Tuminello et al v. Richards et al

Filing 45

ORDER by Judge Benjamin H Settle granting 13 Motion to Compel; denying 14 Motion for Preliminary Injunction.(TG)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT TACOMA

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7 JAMES TUMINELLO and UBS
FINANCIAL SERVICES, INC.,
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Plaintiffs,
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v.

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BRIAN RICHARDS and BRICH
11 HOLDINGS LLC, a Nevis limited
liability company,
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Defendants.

CASE NO. C11-5928BHS
ORDER GRANTING
DEFENDANT BRIAN
RICHARDS’S MOTION TO
COMPEL ARBITRATION AND
STAY PROCEEDINGS; AND
DENYING PLAINTIFFS’
MOTION FOR PRELIMINARY
INJUNCTION

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This matter comes before the Court on Defendant Brian Richards’s (“Richards”)

15 Motion to Compel Arbitration and Stay Proceedings (Dkt. 13) and Plaintiffs [Cross-]
16 Motion for Preliminary Injunction (Dkt. 14). The Court has considered the pleadings
17 filed in support of, and in opposition to, the motions and the remainder of the file. For
18 the reasons stated herein, the Court hereby grants Richards’s motion to compel arbitration
19 and stay proceedings and denies Plaintiffs’ motion for preliminary injunction.
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I. PROCEDURAL HISTORY
Plaintiffs filed this action on November 11, 2011. Dkt. 1. On December 23, 2011,

22 Richards filed the instant motion to compel arbitration and stay court proceedings. Dkt.

ORDER - 1

1 13. On January 17, 2012, Plaintiffs responded. Dkt. 30. On January 25, 2012, Richards
2 replied. Dkt. 35.
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On December 29, 2011, Plaintiffs filed a cross-motion for preliminary injunction.

4 Dkt. 14. On January 17, 2012, Defendants responded. Dkt. 28. On January 25, 2012,
5 Plaintiffs replied. Dkt. 40.
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II. FACTUAL BACKGROUND

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This action arises out of a Statement of Claim (“SOC”) that Richards filed in

8 August 2011 with the Financial Industry Regulatory Authority (“FINRA”), against UBS
9 Financial Services, Inc. (“UBSFS”), a FINRA member broker-dealer, and James
10 Tuminello, a UBSFS registered representative. Dkt. 1-1 at 2. In the SOC, Richards
11 alleges that, on or about September 8, 2005, he set up an investment account with UBSFS
12 after Tuminello assured him that he would maximize Richards’s profits. Id. at 5; Dkt. 13
13 at 4. Richards had then-recently obtained settlement funds from a lawsuit concerning his
14 family’s business, and he “wanted to invest the settlement proceeds for growth and to
15 provide income to live on until he could generate income from a future business . . . .”
16 Dkt. 1-1 at 4. Richards remained a customer of UBSFS until about September 2009.
17 Dkt. 13 at 4. While he was a customer, Richards claims that he lost an estimated
18 $2,200,000 because of UBSFS and Tuminello’s mismanagement of funds. Dkt. 1-1 at 519 7. Richards has charged UBSFS and Tuminello with fraud, negligence, breach of
20 contract, breach of fiduciary duty, violations of state and federal securities laws, and
21 violations of the Washington Consumer Protection Act. Id. at 3, 7-8.
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ORDER - 2

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After Richards submitted his claim to FINRA arbitration, UBSFS and Tuminello

