Dillard v. Merrill Lynch, Pierce, Fenner & Smith, Inc. ( 1992 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 90-2722
_______________
C.G. DILLARD,
Plaintiff-Appellant,
VERSUS
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., et al.,
Defendants-Appellees.
_______________
No. 90-2761
_______________
CARVEL G. DILLARD,
Plaintiff-Appellant,
VERSUS
SECURITY PACIFIC CORP., et al.,
Defendants-Appellees.
_______________
No. 91-2135
_______________
CARVEL DILLARD,
Plaintiff-Appellant,
VERSUS
SECURITY PACIFIC BROKERS, INC., et al.,
Defendants-Appellees.
_________________________
Appeals from the United States District Court
for the Southern District of Texas
_________________________
(May 15, 1992)
Before POLITZ, Chief Judge, BROWN and SMITH, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
In this consolidated appeal, Carvel Dillard challenges an
order compelling arbitration of his 1985 case and orders dismissing
his 1986 and 1988 cases. We affirm the order compelling arbitra-
tion, affirm in part the dismissals, and remand the 1986 and 1988
cases to the respective district courts.
I.
Carvel Dillard maintained an account with Merrill Lynch,
Pierce, Fenner & Smith ("Merrill Lynch") for the purpose of trading
securities. The brokerage agreement contained a provision by which
the parties agreed to settle any disputes through arbitration.1 In
December 1983, Merrill Lynch partially liquidated some stock held
in Dillard's account S)Q an action Dillard claims it took over his
objection.
Dissatisfied with Merrill Lynch, Dillard entered into an
agreement with the Financial Clearing Services Corporation (FCSC),
Security Pacific Brokers, Inc., and Security Pacific Corporation
1
Although there appear to be several brokerage agreements between
Merrill Lynch and Dillard, we refer to these as "the agreement" or "the
contract."
2
(collectively "Security Pacific")2 on February 14, 1984, whereby
Security Pacific agreed to purchase put and call options for
Dillard upon request and Dillard agreed to open an account with
Security Pacific and keep it fully margined. On February 16, 21,
and 23, Dillard delivered to Security Pacific three drafts on his
Merrill Lynch account totaling $56,256 to finance Security
Pacific's trading on his behalf. Merrill Lynch failed to honor the
drafts, however, as Dillard's account then had a deficit in excess
of $5,000. On February 27, Dillard directed Security Pacific to
purchase certain options. Security Pacific did not carry out this
order; nor did it carry out a subsequent order for the same options
at a different price.
Security Pacific sued Dillard to recover on the bad Merrill
Lynch drafts. Although Dillard answered Security Pacific's
complaint, he failed to comply with the court's discovery orders,
and a default judgment was entered against him. After he filed his
answer, Security Pacific (along with Merrill Lynch) instigated a
criminal prosecution against him with regard to the bad drafts.
Dillard then filed three pro se federal lawsuits S)Q respec-
tively, in 1985, 1986, and 1988 S)Q against Merrill Lynch, Security
Pacific, and other parties involved in the securities transactions
and the criminal prosecution. All three of Dillard's lawsuits are
at issue in this consolidated appeal.
2
Security Pacific Brokers, Inc., and FCSC are subsidiaries of Security
Pacific Corporation. Dillard dealt directly with Security Pacific Brokers,
Inc., and FCSC.
3
A.
On July 16, 1985, Dillard filed suit ("the 1985 case") against
Merrill Lynch, alleging that it had committed certain fraudulent
acts in handling securities transactions on his behalf. His
complaint alleged that Merrill Lynch violated section 17(a) of the
Securities Act of 1933 ("the 1933 Act"), 15 U.S.C. § 77q(a);
section 10(b) of the Securities Exchange Act of 1934 ("the 1934
Act"), 15 U.S.C. § 78j(b), and rule 10b-5 promulgated thereunder,
17 C.F.R. § 240.10b-5; and the Texas Deceptive Trade Practices Act
(DTPA), Tex. Bus. & Com. Code Ann. § 17.41 et seq.
Merrill Lynch moved to dismiss the complaint for failure to
state a claim as required by Fed. R. Civ. P. 12(b)(6); in the
alternative, it moved for a more definite statement on the ground
that Dillard had failed to plead fraud with sufficient particular-
ity as required by Fed. R. Civ. P. 9(b). In addition, Merrill
Lynch moved to compel arbitration pursuant to the arbitration
provisions of his trading agreement with Merrill Lynch and
requested a stay pending arbitration.
Dillard then filed a "Motion To Declare Compulsory Arbitration
Provisions of Defendant's Adhesion Contracts To Be Invalid, and
Unenforceable and To Enjoin Enforcement of Same." In the motion,
Dillard for the first time raised allegations of an antitrust
conspiracy among brokerage firms to include arbitration clauses in
all brokerage contracts.
On March 23, 1987, Judge Ross Sterling held a motions hearing.
From the bench he ruled that Dillard had no private right of action
4
under section 17(a) of the 1933 Act; that he had not properly
pleaded a cause of action under rule 10b-5; and that the claims he
had properly pleaded were subject to arbitration and should be
stayed pending arbitration. He also ruled that Dillard had not
properly raised the requests for declaratory and injunctive relief
in his pleadings. Judge Sterling died before entering the order,
and the case was assigned to Judge Sim Lake.
