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Gosser v. Lynch

December 13, 2007

ELIZABETH GOSSER AND CHARLES GOSSER, PLAINTIFFS,
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, A CORPORATION, AND STEVEN K. PORTER, DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

Magistrate Judge Morton Denlow

MEMORANDUM OPINION AND ORDER

Elizabeth Gosser and Charles Gosser ("the Gossers")*fn1 bring a Motion to Vacate an arbitration award entered by a panel before NASD-Dispute Resolution, Inc.*fn2 Merrill Lynch, Pierce, Fenner & Smith Incorporated and Steven K. Porter ("Defendants") filed a Motion to Dismiss Plaintiffs' Motion to Vacate under Fed. R. Civ. P. 12(b)(6) and 9 U.S.C. § 9. For the reasons stated herein, the Gossers' Motion to Vacate is dismissed with prejudice.

FACTUAL AND PROCEDURAL BACKGROUND

On or about July 24, 2000, the Gossers filed a Statement of Claim against the Defendants.

NASD-DR Award, 1. The causes of action related to the recommendation and purchase of various unspecified securities. Id. at 2. Specifically, the Gossers alleged that the Defendants recommended high commission unsuitable products, causing the Gossers to suffer substantial penalties for loans and withdrawals. Id. On December 20, 2006, the NASD-DR panel ("Panel") entered an award after considering the pleadings, testimony, and evidence presented at the pre-hearings and hearings that took place before the Panel. Id. at 6. The Panel (1) denied and dismissed each one of the Gossers' claims with prejudice; (2) withdrew the counterclaim of the Defendants with prejudice; (3) recommended expungement of all reference to the arbitration from Defendant Steven K. Porter's registration records maintained by the NASD Central Registration Depository; (4) ordered that other than forum fees, the parties would each bear their own costs and expenses incurred in the matter; and (5) denied with prejudice any relief not specifically enumerated in the award, including punitive damages and attorneys' fees. Id. at 6-7. The Panel then assessed fees against the Gossers and Defendants. The Panel found that Defendants were entitled to a refund in the amount of $1,850.00,*fn3 and the Panel assessed forum fees jointly and severally to the Gossers in the amount of $13,200.00. Id. at 8-9.

On February 2, 2007, Elizabeth Gosser filed a Motion to Vacate the Arbitration Award in the Northern District of Illinois, sought leave to proceed in forma pauperis, and requested appointment of counsel . Dk. Nos. 1, 3-4. On March 8, 2007, this Court granted Gosser's application for leave to proceed in forma pauperis but ordered her to pay a reduced filing fee of $100. Dk. No. 5. The Court denied Gosser's motion to appoint counsel without prejudice allowing her to renew her request should later developments so warrant. Id. This Court further ordered the Clerk of the Court to prepare and issue summons for service to be effectuated by the U.S. Marshals Service. Id. Summons was returned executed on March 26, 2007. Dk. Nos. 8-9. Defendants appeared and immediately moved to dismiss Gosser's Complaint on April 16, 2007. Dk. No. 12. The Court set a briefing schedule and appointed James K. Hortsman to serve as Gosser's counsel. Dk. No. 14. Gosser's response was due to be filed on May 29, 2007. Id.

On May 17, 2007, James K. Horstman moved for leave to withdraw as counsel on the basis that he felt that the case had no merit and that he could not present a legal response to the pending motion to dismiss and that his client did not agree with him. The Court granted counsel's motion to withdraw based on this irreconcilable difference and reset the briefing schedule to allow Gosser more time to file a response. Gosser failed to respond by the due date of June 14, 2007. Instead, she moved for an extension on June 27, 2007, thirteen days after the deadline. Dk. No. 19. On July 3, 2007, this Court granted Gosser's request and set a new deadline of July 17, 2007. Dk. No. 20. On July 16, 2007, Gosser moved for another extension. Dk. No. 22. Again, the Court allowed Gosser more time and set a final due date of August 2, 2007. Dk. No. 21. Gosser missed that deadline and instead sent letters to the Court dated August 14, 2007 and August 24, 2007. Although Gosser's letters were sent twelve days after the Court's final deadline and do not constitute a formal response, this Court will construe the letters as Gosser's Response.*fn4 Dk. Nos. 23-24.

On August 14, 2007, Gosser wrote that she felt as though she did not have a fair and unprejudiced hearing, and that her attorney appeared to be incompetent. Gosser's August 14, 2007, Letter. Gosser also stated that she wanted the award to be vacated, because attorneys she approached to handle her case would not agree to represent her unless the award was vacated. Id. On August 27, 2007, Gosser wrote an additional letter to the court, stating that she could not afford to hire another attorney, and that Defendants acted in a corrupt manner. Dk. #23; Gosser's August 27, 2007, Letter.

STANDARD

When considering a motion to dismiss under Rule 12(b)(6), a court must accept as true all facts alleged in the complaint and construe all reasonable inferences in favor of the plaintiff. See Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). A plaintiff need not allege all facts involved in the claim. See Sanjuan v. American Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994). However, in order to survive a Motion to Dismiss, Gosser is required to set forth a legal basis for her Motion to Vacate the arbitration award under 9 U.S.C. § 10(a).

DISCUSSION

Gosser seeks to vacate an arbitration decision pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10. It is well established that § 10 of the FAA does not constitute a grant of subject matter jurisdiction. Minor v. Prudential Sec., 94 F.3d 1103, 1104-5 (7th Cir. 1996). There must be an independent basis of federal jurisdiction before a district court can entertain a motion to vacate under that section. See Garrett v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 882, 883-84 (9th Cir. 1993); Ford v. Hamilton Investments, Inc., 29 F.3d 255, 257 (6th Cir. 1994); Harry Hoffman Printing v. Graphic Communications Local, 261, 912 F.2d 608, 611 (2d Cir. 1990); Giangrande v. Shearson Lehman/E.F. Hutton, 803 F. Supp. 464, 466 (D. Mass. 1992). The petitioning party must demonstrate that diversity or federal question jurisdiction exists. This follows from several Supreme Court cases, which have explained:

The Arbitration Act is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under 28 U.S.C. ยง 1331 or otherwise . . . . There must be diversity of citizenship or some other independent basis ...


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