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Morgan Stanley & Co., Inc., Christine A. Edwards, Paul G. Thomas, David W. Heleniak, Gary Lynch, and Donald G. Kempf, Jr v. Dan A. Druz

January 8, 2013


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket Nos. L-6065-09 and L-3100-09.

Per curiam.



Argued telephonically October 22, 2012

Before Judges Yannotti, Harris and Hoffman.

After successfully pursuing a claim for damages against his former employer in an arbitration proceeding (Druz I), appellant Dan A. Druz unsuccessfully pursued claims against his former employer and several of its employees in a second arbitration proceeding (Druz II). When he did not prevail in Druz II, Druz petitioned the Law Division to vacate the award while contemporaneously filing a third arbitration demand (Druz III) alleging the same conspiracy, but with different co-conspirators, and claiming that the Druz II award had been procured by fraud. Upon the filing of Druz III, the respondents named in that proceeding filed a separate action in the Law Division seeking a declaration that Druz III presents a nonarbitrable dispute and an injunction that would preclude Druz from pursuing Druz III or filing any further proceedings relating to Druz II.

On August 13, 2010, the Law Division decided all pending applications and entered final orders in both cases. In the first case, the court denied Druz's application to vacate the award in Druz II and granted the cross-application to confirm the award. In the second case, the court determined that Druz III presented a non-arbitrable dispute, which should be dismissed, and further enjoined Druz from pursuing Druz III or filing any further proceedings essentially to appeal the award in Druz II. Druz appeals from the final order in each case. We have consolidated the appeals for purposes of this opinion, and, finding no merit in either appeal, we affirm.


Druz, an attorney, was employed by Dean Witter Reynolds, Inc. (Dean Witter), predecessor of respondent Morgan Stanley and Company, Inc. (Morgan Stanley), at its office in Princeton from 1982 to 1987. After Druz left Dean Witter, one of his former clients, the New Jersey School Board Association Insurance Group (Insurance Group), sued Druz and Dean Witter, alleging nearly one million dollars in losses from improper trading. As a result of a New York Stock Exchange (NYSE) investigation, Druz was prohibited from associating with any member firm for eight years. A State grand jury also indicted Druz on multiple charges, which he resolved through successful completion of the pretrial intervention (PTI) program, N.J.S.A. 2C:43-12.

Within the same month of his admission into the PTI program in March 1995, Druz filed his first arbitration demand, Druz I, with the NYSE against Dean Witter and a number of its employees, including his former supervisor, Richard Hayes, alleging a conspiracy to frame him for the transactions that lead to his investigation, discipline, and indictment.

The United States District Court for the District of New Jersey stayed the arbitration pending the completion of the criminal case against Druz (admission into the PTI program did not result in the dismissal of the charges against Druz until he completed three years of supervisory treatment). Druz essentially repeated the same claims in a second arbitration demand (Druz II) filed in 1999. The District Court enjoined that arbitration, as well, finding it was time-barred. Druz successfully appealed both rulings.*fn1

Druz filed an amended demand in Druz I on May 13, 2005, for $106 million in compensatory and punitive damages. When Druz was unable to effectuate service on Hayes, he voluntarily dismissed him from the arbitration, without prejudice, but proceeded against the remaining parties. On April 4, 2007, an arbitration panel awarded Druz $551,450*fn2 against Morgan Stanley, without elaboration, but dismissed "in all respects" all claims against the individual respondents.

Druz then filed an amended demand in Druz II in November 2007, naming only Morgan Stanley and Hayes, reiterating the same allegations, and demanding greater than $40 million in damages. The only significant difference between Druz I and Druz II was that Hayes was a respondent in the second proceeding, but not the first. Following a hearing held over the course of forty half-day sessions, a three-person Financial Industry Regulatory Authority (FINRA)*fn3 arbitration panel issued an award on February 23, 2009 dismissing all of Druz's claims in their entirety, also without elaboration. On June 25, 2009, Druz filed a complaint in the Law Division against Morgan Stanley and Hayes, demanding that the arbitration award in Druz II be vacated because the arbitrators refused to consider material evidence and the award was otherwise procured by corruption, fraud, or other undue means. Respondents filed an answer and moved to confirm the award.

When Druz made a discovery request for a copy of an unofficial transcript of the Druz II proceedings prepared by respondents' court reporter, respondents filed a motion for a protective order, claiming work product, and Druz filed a cross-motion to compel production. The court ultimately concluded that the transcript was privileged as attorney work product and that appellant, who already had a copy of the official audio record, had failed to demonstrate that he was "unable, without undue hardship, to obtain the substantial equivalent of the materials sought."

On September 16, 2009, Druz filed a third arbitration demand, Druz III, with FINRA, alleging the same conspiracy claims dismissed by prior arbitration panels, but naming a different set of co-conspirators (former and current members of Morgan Stanley's legal department), along with Morgan Stanley itself.

On December 10, 2009, respondents filed a declaratory judgment action in the Law Division seeking a declaration that Druz III presents a non-arbitrable dispute and demanding that Druz be enjoined from prosecuting Druz III or initiating any similar arbitration on the grounds that it would be tantamount to an appeal of Druz II. On December 24, 2009, Judge Daniel M. Waldman issued a temporary restraining order staying the proceedings in Druz III, concluding that respondents had met the legal requirements for injunctive relief in accordance with Crowe v. De Gioia, 90 N.J. 126, 132-34 (1982).

On August 13, 2010, Judge Waldman decided both actions in favor of the respondents. In the vacatur action, the court confirmed the Druz II award, considering and rejecting each of appellant's arguments for vacatur, including the argument that the Druz II award was procured by fraud.

In the summary proceeding relating to Druz III, the court entered an order (1) declaring that Druz III presented a nonarbitrable dispute and that any other arbitration seeking to vacate and re-arbitrate the Druz II award would present a nonarbitrable dispute; (2) enjoining Druz from pursuing Druz III and from otherwise seeking to vacate and re-arbitrate the Druz II award; ...

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