On February 1, 1990, Judge Lake "concur[red] with Judge
Sterling's finding of a contract requiring arbitration" and ordered
the parties to begin arbitration within thirty days. He went on to
state that Dillard had made no claim "that creates any question of
law, equity or fact that cannot be arbitrated."3 He also noted
that Dillard's request for declaratory and injunctive relief was
not properly raised in his pleadings, stating that "[p]laintiff's
motions objecting to arbitration on the grounds of federal anti-
trust law or adhesion contracts are irrelevant because they are
beyond the scope of his pleadings." In addition, he denied
Dillard's "Motion for Findings of Fact and Conclusions of Law
Concerning Injunctive Relief and Other Previously Filed Motions"
that had been filed on October 11, 1989. Finally, he dismissed the
entire action without prejudice.
3
At the time of Judge Sterling's bench rulings, it was the law of this
circuit that claims under the 1933 Act and the 1934 Act could not be arbi-
trated. Thus, Judge Sterling's dismissal of Dillard's § 17(a) and rule 10b-5
claims was a necessary prerequisite to the arbitration order. Soon thereaf-
ter, the Supreme Court held that claims under both federal acts are subject to
arbitration. See Rodriguez de Quijas v. Shearson/Am. Express, 490 U.S. 477,
482-84 (1989) (1933 Act); Shearson/Am. Express v. McMahon, 482 U.S. 220, 238
(1987) (1934 Act). Judge Lake accordingly entered an order compelling
arbitration of all claims related to the trading transactions.
5
On February 14, 1990, Dillard filed a motion under Fed. R.
Civ. P. 59(e) to alter or amend the judgment. Although he took
issue with the court's refusal to consider his antitrust allega-
tions as a separate cause of action, he did not amend his complaint
to add these allegations. He also filed a motion for trial by
jury. These motions were denied.
On March 3, 1990, Dillard initiated arbitration proceedings
before the Chicago Board Options Exchange by filing a Statement of
Claim, which was a copy of his first amended complaint in the 1985
case. The matter was referred to the National Association of
Securities Dealers, which dismissed all of Dillard's claims after
an arbitration hearing on January 4, 1991. Dillard now appeals,
challenging the district court's arbitration order and dismissal of
the case as well as its refusal to enter findings of fact and to
enjoin the enforcement of the arbitration provisions.
B.
On August 20, 1986, Dillard filed his second federal lawsuit
("the 1986 case") S)Q this time against Security Pacific.4 In his
original complaint, Dillard brought claims relating to (1) the
securities transactions (under federal securities law) and (2) the
criminal prosecution (under the Racketeer Influenced and Corrupt
Organizations Act (RICO), 18 U.S.C. § 1961 et seq., and the Hobbs
4
Dillard initially brought this case against Security Pacific
Brokers, Inc., and FCSC. Later, as noted infra, he unsuccessfully attempted
to add Security Pacific Corporation as a defendant.
6
Act, 18 U.S.C. § 1951; he also accused Security Pacific of "false
swearing" and "bribery").5
On May 20, 1987, the court dismissed the suit on res judicata
grounds. Judge Sterling reasoned that all of the claims asserted
in Dillard's complaint should have been raised as compulsory
counterclaims to Security Pacific's suit to recover on the bad
Merrill Lynch drafts.
Dillard appealed, and on January 15, 1988, we affirmed the
dismissal as to all claims arising prior to Dillard's answer to
Security Pacific's complaint but reversed as to all claims arising
after the answer was filed. Specifically, we concluded that the
res judicata bar of the default judgment (entered after Dillard had
failed to comply with discovery orders) did not encompass Dillard's
claims arising out of the criminal prosecution, as the prosecution
was instituted after Dillard filed his answer. Dillard v. Security
Pacific Brokers, 835 F.2d 607, 609 (5th Cir. 1988) ("Dillard I").
We therefore vacated the dismissal as to Dillard's claims arising
from the criminal prosecution and remanded for further proceedings.
Dillard filed a supplemental complaint on July 18, 1988.
Judge James DeAnda, to whom the suit had been transferred, struck
the supplemental complaint on August 2, 1988, reasoning that
Dillard had failed to request leave to file. In his attempted
supplemental complaint, Dillard added claims under the federal
antitrust laws; he also accused Security Pacific of "malicious
5
The false swearing, bribery, and Hobbs Act claims were brought as
part of the RICO claim.
7
prosecution" and of "undertak[ing] an illegal, improper and
perverted use of criminal process." Finally, he made accusations
against Security Pacific Corporation (the parent company of
Security Pacific Brokers, Inc., and the FCSC), Jenkens & Gilchrist
(counsel for Security Pacific), Merrill Lynch, and the Securities
Industry Association (SIA). The suit subsequently was transferred
back to Judge Lake.
After a status conference on September 15, 1989, Judge Lake
ordered Dillard to file an amended complaint by October 15, 1989.
Dillard did not file an amended complaint; instead, he filed a
motion for a stay pending our decision in the 1988 case discussed
infra. Judge Lake granted the stay on October 27, 1989. We then
disposed of the first appeal of the 1988 case on May 22, 1988, and
Judge Lake ordered Dillard to file an amended complaint by
October 5, 1990, or face dismissal.
Dillard complied with Judge Lake's order. His amended
complaint added Merrill Lynch, Jenkens & Gilchrist, and the
Securities Pacific Corporation as defendants. He also brought
claims for defamation, abuse of process, and malicious prosecution,
as well as under "Title 42 . . . of civil rights." He did not
bring a claim under the federal antitrust laws, nor did he name SIA
as a defendant.
