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Merrill Lynch, Pierce, Fenner & Smith Inc. v. Jordan

United States District Court, D. Delaware

April 27, 2017

Merrill Lynch, Pierce, Fenner & Smith Inc., Plaintiff,
v.
Gigi Jordan and The Hawk Mountain LLC, Defendants. J.P. Morgan Securities, LLC, JPMorgan Chase Bank, N.A., Chase Bank USA, N.A., JP Morgan Chase & Co., and Rose Cohen, Plaintiffs,
v.
Gigi Jordan, Defendant.

          Steven T. Margolin, Esq., Gregory E. Stuhlman, Esq., Greenberg Traurig LLP, Wilmington, Del.; Kenneth I. Schacter, Esq., Morgan Lewis & Bockius LLP, New York, N.Y., attorneys for Plaintiff Merrill Lynch, Pierce, Fenner & Smith Inc.

          Joseph J. Bellew, Esq., Cozen O'Connor, Wilmington, Del.; Eugene L. Small, Esq., Small & Calvo, New York, N.Y., attorneys for Plaintiffs J.P. Morgan Securities, LLC, JPMorgan Chase Bank, N.A., Chase Bank USA, N.A., JP Morgan Chase & Co., and Rose Cohen.

          Elihu E. Allinson III, Esq., Sullivan Hazeltine Allinson LLC, Wilmington, Del.; Daniel J. Kornstein, Esq., Elizabeth Saylor, Esq., Emery Celli Brinckerhoff & Abady LLP, New York, N.Y., attorneys for Defendant.

          MEMORANDUM OPINION

          Andrews, U.S. District Judge

         This case is about whether a party that chooses to litigate her claims against one group of defendants is barred from arbitrating related claims against a different group of defendants. Presently before the Court are two requests for preliminary injunctions against ongoing arbitrations and a related request for a temporary restraining order. For the following reasons, those requests are denied.

         I. Background

         Gigi Jordan made many millions in home health care during the 1990s. She now contends her ex-husband and ex-business partner, Raymond Mirra, along with several accomplices, siphoned away much of those millions through fraud. From this basic contention sprung at least two litigations and two arbitrations.

         A. The Fraud Action

         On March 9, 2012, Jordan filed a complaint against Mirra in the Southern District of New York claiming he defrauded her. (Fraud Action D.I. I).[1] That litigation was stayed from May 17, 2012 until February 19, 2015 while Jordan was on trial for poisoning her eight-year-old son. (Fraud Action D.I. 23; 82). In the interim, on December 8, 2014, the case was transferred to the District of Delaware by joint stipulation of the parties. (Fraud Action D.I. 68).

         Shortly after the stay was vacated, on March 9, 2015, Jordan filed an amended complaint adding three business and thirteen individual defendants. (Fraud Action D.I. 84). One of the added defendants was Patrick Walsh, a broker at Merrill Lynch. On June 5, 2015, Walsh moved to dismiss the complaint for failing to state a claim, or, in the alternative, to compel arbitration. (Fraud Action D.I. 108). Dispositive motions in that case are pending. In particular, the Court is considering whether the claims are time-barred. (See D.I. 175 at 2).

         On January 27, 2017, Jordan voluntarily dismissed Walsh. (Fraud Action D.I. 188). This dismissal terminated his motion to compel arbitration.

         B. The RICO Action

         On December 23, 2013, in the District of Delaware, Jordan[2] filed a Racketeer Influenced and Corrupt Organizations ("RICO") action against eight business and eleven individual defendants. (RICO Action D.I. 1). On January 31, 2014, Jordan amended the complaint, adding two more individual defendants, including Walsh. (RICO Action D.I. 20).

         Discovery was conducted in the RICO action starting in January 2015. (See RICO Action D.I. 87 (scheduling order); 88 (initial disclosures)). Merrill Lynch and J.P. Morgan Securities ("JPMS") both participated in third party discovery in the RICO action. Merrill Lynch was served with two requests to produce documents, information, or objects or to permit inspection of premises and two subpoenas directed to the same. (RICO Action D.I. 98, 99, 127, 128; see also D.I. 152 (responding to subpoenas)). Merrill Lynch was also served with and responded to a subpoena to testify. (RICO Action D.I. 326, 332). JPMS was served with two subpoenas to produce documents, information, or objects or to permit inspection of premises. (RICO Action D.I. 151, 159).[3] On January 22, 2015, Magistrate Judge Sherry Fallon entered a protective order that covered confidential documents produced by third parties. (RICO Action D.I. 100). All of this discovery conducted in the RICO action was "deemed to have been completed" in the fraud action. (Fraud Action D.I. 166 at 2).

         On June 3, 2016, Judge Fallon issued a report and recommendation recommending that the case be dismissed on statute of limitations grounds. (RICO Action D.I. 457 at 29). On August 31, District Judge Sue Robinson adopted Judge Fallon's recommendation and dismissed the action. (RICO Action D.I. 472). The dismissal is on appeal to the Third Circuit. (RICO Action D.I. 473).

