Andrew Walzer v. Muriel Siebert Co , 447 F. App'x 377 ( 2011 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 10-4526
___________
ANDREW WALZER,
Appellant
v.
MURIEL SIEBERT & CO.; NATIONAL FINANCIAL SERVICES LLC;
GERARD KOSKE; RONALD BONO; MURIEL SIEBERT
____________________________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 04-cv-05672)
District Judge: Honorable Dickinson R. Debevoise
____________________________________
Submitted Pursuant to Third Circuit LAR 34.1(a)
September 27, 2011
Before: SCIRICA, SMITH and VANASKIE, Circuit Judges
(Opinion filed: October 6, 2011 )
___________
OPINION
___________
PER CURIAM
Andrew Walzer appeals pro se from the District Court‟s orders dismissing his
complaint and declining to reconsider that ruling. We will affirm.
I.
The parties are familiar with the background of this case, which we partially
summarized in Walzer v. Muriel Siebert & Co., 221 F. App‟x 153 (3d Cir. 2007).
Briefly, Walzer opened a personal brokerage account with Muriel Siebert & Co. (“MSC”)
in 1980. He later entered into an options agreement with MSC permitting him to buy
securities on margin. In 2002, MSC decided to require Walzer to increase the percentage
of equity in his account (generally referred to as a margin or maintenance requirement).
Walzer objected that the existing equity was sufficient under New York Stock Exchange
and Federal Reserve requirements. MSC responded by claiming the right to require
additional equity under a 1996 options agreement between the parties.1
Walzer did not deposit funds to cover the increased margin requirement. He faced
numerous margin calls as a result, and MSC sold approximately $802,000 worth of his
securities from July 2002 through October 2002 when Walzer failed to meet them.
Walzer alleges that the sales occurred during unfavorable market conditions and resulted
in a substantial loss. After MSC completed the sales, it provided Walzer with a copy of
the 1996 agreement under which it claimed the right to increase his margin requirement.
Walzer claims that the document is forged.
1
Though we need not and do not resolve that factual issue, we have observed that
“[m]ost brokers by contract fix higher maintenance requirements for their own
protection.” Walck v. Am. Stock Exch., Inc., 687 F.2d 778, 780 n.2 (3d Cir. 1982). Such
contracts generally permit brokers to issue margin calls when the funds in a customer‟s
account fall below the margin requirement and then sell the customer‟s securities if the
customer fails to deposit sufficient funds. See id.
2
In 2003, Walzer filed suit against MSC in New York state court, asserting claims
for breach of contract, breach of fiduciary duty, and fraud. MSC moved to compel
arbitration under an arbitration clause contained in the 1996 agreement. In January 2005,
the New York state court granted the motion on the basis of an undisputedly authentic
1992 agreement that also contained an arbitration clause and then stayed the action
pending arbitration before the Financial Industry Regulatory Authority (“FINRA”).
Shortly before that ruling, Walzer filed pro se the federal suit at issue here. He
asserted his state-law claims as well as the federal securities fraud claims discussed
below. As defendants, Walzer named MSC; its CEO Muriel Siebert; its clearance broker
National Financial Services, LLC (“NFS”); Ronald Bono, an MSC vice president who
provided Walzer with a copy of the 1996 agreement; and Gerald Koske, an MSC
compliance officer who allegedly concealed the purported forgery.
Defendants filed motions to stay or dismiss the federal action, arguing in relevant
part that the complaint was barred by res judicata because the New York state court
already had decided that Walzer‟s claims are subject to arbitration. The District Court
granted the motions under Rule 12(b)(6), and Walzer appealed. We affirmed as to
Walzer‟s state-law claims but remanded for further proceedings on his federal claims.
See Walzer, 221 F. App‟x at 156-57. As we explained, the New York state court
determined only that the 1992 arbitration clause was valid and compelled arbitration of
Walzer‟s state-law claims. See id. Thus, we remanded for further proceedings on
Walzer‟s federal claims, though we did not require any proceedings in particular. See id.
3
at 157.
On remand, defendants moved to stay the federal action pending the FINRA
arbitration. Walzer sought discovery on the 1992 arbitration clause in order to respond.