In response, the defendants moved to dismiss the complaint
under rule 12(b)(6). Judge Lake refused to allow Dillard to add
Merrill Lynch, Jenkens & Gilchrist, and Security Pacific Corpora-
tion as defendants because "no leave was granted to add new
8
parties." He specifically noted that the "newly added defendants"
were dismissed without prejudice. He then dismissed (1) the
federal securities claims stemming from the trading transactions as
res judicata on the grounds cited in our Dillard I opinion; (2) the
defamation, malicious prosecution, and abuse of process claims as
time-barred; (3) the Hobbs Act claim on the ground that the statute
cited did not provide a private cause of action; and (4) the RICO
and civil rights claims without prejudice for failure to state a
claim. Dillard now appeals the district court's disposition of the
case.
C.
Dillard filed a third federal lawsuit in 1988 ("the 1988
case") S)Q this time against Security Pacific Corporation, Security
Pacific Brokers, Inc., FCSC, Merrill Lynch, SIA, and Jenkens &
Gilchrist. He asserted antitrust claims against Merrill Lynch,
Security Pacific, and SIA; and claims related to the criminal
prosecution (i.e., defamation, abuse of process, malicious
prosecution, RICO, and Hobbs Act claims) against Merrill Lynch,
Security Pacific, and Jenkens & Gilchrist. He also accused Merrill
Lynch and the Security Pacific entities of wrongdoing with regard
to the trading transactions.
All the defendants moved for dismissal under rule 12(b)(6).
Merrill Lynch also moved to compel arbitration. Judge Hughes
dismissed the case in three separate orders. Dillard appealed, and
9
we remanded for the limited purpose of requiring the court to state
its reasons for the dismissals.
On July 6, 1990, Judge Hughes issued his opinion explaining
his earlier orders. First, he stated that the Security Pacific
entities were dismissed because all the claims against them were
pending in the 1986 case in Judge Lake's court. He then noted that
SIA was dismissed for failure to state a claim against it. With
regard to Jenkens & Gilchrist, he stated that the case would be
abated until Judge Lake ruled on Dillard's motion to amend his
complaint to add Jenkens & Gilchrist as a defendant in the 1986
case. Finally, Judge Hughes noted that the case against Merrill
Lynch was abated until Dillard received a negative ruling on a
motion to amend his complaint in the 1985 case to include addi-
tional claims against Merrill Lynch. Dillard now challenges Judge
Hughes's disposition of the case.
I.
We first consider Dillard's complaints with regard to the 1985
case. He claims that the district court erred in compelling
arbitration of his claims, in denying his request for a jury trial,
in denying his request for declaratory and injunctive relief, and
in failing to enter findings of fact and conclusions of law in
connection with the denial of declaratory and injunctive relief.
10
A.
Judge Lake found that the Dillard-Merrill Lynch contract
required arbitration6 and that Dillard raised no claim "creat[ing]
any question of law, equity or fact that cannot be arbitrated." He
therefore ordered the parties to begin arbitration within thirty
days and dismissed Dillard's claims without prejudice.7 Dillard
contends that the order compelling arbitration was improper. We
disagree.
Section 2 of the Federal Arbitration Act ("the Act"), 9 U.S.C.
§ 1 et seq., declares that an arbitration clause involving
interstate commerce is "valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation
of any contract." The Act also provides that "[i]f the making of
the arbitration agreement . . . be in issue, the court shall
proceed summarily to the trial thereof." Id. § 4. In a case in
which such a trial is required, the Act allows the party resisting
arbitration to demand a jury trial. Id.
6
The contract states the following:
It is agreed that any controversy between us arising out of your
business or this agreement, shall be submitted to arbitration
conducted under the provisions of the Constitution and Rules of
the Board of Governors of the New York Stock Exchange, Inc. or
pursuant to the Code of Arbitration Procedure of the National
Association of Securities Dealers, Inc., as the undersigned may
elect.
7
Dillard argues at length that the district court improperly dismissed
his complaint for failure to state a claim. Although Judge Sterling noted
from the bench that Dillard had failed to state a claim under the federal
securities laws, Judge Lake explicitly dismissed the complaint without
prejudice pursuant to the arbitration clause.
11
Dillard contends that he deserves a jury trial on the question
of the validity of the arbitration clause.8 He argues essentially
that he has put the "making of the arbitration" clause "in issue"
by alleging that the clause is an unconscionable "adhesion
contract." He contends that he had no choice but to accept the
arbitration clause in the Merrill Lynch contract because the
inclusion of the clause was nonnegotiable. He further alleges that
he could not go elsewhere because the majority of brokerage firms
use such terms in their contracts; he adds that such uniform use is
the result of an antitrust conspiracy among brokerage firms.
A party to an arbitration agreement cannot obtain a jury trial
merely by demanding one. Saturday Evening Post Co. v. Rumbleseat
Press, 816 F.2d 1191, 1196 (7th Cir. 1987). The party resisting
arbitration bears "the burden of showing that he is entitled to a
jury trial under § 4 of the Arbitration Act." Bhatia v. Johnston,
818 F.2d 418, 422 (5th Cir. 1987).9 Our caselaw has not estab-
lished the precise showing a party must make. We have, however,
suggested that the party must make at least some showing that under
8
There is no question that Dillard's substantive claims are arbitra-
ble. See Rodriguez de Quijas, 490 U.S. at 482-84 (1933 Act claims subject to
arbitration); McMahon, 482 U.S. at 238 (1934 Act claims subject to arbitra-
tion); Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 340
(5th Cir. 1984) (DTPA claims subject to arbitration). The only issue, then,
is whether the arbitration clauses at issue in this case are enforceable.
