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Lunsford v. RBD Dain Rauscher, Inc.: US District Court : ARBITRATION | 1983 - FINRA arbitration award confirmed; civil rights claims dismissed

Civil No. 05-2750(DSD/RLE)
Roger K. Lunsford, Calvin
Smith, George Eiland,
Errell Heflin, Vincent
Garner, Mike Clark
and Anthony Louder,
RBC Dain Rauscher, Inc.,
Nations Financial Group,
Inc., Thomas Leechin,
Scott Bennett and Lori LeBarge,
Roger K. Lunsford, Calvin Smith, George Eiland, Errell
Heflin, Vincent Garner, Mike Clark and Anthony Louder,
pro se.
Brian C. Keane, Esq., James K. Langdon, Esq. and Dorsey
& Whitney, 50 South Sixth Street, Minneapolis, MN 55402,
counsel for defendant RBC Dain Rauscher.
Charles R. Shreffler, Jr., Esq., 2900 Thomas Avenue
South, Suite 300, Minneapolis, MN 55416; Gregory M.
Erickson, Esq., William F. Mohrman, Esq. and Mohrman &
Kaardal, 33 South Sixth Street, Suite 4100, Minneapolis,
MN 55402, counsel for defendants Leechin, Bennett and
This matter is before the court on cross-petitions by pro se
petitioners to vacate the arbitration award and by respondents to
confirm the award and dismiss all remaining claims. Based upon a
1 The plaintiffs named in the amended complaint are Roger K.
Lunsford (Lunsford), Calvin Smith (Smith), George Eiland
(Eiland), Errell Heflin (Heflin), Vincent Garner (Garner),
Mike Clark (Clark) and Anthony Louder (Louder).
review of the file, record and proceedings herein, and for the
following reasons, the court denies the petition to vacate,
confirms the arbitration award and dismisses the remaining claims.
Defendant RBC Dain Correspondent Services (RBC) is a
securities clearing house that helps brokerage firms establish
securities accounts. Defendant Nations Financial Group, Inc.
(Nations Financial) is a brokerage firm assisted by RBC and
employs defendants Scott Bennett, Tom Leechin (Leechin) and Lori
LeBarge. Plaintiffs are prisoners, or former prisoners, at the
Federal Correctional Institute in Edgeville, South Carolina who
established securities accounts in 2003 and 2004 at Nations
Financial through Leechin, their broker-representative.
On March 27, 2006, plaintiffs filed an amended complaint
against defendants, asserting seven claims arising from defendants
disputed decision to no longer maintain plaintiffs financial
accounts.1 Plaintiffs asserted claims for conspiracy to interfere
with civil rights pursuant to 42 U.S.C. 1985(3), 1986 and the
due process clause of the Fifth Amendment to the United States
Constitution and securities-related claims for omission or
2 Plaintiffs Customer Agreement provides:
The undersigned agrees that all controversies
which may arise between the undersigned and
(a) your brokerage firm or any of its
officers, employees or agents and (b) RBC or
any of its officers, employees or agents,
concerning any transaction or the
construction, performance or breach of this or
any other agreement between us, shall be
determined by arbitration in accordance with
the rules, then in effect, of the National
Association of Securities Dealers, Inc.
(Bennett Decl. Ex. A-F.)
3 Garner was not compelled to arbitrate and his securities
claims were dismissed because he did not enter into a business
relationship with Nations Financial or RBC. See Lunsford v. RBC
Dain Rauscher CS, Civil No. 05-2750, 2006 WL 2844544, at *6 (D.
Minn. Sept. 28, 2006). Garners civil rights claims were dismissed
because prisoners are not a protected class, there is no
fundamental right to maintain a securities account with a private
institution and a private entity is not subject to a Fifth
Amendment due process claim. Id. at *5.
misstatements of material facts pursuant to 15 U.S.C. 78j(b),
control person liability under 15 U.S.C. 78(t), breach of
contract and breach of fiduciary duty.
Defendants moved to stay the litigation and compel arbitration
on April 11, 2006.2 On September 28, 2006, the court adopted
Magistrate Judge Raymond L. Ericksons August 18, 2006, report and
recommendation, staying proceedings on the civil rights claims,
ordering arbitration of the securities claims and dismissing Garner
for failure to state a claim.3
On February 20, 2007, Lunsford, Smith, Eiland and Heflin
4 Formerly known as the National Association of Securities
Dealers, Inc.
5 The record does not identify the evidence presented at the
hearing or relied on by the Panel in making its final decision.
initiated a Financial Industry Regulatory Authority4 (FINRA)
arbitration proceeding against RBC, Nations Financial and Leechin
asserting the securities claims and violation of the Equal Credit
Opportunity Act. In November 2007, plaintiffs demanded an
evidentiary hearing before the Panel. A telephonic hearing was
held on March 13, 2008, during which the Panel considered the
pleadings, testimony and evidence presented.5 During this hearing,
plaintiffs did not cross-examine defendants, the Panel denied
plaintiffs requests to subpoena recordings of their phone
conversations with Leechin and the Panel did not consider Nations
Financials compliance manuals. The Panel rejected plaintiffs
claims on March 19, 2008 in a written order. Plaintiffs then moved
in this court to vacate the award and rule on the merits of their
claims for omission or misstatements of material facts pursuant to
15 U.S.C. 78j(b) and control person liability under 15 U.S.C.
78(t). Defendants moved to confirm the arbitration award and
dismiss all remaining claims on July 30, 2008.
