Wilson-Davis & Co., Inc. v. Mirgliotta et al

Filing 56

Memorandum of Opinion and Order: Pending before the Court is Plaintiff Wilson-Davis & Co., Inc.'s Motion to Alter or Amend Judgment Under Rule 59(e), or, Alternatively, for Relief from Judgment Under Rule 60(b) (Doc. 51). The motion is DENIED. Judge Patricia A. Gaughan on 5/25/17. (LC,S)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

Wilson-Davis & Co., Inc.,
Plaintiff,
Vs.
James Mirgliotta, et al,
Defendants.

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CASE NO.

1:16 CV 3056

JUDGE PATRICIA A. GAUGHAN

Memorandum of Opinion and Order

INTRODUCTION
Pending before the Court is Plaintiff Wilson-Davis & Co., Inc.’s Motion to Alter or
Amend Judgment Under Rule 59(e), or, Alternatively, for Relief from Judgment Under Rule
60(b) (Doc. 51). For the following reasons, the motion is DENIED.
Wilson-Davis filed this action seeking a declaratory judgment that it is not required to
arbitrate claims that Defendants James Mirgliotta and James Mirgliotta, as administrator of the
Estate of Bette Mirgliotta, filed against it in an arbitration proceeding before the Financial
Industry Regulatory Authority (“FINRA”). On April 28, 2017, this Court found that Defendants
were customers of Wilson-Davis and that, with respect to the Defendants’ losses in VGTL stock
and New Market Enterprises, the dispute between the parties arose in connection with the

business activities of Wilson-Davis or its associated persons.1 As such, the Court determined that
Defendants’ claims with respect to these investment losses were subject to FINRA arbitration. In
its current motion, Wilson-Davis argues that this Court erred in finding that (1) Defendants were
its customers for purposes of their investment losses in New Market Enterprises and (2) the
dispute regarding their losses in New Market Enterprise arose in connection with Wilson-Davis
or its associated persons.
A district court may alter a judgment under Rule 59 based on (1) a clear error of law; (2)
newly discovered evidence; (3) an intervening change in controlling law; or (4) a need to
prevent manifest injustice. Nolfi v. Ohio Kentucky Oil Corp., 675 F.3d 538, 551-52 (6th Cir.
2012). Rule 60(b) provides that a party may be relieved from a final judgment for the following
reasons:
(1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered
evidence which by due diligence could not have been discovered in time to move
for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated
intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;
(4) the judgment is void; (5) the judgment has been satisfied, released, or
discharged, or a prior judgment upon which it is based has been reversed or
otherwise vacated, or it is no longer equitable that the judgment should have
prospective application; or (6) any other reason justifying relief from the
operation of the judgment.
Fed. R. Civ. P. 60(b). With respect to Rule 60(b)(6), the provision on which Wilson-Davis relies,
the Sixth Circuit has emphasized that:
[R]elief under Rule(b) is circumscribed by public policy favoring finality of
judgments and termination of litigation. This is especially true in an application of
subsection (6) of Rule 60(b), which applies only in exceptional or extraordinary
circumstances which are not addressed by the first five numbered clauses of the
Rule. This is because almost every conceivable ground for relief is covered under