9
Under Supreme Court precedent, a party must challenge the "'making'
of the agreement to arbitrate" itself in order to create a jury-triable issue.
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967).
If the party makes allegations regarding the contract as a whole S)Q e.g.,
that the brokerage contract is a contract of adhesion S)Q that issue must go
to arbitration. Id. In most cases in which a customer seeks to avoid
arbitration by alleging that the contract is one of adhesion, he fails to
allege specifically that the arbitration clause is adhesive. See, e.g.,
Bhatia, 818 F.2d at 422. Dillard has met this threshold requirement, for he
focuses specifically on the arbitration provision as an adhesive term.
12
prevailing law, he would be relieved of his contractual obligation
to arbitrate if his allegations proved to be true. In addition, he
must produce at least some evidence to substantiate his factual
allegations. T & R Enters. v. Continental Grain Co., 613 F.2d
1272, 1278 (5th Cir. 1980).10
We affirm the district court's order to arbitrate on the
ground that Dillard failed to make a sufficient showing that the
arbitration provision at issue should not be enforced. Adhesion
contracts are not automatically void. Instead, the party seeking
to avoid the contract generally must show that it is unconsciona-
ble. See 6A Arthur L. Corbin, Contracts § 1376 at 20-21 (1962) and
7-9 (1991 Supp.). Several federal courts have considered and
rejected the argument that agreements to arbitrate disputes in the
securities context are unconscionable as a matter of law. As
explained by the Ninth Circuit,
The strong federal policy favoring arbitration, coupled
with the extensive regulatory oversight performed by the
SEC in this area, compel the conclusion that agreements
to arbitrate disputes in accordance with SEC-approved
procedures are not unconscionable as a matter of law.
Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 286 (9th Cir.
1988). See also Adams v. Merrill Lynch, Pierce, Fenner & Smith,
10
In T & R Enters., the party seeking to avoid arbitration put the
existence of the arbitration agreement "in issue" by alleging that although he
had signed the agreement, the true agreement between the parties was reached
during a telephone conversation in which arbitration was not discussed.
First, we rejected this argument as "contrary to the universally prevailing
rule that . . . one who executes a written contract is bound by its terms."
Id. We also noted that we were "rather persuaded" by Almecenes Fernandez,
S.A. v. Golodetz, 148 F.2d 625, 628 (2d Cir. 1945), which held that not only
must a party deny that he made an agreement to arbitrate, but evidence must be
produced to substantiate the denial. Id. See also Interbras Cayman Co. v.
Orient Victory Shipping Co., S.A., 663 F.2d 4, 7 (2d Cir. 1981) (reaffirming
Almecenes Fernandez).
13
888 F.2d 696, 700 (10th Cir. 1989); Surman v. Merrill Lynch,
Pierce, Fenner & Smith, 733 F.2d 59, 61 n.2 (8th Cir. 1984). In
addition, Dillard failed to produce any evidence that the agreement
to arbitrate was somehow unfair or oppressive in this case.
Moreover, the allegations of antitrust conspiracy do not lead
to the conclusion that the Merrill Lynch contract was an unconscio-
nable contract of adhesion. Even if the district court were to
find that such an antitrust conspiracy existed, this finding would
not compel the invalidation of the agreement to arbitrate; instead,
it would lead to an award of damages for any injury stemming from
the anticompetitive behavior.11 Thus, because Dillard failed to
show the existence of a genuine issue of fact to be tried before a
jury, we affirm the district court's arbitration order and
dismissal without prejudice.12
B.
In his "Motion To Declare Compulsory Arbitration Provisions of
Defendant's Adhesion Contracts To Be Invalid, and Unenforceable and
To Enjoin Enforcement of Same," Dillard attempted to set forth his
antitrust conspiracy allegations as separate causes of action.
11
Section 4 of the Clayton Act, 38 Stat. 731, as amended, 15 U.S.C.
§ 15(a), provides that any person "injured in his business or property by
reason of anything forbidden in the antitrust laws . . . shall recover
threefold the damages by him sustained . . . ."
12
In addition to alleging that he was denied his statutory right to a
jury trial, Dillard claims he was deprived of his right to a jury trial under
the Seventh Amendment. This argument is without merit. In McMahon, the Court
endorsed enforcing agreements to arbitrate statutory claims unless Congress
has prohibited waiver of a judicial forum for the particular claim at issue.
482 U.S. at 226-27. We conclude from this that the Seventh Amendment does not
preclude "waiver" of the right to jury trial through the signing of a valid
arbitration agreement.
14
Judge Lake did not deny this "motion" as Dillard contends; instead,
he refused to consider Dillard's request for declaratory and
injunctive relief because Dillard did not properly request such
relief in his pleadings.
In order to obtain a permanent injunction or a declaratory
judgment, a party must make his request for such relief in his
pleadings. Fed. R. Civ. P. 8(a). Dillard's complaint failed to
make such a request. Moreover, there was no indication that
Dillard was requesting temporary or preliminary relief S)Q a
request that can be made in a motion. 11 Charles A. Wright, et
al., Federal Practice and Procedure § 2949 at 467 (1973).
Therefore, Judge Lake properly refused to consider Dillard's
allegations apart from Dillard's attack on the validity of the
arbitration clauses per se.13
III.
With regard to the 1986 case, Dillard contends that the
district court erred in dismissing his defamation, malicious
prosecution, and abuse of process claims as time-barred and in
13
Dillard claims that he was entitled to findings of fact with regard
to the denial of injunctive and declaratory relief. Fed. R. Civ. P. 52(a)
requires such findings in "actions tried upon the facts without a jury" and
with regard to "granting or refusing interlocutory injunctions." Neither
situation was present in this case. First, no action was tried to the court
without a jury. Judge Lake ordered the parties to commence arbitration; he
settled no substantive claims. Second, Dillard did not make a request for an
"interlocutory injunction." Rather, he requested a declaratory judgment and
permanent relief from his obligations under the arbitration clause.