A Magistrate Judge denied his request by order entered July 25, 2008 (Docket No. 162),
and then granted defendants‟ motions and stayed the action pending arbitration by order
entered December 31, 2008 (Docket No. 179). Walzer filed a motion for reconsideration
of that order, but the Magistrate Judge dismissed it without prejudice on March 17, 2009
(Docket No. 182), because Walzer failed to comply with the District Court‟s previous
order of January 17, 2006, which required him to seek leave before filing such motions.
Walzer did not seek further review by the District Court.
The FINRA arbitration was resolved in MSC‟s favor on December 29, 2009.
Defendants sought permission to lift the stay of the federal action and file appropriate
motions, which the Magistrate Judge granted them leave to do by order entered April 9,
2010 (Docket No. 203). Defendants then filed motions to confirm the arbitration award
and dismiss Walzer‟s federal claims on numerous grounds, including failure to state a
claim. By opinion and order entered August 10, 2010 (Docket Nos. 228 & 229), the
District Court denied defendants‟ motions to confirm the arbitration award but granted
their motions to dismiss Walzer‟s federal counts for failure to state a claim. Walzer filed
a motion for reconsideration, which the District Court denied by opinion and order
entered October 28, 2010 (Docket Nos. 236 & 237). Walzer filed a notice of appeal,
along with another motion for reconsideration. The District Court denied that motion by
4
order entered December 17, 2010 (Docket No. 244), and Walzer amended his notice of
appeal to include that ruling. A New York state court has since confirmed the FINRA
arbitration award, but Walzer asserts that he has appealed that decision and it has no
bearing on our disposition of the issues on appeal.
II.
Walzer challenges seven orders on appeal: (1) the Magistrate Judge‟s July 25,
2008 order denying his request for discovery on the 1992 arbitration clause (Docket No.
162); (2) the Magistrate Judge‟s December 31, 2008 order staying the federal action
pending the FINRA arbitration (Docket No. 179); (3) the Magistrate Judge‟s March 17,
2009 order dismissing his motion for reconsideration of the previous order (Docket No.
182); (4) the Magistrate Judge‟s April 9, 2010 order permitting defendants to file their
motions to dismiss (Docket No. 203); (5) the District Court‟s August 10, 2010 order
dismissing Walzer‟s complaint (Docket No. 229); (6) the District Court‟s October 28,
2010 order denying Walzer‟s motion for reconsideration (Docket No. 237); and (7) the
District Court‟s December 17, 2010 order denying his second motion for reconsideration
(Docket No. 244). Because most of the issues he raises relate to numerous orders, we
will address the underlying issues rather than the particular orders seriatim.2
2
We have jurisdiction under 28 U.S.C. § 1291. We review the District Court‟s dismissal
under Rule 12(b)(6) de novo. See Barefoot Architect, Inc. v. Bunge, 632 F.3d 822, 826
(3d Cir. 2011). “To withstand a Rule 12(b)(6) motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Id. (citations and internal quotation marks omitted). A claim is
plausible if such factual matter permits “„the reasonable inference that the defendant is
5
A. The Merits of Walzer‟s Claims and Leave to Amend
Walzer devotes most of his brief to arguments unrelated to the merits of his
claims, but we begin by addressing that issue. Walzer‟s primary claim is that defendants
violated Section 10(b) of the Securities and Exchange Act (“Exchange Act”), 15 U.S.C. §
78j(b), and Securities and Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. §
240.10b-5. In general terms, the statute and rule prohibit material misrepresentations or
omissions in connection with the purchase or sale of securities. See Matrixx Initiatives,
131 S. Ct. at 1317; McCabe v. Ernst & Young, LLP, 494 F.3d 418, 424 (3d Cir. 2007). A
private cause of action under Section 10(b) has six elements, including reliance on the
misrepresentation or omission. See Matrixx Initiatives, 131 S. Ct. at 1317; McCabe, 494
F.3d at 424. That element required Walzer to “plead that he . . . reasonably and
justifiably relied on an alleged misrepresentation. This burden requires a plaintiff to
demonstrate that defendants‟ conduct caused him to engage in the transaction in
liable for the misconduct alleged[.]‟” Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct.
