[PUBLISH]
IN THE UNITED STATES COURT OF APPEAL
FOR THE ELEVENTH CIRCUIT
FILED
___________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
August 9, 2001
No. 00-12626 THOMAS K. KAHN
____________________ CLERK
D. C. Docket No. 99-08549-CV-WPD
SALOMON SMITH BARNEY, INC.,
Plaintiff-Appellee,
versus
ARTHUR HARVEY, M.D., individually, and as
beneficiary of the Arthur Harvey, M.D. Inc.
Employee Defined Benefit Plan,
DELORES E. THOMAS,
Defendants-Appellants,
_________________________
Appeal from the United States District Court
for the Southern District of Florida
__________________________
(August 9, 2001)
Before TJOFLAT and DUBINA, Circuit Judges, and SHAPIRO*, District Judge.
DUBINA, Circuit Judge:
The central issue in this appeal concerns the propriety of a district court's
review of the timeliness of claims sought to be arbitrated pursuant to the National
*
Honorable Norma L. Shapiro, U.S. District Judge for the Eastern District of Pennsylvania, sitting by
designation.
Association of Securities Dealers Code of Arbitration. Because the extent of a court's
review is clearly articulated in both Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Cohen, 62 F.3d 381 (11th Cir.1995), and Kidder Peabody & Co., Inc., v. Brandt, 131
F.3d 1001 (11th Cir.1997), we hold that the district court properly analyzed whether
the alleged claims were timely for purposes of arbitration; accordingly, we affirm.
I. FACTS AND PROCEDURAL HISTORY
Between 1985 and 1990, appellants Delores Thomas, Margaret Ostrander, and
Arthur Harvey (collectively referred to as "Appellants") purchased limited
partnerships through Salomon Smith Barney Inc. ("Smith Barney"). On or about July
22, 1997, the Appellants filed an amended Statement of Claim and joined a Florida
arbitration proceeding before the National Association of Securities Dealers
("NASD") that was initially filed by a claimant who is not a party to this suit.
Appellants filed another NASD Statement of Claim on or about May 12, 1998. The
arbitration claim alleged that Smith Barney recommended the purchase of
investments in limited partnerships that were unsuitable and inappropriate for the
investment objectives of the Appellants.
Since the individual Appellants resided in different states and made different
investments with Smith Barney, Smith Barney requested that the NASD sever the
claims. On November 14, 1997, the NASD Director of Arbitration granted the
request to sever, but the NASD arbitration panel, at the Appellants' urging,
reconsidered the matter and disregarded the Director's ruling by permitting the
separate claims to proceed as one arbitration in Florida.
2
Simultaneous with the filing of the amended NASD claim, Appellants filed a
state court action in Broward County, Florida. Appellants sought a declaration that
the NASD panel, not the courts, should rule on the six-year eligibility requirement
articulated in the NASD Code of Arbitration. In response, Smith Barney moved to
sever the claims against it and/or dismiss the action on grounds of forum non
conveniens. The trial judge denied Smith Barney's motion to sever and/or dismiss,
and Smith Barney appealed that order to the Florida Fourth District Court of Appeal
("4th DCA"). On January 20, 1999, the Florida 4th DCA concluded that the
Appellants engaged in impermissible forum shopping, dismissed Appellants' claims,
and directed the trial court to enter orders to ensure that the Appellants could reinstate
their suit in an alternative forum. Smith Barney v. Potter, 725 So.2d 1223, 1226-27
(Fla. 4th DCA 1999).
In light of the Florida appellate court's ruling in Potter, Smith Barney again
petitioned the NASD arbitration panel to sever the arbitration. On March 25, 1999,
the panel again denied Smith Barney's motion to sever.
Back in October of 1997, in anticipation of an NASD ruling to sever the
claims, Smith Barney filed a complaint with the state court in California, where it
believed that Appellant Harvey's claims would have to be arbitrated once the NASD
severed them. Smith Barney requested declaratory and injunctive relief staying the
underlying arbitration as to Appellant Harvey until the California court had an
opportunity to determine which of Harvey's claims, if any, were eligible for
arbitration. Appellant Harvey, however, moved to stay the California proceeding in
3
light of the similar proceeding in Florida already underway. The California court
granted Harvey's motion and deferred to the pending Florida action.