15
dismissing his civil rights and RICO claims for failure to state a
claim.14 These grounds of error are addressed below.
A.
Dillard filed his original complaint in this suit on
August 20, 1986, accusing Security Pacific15 of "[f]alse [s]wearing"
and "brib[ing] a law enforcement officer" in connection with the
filing of criminal charges against him. He also alleged that
"[t]he false criminal charge was one of a number of outrageous
actions done by defendant[] to harass and oppress" him. These
charges were based upon the fact that "[i]n August 1984 defendant[]
made a knowingly false affidavit charging theft by
plaintiff . . . ." At the time of the filing of his 1986
complaint, Security Pacific had complained to the authorities, and
an indictment had been issued on August 19, 1985.
Several events occurred after the filing of this original
complaint. The indictment was quashed on September 16, 1987. On
that same day, a second indictment was issued but was dismissed on
June 21, 1988. On July 18, 1988, Dillard filed his supplemental
complaint (which was stricken for failure to ask leave of court to
14
Dillard also challenges the district court's refusal to allow him to
add Merrill Lynch, Jenkens & Gilchrist, and Security Pacific Corporation as
new party defendants. This refusal was proper, as he failed to request leave
of court.
In addition, Dillard attacks the district court's dismissal of his
allegations and claims related to the trading transactions. Those claims are
barred by Dillard I, however, and were properly dismissed. Finally, we do not
consider the court's dismissal of Dillard's Hobbs Act claim, as he does not
raise it as a ground for error.
15
As noted supra, the 1986 case started and ended as a case against
FCSC and Security Pacific Brokers, Inc.
16
file it) alleging a "pattern of baseless repetitive claims"
constituting "a badge of malicious prosecution." He also alleged
"an illegal, improper and perverted use of criminal process."
Dillard specifically raised abuse of process, malicious
prosecution, and defamation causes of action on October 5, 1990, in
his first amended complaint, which he filed after we remanded to
the district court to consider Dillard's claims arising from the
criminal prosecution in Dillard I. The district court used the
date of the first amended complaint S)Q October 5, 1990 S)Q for
purposes of calculating the timeliness of Dillard's malicious
prosecution, abuse of process, and defamation causes of action and
found that all three were time-barred. Use of this tolling date
would be erroneous, however, if the claims in the amended complaint
stemmed from the same "transaction or occurrence" addressed by the
original complaint. In such a case, the amended complaint would
"relate back" to the filing of the original complaint.
Under Tex. Civ. Prac. & Rem. Code § 16.068,16 which is similar
to Fed. R. Civ. P. 15, the limitations period is tolled by the
first pleading related to the transaction or occurrence:
If a filed pleading relates to a cause of action,
cross action, counterclaim, or defense that is not
subject to a plea of limitation when the pleading is
filed, a subsequent amendment or supplement to the
pleading that changes the facts or grounds of liability
or defense is not subject to a plea of limitation unless
the amendment or supplement is wholly based on a new,
distinct, or different transaction or occurrence.
16
Under Erie R.R. v. Tompkins, 304 U.S. 64 (1938), we must evaluate
the state of limitations issues in accordance with Texas law.
17
Texas courts have employed section 16.068 both to save defective
pleadings and to allow amendments alleging separate but related
bases of recovery.17 Thus, the inquiry is not whether an amended
complaint adds a new or different cause of action; rather, it is
whether that new or different cause of action is wholly based upon,
and grows out of, a new, distinct, or different transaction or
occurrence. Meisler v. Republic of Tex. Sav. Ass'n, 758 S.W.2d
878, 882 (Tex. App. S)Q Houston [14th Dist.] 1988, no writ).
As the record now stands, we cannot discern whether the
defamation, abuse of process, and malicious prosecution claims grew
out of a "wholly . . . new, distinct, or different transaction or
occurrence." We thus remand the timeliness issue to the district
court for consideration of the relation-back issue. We also cannot
discern from the district court's opinion whether Dillard properly
raised the relation-back issue.18 If he did not, we cannot consider
the issue on appeal, see Way v. Reliance Ins. Co., 884 F.2d 866,
868 n.3 (5th Cir. 1989); thus, there would be no need for the
17
See, e.g., Abbott v. Foy, 662 S.W.2d 629, 631 (Tex. App. S)Q Houston
[14th Dist.] 1983, writ ref'd n.r.e.) (amendment cured defective complaint);
Bradley v. Etessam, 703 S.W.2d 237 (Tex. App. S)Q Dallas 1985, writ ref'd
n.r.e.) (amendment adding wrongful death cause of action related back to
original complaint alleging medical malpractice).
18
There is only one sentence in the district court's opinion that
touches on the issue, where the court states that "Dillard asserts that
because the [defamation] cause of action based upon the second indictment was
timely raised in [the 1988 case], it is not time-barred in this action." This
is similar to Dillard's ground for error before this court. Although he does
not specifically raise the Texas "relation back" statute, he does ask us to
consider the "earliest pleading in any action [as] tolling the statute" of
limitations. We believe this is sufficient (but just barely) to raise the
"relation back" issue for appellate review, as Dillard asks us to consider
"any" pleading S)Q which could include earlier pleadings in the 1986 case S)Q
in addressing the statute of limitations question. It appears from the
district court's recitation of Dillard's argument that he did not make a
similar request to the district court. We leave it to the district court,
however, to answer this question.