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Familiarity with the Court’s Order of April 28 is presumed.
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the other subsections of Rule(b). Consequently, courts must apply Rule(b) relief
only in unusual and extreme situations where principles of equity mandate relief.
McMurry v. Adventist Health Sys./Sunbelt, Inc., 298 F.3d 586, 592 (6th Cir. 2002).
Here, Wilson-Davis argues that it is entitled to relief under Rule 59(e) to prevent a
manifest injustice and under Rule 60(b)(6) because there is no evidence that it or its associated
person had any involvement with the Mirgliottas’ investments in New Market Enterprises. As
such, it argues that the Court erred in finding that Defendants were its customers with respect to
this transaction and that their claims regarding their losses in New Market Enterprises arose in
connection with Wilson-Davis’s business activities or its associated member. The Court does not
agree.
While Mr. Mirgliotta had difficulty recalling all of the specific details of his
conversations with Werbel and Cervino from four years ago, he testified numerous times that he
sent his money to Liberty Bank and then on to New Market Enterprises because of Cervino, a
Wilson-Davis employee, as well as Werbel and Durante:
Q: So, were you prepared to accept these transactions because Mr. Werbel had
done them?
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A: Yes.
Q: And so he was your agent for purposes of these transactions?
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A: Along with Mr. Cervino from Wilson-Davis.
Q: Well, tell me how you think Mr. Cervino was your agent.
A: Well, he’s the agent of record with the Wilson-Davis Company, who I thought
was all part of this...transaction.
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Q: Tell me what you mean, it was all part of this transaction.
A: What can I tell you that I haven’t already told you? Money went from TD
Ameritrade, to Wilson-Davis, to Liberty Bank, to New Market Enterprises, all per
the instructions of Mr. Werbel, Mr. Durante, Mr. Cervino.
(Jim Mirgliotta Dep., April 12, 2017, at 68-69) (emphasis added).
Q: Tell me what facts of which you are aware that indicate that Mr. Cervino had
anything to do with your sending money to New Market?
A: A phone conversation that I had with him about the wire transfer.
Q: But he just said that it was coming back to you, didn’t he?
A: I don’t recall that.
Q: I see. What do you recall that he said?
A: That we were moving the money from Wilson-Davis to Liberty Bank.
Q: And so it went from there to Liberty Bank, and that’s what Mr. Cervino told
you.
A: And it was going from there to Money Market [sic].
(Id. at 70) (emphasis added).
Q: I asked you if, in sending the wire to New Market Enterprises, as Mr.
Eisenberg and Mr. Werbel had told you to do, did it–
A: And Mr. Cervino.
Q: No, he didn’t tell you.
A: Yes, he did.
(Id. at 73).
Q: Well, I think this is important, and I’m going to ask you to tell me everything
you can remember that Mr. Cervino told you on the telephone.
A: I don’t recall, that was four years ago, other than the instructions were clear
that I was getting a phone call from Mr. Cervino, okay, about the money transfer,
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and the instructions were then to send it to New Market Enterprises. That’s all I
can tell you.
(Id. at 73-74).
In addition to Mr. Mirgliotta’s testimony, the evidence shows that Durante and Cervino
had discussions regarding the Mirgliottas’ accounts at Wilson-Davis just three days before
Durante (under his Eisenberg alias) directed Mr. Mirgliotta to wire the Mirgliottas’ money out of
their Wilson-Davis account. (Pl.’s Dep. Ex. 10) (email from Eisenberg to Cervino, dated July 16,
2013) (“Here are the current account statements for James and Bette Mirgliotta. The cash is in
their accounts at TD now. $212k for James and $530k for Bette. Please ADAT the cash in to
their accounts at WDCO ASAP.”). Finally, on January 6, 2016, Cervino, Werbel, and Durante
were indicted for their involvement in a scheme to defraud investors out of millions of dollars.
As the Court noted in its April 28 Order, this evidence is sufficient to show that
Defendants were Wilson-Davis’s customer with respect to New Market Enterprise. In Vestax
Secs. Corp. v. McWood, 280 F.3d 1078, 1082 (6th Cir. 2002), the Sixth Circuit held that an
investor is the customer of a FINRA member by virtue of purchasing securities on the advice of
the member’s registered representatives. This is so even where the investor has not established
an account with the FINRA member. (See Doc. 49, at 9 n.5). Thus, when the Mirgliottas
conducted business with Cervino and transferred their money from Wilson-Davis to Liberty
Bank and ultimately to New Market Enterprises on Cervino’s (as well as Werbel’s and
Durante’s) recommendation, they were customers of Wilson-Davis with respect to this
transaction, even if the money did not go directly from Wilson-Davis to New Market
Enterprises.
The evidence also supports that Defendants’ claim against Wilson-Davis for negligently
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failing to monitor their accounts and negligently failing to train and supervise its advisors arises
in connection with the activities of Cervino, Wilson-Davis’s associated person. Mr. Mirgliotta
testified multiple times that he acted on the advice of Cervino when he transferred his and his
wife’s money out of Wilson-Davis to Liberty Bank and then to New Market Enterprises. Thus,
the claim must go to arbitration. As the Court noted in its April 28 Order, whether Defendants
can, in fact, prove that their losses in New Market Enterprises resulted from Wilson-Davis’s lack
of supervision over Cervino is a matter for the arbitration panel to determine. Vestax, 280 F.3d
at 1082 (holding that “[a] dispute that arises from a firm’s lack of supervision over its brokers
arises in connection with its business” and noting that the investors intended to prove in
arbitration that Vestax’s failure to properly supervise its registered representatives led to the loss
in question).
IT IS SO ORDERED.

/s/ Patricia A. Gaughan
PATRICIA A. GAUGHAN
United States District Judge
Dated: 5/25/17

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