I. Arbitrating Plaintiffs
A. Arbitration Award
Plaintiffs argue that the Panels failure to consider certain
evidence requires vacation of the arbitration award. Judicial
review of an arbitration award is extremely limited. Kiernan v.
Piper Jaffray Cos., 137 F.3d 588, 594 (8th Cir. 1998). The
underlying award is entitled to an extraordinary level of
deference. Stark v. Sandberg, Phoenix & von Gontard, P.C., 381
F.3d 793, 798 (8th Cir. 2004). The court may not substitute
judicial resolution of disputed issues for an arbitrators
decision. United Paperworkers Intl Union v. Misco, Inc., 484 U.S.
29, 40-41 n.10 (1987); Gas Aggregation Servs., Inc. v. Howard
Avista Energy, LLC, 319 F.3d 1060, 1064 (8th Cir. 2003). Once
parties submit a dispute to arbitration, the merits of the
resulting arbitration award simply are not within the purview of
the court. Gas Aggregation, 319 F.3d at 1064. The court must
confirm an award so long as an arbitrator even arguably construes
or applies the underlying contract. Stark, 381 F.3d at 798.
Arbitration awards, however, are not inviolate, and the court
need not merely rubber stamp the arbitrators interpretations and
decisions. Id. The court can vacate the award under one of a
limited number of statutorily or judicially recognized grounds.
See 9 U.S.C. 10. One such ground is where the arbitrators
refused to hear evidence pertinent and material to the controversy.
Id. 10(a). To warrant vacation of an award, an arbitrators
refusal to hear evidence must either be in bad faith or so gross
as to amount to affirmative misconduct. Misco, Inc., 484 U.S. at
Plaintiffs first argue that they should have been allowed to
cross-examine the defendants in-person at the evidentiary hearing.
Arbitrators generally exercise broad discretion to limit crossexamination.
See Dow Corning Corp. v. Safety Natl Cas. Corp., 335
F.3d 742, 752 (8th Cir. 2003) (arbitration panel properly limited
cross-examination). Here, the Panels pre-hearing order did not
contemplate cross-examination but plaintiffs could have requested
that the Panel subpoena defendants for examination. See FINRA Code
of Arb. Rule 10322(b) (describing procedure for issuance of
subpoenas to parties). Without such a request, the Panels failure
to permit cross-examination does not reflect bad faith or amount to
affirmative misconduct. Further, the arbitration agreement gave
the Panel the ultimate authority to determine the location of the
evidentiary hearing and plaintiffs were not prejudiced by
testifying telephonically. See FINRA Code of Arb. R. 10315(a); see
also Gedatus v. RBC Dain Raucher, Inc., No. 07-1750, 2008 WL
216297, at *4 (D. Minn. Jan. 23, 2008) (petitioner not prejudiced
by presentation of telephonic testimony); cf. Thornton v. Snyder,
428 F.3d 690, 698 (7th Cir. 2005) (Federal Rule of Civil Procedure
43 allows testimony to be taken by contemporaneous transmission
from a different location). Therefore, the Panels decision to
conduct a telephonic hearing does not require vacation of the
arbitration award.
Second, plaintiffs argue that the Panel should have considered
their alleged phone conversations with Leechin. The Panel denied
several requests by plaintiffs to subpoena recordings of the
conversations but allowed plaintiffs to testify about the
conversations during the telephonic hearing. See FINRA Code of
Arb. R. 10322(c) (arbitrator decides whether to issue subpoena).
After considering plaintiffs testimony, the Panel concluded that
the recordings were immaterial to its award. See FINRA Code of
Arb. R. 10323 (arbitrators determine relevance of evidence). Based
upon the Panels conduct, the court determines that its decision
not to subpoena the recordings does not reflect bad faith or amount
to affirmative misconduct. See Marshall v. Green Giant Co., 942
F.2d 539, 550-51 (8th Cir. 1991) (plaintiff not prejudiced by
inability to present evidence when arbitrator determined evidence
to be irrelevant).
Lastly, plaintiffs argue that the Panel improperly refused to
consider Nations Financials compliance manuals, which plaintiffs
allege contained information related to the taped phone recordings
between plaintiffs and Leechin. On July 6, 2007, the arbitration
panel ordered defendants to produce the manuals. (Pls. Ex. C.)