18
district court to address the issue on remand, for its opinion on
the timeliness issue would have become final.
B.
We agree with the district court that Dillard failed to state
a claim under either RICO or federal civil rights law.19 Dillard
argues, however, that when read in conjunction, his 1985, 1986 and
1988 complaints (and amendments thereof) do state a claim.
We decline Dillard's invitation to read all of his complaints
together. This tangled web of litigation is of his own making.
Thus, we do not agree that "substantial justice" requires us to
hold, as he suggests, that "if a cause of action is properly
plead[ed] in any action or in any combination of actions it is
properly plead[ed]."
IV.
Finally, with regard to the 1988 case, Dillard argues that the
district court erred in dismissing SIA from the suit for failure to
state a claim against it, in abating the suit against Merrill Lynch
and Jenkens & Gilchrist, and in dismissing the Security Pacific
19
The district court held that although "[i]t is perhaps possible that
a RICO claim may lie buried somewhere" in Dillard's complaint, it could not
find it. After examining Dillard's complaint, we agree and affirm the
dismissal.
Similarly, we affirm the dismissal of Dillard's civil rights claim,
which consists of the following: "Plaintiff additionally makes claim against
defendants for damages to plaintiff due to . . . Title 42 violation of civil
rights." Mere conclusory allegations of a deprivation of civil rights are
insufficient to withstand a motion to dismiss. Arsenaux v. Roberts, 726 F.2d
1022, 1024 (5th Cir. 1982).
19
entities on the ground that similar claims were pending against
them in Dillard's 1986 case.
A.
Dillard's sole complaint against SIA is its involvement in the
alleged antitrust conspiracy.20 In his 1988 suit, Dillard repeats
the allegations he raised in his injunction motion in the 1985
suit. Essentially, he points to the fact that the vast majority of
brokerage agreements contain arbitration clauses and alleges that
those clauses are the result of an antitrust conspiracy in the
brokerage industry.
Judge Hughes dismissed SIA because Dillard failed to state an
antitrust claim against it. As Judge Hughes noted,
The Association could have been a clearinghouse for
price fixing information, but Dillard did not make that
allegation. The Association is not a market participant,
and Dillard failed to allege facts that it was a conduit
for conspiratorial anti-competitive pricing or
monopolization. This lack of sufficient factual
allegations constitutes failure to state a claim against
the Association for antitrust violations.
In paragraph 22 of his complaint, however, Dillard made the precise
allegation Judge Hughes thought was missing. In that paragraph,
Dillard alleged the following:
Defendants and their co-conspirators, in order to
effect monopolization, acted with the intention that
services be unavailable except on similar unfair terms[;]
and legal seminars, and legal bulletins of the
conspirators' trade association, S.I.A., and other
exchanges of information on model arbitration clauses and
20
In his complaint, Dillard states in his prayer for relief "[t]hat
S.I.A. would be found guilty only of anti-trust law violations."
20
their intent to use them caused each individual company
to know that others would act in conjunction with it to
restrain the trade of those who refused to arbitrate.
Although the allegations connecting SIA to the conspiracy are
somewhat inartful, there is no question that Dillard made them.
SIA seems to acknowledge this in its brief, for it restates
Dillard's allegations that it acted as a clearinghouse for anti-
competitive information.21 SIA, therefore, argues that there are
two additional deficiencies in Dillard's complaint: Dillard
(1) failed to allege an agreement or conspiracy among the brokerage
firms; and (2) failed to allege facts to show how he has been
economically damaged.
1.
Section 1 of the Sherman Act22 proscribes "[e]very contract,
combination . . . or conspiracy [] in restraint of trade or
commerce . . . . " 15 U.S.C. § 1. In order to state a claim for
a violation of Section 1, a plaintiff must allege (1) the existence
of a conspiracy (2) affecting interstate commerce (3) that imposes
an "unreasonable" restraint of trade. White & White v. Am. Hosp.
Supply Corp., 723 F.2d 495, 504 (6th Cir. 1983). Contrary to SIA's
assertions, Dillard alleged "the existence of a conspiracy" in
21
As SIA notes, "Dillard asserts that SIA disseminated information
about the use of [model arbitration clauses] to its members, and that each
member understood from that information that it could use [the model
arbitration clauses] without fear of losing business to other brokers because
all brokers would necessarily use [the model clauses] as nonnegotiable
contract terms."
22
Dillard also brings a claim under section 2. His claim, however, is
more appropriately considered under section 1.
21
several places in this complaint. For example, in paragraph 19, he
charges a
conspiracy by Defendants and their competitors in
violation of the Sherman Anti-Trust Act by the Defendants
in adopting and agreeing to use, and in using exclusively
certain uniform contracts for securities trading
containing provisions for the determination by
arbitration of all claims and controversies arising under
said contracts.