1309, 1323 (2011) (citation omitted). Walzer‟s securities fraud claims also are subject to
the heightened pleading requirements of the Private Securities Litigation Reform Act, see
id. at 1318 n.4, 1324, though our disposition does not require us to apply them. We
review for abuse of discretion matters of discovery and docket control, see In re Fine
Paper Antitrust Litig., 685 F.2d 810, 817 (3d Cir. 1982), and the District Court‟s decision
to dismiss a complaint without leave to amend, which is proper when amendment would
be inequitable or futile, see In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410,
1434 (3d Cir. 1997). We review the denial of reconsideration for abuse of discretion as
well, though we review underlying issues of law de novo. See Max‟s Seafood Café ex
rel. Lou-Ann, Inc. v. Quinteros, 176 F.3d 669, 673 (3d Cir. 1999). Walzer‟s appeal from
the denial of reconsideration brings up for review the underlying dismissal of his
complaint. See Jones v. Pittsburgh Nat‟l Corp., 899 F.2d 1350, 1352 (3d Cir. 1990).
6
question.” Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 174 (3d
Cir. 2001) (internal citations and quotations marks omitted).
Walzer alleges that MSC sold securities in his account after improperly raising his
margin requirement pursuant to the 1996 agreement, which he contends is forged. In its
opinion of August 10, 2010, the District Court treated MSC‟s presentation of the 1996
agreement as the alleged misrepresentation. It held that Walzer had not pleaded reliance
on that representation because he alleged that MSC did not provide him with a copy of
the 1996 agreement until after the sales at issue were complete. (Docket No. 228 at 16.)
It further concluded that Walzer expressly alleged that he did not rely on the
representation because he contested MSC‟s authority to make the sales. (Id.) Finally, it
concluded that Walzer did not plead reliance because he alleged that it was MSC that
sold the securities at issue and that it did so without his consent. (Id.) In sum, the
District Court concluded that Walzer had pleaded nothing more than a claim for breach of
contract, which we already had decided was subject to arbitration pursuant to the New
York state judgment. (Id.)3
Walzer argues that the District Court misread his complaint and drew inferences
against him. (Appellant‟s Br. at 19-24.) He asserts that the actionable misrepresentation
3
Neither the District Court nor the parties cited any authority addressing a similar claim.
We have located one decision. The plaintiff in that case, like Walzer, sued his brokerage
firm for raising his margin requirement and then selling his securities to meet a margin
call. See Conway v. Icahn & Co., 16 F.3d 504, 506-08 (2d Cir. 1994). The plaintiff
asserted a claim under Section 10(b) of the Exchange Act, but the case ultimately was
submitted to a jury only on state-law claims, including breach of contract. See id. at 508.
7
was not the allegedly forged 1996 agreement, which he concedes MSC provided him
after its sales were complete, but MSC‟s representations while it was making those sales
that the agreement permitted it to do so. He also asserts that his complaint should not be
read to allege that he affirmatively objected to MSC‟s actions.
The second of these assertions is belied by the complaint itself. See Compl.
(Docket No. 1) at 6 ¶ 16(f) (“I/plaintiff also several times called . . . NFS, to complain of
improper margin calls”). Even if both were the case, however, the point remains that
Walzer alleges nothing suggesting that he personally sold securities in reliance on any
representation by MSC. To the contrary, Walzer repeatedly alleges that it was MSC, and
not he, who decided to sell securities from his account to cover the allegedly improper
margin calls. See, e.g., id. at 4 ¶ 15 (referring to defendants‟ “forced sales” and “forced
margin selling”), 5 ¶ 16(b) (“The Defendant forced sales of various Plaintiff‟s securities
. . . by issuing these improper margin calls, then doing certain margin sell-outs”), 6 ¶
16(d) (defendants “took control of Plaintiff‟s Account and forced sales”), 7 ¶ 16(g)
(“Defendant . . . continued to force more sales of plaintiff‟s securities without consent”).
Thus, we agree with the District Court that Walzer did not plead reliance. Cf. Angelastro
v. Prudential-Bache Sec., Inc., 764 F.2d 939, 944-45 (3d Cir. 1985) (holding that plaintiff
stated a Section 10(b) claim by alleging that her broker‟s misstatements concerning her
margin account interest rate induced her to buy securities on margin).
