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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1995
- **Citation:** 516 U.S. 807

## Text

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Withdrawn Petitioner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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1718%3A1. Public record. Not legal advice.