim is four years from the date the

defendants discovered their injury and not

NASD’s six-year eligibility from the date

of sale of EP-1; and 3) the district court

erred in failing to dismiss PaineWebber’s

complaint upon learning that PaineWebber

had, for the purpose of creating diversity

jurisdiction, failed to join a party.

We review de novo the district

court’s decision granting summary

judgment, Higgins v. E.I. DuPont de

Nemours & Co., 863 F.2d 1162, 1166-67 (4th

Cir. 1988), as well as the jurisdictional

10

questions here, see Charter Fed. Sav. Bank

v. Office of Thrift Supervision, 976 F.2d

203, 208 (4th Cir. 1992), cert. denied,

U.S. _<«, 61 U.S.L.W. 3667 (1993).

Having performed such a review, we are of

opinion that the district court correctly

held that it had diversity jurisdiction

and did not hold that the Federal

Arbitration Act confers jurisdiction;* that

non-joinder of the non-diverse claimant

was proper; and that the NASD Code § 15

six-year eligibility from the date the

defendants purchased their interests in

EP-I properly governed the RICO claim of

the defendants.

Therefore, we affirm on the basis of

the district court’s opinions noted above.

AFFIRMED

yoo va) ee

*See Delta Fin. Corp. v. Paul D.

Comanduras & Assoc., 973 F.2d 301, 303 n.1

(4th Cir. 1992).

|

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

RICHMOND DIVISION

PAINEWEBBER )

INCORPORATED, )

Plaintiff, )

) Civil Action No.

Vv. ) 3:92CV591

)

BILLIE H. ALLEN, )

et al., )

Defendants. )

ORDER

THIS MATTER is before the Court on

cross motions for summary judgment

Pursuant to Fed. R. Civ. P. 56. For the

reasons stated in the accompanying

Memorandum Opinion, Plaintiff’s Motion for

Summary Judgment is hereby GRANTED and

Defendants’ Motion for Summary Judgment is

DENIED.

WHEREAS Defendants are in violation

of § 15 of the Code of the National

Association of Securities Dealers, Inc.

("NASD"), none of Defendants’ claims filed

with the NASD, against PaineWebber

12

Incorporated, are eligible for arbi-

tration.

And it is SO ORDERED.

/s/ James R. Spencer

UNITED STATES DISTRICT

JUDGE

Date: April 29, 1993

13

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

RICHMOND DIVISION

PAINEWEBBER )

INCORPORATED, )

Plaintiff, )

) Civil Action No.

Vv. ) 3:92CV591

)

BILLIE H. ALLEN, )

Sf Giz; )

Defendants. )

MEMORANDUM OPINION

SS RANUUM OPINION

THIS MATTER is before the Court on

cross motions for summary judgment

pursuant to Fed. R. Civ. Pp. 56. For the

reasons stated herein, Plaintiff's Motion

for Summary Judgment is hereby GRANTED and

Defendants’ Motion for Summary Judgment is

DENIED.

Plaintiff in this matter is

PaineWebber Incorporated ("PaineWebber") ,

a seller of Partnership interests in

PaineWebber Equity Partners I Limited

14

Partnership ("EP-1"), a Virginia limited

partnership. The defendants ("Claimants")

are purchasers of partnership interests in

EP-I.

On July 17, 1992, Defendants filed a

Statement of Claim with the National

Association of Securities Dealers, Inc.

("NASD") against PaineWebber. This single

consolidated claim involves the Claimants’

purchase of interests in EP-I. Upon

filing the claim, Defendants completed a

Uniform Submission Agreement to initiate

arbitration of the dispute. However, by

stipulation before NASD the parties agreed

to stay the NASD arbitration proceedings

during the pendency of this action.

On September 10, 1992, PaineWebber

filed the instant case seeking a permanent

stay of arbitration and a declaratory

judgment holding that the claims asserted

in Defendants’ demand for arbitration are

a2

no longer eligible for arbitration. In

Support of its request for relief,

PaineWebber alleges that defendants

violated NASD Code § 15 by submitting

their demand for arbitration more than Six

years after the last occurrence or event

which could Give rise to a dispute

eligible for submission to arbitration.

NASD Code § 15 Provides in part: No

dispute, Claim, or controversy shall be

eligible for submission to arbitration

under this Code where Six (6) years have

elapsed from the occurrence or event

giving rise to the act or dispute, claim

or controversy.

In the cross motions for summary

judgment, PaineWebber seeks a ruling, as a

matter of law, that Defendants’ claims are

not eligible for arbitration. On the

other hand, Defendants request this Court

to refer this case back to NASD for

16

arbitration of the claims set forth in the

original and amended Statements of Claim.

iI.