Walzer also argues that the District Court should have permitted him to amend his
The court did not specify why the plaintiff‟s federal claim was not submitted to the jury.
8
complaint. He filed a motion for leave to amend after defendants filed their motions to
dismiss, but he did not seek leave to include anything relevant to reliance and instead
sought only to drop NFS as a defendant for lack of scienter and to assert a claim for “mail
fraud.” (Docket No. 216 at 1-2.) He first advanced an alternate theory of reliance in the
District Court in his motion for reconsideration, but the District Court rejected it and
Walzer has not pressed it on appeal.4
Instead, he now advances a third theory. According to Walzer, he can amend his
complaint to plead reliance because (contrary to the allegations in his existing complaint)
MSC allowed him to choose which securities it would sell in twenty-two of the twenty-
four transactions at issue. (Appellant‟s Br. at 26-28.) Walzer did not present this theory
to the District Court. Even if it were properly before us, it still does not allege reliance
because Walzer does not assert that MSC‟s alleged representations led him to choose
certain securities rather than others. Newton, 259 F.3d at 174. We are thus satisfied that
any amendment of this claim would be futile.5
Walzer asserted three other federal claims in the District Court but raises only two
4
Walzer argued that he “collaterally relied” on the allegedly forged agreement because
MSC used it to induce NFS to execute the sale of his securities. The District Court
rejected this argument because it still did not assert that Walzer himself relied on MSC‟s
alleged representations. (Docket No. 236 at 16-18 & n.3.)
5
The District Court also determined that leave to amend this claim would be inequitable:
“While [pro se] status entitles Mr. Walzer to some amount of indulgence, it does not
grant him unlimited license to change the theories on which his claims rest in order to
circumvent earlier judgments of the Court—especially after six years of protracted
litigation.” (Docket No. 236 at 17.) We agree with this conclusion as well.
9
of them on appeal. First, Walzer claims that MSC violated Section 10(b) of the
Exchange Act and SEC Rule 10b-16 by failing to provide him with a disclosure statement
when he first entered into an options agreement in 1982. The District Court held that this
claim is barred by the Exchange Act statute of limitations, which is the earlier of five
years after the alleged violation or two years after its discovery. (Docket No. 228 at 14
n.5) (citing 28 U.S.C. § 1658(b)). Walzer concedes that the claim as asserted in his
complaint is untimely, but argues that he can amend it to allege a lack of disclosures in
connection with his “1990s” agreements (apparently in 1992 and 1996). (Appellant‟s Br.
at 54-55.) Walzer did not present this theory to the District Court and, as defendants
argue, this claim remains untimely in any event.
Second, Walzer claims that MSC violated Section 8 of the Exchange Act and SEC
Rule 8c-1 by hypothecating his securities without his consent. As the District Court
explained, however, Walzer alleges that MSC sold his securities, not that it hypothecated
them. See Black‟s Law Dictionary 811 (9th ed. 2009) (defining “hypothecate” as “[t]o
pledge (property) as security or collateral for a debt, without delivery of title or
possession”). Walzer argues that MSC effectively treated his securities as collateral for
his own margin loans and once again seeks leave to replead (Appellant‟s Br. at 42-44),
but the fact remains that MSC‟s sale of those securities is not a hypothecation.6
6
The claim that Walzer has not pressed on appeal is that defendants violated Section
17(a) of the Exchange Act and associated rules by failing to provide a copy of his options
agreement on request. The District Court dismissed this claim because the statute and
rules do not provide for a private cause of action. (Docket No. 228 at 17) (citing Touche
10
In sum, the District Court properly concluded that Walzer failed to state a federal
claim and did not abuse its discretion in dismissing his complaint without leave to amend
or in declining to reconsider the merits of that ruling.
