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Millas v. Morgan Stanley & Co.

December 1, 2008


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


A. Factual and Procedural History

On June 23, 2008, Millas filed this action in the Third Judicial Circuit, Madison County, Illinois (Doc. 2-2). Morgan Stanley is registered to sell securities as a member of the Financial Industry Regulatory Authority ("FINRA").*fn1 Morgan Stanley hired Millas as a branch manager in August 1999. The employment agreement included the following arbitration clause:


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. This paragraph will not be deemed a waiver of Dean Witter's right to injunctive relief as provided for in paragraph 3 of this Agreement.

Doc. 16, Exh. B, ¶ 7. Additionally, as required by FINRA rules, Millas completed and filed a Uniform Application for Securities Industry Regulation ("Form U-4"), which also included an arbitration provision:

I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the SROs 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.

Doc. 16, Exh. C, ¶ 5.*fn2 NASD Code § 13200 requires that a dispute that "arises out of the business activities of a member or an associated person and is between . . . Members and Associated Persons" must be submitted to arbitration. Neither party disputes that Morgan Stanley is a "member" and Millas is an "associated person" under the Code.

In December 2006, Millas assumed the title of Vice President and Financial Advisor. In August 2007, Millas was informed that Morgan Stanley was placing him on "heightened security" due to allegations that he engaged in unauthorized trading through client accounts. Millas claims that he was never provided with any specific information regarding these allegations. Millas filed a letter of resignation on January 29, 2008, but Morgan Stanley terminated his employment on that date anyway.

Soon after he was terminated, Millas pursued an employment offer with Stifel Nicolaus. On February 11, 2008, Morgan Stanley filed a Uniform Termination Notice for Securities Industry Registration ("Form U-5") with the FINRA, wherein Morgan Stanley stated that Millas was discharged because he "exercised discretion in customer accounts without proper authorization."

According to the complaint, Morgan Stanley replied affirmatively to a question on the Form U-5 that asked: "Did the individual voluntarily resign from your firm, or was the individual discharged or permitted to resign from your firm, after allegations were made that accused the individual of: violating investment-related statutes, regulations, rules or industry standards and conduct?" Millas claims that these statements are false, and that Stifel Nicolaus rescinded its employment offer due to the false statements.

Millas's complaint alleges that Morgan Stanley breached contract by failing to properly compensate him according to the fee-sharing and commission provisions in his contract. He also raises a claim of defamation, alleging that Morgan Stanley's statements on his Form U-5 are false and were made with the intent to damage his reputation. Finally, Millas claims that Morgan Stanley's refusal to accept a written resignation and its false statements on the Form U-5 constitute a tortious interference with a business expectancy, as Stifel Nicolaus rescinded its employment offer due to Morgan Stanley's conduct.

On August 11, 2008, Morgan Stanley removed the case to this federal District Court alleging diversity jurisdiction under 28 U.S.C. § 1332 (Doc. 2). Claiming that Millas's employment contract, his Form U-4, and the FINRA rules require the parties to settle their dispute via arbitration, Morgan Stanley moved this Court to stay proceedings and compel arbitration on September 11, 2008 (Doc. 16). Millas filed a response on October 14, 2008 (Doc. 23). Morgan Stanley elected not to file a reply.

Having fully considered the parties' filings, the Court hereby GRANTS Morgan Stanley's motion to compel arbitration (Doc. 16) and STAYS this action pending the ...

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