On July 14, 1999, Smith Barney filed this action in the Southern District of
Florida for declaratory and injunctive relief to enjoin Appellants from arbitrating
claims that are ineligible for arbitration under the NASD's six-year eligibility rule.
The district court granted a preliminary injunction, and on appeal, we dismissed the
case as moot because the district court had subsequently entered an order granting
permanent injunctive relief.
On February 28, 2000, Appellant Thomas filed a motion for appointment of a
guardian ad litem at Smith Barney's expense. Appellant Thomas was 76 years old at
the time, and her treating physician completed an affidavit attesting to her
incompetency. Smith Barney objected to paying the expenses of a guardian. A
magistrate judge granted Thomas's request for appointment of a guardian ad litem but
denied her request that such appointment be at Smith Barney's expense. Appellant
Thomas objected to the magistrate judge's order.
Smith Barney and Appellants filed cross-motions for summary judgment, each
contesting whether Appellants' claims were eligible for arbitration. The district court
granted Smith Barney's motion for summary judgment and denied all other pending
motions as moot, including Appellant Thomas' motion for an appointment of a
guardian ad litem at Smith Barney's expense. This appeal followed.
II. ISSUES
1. Whether the district court properly reviewed the arbitrability of this case.
4
2. Whether the district court should have been judicially estopped from hearing
this case.
3. Whether the district court should have abstained from exercising jurisdiction
over this case.
4. Whether the district court committed reversible error by granting summary
judgment in favor of Smith Barney prior to ruling on Appellant Thomas's motion for
appointment of a guardian ad litem at Smith Barney's expense.
III. STANDARDS OF REVIEW
This court reviews the district court's order granting permanent injunctive
relief under an abuse of discretion standard. Simmons v. Conger, 86 F.3d 1080, 1085
(11th Cir.1996). We review the district court's application of judicial estoppel for
abuse of discretion. Talavera v. School Board of Palm Beach Co., 129 F.3d 1214,
1216 (11th Cir.1997). The district court's legal determinations are reviewed de novo.
Kidder, Peabody & Co., Inc. v. Brandt, 131 F.3d 1001, 1003 (11th Cir.1997). This
court also reviews a district court's order granting summary judgment de novo.
Bivens Gardens Office Bldg., Inc. v. Barnett Banks of Fla., Inc., 140 F.3d 898, 905
(11th Cir.1998).
IV. DISCUSSION
It is well settled that the NASD eligibility requirement is a substantive
requirement, and, absent clear and unmistakable evidence, the court determines
whether claims are timely under the NASD Code. See First Options of Chicago, Inc.
v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ("Courts
5
should not assume that the parties agreed to arbitrate arbitrability unless there is
'clea[r] and unmistakabl[e]' evidence that they did so.") (quoting AT&T Technologies,
Inc., v. Communications Workers of America, 475 U.S. 643, 649, 106 S.Ct. 1415, 89
L.Ed.2d 648 (1986)); see also Dean Witter Reynolds, Inc., v. Fleury, 138 F.3d 1339,
1342 (11th Cir.1998) ("[Section] 15 of the NASD Code is not a procedural statute of
limitations, but a substantive eligibility requirement, determining the arbitrability of
a given claim.").1
Since the record reflects no clear and unmistakable evidence of the parties'
intent to arbitrate issues of arbitrability, we adhere to our admonition in Cohen and
conclude that "the presumption that courts determine arbitrability" controls. Cohen,
62 F.3d at 384. Having determined that the case was properly before the district
court, we now turn to the extent of the district court's review of arbitrability and to the
propriety of the court's findings.
Section 10304 of the NASD Code provides: "No dispute, claim, or controversy
shall be eligible for submission to arbitration under this Code where six (6) years
have elapsed from the occurrence or event giving rise to the act or dispute, claim or
controversy."
Smith Barney posits that the "occurrences or events" giving rise to Appellants'
claims were the purchase dates of the limited partnerships. Conversely, Appellants
aver that their claims are based on events that occurred less than six years before they
filed their Statement of Claim. Appellants further argue that when the court analyzed
1
The NASD Code was renumbered in 1996, and Section 15 was renumbered Section 10304.
6
and adjudicated their allegations of injuries suffered within the six year period, the
district court impermissibly passed upon the very issues that the parties had
previously agreed to arbitrate. In other words, the Appellants assert that the district
court's review should be limited to resolving the six-year eligibility issue and should
not infringe on the parties' agreement to arbitrate the merits of the case.