B. Walzer‟s Remaining Arguments
Each of Walzer‟s remaining arguments lacks merit. Walzer argues throughout his
brief that we remanded in order for the District Court to determine the arbitrability of his
federal claims under the 1992 arbitration clause. Thus, according to Walzer, our mandate
precluded the District Court both from staying proceedings pending the FINRA
arbitration and from entertaining defendants‟ motion to dismiss, and required the court
instead to permit discovery on the 1992 agreement.7
We disagree. In our previous opinion, we held only that Walzer‟s federal claims
are not barred by the New York state court‟s ruling that his state-court claims are subject
to arbitration. See Walzer, 221 F. App‟x at 157. We noted that the 1992 arbitration
clause was not of record and that whether it encompassed his federal claims remained an
Ross & Co. v. Redington, 442 U.S. 560, 569 (1979)). Walzer now concedes that he lacks
standing to assert this claim, but seeks leave to “bring the SEC in” to do so. (Appellant‟s
Br. at 53.) There is no basis for that request.
7
Walzer may have waived his right to appellate review of the Magistrate Judge‟s orders
disallowing discovery and staying proceedings pending the FINRA arbitration because he
did not seek reconsideration by the District Court. See 28 U.S.C. § 636(b)(1)(A); Siers v.
Morrash, 700 F.2d 113, 114-16 (3d Cir. 1983). Walzer, however, properly sought
reconsideration of the Magistrate Judge‟s order permitting defendants to file their motion
to dismiss. (Docket No. 206.) Our review of that issue effectively resolves the others as
well because Walzer‟s underlying argument relates to all three issues.
11
open question, but we did not require or preclude any particular proceedings in that
regard. See id. Nor did Walzer suffer any conceivable prejudice from the stay of federal
proceedings pending the FINRA arbitration. Thus, the District Court did not abuse its
discretion in these respects.
Walzer also argues that the District Court should not have entertained defendants‟
motions to dismiss because they were successive motions in violation of Rule 12(g)(2).
(Appellant‟s Br. at 12-18.) That rule prohibits successive Rule 12(b)(6) motions raising
“a defense or objection that was available to the party but omitted from its earlier
motion.” See Fed. R. Civ. P. 12(g)(2). We need not decide whether the District Court
entertained defendants‟ motions in technical violation of this rule, however, because any
error in that regard would be harmless. See 28 U.S.C. § 2111 (“On the hearing of any
appeal . . ., the court shall give judgment after an examination of the record without
regard to errors or defects which do not affect the substantial rights of the parties.”).
Walzer did not state a federal claim for the reasons discussed above, and
defendants did not waive that defense by not including it in their respective initial Rule
12(b)(6) motions. See Fed. R. Civ. P. 12(h)(2). Instead, it remained available to them in
a motion for judgment on the pleadings under Rule 12(c). See id. The District Court
properly accepted all of Walzer‟s factual allegations as true for purposes of defendants‟
later Rule 12(b)(6) motions. Thus, it is as though defendants had filed answers admitting
those allegations and then filed their motions under Rule 12(c) rather than Rule 12(b)(6).
Requiring them to take those additional steps would have served no practical purpose
12
under the circumstances presented here.8
We have reviewed the remainder of Walzer‟s arguments and conclude that they
lack merit as well.9
III.
For the foregoing reasons, we will affirm the judgment of the District Court. The
parties‟ requests for sanctions are denied, but we will tax costs against Walzer pursuant to
Fed. R. App. P. 39(a)(2). We also deny Walzer‟s motion for reconsideration of the May
11, 2011 Clerk‟s order permitting defendants to file a supplemental appendix and
defendants‟ motion to strike the documents attached to the hard copy of Walzer‟s reply
brief.
8
Walzer raised this argument in his first motion for reconsideration, and the District
Court rejected it for essentially the same reason that we do. (Docket No. 236 at 19-20.)
The District Court also faulted Walzer for failing to raise the argument in opposition to
defendants‟ motion to dismiss. We agree with Walzer that he had indeed raised the
argument (e.g., Docket No. 216-2), but that point is moot because the District Court
addressed the argument‟s substance and it lacks merit in any event.
9
Those arguments are that defendants failed to serve him with their response to his first
motion for reconsideration, that the District Court “ignored” his own request for
arbitration, and that he can amend his complaint to name additional defendants and assert
additional claims. Walzer also alleges numerous perceived errors and improprieties in
the FINRA arbitration. Those allegations are not properly before us.
13