2 filed this action seeking declaratory relief and preliminary and permanent injunctive
3 relief to enjoin Richards from pursuing his claims in arbitration. Dkt. 1. The gist of the
4 instant complaint is that Richards initiated FINRA arbitration in connection with
5 investment accounts in Switzerland owned not by him, but by Brich Holdings LLC
6 (“Brich”), an offshore limited liability company that Richards created under the laws of
7 the Caribbean island nation of Nevis. Dkt. 1 at 3; Dkt. 1-1 at 15-16; Dkt. 14 at 3.
8 Plaintiffs argue that, in creating this separate entity, Richards, in his capacity as manager
9 of Brich, signed account agreements with UBS Swiss Financial Advisers AG
10 (“UBSSFA”) to establish certain Swiss investment accounts, and that it is these accounts
11 that sustained the losses alleged in the SOC. Plaintiffs contend that the Brich-UBSSFA
12 account agreement(s) contains no arbitration provision and, instead, contains the
13 following Swiss forum and choice of law clause:
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Applicable law and Place of Jurisdiction
The present Agreement and/or Declaration shall be exclusively
governed by and construed in accordance with Swiss law. The place of
performance of all obligations of both parties, the place of debt collection,
the latter only for clients domiciled outside Switzerland, as well as the
exclusive place of jurisdiction for any disputes arising out of and in
connection with the present Agreement and/or Declaration shall be Zurich,
Switzerland.

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Dkt. 15-1 at 8 (emphasis in original); see also Dkt. 1 at 3; Dkt. 14 at 3. Plaintiffs argue
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that because the SOC alleges losses in the Swiss investment accounts owned by Brich
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(and not Richards), any dispute relating to these accounts are subject to exclusive
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jurisdiction in Switzerland. Id.
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ORDER - 3

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In the motion to compel arbitration and opposition to Plaintiffs’ motion for

2 preliminary injunction, Richards and Brich (collectively, the “Defendants”) argue that, at
3 the onset of the relationship, Richards and UBSFS entered into a Master Account
4 Agreement, which contains a broad and valid arbitration clause. The last paragraph of
5 the Master Account Agreement reads:
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You agree, and by carrying an account for you UBS Financial
Services Inc. agrees, that any and all controversies which may arise
between you and UBS Financial Services Inc. concerning any
account(s), transaction, dispute or the construction, performance, or
breach of this or any other Agreement, whether entered into prior, on or
subsequent to the date hereof, shall be determined by arbitration. Any
arbitration under this Agreement shall be held under and pursuant to and be
governed by the Federal Arbitration Act, and shall be conducted before an
arbitration panel convened by the New York Stock Exchange, Inc. or the
National Association of Securities Dealers, Inc.

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Dkt. 13 at 5 (emphasis in original). In addition, Defendants note that Richards’s account
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application that he submitted to UBSFS discusses arbitration of claims. The signature
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page of that application reads:
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B.
that in accordance with the last paragraph of the Master
Account Agreement entitled Arbitration” [sic] I am agreeing in advance to
arbitrate any controversies which may arise with among others UBS
Financial Services in accordance with the terms outlined therein.

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17 Id. (emphasis added). Defendants argue that these arbitration provisions govern the
18 allegations raised in the SOC. See Dkts. 13, 28.
III. DISCUSSION

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The Federal Arbitration Act
The Federal Arbitration Act (“FAA”) provides that “an agreement in writing to

submit to arbitration an existing controversy arising out of such a contract, transaction, or

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1 refusal shall be valid, irrevocable, and enforceable, save upon such grounds as exist at
2 law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The purpose of the
3 FAA is to “reverse the longstanding judicial hostility to arbitration agreements . . . and to
4 place arbitration agreements upon the same footing as other contracts.” Gilmer v.
5 Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991). To that end, the FAA divests
6 courts of their discretion and requires courts to resolve any doubts in favor of compelling
7 arbitration. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985). The FAA requires
8 courts to stay proceedings when an issue before the court can be referred to arbitration. 9
9 U.S.C. § 3. On review of a motion to compel arbitration, the court’s role is limited to a
10 determination of (1) whether the parties entered into a valid agreement to arbitrate, and if
11 so, (2) whether the present claims fall within the scope of that agreement. Chiron Corp.
12 v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).
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Valid Arbitration Clause

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Plaintiffs do not dispute that there is a valid arbitration provision in the Master