Although Smith Barney sold the last limited partnership to Appellants over six
years prior to the Appellants' filing of their Statement of Claim, Appellants maintain
that numerous other arbitrable events or occurrences transpired within six years of
submission to arbitration, including: issuance of false monthly statements, failure to
disclose that the limited partnership portfolio was losing value, failure to diversify
accounts, affirmative advice not to sell the limited partnerships, etc.
Similar allegations were at issue in Cohen. There, we stated that "[i]t is not
a foregone conclusion [ ] that the purchase date is the relevant occurrence or event
giving rise to the Cohens' claims." 62 F.3d at 385. Indeed, we remanded the case so
that the district court could "examine each of the Cohen's claims in order to determine
what is the 'occurrence or event' giving rise to that claim." Id. When faced with
continuing fraud allegations, the trial court must determine which alleged occurrences
or events are necessary to make the claim viable. See Kidder Peabody & Co., Inc.,
v. Brandt, 131 F.3d at 1004. A claim is viable "when all the elements of that claim
can be established such that it could withstand a motion to dismiss for failure to state
a claim for relief pursuant to Federal Rule of Civil Procedure 12(b)(6)." Id. In short,
"[i]f the occurrence or event which made the claim viable took place more than six
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years from the date the defendants filed their arbitration complaint, the claim is
ineligible for arbitration." Id.
Here, unlike Cohen, the district court analyzed the Appellants' allegations that
certain events and occurrences fell within the six year eligibility period. The district
court explicitly addressed each of the Appellants' claims and found that each claim
emanated from the sale of the limited partnerships. Since the Appellants' claims
could have withstood a 12(b)(6) motion to dismiss more than six years prior to their
filing an arbitration complaint, Appellants are precluded from arbitrating their dispute
under Section 10304 of the NASD Code.
The district court did not exceed the scope of its review by delving into the
merits of the action, but adhered to our previous exegesis that "the court must go
beyond the allegations of the complaint and examine the evidence the parties offer,
if any." Id. at 1005; see Cohen 62 F.3d at 385 ("[O]ur holding may compel federal
courts to hold 'mini-trials' on timeliness.").
Moreover, the district court correctly held that the Appellants' continuing fraud
claims were tolling arguments, and as such have no effect upon eligibility. See
Cohen, 62 F.3d at 385 n. 4 ("[B]ecause section 15 is an eligibility requirement rather
that a procedural statute of limitations, claims are not subject to equitable tolling.");
see also Ohio Company v. Nemecek, 98 F.3d 234 (6th Cir.1996); Edward D. Jones
& Co. v. Sorrells, 957 F.2d 509 (7th Cir.1992).
Under the facts of this case, we hold that the district court did not abuse its
discretion in making its findings nor did the district court improperly pass upon the
8
merits of the case. Rather, the district court correctly analyzed the viability of each
claim pursuant to the standards set forth in Cohen and Brandt.
The Appellants also contend that Smith Barney is bound by the Florida state
appellate court's mandate that the issues be litigated in the Appellants' respective
states instead of Florida. Having successfully argued that Florida was not the proper
forum for this action, Appellants contend that Smith Barney should be judicially
estopped from subsequently seeking adjudication and redress from a Florida court.
Judicial estoppel "is applied to the calculated assertion of divergent sworn
positions ... [and] is designed to prevent parties from making a mockery of justice by
inconsistent pleadings." McKinnon v. Blue Cross & Blue Shield of Ala., 935 F.2d
1187, 1192 (11th Cir.1991) (citation omitted). This circuit's approach contemplates
two elements. First, it must be shown that the allegedly inconsistent positions were
made under oath in a prior proceeding. Second, such inconsistencies must be shown
to have been calculated to make a mockery of the judicial system. See id.; Taylor v.
Food World Inc., 133 F.3d 1419, 1422 (11th Cir.1998); Johnson Service Co. v.
Transamerica Ins. Co., 485 F.2d 164, 174-75 (5th Cir.1973).2
The district court did not abuse its discretion by refusing to apply judicial
estoppel. Smith Barney did not maintain inconsistent positions, but rather it
continuously argued that Florida was an inconvenient forum. Only when the
arbitration panel refused to sever the action in accordance with the Florida appellate
2
The Eleventh Circuit adopted as binding precedent decisions of the former Fifth Circuit rendered
prior to October 1, 1981. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc).
