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Joseph Stevens & Company, Inc. v. Cikanek

July 9, 2008


The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge


Before the Court is Petitioner Joseph Stevens & Company, Inc.'s ("Joseph Stevens") petition to vacate an arbitration award granted in favor of Respondent David Cikanek ("Cikanek"). Respondent has cross moved to confirm the arbitration award. For the reasons below, the Court denies Petitioner's motion, grants Respondent's Motion, and confirms the arbitration award.


I. David Cikanek's Accounts

Joseph Stevens is a full service brokerage firm headquartered in New York. David Cikanek, a citizen of Illinois, opened an IRA account (the "Individual Account") with Joseph Stevens in November 2000. Also in November 2000, Cikanek caused the David M. Cikanek Living Trust to open a separate account (the "Trust Account") with Joseph Stevens. Cikanek, as trustee, controlled and directed the trust at all times relevant to this litigation. (R. 44-3, Ex. G, Trust Agreement; R. 44-2, Ex. A, Arb. Hr'g Tr. at 93.)

Cikanek opened both accounts by completing and signing a New Account Agreement.*fn1

(Petr.'s Ex. P, New Account Agreement.) The New Account Agreement contained an arbitration clause which provided, in relevant part:

[A]ll controversies which may arise between [the parties] concerning any transaction or the construction, performance, or breach of this or any other agreement between [the parties] pertaining to securities and other property, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration. Any arbitration under this agreement shall be conducted pursuant to the Federal Arbitration Act and the laws of the State of New York . . . . [J]udgment upon the award rendered may be entered in any court, state or federal, having jurisdiction. (Petr.'s Ex. P.)

At the time Cikanek opened the accounts with Joseph Stevens, the Trust Account had an approximate balance of $425,372.90 and the Individual Account had an approximate balance of $16,623.60. (R. 44-3, Ex. H, Trust Account Statement; R. 44-2, Ex. B.) Between November 2000 and April 2006, both accounts lost nearly all of their value. (R. 44-2, Ex. B; R. 44-3, Ex. F, Individual Account Statement; R. 44-3, Ex. H.)

II. Arbitration Proceedings

On or about April 12, 2006,*fn2 Cikanek filed an Initial Statement of Claim (the "ISC") with the National Association of Securities Dealers ("NASD")*fn3 commencing arbitration proceedings against Joseph Stevens and other parties.*fn4 (R. 44-4, Ex. I, ISC.) Cikanek alleged fraud, misrepresentation, omissions, churning, unsuitable investment recommendations, unauthorized trading, negligence, negligent hiring and supervision, and breach of fiduciary duty by Joseph Stevens. (Id.) Cikanek claimed $800,000 in actual damages.*fn5 (Id.) The ISC listed the "two accounts at issue" as "4A0-150601 (margin account) and 4A0-750046 (IRA Account)." (Id. at 3.) These two account numbers corresponded to the Trust Account and the Individual Account, respectively.

Cikanek also filed a Uniform Submission Agreement ("Submission Agreement") with the NASD submitting to arbitration.*fn6 (R. 44-4, Ex. J, Cikanek's USA.) Cikanek's Submission Agreement named "David Cikanek" as the claimant, but did not explicitly name either of the accounts. (Id.) After Cikanek filed the ISC and his Submission Agreement, Joseph Stevens filed a corresponding Submission Agreement.*fn7 (R. 44-4, Ex. K, Joseph Stevens' Submission Agreement.) During discovery, Joseph Stevens produced various documents relating solely to the Trust Account, and did not raise any objection to the inclusion of the trust as a party to the action in its answer, at the pre-hearing conference, or at any other point prior to the arbitration hearing. (R. 52-1, Cikanek's Opp'n to Joseph Stevens Application to Vacate at 11.)

The arbitration hearing began on March 19, 2007, in Chicago, Illinois. (R. 44-4, Ex. Q, Arb. Hr'g Tr. at 1.) After Cikanek completed his opening statement, Joseph Stevens moved to strike "those portions of the opening that relate[d] to the [trust]." (Id. at 17.) Joseph Stevens argued that the trust did not have a claim in the action because Cikanek's Submission Agreement did not explicitly name the trust as a claimant, because it would be improper to award the Trust Account damages directly to Cikanek -- who was not a beneficiary of the trust -- and because "the evidence with respect to the [trust] involve[d] different trades, different trading, [and] different time periods." (Id. at 24-25, 29.) Cikanek responded that the trust was a party to the action, but offered to amend the pleadings to explicitly include the trust as a claimant and submit a separate Submission Agreement on behalf of the trust if the arbitration panel felt it was necessary. (Id. at 22-23.) The arbitration panel took Joseph Stevens' motion under advisement and suggested that Joseph Stevens could renew the motion after the parties completed the presentation of evidence. (Id. at 31.)

At that point in the proceedings, Joseph Stevens asked the arbitration panel for permission to amend its answer in order to assert a counterclaim and a cross-claim against the trust. (Id. at 32-33.) Joseph Stevens also requested that Chairman Peppard consult with the full arbitration panel before ruling on the issue or, alternatively, order an adjournment and allow the parties to submit briefs. (Id.) The arbitration panel apparently did not expressly address any of these requests. (Id.) When Cikanek began presenting evidence, Joseph Stevens made a standing objection to all evidence relating to the trust. (Id. at 268.) In its closing statement, Joseph Stevens reiterated its objection to the arbitration panel's acceptance of the trust as a claimant in the action. (R. 44-5, Ex. N, Arb. Hr'g Tr.) The arbitration panel apparently never ...

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