United States District Court, E.D. Michigan, Southern Division
THOMAS P. LAGRASSO, JR., individually and on behalf of THOMAS P. LAGRASSO, JR. IRA, Plaintiffs,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, PRUCO LIFE INSURANCE COMPANY, PRUDENTIAL ANNUITIES DISTRIBUTORS, INC., VOYA INSURANCE AND ANNUITY COMPANY, and VOYA RETIREMENT INSURANCE AND ANNUITY CORPORATION, Defendants.
OPINION AND ORDER GRANTING DEFENDANTS' MOTION TO
STAY THE ACTION PENDING ARBITRATION
V. PARKER U.S. DISTRICT JUDGE
filed this lawsuit in state court against Defendants and
Michael A. Marcum (“Marcum”), which Defendants
removed to federal court based on diversity jurisdiction
after Plaintiffs voluntarily dismissed their claims against
Marcum. The matter presently is before the Court on a motion
to stay pending arbitration, filed by Defendants Voya
Insurance and Annuity Company and Voya Retirement Insurance
and Annuity Corporation (collectively “Voya
Defendants”). (ECF No. 8.) Defendants Prudential
Insurance Company of America, Pruco Life Insurance Company,
and Prudential Annuities Distributors, Inc. (collectively
“Prudential Defendants”) concur in the motion.
(ECF No. 9.)
their motion, Defendants ask the Court to stay the pending
action, including delaying the deadline to respond to
Plaintiffs' Complaint, during the arbitration of
Plaintiffs' previously filed Financial Industry
Regulatory Authority (“FINRA”) claim against
Marcum and Allstate Financial Services
(“Allstate”). Plaintiffs filed a response to the
motion in which they argue that a stay is unwarranted and
that the two proceedings should continue simultaneously.
current lawsuit and FINRA claims arise from the purchase of
certain financial products through Marcum, an independent
insurance agent, by Plaintiff Thomas LaGrasso, Jr.
(“LaGrasso”). Marcum was licensed as a
stockbroker with Allstate and was an appointed insurance
agent with various companies.
formed the Thomas P. LaGrasso, Jr. IRA for the purpose of
converting his 401(k) to buy Defendants' securities.
LaGrasso alleges that he used almost all of the assets in his
401(k) to purchase the securities. LaGrasso asserts that the
securities-specifically annuities-were an improper investment
for him and that Marcum misrepresented them as safe, secure
and suitable. LaGrasso alleges that Marcum breached his
fiduciary and contractual duties through these
issued and/or distributed the financial products. They rely
on brokers, like Marcum, to sell their products to customers,
like LaGrasso. LaGrasso alleges that Defendants had a duty to
properly supervise Marcum, but they negligently failed to
competently and reasonably do so. LaGrasso further alleges
that Defendants advertised that customers, like LaGrasso,
would receive proper, competent, and suitable investment
advice and that they were required under federal and state
law to provide all material information and facts necessary
for customers to evaluate the suitability of the investments
offered. According to LaGrasso, he was given negligent,
improper, and erroneous advice and the information he
received was false and/or omitted material facts necessary to
make an informed investment decision.
filed the FINRA arbitration proceeding against Marcum and
Allstate on December 7, 2017. In their Statement of Claim,
Plaintiffs charge Marcum and Allstate with negligence, breach
of contract, breach of fiduciary duty, fraud, silent fraud
and negligent misrepresentation, securities fraud in
violation of Michigan law, and violation of FINRA Rules of
Fair Practice and the suitability standard. (See
Pls.' Resp. Ex. 2, ECF No. 10-2.) Plaintiffs assert that
the financial products LaGrasso purchased were not suitable
for him and should not have been sold to him, and that
Allstate failed to properly supervise Marcum.
filed the current action in Wayne County Circuit Court on
February 21, 2018. In their Complaint, Plaintiffs assert the
same causes of action, based on the same operative facts and
financial transactions, and seek significantly the same
relief as the FINRA arbitration. They initially named as
defendants Marcum and the entities that issued the financial
products LaGrasso purchased, but did not include Allstate. On
May 10, 2018, Plaintiffs voluntarily dismissed Marcum and the
Complaint was removed to federal court the following day.