15 Account Agreement and that the provision purportedly governs any dispute between
16 Richards and UBSFS. Instead, Plaintiffs contend that “[t]here is no arbitration agreement
17 . . . between the real party in interest, Brich, and Plaintiffs . . . ,” specifically with respect
18 to the Swiss investment accounts that Plaintiffs claim were subject to the losses alleged in
19 Richards’s FINRA claim. Dkt. 30 at 1. Therefore, Plaintiffs contend that any dispute
20 concerning the Swiss investment accounts is subject not to FINRA arbitration, but to
21 exclusive jurisdiction in Switzerland. See Dkt. 14; Dkt. 30.
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ORDER - 5

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The Court disagrees. A district court’s role is “strictly limited to determining

2 arbitrability and enforcing agreements to arbitrate,” and to “leave[] the merits of the
3 claim and any defenses to the arbitrator.” Republic of Nicaragua v. Standard Fruit Co.,
4 937 F.2d 469, 478 (9th Cir. 1991), cert. denied, 503 U.S. 919 (1992). Here, Richards has
5 asserted claims in his personal capacity against UBSFS and Tuminello, and there is no
6 dispute that the Master Account Agreement between UBSFS and Richards contains a
7 valid arbitration clause. Dkt. 13 at 35. 1 Accordingly, the Court’s inquiry starts and ends
8 with its determination that there exists a valid and enforceable arbitration agreement
9 between the parties named in the SOC, and the Court need not address the secondary
10 question of who is the “real party in interest” in the context of the SOC. The Court must
11 defer that fact-finding function to the arbitrator.
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Real Party in Interest

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Nevertheless, even if the Court could rule on the real-party-in-interest question,

14 the Court finds that Plaintiffs have failed on this record to overcome the presumption of
15 arbitrability or otherwise show that injunction is warranted. See Green Tree Fin. Corp.16 Ala. v. Randolph, 531 U.S. 79, 92 (2000) (the party opposing arbitration bears the burden
17 of showing that the agreement is not enforceable); Independent Living Center of Southern
18 Cal., Inc. v. Maxwell-Jolly, 572 F.3d 644, 651 (9th Cir. 2009) (party seeking preliminary
19 injunction “must establish that he is likely to succeed on the merits, that he is likely to
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To be sure, even if the arbitration provision was found to be unenforceable for any
reason, the Master Account Agreement provides that any controversies in connection with the
agreement would be submitted to the exclusive jurisdiction of the courts of the State of New
22 York and the federal courts sitting in the Southern District of New York. Dkt. 13 at 35.

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ORDER - 6

1 suffer irreparable harm in the absence of preliminary relief, that the balance of equities
2 tips in his favor, and that an injunction is in the public interest).
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In the SOC, Richards alleges in part that UBSFS and Tuminello made unsuitable

4 recommendations to Richards and that UBSFS failed to supervise Tuminello and the
5 accounts. Dkt. 1-1 at 3. These allegations are not account-specific, as Plaintiffs’ theory
6 assumes, but rather contemplate broad actions (or inactions) by UBSFS and Tuminello
7 that Richards claims contributed to his losses. 2 Indeed, Richards alleges that one of
8 UBSFS’s unsuitable recommendations related to the creation of the offshore limited
9 liability company, Brich. Dkt. 1-1 at 5. With that recommendation, Richards alleges that
10 UBSFS directed lawyers to create the offshore limited liability company, along with a
11 family trust, and commanded UBSSFA to manage the funds. Id.; Dkt. 28 at 4. These
12 recommendations were part of what Richards describes as a master “Tuminello Plan”
13 designed to maximize Richards’s profits. Dkt. 1-1 at 5. Based on the foregoing, the
14 Court cannot conclude on the current record that Brich is the only party with legitimate
15 grievances against UBSFS and Tuminello. Plaintiffs fail to define what constitutes “real
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Plaintiffs contend that “the SOC does not ask for damages based on the supposed advice

20 from Tuminello and UBSFS to create offshore entities.” Dkt. 40 at 5-6. That may be true. But,
again, the arbitrator – and not this Court – needs to determine how that allegation (or lack

21 thereof) impacts Richards’s underlying claim and damages. For present purposes, the Court’s
role starts and ends with its determination that there exists a valid and enforceable arbitration

22 agreement between Richards and UBSFS.