The purpose of summary judgment is to

facilitate the "prompt disposition of

controversies on their merits without a[n]

[unnecessary] trial, if in essence there

is no real dispute as to the salient

facts." Bland v. Norfolk & South. RR Co.,

406 F.2d 863, 866 (4th Cir. 1969).

"Summary judgment is appropriate if there

are no genuine issues of material fact and

the moving party is entitled to judgment

as a matter of law." eM. ae

Printing Co., 955 F.2d 936, 944 (4th Cir.

1992) (citing Fed. R. Civ. P. 56(c));

Ballinger Vv. North Carolina Agric.

Extension Serv., 815 F.2d 1001, 1004 (4th

Cir. 1987), cert. denied, 484 U.S. 897

(1987). A genuine issue of material fact

ae

exists when the evidence is such that a

reasonable jury could return a verdict for

the nonmoving party. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248, 106 S.ct.

2505, 2510 (1986). The movant bears the

burden of offering proof of the absence of

any genuine issues of material fact,

Celotex Corp. v. Catrett, 477 U.S. ph B

322, 106 8.Ct. 2548, 1552 (1986), and the

Court must view the facts and the

inferences drawn therefrom in the light

most favorable to the nonmoving party.

Ballinger, 815 F.2d at 1004. Once the

movant has met his/her burden, and a

Properly supported motion is before the

Court, the opposing party may not rest

upon mere allegations or denials contained

in his/her pleadings, Anderson, 477 U.S.

at 248, 106 S.Ct. at 2510, but rather

he/she must "set forth specific facts that

show there is a genuine issue for trial."

18

Allstate Financial Corp. v. Financorp.,

ing,, 934 F.2@ 53, $6 (4th Cir. 1992).

iil.

In a Memorandum Opinion dated,

November 12, 1992, this Court held that

the issue of arbitrability, created by

NASD Code § 15, is an issue to be decided

by the Court, rather than the arbitrators.

Every Circuit Court of Appeals which has

addressed the issue has reached the same

conclusion. Recent decisions of the

Third, Sixth and Seventh Circuits, all

conclude that NASD Code § 15 presents a

substantive issue to be determined by the

court rather than a procedural issue to be

decided by the arbitrators. See

PaineWebber Incorporated v. Hofmann, 984

F2.d 1372 (3rd Cir. 1993); ward D. Jones

& Co, vy, Sorrelia, 957 F2.4 S09 (7th Cir.

1992); Roney & Co. v. Kassab, 981 F.2d 894

19

(6th Cit, 1992); and PaineWebber

Incorporated v. Hartmann, 921 F.2d 507

(27a Cir. 19906). Therefore, this Court

possesses the requisite jurisdiction to

determine whether Defendants’ claims are

eligible for arbitration pursuant to NASD

Code § 15.

Claimants assert 11 separate theories

of recovery in 49 6-16 of their Amended

Statement of Claim, as Supplemented by

their Second Amended Statement of Claim.

Stip. Exs. 39 and 40. With the exception

of | 15 of the Amended Statement of Claim,

all of the other claims are based upon

allegations relating to acts, omissions,

or misrepresentations that occurred prior

to sale of the limited partnership

interests. Paragraph 15 alleges "mail and

securities fraud" violations that

allegedly constitute predicate offenses

under the Racketeer Influenced and Corrupt

20

Organizations Act ("RICO"), 18 U.S.C. §§

1961 et. seg. Accordingly, the Court will

address the issue of arbitrability in two

parts: pre-sale claims and RICO claims.

A. Pre- im

The primary issue raised by both

parties is what constitutes the

"Occurrence or event," as set forth in

NASD Code § 15, that gives rise to each of

the Defendants’ claims. It is the finding

of the Court that the weight of authority

supports PaineWebber’s contention that the

meaning of “occurrence or event", which

triggers the six year eligibility

provision for pre-sale claims, is the date

Claimants’ respective interests in the

limited partnership were purchased. See,

e.g., PaineWebber Inc. v. Hofmann, 984

F.2d 1372 (3rd Cir. 1993) (purchases that

occurred more than six years before the

arbitration demand are outside the six-

21

year period provided by § 15 of the NASD

Code); Roney & Co, Vv. Kassab, 981 F.2d 894

(6th Cir. 1992) (courts must enjoin the

arbitration of claims where the alleged

wrongdoing occurred more than six years

prior to the filing of the Claims) ;

Painewebber, Inc. V._Hartmann, 921 F.2d

507 (3rd Car. 1990) (the six-year

eligibility period bars all claims from

arbitration where claimants last

transactions with the brokerage house

occurred more than six years before the

filing of the arbitration); Castellano Vv.