Dillard goes on to allege that the defendants "acted with the
intention that services be unavailable except on similar unfair
terms." Essentially, Dillard asserts that SIA disseminated
information about the use of arbitration clauses; from that
dissemination, he argues, each member of the SIA understood that it
could use the arbitration clause in its contracts without fear of
losing business.23
SIA argues that Dillard alleges nothing more than "conscious
parallelism" in the industry, which is not enough to state a claim
for conspiracy. In particular, Dillard states that he "will show
the similarity of behavior can, under the facts, only be attributed
to an understanding among securities industry competitors to effect
the restraint." SIA is correct when it asserts that proof of
parallel business behavior is insufficient to prevail on a Sherman
Act claim. See Theatre Enters. v. Paramount Film Distrib. Corp.,
346 U.S. 537, 541 (1954). But SIA seems to confuse the standard
23
He models his complaint after Paramount Famous Lasky Corp. v. United
States, 282 U.S. 30 (1930), in which competitors in the film industry agreed
to use a standard form contract containing an arbitration clause in their
dealings with movie theaters. If a theater owner failed to submit disputes to
an industry-controlled arbitration panel, or if he refused to abide by an
arbitration award, the industry conspirators would refuse to do business with
him again until he put up a security deposit, arbitrated the dispute, or
abided by the arbitration award.
22
for withstanding summary judgment with the standard for defeating
a rule 12(b)(6) motion.
Dillard does not need to "off[er] any plausible reason for
defendants to have conspired," as SIA suggests. He merely needs
to allege that they did indeed conspire and give some factual
allegations that would support such a claim. See McCleneghan v.
Union Stock Yards Co., 298 F.2d 659, 663 (8th Cir. 1962) (plaintiff
needs to make more than an allegation of conspiracy; he must make
a statement of facts constituting the conspiracy). Dillard does
this by alleging that the defendants attended seminars and
conferences at which arbitration clauses were discussed and that
they adopted such clauses knowing that they could do so without
fear of competition.
2.
Section 4 of the Clayton Act, which provides the private right
of action to enforce the Sherman Act, requires that the antitrust
plaintiff seek recovery for injury "in his business or property."
38 Stat. 731, as amended, 15 U.S.C. § 15(a). Dillard alleges that
"[t]here has been injury to MR. DILLARD'S business and to his
property because of duress of threat to restrain trade of Plaintiff
lest he sacrifice right of recovery by judicial
determination . . . ." SIA argues that the dismissal for failure
to state a claim was proper because Dillard "alleged no facts to
show how he has been economically damaged."
23
Contrary to SIA's suggestion, Dillard need not show how he was
damaged at this point, however. The fact is that he alleged that
his business and property were injured. This is sufficient to
satisfy the requirements of notice pleading.24 We therefore reverse
the district court's dismissal of SIA for failure to state a claim
against it.25
B.
Judge Hughes abated the claims against Merrill Lynch "until
Dillard moves to, and receives a negative ruling on a motion to,
amend his complaint" in the 1985 case to add the claims asserted in
his 1988 complaint. In his 1985 complaint, Dillard alleged that
Merrill Lynch violated the federal securities laws as well as the
DTPA. In that complaint he did not state claims arising from the
criminal prosecution or in connection with the alleged antitrust
conspiracy (Judge Lake refused to consider Dillard's antitrust
allegations as a separate cause of action because he did not
properly raise them in his pleadings.)
It was within Judge Hughes's discretion to abate the claims
pending in his court with the hope that Dillard would consolidate
all his claims against Merrill Lynch in one forum. We have
24
SIA does not contest the sufficiency of Dillard's complaint as to
pleading unreasonable restraint or interstate commerce; thus, we do not
consider these issues.
25
We leave it to Judge Hughes on remand to survey the procedural
landscape of this case and to decide whether Dillard's claims against SIA
should go forward in his or another court.
24
expressly noted in the past that a stay26 "pending the outcome of
litigation between the same parties involving the same or
controlling issues is an acceptable means of avoiding unnecessary
duplication of judicial machinery." ACF Indus. v. Guinn, 384 F.2d
15, 19 (5th Cir. 1967), cert. denied, 390 U.S. 949 (1968).
At the time of Judge Hughes's order, Dillard had filed a
motion to amend the judgment in the 1985 case that raised the
antitrust claims but not the claims related to the criminal
prosecution; the latter were, however, raised in the first amended
complaint in the 1986 case. Since that time, Judge Lake has denied
the motion to amend judgment in the 1985 case. He also refused to
allow Dillard to add Merrill Lynch to the 1986 case on the ground
that Dillard failed to ask leave of court to add new defendants.
The question is, then, whether Dillard has complied with Judge
Hughes's request.
Merrill Lynch correctly points out that Dillard never
attempted to file a motion to amend his 1985 complaint. Dillard's
motion to amend judgment in that case (which raised only the
antitrust claims) was pending at the time, however. Considering
Dillard is pro se, this is enough for substantial compliance with
Judge Hughes's request.
Similarly, Dillard attempted to add Merrill Lynch to his 1986
case, in which Dillard's claims stemming from the criminal
26
An abatement can be either a stay or a dismissal. Baer v.
Fahnestock & Co., 565 F.2d 261, 263 (3d Cir. 1977). In this case, the
abatement should be considered a stay, given that Judge Hughes abated the case
only until the occurrence of a specific event S)Q Dillard's attempt to add his
1988 claims to the 1985 case.
25
prosecution were pending. Judge Hughes, however, had asked him to
amend his 1985 complaint. Again, especially considering that both
the 1985 and the 1986 cases are assigned to Judge Lake, this
appears to be substantial compliance. In sum, we affirm Judge
Hughes's abatement of the case. Because Dillard substantially
complied with Judge Hughes' request, he is free to return to Judge
Hughes's court with his claims. At that time, Judge Hughes can
survey the procedural landscape and make further orders, if
necessary.
C.
It was within Judge Hughes's discretion to abate the case
against Jenkens & Gilchrist pending a decision on Dillard's motion
to amend his complaint in the 1986 case to add it as a defendant.
