PARK AVENUE SECURITIES LLC et al v. YOUNG, MD
ORDER granting 10 Motion to Dismiss signed by Judge William C. Griesbach on 4/21/2017. (Griesbach, William)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
PARK AVENUE SECURITIES, LLC and
Case No. 17-C-746
DR. RONALD YOUNG,
ORDER GRANTING MOTION TO DISMISS
Plaintiffs Park Avenue Securities, LLC and Ali Abdul-Rahman brought this action for
declaratory relief against Defendant Ronald Young, seeking a determination that Young’s claims
against Plaintiffs are not arbitrable before the Financial Industry Regulatory Authority (“FINRA”).
Young has moved to dismiss Plaintiffs’ complaint for lack of subject matter jurisdiction, improper
venue, and failure to state a claim upon which relief can be granted. Because I conclude that the
court lacks subject matter jurisdiction, the motion to dismiss will be granted.
FINRA is a national securities association recognized and registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, 15 U.S.C. § 78o-3 (Compl., ECF
No. 1, at ¶ 10.) Park Avenue Securities, LLC (“PAS”) is a securities broker-dealer and a member
of FINRA. (Id. at ¶ 8.) Ali Abdul-Rahman resides in Indiana and is employed as a soliciting agent
for Guardian Life Insurance Company of America. (Id. at ¶¶ 3, 7.) He is also a registered
representative and an “associated person” of PAS. (Id. at ¶ 8.) Doctor Ronald Young resides in
Indiana and purchased two term life insurance policies and three whole life insurance policies issued
by Guardian Life through Abdul-Rahman. (Id. at ¶¶ 4, 9.)
According to the complaint, Young filed a Statement of Claim with FINRA on October 31,
2016, seeking to engage in mandatory arbitration with Plaintiffs. (Id. at ¶ 9.) Young’s Statement
of Claim asserted several claims against Plaintiffs: negligent and unsuitable investment advice;
violations of the Indiana Securities Act; violations of FINRA Conduct Rules; breach of contract;
breach of fiduciary duty and constructive fraud; respondeat superior; and negligence and negligent
supervision. (ECF No. 1-1 at 17–23.) Young alleged in his Statement of Claim that Plaintiffs caused
substantial damages “stemming from inappropriate and negligent investment, strategy, advice and
related sale of products to [Young] under the guise of a purported investment or savings vehicle.”
(Id. at 14.)
Plaintiffs allege that Young’s claims are not arbitrable before FINRA. FINRA members are
contractually obligated to submit to arbitration of customer claims under the FINRA Code of
Arbitration Procedure for Customer Disputes (“the FINRA Code”) when: (1) arbitration under the
Code is required by written agreement or requested by the customer; (2) the dispute is between a
customer and a member or associated person of a member; and (3) the dispute arises in connection
with the business activities of the member/associated person, except disputes involving the insurance
business activities of a member that is also an insurance company. (Compl. at ¶¶ 11–12.) Plaintiffs
claim that they had no written agreements with Young and his only written agreements were with
Guardian Life regarding the policies he bought. (Id. at ¶ 16.) They also claim that Young is not a
“customer” under the FINRA Code because he did not buy the policies in the course of PAS’
investment banking or securities business activities and because the life insurance policies are not
securities. (Id. at ¶¶ 13, 15, 17.)
On January 6, 2017, Plaintiffs submitted a request to the Director of FINRA Office of
Dispute Resolution seeking a dismissal of Young’s arbitration claims. (Id. at ¶ 22.) The Director
issued a one-page denial of Plaintiffs’ request. (Id. at ¶ 24.) Plaintiffs then filed this complaint
seeking declaratory judgment that Young’s claims are not arbitrable.
In reviewing the plaintiff’s complaint in regard to any motion to dismiss, all well-pleaded
facts are assumed to be true, and all such facts, as well as the reasonable inferences therefrom, are
viewed in the light most favorable to the plaintiff. Gutierrez v. Peters, 111 F.3d 1364, 1368–69 (7th
Cir. 1997). A motion to dismiss under Rule 12(b)(1) challenges the jurisdiction of this court over
the subject matter related in the complaint. The plaintiff bears the burden of establishing that the
jurisdictional requirements have been met. Schaefer v. Transp. Media, Inc., 859 F.2d 1251, 1253
(7th Cir. 1988). If material factual allegations are contested, the proponent of federal jurisdiction
must “prove those jurisdictional facts by a preponderance of the evidence.” Meridian Sec. Ins. Co.
v. Sedowski, 441 F.3d 536, 543 (7th Cir. 2006). When the moving party “launches a factual attack
against jurisdiction, the district court may properly look beyond the jurisdictional allegations of the
complaint and view whatever evidence has been submitted on the issue to determine whether in fact
subject matter jurisdiction exists.” Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444
(7th Cir. 2009) (internal quotation marks and citations omitted).
Plaintiffs argue this Court has jurisdiction on the basis of federal question jurisdiction under
28 U.S.C. § 1331. They claim that the only way Young’s dispute is arbitrable is if he is a “customer”
under FINRA Rule 12200 and Young is only a customer if the purchased policies upon which he
bases his claim are securities. Federal law determines what constitutes a security. See SEC v. W.
J. Howey Co., 328 U.S. 297 (1946). Thus, Plaintiffs claim that this court has subject matter
jurisdiction because Young’s claim “necessarily raise[s] a stated federal issue, actually disputed and
substantial, which a federal forum may entertain without disturbing any congressionally approved
balance of federal and state judicial responsibilities.” Grable & Sons Metal Prod., Inc. v. Darue
Eng’g & Mfg., 545 U.S. 308, 314 (2005).
The parties do not dispute that the life insurance policies Young bought are not securities.
Young’s FINRA arbitration claim asserts state common law claims, violations of FINRA rules, and
a claim under the Indiana Securities Act as it relates to its Registered Investment Advisor section.
Young argues that “[t]he arbitration case is about whether Park Avenue and Abdul-Rahman satisfied
their duties and obligations in giving financial advice to Dr. Young.” (Def.’s Reply Br., ECF No.
15, at 2.) This claim does not require a determination of whether federal securities law applies and
thus does not raise a substantial and disputed federal issue. The FINRA arbitrator may ultimately
determine that Young is not a customer under the Code, that the dispute did not arise from Plaintiffs’
business activities, or that the claim is not arbitrable. However those determinations will be made
by applying the FINRA Code—not federal law.
I therefore conclude that this court does not have subject matter jurisdiction over Plaintiffs’
complaint for declaratory judgment and Young’s motion to dismiss should be granted. Because I
find that Young is entitled to dismissal on subject matter jurisdiction grounds, I need not address the
venue and failure to state a claim issues. For the reasons given above, Young’s motion to dismiss
(ECF No. 10) is GRANTED. The Clerk is directed to enter judgment forthwith.
SO ORDERED this 21st
day of April, 2017.
s/ William C. Griesbach
William C. Griesbach, Chief Judge*
United States District Court
Of the Eastern District of Wisconsin, sitting by designation.
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