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Howard v. Stanley

April 11, 2007

DANA C. HOWARD, PLAINTIFF,
v.
MORGAN STANLEY, DEFENDANT.



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

MEMORANDUM AND ORDER

This matter comes before the Court on defendant Morgan Stanley's motion to compel arbitration (Doc. 6). Plaintiff Dana Howard has responded to defendant's motion (Doc. 13) and defendant has replied to the response (Doc. 15). For the following reasons, the Court will GRANT defendant's motion and stay this case pending completion of arbitration proceedings.

I. Background

Plaintiff filed this breach of contract action in the Circuit Court, Twenty-Second Judicial Circuit, St. Clair County, Illinois on October 20, 2006. Plaintiff claims his former employer, Morgan Stanley, breached its obligations under his employment agreement (Agreement) when it "failed to fully compensate him in accordance with its agreements to share in the fees and commissions from investment business Plaintiff procured for the Defendant." (Compl. at 2). Defendant removed this case to federal court on December 5, 2006 and, on December 22, 2006, it moved the Court to compel arbitration.

Morgan Stanley claims that the Agreement and plaintiff's registration with several securities exchanges -- using the securities industry's "Form U-4" -- require him to arbitrate his claim. The Agreement contains the following provision on arbitration:

Any controversy or claim arising out of or relating to this Agreement, or its breach, will be settled by arbitration before either the National Association of Securities Dealers, Inc. or the New York Stock Exchange, Inc., as Dean Witter may elect, in accordance with their respective rules, and judgment upon the award entered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Employee agrees to stipulate, upon request by Dean Witter to expedited hearing procedures for such arbitration. (Agrmt. ¶9).

Plaintiff's Form U-4 provides as follows:

I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the SROs [Self Regulatory Organizations] indicated in Item 11 as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction. (U-4 at 10, ¶5). Two of the SRO's plaintiff indicated in his Form U-4 are NASD and NYSE, both of which require registered individuals to arbitrate employment disputes.

Plaintiff claims Morgan Stanley waived its right to compel arbitration "due to its overall lack of responsiveness, its failure to request arbitration when made aware of the dispute and its failure to fulfill its commitment to provide certain documents and responses to Plaintiff's counsel including any agreement which would require arbitration of this dispute." (P.'s Mem. Opp. Def. Mtn. Dism. at 2). Plaintiff also claims that the arbitration provisions upon which Morgan Stanley relies are unconscionable.

II. Analysis

The issue presented in Morgan Stanley's motion is the arbitrability of its dispute with the plaintiff. The parties dispute whether the arbitration provisions in the relevant documents are enforceable, but agree that the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, applies if they are. The FAA "is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary. The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); accord Perry v. Thomas, 482 U.S. 483, 488 (1987). The FAA provides that "[a] written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable. . . ." 9 U.S.C. § 2; see Buckeye Check Cashing, Inc. v. Cardegna, 126 S.Ct. 1204, 1207-08 (2006); Matthews v. Rollins Hudig Hall Co., 72 F.3d 50, 53 (7th Cir. 1995). An arbitration clause must be enforced "unless the agreement to arbitrate is not part of a contract evidencing interstate commerce or is revocable 'upon such grounds as exist at law or in equity for the revocation of any contract.'" Perry, 482 U.S. at 489 (quoting 9 U.S.C. § 2). "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone, 460 U.S. at 24-25; accord County of McHenry v. Ins. Co. of the West, 438 F.3d 813, 823 (7th Cir. 2006).

A. Waiver

Plaintiff claims Morgan Stanley waived its right to arbitrate this dispute because its in-house counsel did not respond to repeated phone calls and emails and did not demand arbitration when it received notice of plaintiff's dissatisfaction.

A party may waive a contractual right to arbitrate implicitly by acting inconsistently with that right. Ernst & Young LLP v. Baker O'Neal Holdings, Inc., 304 F.3d 753, 756 (7th Cir. 2002). In determining whether a party has waived its right to arbitrate under a written agreement, a court should examine the totality of the circumstances and give special emphasis to a party's diligence or lack thereof in seeking ...


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