Dillard did attempt to add Jenkens & Gilchrist, but his request was
denied because he failed to seek leave of court to file a motion to
add new party defendants. Again, considering Dillard is pro se, he
has substantially complied with Judge Hughes's order. Dillard is
now free to return to Judge Hughes's court with his claims against
Jenkens & Gilchrist, and Judge Hughes may make further orders as
appropriate.
D.
Judge Hughes dismissed the claims against Security Pacific
Corporation, Security Pacific Brokers, Inc., and FCSC, reasoning
that all the claims were still pending in the 1986 case. At the
26
time of Judge Hughes's decision, the following had occurred in the
1986 case: We had affirmed the district court's dismissal of
Dillard's claims relating to the trading transactions as res
judicata; Dillard had filed his supplemental complaint on remand;
Judge DeAnda had stricken the supplemental complaint for failure to
request leave of court to file it; and Judge Lake had granted a
stay pending the first appeal of this (the 1988) case. Dillard had
not yet filed his first amended complaint, and when he did so
later, he did not raise any antitrust claims against the Security
Pacific entities. Thus, Judge Hughes was incorrect in his
assumption that all Dillard's claims against Security Pacific were
pending in the 1986 case; the antitrust claims were not.
We assume that Judge Hughes's dismissal was with prejudice.27
The effect of Judge Hughes's dismissal of the Security Pacific
entities is to preclude Dillard from adding the antitrust claims to
the 1986 case. We therefore reverse the dismissal of the antitrust
claims as an abuse of discretion. A more appropriate course of
action would have been to abate the antitrust claims against the
Security Pacific entities until Dillard sought and obtained a
negative ruling on a motion to amend his 1986 complaint.
With regard to Dillard's duplicative claims (i.e., those
brought against Security Pacific in both the 1986 and the 1988
cases), it was within Judge Hughes's broad discretion to stay them
27
This is because Judge Hughes did not state otherwise. In addition,
Security Pacific assumes that the dismissal was with prejudice, as it argues
alternative grounds for affirming the dismissal with prejudice, such as
statute of limitations and res judicata.
27
pending the outcome of the 1986 case or to dismiss them without
prejudice. See West Gulf Maritime Ass'n v. ILA Deep Sea Local 24,
751 F.2d 721, 729 & n.1 (5th Cir. 1985). See also First City Nat'l
Bank & Trust Co. v. Simmons, 878 F.2d 76, 80 (2d Cir. 1989)
(affirming dismissal without prejudice).28 Dismissal with
prejudice, however, would be an abuse of discretion. The 1986 case
would have no res judicata or collateral estoppel effect on the
1988 case until it came to final judgment, which it had not at the
time of Judge Hughes's order; thus, dismissal with prejudice was
improper.
Security Pacific would like us to affirm the dismissal because
Dillard could have brought all his claims (including the antitrust
claim) in the first amended complaint in the 1986 case. This
reasoning does not lead to a dismissal with prejudice, however;
instead, it argues for an abatement, stay, or dismissal without
prejudice. Again, we leave it to Judge Hughes to evaluate the
status of Dillard's litigation and make further orders, if
necessary.
28
The West Gulf and First City cases deal with the so-called first-to-
file rule, which comes into play when a plaintiff files similar lawsuits in
two different federal districts. We have held that to avoid duplicative
litigation, "a district court may dismiss an action where the issues presented
can be resolved in an earlier-filed action pending in another district court."
West Gulf, 751 F.2d at 729. The first-to-file rule holds that "[i]n the
absence of compelling circumstances, the Court initially seized of a
controversy should be the one to decide whether it will try the case." 909
Corp. v. Village of Bolingbrook Police Pension Fund, 741 F. Supp. 1290, 1292
(S.D. Tex. 1990) (citation omitted). The same concern with avoiding
duplicative litigation is present where similar suits have been filed in two
courts within the same district, as is the case here.
28
Va.
29
 Dillard has filed several motions to consolidate his cases S)Q
all of which have been denied. Consolidating actions in a district
court is proper when the cases involve common questions of law and
fact and the district court finds that it would avoid unnecessary
costs or delay. St. Bernard Gen. Hosp. v. Hosp. Serv. Ass'n, 712
F.2d 978, 989 (5th Cir. 1983), cert. denied, 466 U.S. 970 (1984);
Fed. R. Civ. P. 42. The power of the district court to consolidate
is purely discretionary. St. Bernard, 712 F.2d at 989. We
therefore affirm the various denials of Dillard's motions to
consolidate. Given consolidation of the three cases on appeal,
however, we suggest that Dillard renew his request for
consolidation with the district courts in the 1986 and 1988 cases.
See e.g., St. Bernard, 712 F.2d at 990 (asking the district court
to reconsider S)Q although not reversing for abuse of discretion S)Q
its denial of motion to consolidate antitrust cases).
VI.
In summary, in the 1985 case, we AFFIRM the district court in
all respects. In the 1986 case, we AFFIRM the district court in
all respects except for the dismissal of the defamation, malicious
prosecution, and abuse of process claims; with regard to those
claims, we REMAND for consideration of the "relation back" issue if
that issue was properly raised. In the 1988 case, we REVERSE the
district court's dismissal of SIA; REVERSE the dismissal with
prejudice of the Security Pacific entities; AFFIRM the abatement of
claims against Merrill Lynch and Jenkens & Gilchrist; and REMAND
30
the case for further consideration. We also DENY Dillard's other
requests and motions, including his motion for sanctions. Finally,
we emphasize that in remanding we express no view regarding whether
`any of Dillard's claims are meritorious.
31