9
court's holding was Smith Barney relegated to filing in federal court in Florida.
Moreover, Appellants failed to show that Smith Barney's decision to file in Florida
evinced a calculated attempt to make a mockery out of the judicial system. See
Dockery v. North Shore Medical Center, 909 F.Supp. 1550, 1558 (S.D.Fla.1995)
("Judicial estoppel is a technical rule ... directed against those who would attempt to
manipulate the court system through the calculated assertion of divergent sworn
positions in judicial proceedings.") (emphasis added). We conclude that the district
court properly refused to apply judicial estoppel in this instance.
Appellants further argue that the district court should have abstained from
exercising jurisdiction because the district court sat as a court of equity and the issues
had been pending in state court. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706,
717, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996) ("[I]t has long been established that a
federal court has the authority to decline to exercise its jurisdiction when it is asked
to employ its historic powers as a court of equity."). We hold, however, under Moses
H. Cone Memorial Hosp. v. Mercury Contr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74
L.Ed.2d 765 (1983), and First Franklin Fin. Corp. v. McCollum, 144 F.3d 1362 (11th
Cir.1998), that the district court properly exercised jurisdiction over the present
action.
Appellant Thomas separately contends that the district court improperly
granted summary judgment to Smith Barney before it granted her motion for
appointment of a guardian ad litem at Smith Barney's expense. She claims that she
had become incompetent, and before she could respond to Smith Barney's summary
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judgment motion, she needed a guardian ad litem. Federal Rule of Civil Procedure
17(c) provides, "[t]he court shall appoint a guardian ad litem for an infant or
incompetent person not otherwise represented in an action or shall make such other
order as it deems proper for the protection of the infant or incompetent person." In
Roberts v. Ohio Casualty Ins. Co., 256 F.2d 35, 39 (5th Cir.1958),3 the Fifth Circuit
held that a court addressing a request for a guardian ad litem must either (1) appoint
a guardian; (2) issue an order providing whatever protection might be required for
the party in lieu of appointing a guardian; or (3) determine that the party is protected
absent a guardian. It is clear that Roberts and Rule 17(c) require that some action be
taken on the record before a court proceeds on the merits of the claims.
The record demonstrates that Appellant Thomas filed a motion for
appointment of a guardian ad litem at Smith Barney's expense on February 28, 2000.
On March 28, 2000, a magistrate judge granted Thomas's motion for appointment of
a guardian ad litem, but the court denied her request that such appointment be at
Smith Barney's expense. (Order of Judge Johnson, R. at Docket Entry No. 44.) The
ruling further provided that "[t]he parties shall confer and provide the Court with the
name of an agreed-upon Guardian Ad Litem within ten (10) days of the date of this
Order. If the parties cannot agree, each party shall name a proposed Guardian Ad
Litem within ten (10) days, and this Court shall make the selection." Id. Although
Appellant Thomas filed objections to the magistrate judge's refusal to require that
Smith Barney pay for the guardian ad litem, the record does not indicate any attempt
3
See supra note 2.
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by any party to name a guardian ad litem until May 19, 2000, almost a month after the
court granted Smith Barney's motion for summary judgment.4 The district court gave
Appellant Thomas the opportunity to obtain a guardian ad litem, but she, herself,
delayed selection of a guardian. The district court was therefore justified in rendering
summary judgment before naming a guardian ad litem. In our view, the district court
complied with the requirements of Roberts and Rule 17(c) of the Federal Rules of
Civil Procedure by granting Appellant Thomas's initial motion for a guardian ad litem
and setting up a mechanism through which she could select a guardian ad litem.
Finally, because Appellants raise their full faith and credit argument for the
first time on appeal, we decline to consider it. See McGinnis v. Ingram Equip. Co.,
Inc., 918 F.2d 1491, 1495 (11th Cir.1990) (en banc) ("A general principle of appellate
review is that an appellate court will not consider issues not presented to the trial
court.").
V. CONCLUSION
For the foregoing reasons, we affirm the judgment of the district court.
AFFIRMED.
4
It is noteworthy that the district court granted Appellant Thomas' motion to appoint the named
guardian ad litem on the same day that motion was filed. (R. at Docket Entry Nos. 60, 62.)
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