Law and Analysis
Federal Arbitration Act allows piecemeal, concurrent
litigation where only some of the relevant issues are
arbitrable. Dean Witter Reynolds, Inc. v. Byrd, 470
U.S. 213, 221 (1985). Nevertheless, the Supreme Court has
determined that “[i]n some cases … it may be
advisable to stay litigation among the nonarbitrating parties
pending the outcome of the arbitration. That decision is one
left to the district court … as a matter of its
discretion to control its docket.” Moses H. Cone
Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 20
n. 23 (1983). Exercising that discretion, several district
courts within the Sixth Circuit have stayed the litigation of
non-arbitrable claims pending the outcome of an arbitration.
See, e.g., Gordon v. Royal Palm Real Estate Inv.
Fund I, LLC, No. 09-11770, 2011 WL 835941, at *8-9 (E.D.
Mich. Mar. 8, 2011); Stacy v. H & R Block Tax
Servs., Inc., No. 07-13327, 2008 WL 321300
(E.D. Mich. Feb.4, 2008); Vaughn v. Marshall, No.
2:09 CV 00097, 2009 WL 3260382, at *4 (S.D. Ohio Oct. 8,
2009); DRS Precision Echo, Inc. v. Michigan Magnetics,
Inc., No. 1:02-cv-161, 2003 WL 1141900, at *5 (W.D.
Mich. Jan.7, 2003).
a Sixth Circuit case as precedent, one district judge in this
Circuit held that “where some claims are
non-arbitrable, they can simultaneously proceed in [the
district c]ourt only if they can be separated out;
in other words, if their resolution has no effect on the
arbitrable issues.” DRS Precision Echo,
Inc., 2003 WL 1141900, *5 (emphasis in original) (citing
Lipskey v. Oppenheimer & Co., 717 F.2d 314,
319-20 (6th Cir. 1983)). As stated by another district judge,
a court should stay litigation of non-arbitrable claims
“where a decision in one forum could affect the
resolution of claims in the other.” Spartech CMD,
LLC v. Int'l Auto. Components Grp., N.A., No.
08-13234, 2009 WL 440905, at *13 (E.D. Mich. Feb. 23, 2009).
Courts have found a stay appropriate where “a lawsuit
against a nonsignatory [to an arbitration agreement] depends
upon the same facts and is inherently inseparable from the
arbitrable claims, ” Patnik v. Citicorp Bank Trust
FSB, 412 F.Supp.2d 753, 762 (N.D. Ohio 2005), where the
arbitration may resolve issues in the lawsuit, Sierra
Rutile Ltd. v. Katz, 937 F.2d 743, 750 (2d Cir. 1991),
or where staying the litigation would promote the federal
policy in favor of arbitration, AgGrow Oils, LLC v.
Nat'l Union Fire Ins. Co., 242 F.3d 777, 782 (8th
Cir. 2001). In comparison, courts have found a stay
unnecessary after finding the non-arbitrable issues
insufficiently intertwined with arbitrable issues, such as
where the claims are “based on separate and distinct
projects....” Yamasaki Korea Architects, Inc. v.
Yamasaki Assoc., Inc., No. 08-10342, 2008 WL 4940590, at
*5 (E.D. Mich. Nov.17, 2008); see also Spartech CMD,
2009 WL 440905, at *14 (declining to stay non-arbitrable
claims which were based on a contract distinct from those
requiring arbitration and involved an independent
instant case, Plaintiffs' pending claims are inseparable
from those asserted in the FINRA arbitration proceeding.
Contrary to Plaintiffs' assertion, they allege the same
causes of action under Michigan and federal law in the two
proceedings. (Compare Compl., ECF No. 1
with Pls.' Resp., Ex. 2, ECF No. 10-2.) Here,
Plaintiffs' claims against Defendants are primarily
premised on a theory of supervisory liability. Thus, they are
dependent on Plaintiffs showing first that Marcum committed
the alleged illegal acts. This conduct is indisputably the
subject of the pending arbitration proceeding. As such, the
two matters are factually intertwined.
if the pending action were allowed to proceed, Marcum's
liability for the alleged misconduct would have to be
resolved. This would result in litigation of arbitrable
claims and could therefore “subvert the arbitration
agreement.” Allowing this issue to be resolved in
arbitration first will preserve the parties' and the
Court's resources, ...