Plaintiffs indicate that they never received the documents and
argue that they were denied the opportunity to address the issue
because the Panel cancelled a pre-hearing conference scheduled for
November 13, 2007. However, a pre-hearing conference was held on
December 6, 2007, and there is no evidence that plaintiffs raised
the issue at that time. Further, plaintiffs offer no arguments in
support of the materiality of the manuals in light of the Panels
finding that the phone conversations between plaintiffs and Leechin
were irrelevant. Consequently, the court determines that the Panel
did not engage in affirmative misconduct or act in bad faith by
failing to address plaintiffs concerns regarding the compliance
manuals. Accordingly, the court confirms the Panels award.
B. Failure to State a Claim
Defendants argue that the remaining plaintiffs civil rights
claims should be dismissed for failure to state a claim. A court
will dismiss a complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6) for failing to state a claim upon which relief
can be granted if, after taking all facts alleged in the complaint
as true, those facts fail to raise a right to relief above the
speculative level. Bell Atlantic Corp. v. Twombly, 127 S. Ct.
1955, 1965 (2007). Dismissal is appropriate pursuant to Rule
12(b)(6) if the allegations show on the face of the complaint
there is some insuperable bar to relief. Benton v. Merrill Lynch
& Co., 524 F.3d 866, 870 (8th Cir. 2008) (citation omitted).
The court dismissed Garners 42 U.S.C. 1985(3), 1986 and
Fifth Amendment claims pursuant to Rule 12(b)(6) because prisoners
are not a protected class, there is no fundamental right to
maintain a securities account with a private institution and a
private entity is not subject to a Fifth Amendment due process
claim. See Lunsford, 2006 WL 2844544, at *5. Because the
remaining plaintiffs 1985, 1986 and Fifth Amendment claims are
legally indistinguishable from those asserted by Garner, dismissal
is warranted. Anticipating this result, plaintiffs request an
opportunity to amend their complaint pursuant to Rule 15(a).
Rule 15(a) provides that a court should permit a party to
amend its pleading when justice so requires. Fed. R. Civ. P.
15(a). There is no absolute right to amend and a court may deny
such a motion upon a showing of undue delay, bad faith, or
dilatory motive, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the non-moving
party, or futility of the amendment. Becker v. Univ. of Neb., 191
F.3d 904, 907-08 (8th Cir. 1999) (citations and quotations
omitted). Denial of a motion to amend as futile is appropriate if
the proposed amended complaint cannot survive a motion to dismiss
for failure to state a claim. In re Senior Cottages of Am., LLC,
482 F.3d 997, 1001 (8th Cir. 2007).
According to plaintiffs, while the main facts central to
their claims and their original story have not changed an
amendment is necessary because the jurisdiction in which
[plaintiffs] choose to pursue their claims has changed. (Pls.
Resp. Memo [Doc. 94] at 4.) However, plaintiffs claims are
subject to dismissal on the merits, not because of a jurisdictional
deficiency. Therefore, amendment of plaintiffs complaint would be
futile and the court denies their request. Accordingly, the court
grants defendants motion to dismiss the remaining plaintiffs
civil rights claims.
II. Non-Arbitrating Plaintiffs
Defendants argue that Louder and Clark should be dismissed for
failure to prosecute their claims. Rule 41(b) provides that a
court may dismiss a plaintiffs claim if the plaintiff fails to
prosecute or otherwise comply with a court order and, unless
otherwise specified, such a dismissal operates as an adjudication
on the merits. Fed. R. Civ. P. 41(b). The court may take action
under Rule 41(b) as part of its inherent power to control its
docket. M.S. v. Wermers, 557 F.2d 170, 175 (8th Cir. 1977).
However, dismissal with prejudice is an extreme sanction and
should be used only in cases of willful disobedience of a court
order or persistent failure to prosecute a complaint. See Smith
v. Gold Dust Casino, 526 F.3d 402, 405 (8th Cir. 2008). When a
plaintiff engages in a clear record of delay, dismissal is
appropriate. See Skelton v. Henry, 390 F.3d 614, 617-19 (8th Cir.
2004) (dismissal proper when plaintiff filed no dispositive motion
in three years); Rodgers v. Curators of Univ. of Mo., 135 F.3d
1216, 1221 (8th Cir. 1998) (dismissal warranted when plaintiffs
dilatory conduct continued over two-year period).
In this case, Louder and Clark have not arbitrated their
securities claims, prosecuted their civil rights claims or
responded to defendants motion to dismiss. Moreover, the
remaining plaintiffs indicate that Louder and Clark were released
from prison and that they are no longer in contact. Based upon
this information, the court grants defendants motion and dismisses
Louder and Clark with prejudice.
Accordingly, based upon the file, record and proceedings
herein, IT IS HEREBY ORDERED that:
1. Plaintiffs petition to vacate the arbitration award
[Doc. No. 80] is denied;
2. Defendants petition to confirm the arbitration award
[Doc. No. 88] is granted;
3. Defendants motion to dismiss all remaining claims is
granted [Doc. No. 84]
Dated: December 17, 2008
s/David S. Doty
David S. Doty, Judge
United States District Court


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