ORDER - 7

1 party in interest” or otherwise show why there cannot be more than one interested party,
2 including but not limited to Brich. 3
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Moreover, although the Court need not engage in in-depth contract construction at

4 this juncture, the Court finds that the contract language raises at least two significant
5 questions regarding Plaintiffs’ real-party-in-interest proposition. First, the Master
6 Account Agreement contemplates arbitration of controversies related to “any account . . .
7 of this or any other Agreement, whether entered into prior, on or subsequent to the date
8 hereof.” Dkt. 13 at 35 (emphasis added). Therefore, even assuming Brich’s status as the
9 sole holder of the Swiss accounts and that the losses alleged in the SOC concern only
10 those accounts, the Court questions whether the Swiss forum clause in the Brich11 UBSSFA agreement trumps the broad arbitration provision in the Master Account
12 Agreement. See Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 23 (2d Cir.
13 1995) (where the clause is broad, an arbitration of even a collateral matter will be ordered
14 if the claim alleged “implicates issues of contract construction or the parties’ rights and
15 obligations under it”). Although the Court need not answer this question, the mere
16 existence of the question undermines Plaintiffs’ position that Brich is the one and only
17 real party in interest. Further development of the record would be necessary to resolve
18 this question.
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Fed. R. Civ. P. 17(a) provides that only a “real party in interest” may prosecute an
action. Significantly, the rule provides that “[t]he following may sue in their own names without
joining the person for whose benefit the action is brought: . . . (F) a party with whom or in whose
22 name a contract has been made for another’s benefit . . . .” Fed. R. Civ. P. 17(a)(1)(F).

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ORDER - 8

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Second, in the SOC, Richards has named UBSFS and Tuminello as the

2 respondents, which is coherent with Richards’s allegations that he dealt with Tuminello, a
3 registered representative of UBSFS, and that he entered into a Master Account
4 Agreement with UBSFS in his personal capacity. By contrast, the Swiss forum clause in
5 the Brich agreement that Plaintiffs seek to enforce appears in an agreement that names
6 UBSSFA (and not UBSFS). Notwithstanding the Court’s limited understanding of the
7 actual relationship between UBSFS and UBSSFA, it appears at the outset that UBSFS is
8 seeking to enforce a forum clause in an agreement to which it is not a party. Whether or
9 not this distinction is significant is not for the Court to decide. Even so, this concern is
10 relevant to the question of whether Plaintiffs have met their heavy burden to enjoin the
11 pending arbitration and subject the claims thereunder to Swiss jurisdiction. For the
12 reasons stated, the Court finds that Plaintiffs have not met that burden. 4
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FINRA Rules

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Because the Court finds that the arbitration clause in the Master Account

15 Agreement is valid and enforceable, the Court need not reach the alternate issue of
16 whether arbitration is warranted under FINRA rules.
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With respect to Plaintiffs’ motion for preliminary injunction, the Court’s analysis relates
most directly to the first element of whether Plaintiffs have established the likelihood of success
on the merits. For reasons discussed, the Court finds that Plaintiffs have not established that
element. But the Court also finds that Plaintiffs have not established that they are likely to suffer
irreparable harm in the absence of preliminary relief. Plaintiffs, who are based out of Seattle,
Washington, seek to litigate the claims referenced in the SOC in Switzerland rather than locally
in a presumably less expensive FINRA arbitration. The economics cut against a finding of
irreparable harm, and nothing in the Plaintiffs’ briefing compels the Court to conclude otherwise.
Likewise, the Court finds that Plaintiffs have failed to establish that the balance of equities tips in
their favor or that an injunction is in the public interest.

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IV. ORDER
Therefore, it is hereby ORDERED that Richards’s Motion to Compel Arbitration

3 and Stay Proceedings (Dkt. 13) is GRANTED and Plaintiffs’ [Cross-] Motion for
4 Preliminary Injunction (Dkt. 14) is DENIED.
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Dated this 8th day of March, 2012.

A

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BENJAMIN H. SETTLE
United States District Judge

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ORDER - 10