         C. FINRA Arbitration

         On October 31, 2016, Jordan, together with The Hawk Mountain LLC and Michelle E. Mitchell, filed a statement of claim against Merrill Lynch, commencing a FINRA arbitration. (ML D.I. 7). FINRA is a regulatory body for the financial industry that also acts as an arbitration forum.

         On December 29, 2016, Jordan filed another statement of claim with FINRA against several J.P. Morgan Chase entities along with one employee, Rose Cohen. (JPM D.I. 7).

         D. Motions for Injunctive Relief

         On January 13, 2017, Merrill Lynch moved for a temporary restraining order and a preliminary injunction against Jordan and The Hawk Mountain LLC to halt the ongoing FINRA arbitration. (ML D.I. 1). On January 25, the Court issued a temporary restraining order "to maintain the status quo" and set an expedited briefing schedule on the preliminary injunction request. (ML D.I. 18).

         On February 27, J.P. Morgan Securities, LLC. ("JPMS"), JPMorgan Chase Bank, N.A., Chase Bank USA, N.A., JP Morgan Chase & Co., and Rose Cohen filed their own action seeking declaratory judgments that FINRA does not have jurisdiction to arbitrate Jordan's claims against them and that Jordan has waived her right to arbitrate. (JPM D.I. 2). The J.P. Morgan entities have moved for a temporary restraining order and preliminary injunction on the same grounds. (JPM D.I. 4).

         For the following reasons, Merrill Lynch's motion for a preliminary injunction (ML D.I. 1) and the J.P. Morgan entities' motion for a temporary restraining order and a preliminary injunction (JPM D.I. 4) are denied. II. Standing Jordan argues that JPMorgan Chase Bank ("JPMCB"), Chase Bank USA ("CB USA"), and JP Morgan Chase & Co ("JPMCC") lack standing to seek an injunction because they declined arbitration. I agree.

         Standing to sue is a jurisdictional requirement under Article III of the United States Constitution. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). To establish standing, a plaintiff must show it has suffered an injury-in-fact. Id. An injury-in-fact ensures the plaintiff has "a personal stake in the outcome...." City of Los Angeles v. Lyons, 461 U.S. 95, 101 (1983) (internal quotation marks omitted). When a party seeks prospective relief, such as an injunction, standing requires an "injury or threat of injury" that is "real and immediate, not conjectural or hypothetical." Id. at 102 (internal quotation marks omitted). "Past exposure to [the challenged] conduct does not in itself show a present case or controversy... if unaccompanied by any continuing, present adverse effects." Id. (quoting O'Shea v. Littleton, 414 U.S. 488 (1974) (some alterations omitted)).

         JPMCB, CB USA, and JPMCC are not FINRA members. (JPM D.I. 18-3). Thus, they are not compelled by FINRA's rules to participate in a FINRA arbitration. (Id.). JPMCB, CB USA, and JPMCC exercised their option to decline arbitration. (See id.; see also JPM D.I. 18-6, 19 at 5). As they are not currently parties to an arbitration brought by Jordan, they do not have standing to seek injunctive relief against her. Any threat of future arbitration with Jordan is only conjectural. Compare Lyons, 461 U.S. at 105 (finding fact that plaintiff had been choked by police in the past insufficient to establish threat plaintiff would be choked in the future).

         In arguing they do have standing, JPMCB, CB USA, and JPMCC rely on J.P. Morgan Chase Bank, N.A. v. McDonald, 760 F.3d 646, 648-52 (7th Cir. 2014).

         In that case, the McDonalds, the arbitration plaintiffs, were customers of both JPMCB and JPMS, but brought an arbitration against JPMS and two employees of JPMCB only; JPMCB itself was not a party to the arbitration. The McDonalds held an investment account with JPMCB and a brokerage account with JPMS. The investment account with JPMCB was governed by a contract that not only lacked an arbitration clause, but also had a forum selection clause that required the parties to bring any disputes arising from the contract in a state or federal court in Cook County, Illinois. The crux of the McDonalds' claim in arbitration was mismanagement of the investment account by JPCMB.

         The Seventh Circuit found that JPMCB had standing to sue because the arbitration against JPMS centered on a claim arising out of the investment account held with JPCMB. Thus, the arbitration violated the forum selection clause in the contract between the McDonalds and JPCMB. It was the violation of a contractual right that gave JPCMB standing. See McDonald, 760 F.3d at 650 ("The McDonalds' attempt to arbitrate appears to have violated the clause of their contract with the Bank, and the Bank's claim of the violation is enough to give the Bank standing to bring this action to enforce the clause.").

         JPMCB, CB USA, and JPMCC have not raised any argument that they are seeking to enforce some contractual right they hold. Thus, they do not have standing to seek injunctive ...


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