Prudential -Bache Securities, oo. Bo. 90

Civ. 1287, 1990 WL 87575 (S.D.N.Y. June

19, 1990) (court should affirm NYSE holding

that the "occurrence or event giving rise

to the dispute" is the purchase date of

the investment and not the date when the

Purchaser discovered "problems" with the

investment).

22

Having established the date of

purchase as the event which triggers the

six year eligibility provision for the

pre-sale claims, the Court must determine

whether more than six years’ elapsed

between the date Claimants’ interests were

purchased in EP-I and the filing of the

Statement of Claim on July 17, 1992. The

evidence indicates that as to all

Defendants, the claims filed with the NASD

were submitted more than six years

subsequent to the dates their respective

interests in EP-I were purchased. The

Court thus finds, that none of Defendants’

pre-sale claims are eligible for

arbitration, as Claimants violated NASD

Code § 15.

The Court further finds that NASD

Code § 15 is not a statute of limitations

which can be tolled by the principles of

equitable estoppel. Claimants argue, for

23

various reasons, that the principles of

equitable estoppel should apply to toll

the running of the six year eligibility

provision. However, as a matter of law,

tolling does not apply to NASD Code § 15.

See Caviness v. DeRand Resources Lorn. ,

983 F.2d 1295 (4th Cir. 1993) (three year

Statute of repose igs not subject to

tolling); Edward p. Jones & Co. y.

Sorrells, 957 F.2d 509 (7th Can

1992) (section 15 is an eligibility

requirement, not a statute of limitations,

and thus cannot be tolled).

B. RICO Claims

On December 31, 1992, Claimants filed

their Second Amended Statement of Claim,

attempting to expand the list of possible

occurrences or events giving rise to the

alleged RICO violations. Defendants

attempt to create occurrences or events

after July 17, 1986, by incorporating into

24

this case, alleged occurrences or events

relating to other limited partnerships

offered for sale by PaineWebber on dates

subsequent to the EP-I offering. There is

no evidence that any of the Claimants were

investors in any PaineWebber limited

partnerships offered subsequent to EP-I.

It is the finding of the Court that

such attempt at "integration of claims" is

not permissible. See Caviness v. DeRand

Resources Corp., 983 F.2d 1295 (4th Cir.

1993). Claimants cannot circumvent the

eligibility provision by linking

occurrences or events, unrelated to

Defendants, under the guise of

establishing a RICO claim. The alleged

predicate acts must be within the same

conspiracy.

Thus, Claimants RICO claims are

likewise not eligible for arbitration.

The claims were filed more than six years

ore ee

25

Subsequent to the date the limited

partnership interests were purchased.

IV.

Whereas the Court finds that there

are no genuine issues of material fact,

and as a matter of law, Plaintiff is

entitled to Summary Judgment, the Court

will GRANT Plaintiff’s Motion for Summary

Judgment and DENY Defendants’ cross Motion

for Summary Judgment.

An appropriate Order will issue.

/s/ James R. Spencer

UNITED STATES DISTRICT

JUDGE

Date: April 29, 1993

26

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

FILED

February 6, 1995

No. 93-1575

CA-92-591-R

PAINEWEBBER, INCORPORATED

Plaintiff - Appellee

Vv.

BILLIE ALLEN; ELEANOR K. BENSON, a/k/a

Eleanor K. Fuller; CHARLES BROTMAN ;

ELIZABETH DOMINO; JOSEPH S. DOMINO; RUTH

H. GRAY; BRUCE G. HARRIS; EDITH B. HARRIS;

CONSTANCE N. KALKHOF; BARBARA B. LEWIS;

ROBERT HALL LEWIS; JOAN F. MCDONALD; MARIE

O. NEWBERGER; GERTHA POLLARD; LINDA M.

SAFYAN; VERNON LEE THOMPSON; CHARLES J.

TONER, JR.-3 DELORES WEINBERGER; HAL

WEINBERGER, a/k/a Harold Weinberger

Defendants - Appellants

and

E. JEAN METCALF

Defendant

Te hi es Ne ae ae Ol A a et eset eee a oe

Appellants have filed a petition for

rehearing.

The Court denies the petition for

rehearing.

For the Court,

/s/ Bert M. Montague

CLERK

28

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

FILED

February 13, 1995

NO. 93-1575

CA-92-591-R

Painewebber Inc. v. Allen

MANDATE

The judgment of this Court dated

1/10/95 takes effect today.

BERT M. MONTAGUE

CLERK

LNT IN ISS I A AEN IEEE ME EN NS EER LS NMR TI BIN ART NED CARR ROME & EN OST