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WISE v. WACHOVIA SECURITIES LLC

May 4, 2005.

LANCE WISE AND NANCY WISE, Plaintiffs,
v.
WACHOVIA SECURITIES LLC, NATIONAL ASSOCIATION OF SECURITIES DEALERS, Defendants.



The opinion of the court was delivered by: WAYNE ANDERSEN, District Judge

MEMORANDUM OPINION AND ORDER

This case is before the court on the motion of defendants Wachovia Securities LLC ("Wachovia") and National Association of Securities Dealers ("NASD") to dismiss the plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(6) and to confirm the arbitration award pursuant to 9 U.S.C. § 9. For the reasons set forth below, we grant the motion to dismiss and confirm the arbitration award.

BACKGROUND

  For purposes of this motion, we assume the following facts as true. Plaintiffs Lance and Nancy Wise commenced doing business with Scott Winters ("Winters") during the 1990s when Winters was employed with Merrill Lynch. When Winters became employed by First Union, which later merged with Wachovia, Plaintiffs agreed to and did become a customer of Wachovia. Plaintiffs entered into an agreement with Wachovia whereby Wachovia agreed to provide investment advisory services for the Plaintiffs and the Plaintiffs agreed to submit all disputes to Binding Arbitration conducted by NASD. In March of 2000, Winters contacted Plaintiffs concerning an investment opportunity, the Titan Fund. Winters represented to Plaintiffs that the investment would be capitalized with at least ten million dollars and that he (Winters) was personally investing $2,000,000 of his own money in the investment. Winters further claimed Plaintiffs had a good account at Wachovia and they were one of the few people being offered this investment opportunity.

  On or about April 10, 2000, Plaintiffs decided to invest in this fund. On April 12, 2000 Winters resigned from Wachovia. The following day, April 13, 2000 Lance Wise authorized the liquidation of his account at Wachovia to the Titan Fund. In November of 2000, Plaintiffs discovered the Titan Fund was a sham and they had lost all of their investment. Shortly thereafter, Plaintiffs sought reimbursement from Wachovia for their loss due to Winters' misconduct. Following Wachovia's refusal of reimbursement, Plaintiffs requested arbitration of the dispute pursuant to their agreement and paid the fees required by the NASD to arbitrate the dispute.

  NASD followed its procedures by appointing arbitrators, setting a hearing date and allowing discovery to proceed. During the course of the arbitration proceeding, Wachovia filed a motion for summary judgment. Plaintiffs filed their response, accompanied by the affidavit of Plaintiff Lance Wise. Wachovia then filed its reply. On April 28, 2004, the arbitration panel held a short telephonic hearing on the motion. On October 15, 2004, NASD issued its Award in favor of Wachovia, dismissing Plaintiffs' claims against Wachovia "in their entirety with prejudice."

  Plaintiffs filed a two-count complaint in this Court, alleging that the arbitration award should be vacated pursuant 9 U.S.C. § 10 because NASD committed misconduct by granting summary judgment without holding an evidentiary hearing. Plaintiffs further allege that defendant Wachovia induced the decision of the arbitrators, and in doing so, defendants breached Wachovia's fiduciary duty to the Plaintiffs and the covenant of fairness implied in their contract. Defendants have moved to dismiss the complaint and to confirm the arbitration award.

  STANDARD OF REVIEW

  When reviewing a motion to dismiss, the court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Szumny v. Am. Gen. Fin., Inc., 246 F.3d 1065, 1067 (7th Cir. 2001). The purpose of a motion to dismiss is to test the sufficiency of the complaint and not to decide the merits of the challenged claims. Weiler v. Household Fin. Corp., 101 F.3d 519, 524, (7th Cir. 1996). Dismissal is properly granted if it is clear that plaintiff can prove no set of facts to support the allegations set forth in the claim which would entitle her to relief. Hernandez v. City of Goshen, 324 F.3d 535, 537 (7th Cir. 2003).

  DISCUSSION

  I. The Federal Arbitration Act Governs This Dispute

  The Federal Arbitration Act ("FAA"), 9 U.S.C. § 10, governs the grounds for vacating an arbitration award. Under § 10 of the FAA, a district court is permitted to vacate an arbitration award if it finds that: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators; (3) the arbitrators were guilty of misconduct in refusing to postpone a hearing, in refusing to hear relevant evidence, or in misbehaving in some other way; or (4) the arbitrators exceeded their powers or imperfectly executed them. 9 U.S.C. § 10 (a) (1)-(4) (2003); Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir. 2001). "Once a dispute has been resolved through arbitration, the role of the reviewing court is extremely limited." Sphere Drake Insurance Ltd. v. All American Life Insurance Co., 2004 WL 442640, *1, 3 (N.D. Ill. 2004). Accordingly, federal courts must extend extraordinary deference to the arbitration panel's decision. Id.

  A. A Fundamentally Fair Hearing Was Afforded

  Plaintiffs argue that NASD engaged in misconduct because the arbitrators granted summary judgment without ...


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