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Deering v. Graham

United States District Court, D. New Jersey

January 30, 2015


OPINION [Doc. No. 9]

JOEL SCHNEIDER, Magistrate Judge.

This Opinion addresses whether a client who signs a brokerage agreement containing an arbitration clause should be compelled to arbitrate all of her claims against her broker and the brokerage firm he represents. Defendants Donald Ellwood Graham, Graham Financial Services, LLC, Executive Wealth Advisors, LLC, and J.P Turner & Company (collectively, "defendants") seek to compel arbitration and stay plaintiff's lawsuit pending the results of plaintiff's arbitration hearing. Plaintiff Mary Deering, a former client of defendants, opposes defendants' motion [Doc. No. 11]. Defendants have also filed a reply [Doc. No. 12]. The Court recently held oral argument. For the following reasons, defendants' "Motion to Stay Action and Compel Plaintiff to Arbitrate Claims" [Doc. No. 9] is GRANTED in part and DENIED in part. Plaintiff's financial mismanagement claims against all defendants, including those involving tax-relates issues, will be sent to arbitration. Conversely, plaintiff's NJLAD claim, asserted against all defendants, and sexual battery and assault claims, asserted against Graham individually, fall outside the scope of her arbitration agreement and will be litigated in this Court. However, this civil action will be stayed pending the completion of the arbitration hearing.


J.P. Turner & Company ("J.P. Turner") is a brokerage and investment banking firm which operates through independent branch offices, including Executive Wealth Advisors. Cert. of Donald Ellwood Graham ("Graham Cert.") ¶¶ 1-2. In 2007, plaintiff contacted Donald Ellwood Graham ("Graham") to obtain financial advice and services. Compl. ¶ 44. Thereafter, plaintiff opened a J.P. Turner brokerage account and completed an initial account application on December 7, 2007. Graham Cert. ¶ 3, Exs. 1-2. The new account application and Customer Agreement were signed by Graham, as a J.P. Turner Representative, and Nicholas Saunders ("Saunders"), as the Office Manager for the J.P. Turner branch operated by Executive Wealth Advisors. Id.

In December 2011, "as a result of a change in clearing agents" plaintiff executed an updated J.P. Turner new account form and Customer Agreement. Defs.' Br. at 3. At the same time, plaintiff also executed a Transfer on Death Account and a Margin Agreement. Graham Cert. ¶ 5, Exs. 4-5. About six months later, in June 2012, plaintiff executed an updated J.P. Turner account application. Defs.' Br. at 3.[1]

The six brokerage agreements plaintiff signed all contained arbitration clauses. The parties agree that the arbitration provisions are substantially similar in form and substance. For the sake of consistency the Court will focus its analysis on the language of the June 2012 arbitration provision. This arbitration clause states:

This is a pre-dispute arbitration clause. Under this clause, which becomes binding on all parties when you sign below, you and JPT agree as follows:
A. All parties to this agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
* * *
All controversies that may arise between you, us and the clearing firm (including but not limited to, controversies concerning any account, order, or transaction, or the continuation, performance, interpretation, or breach of this or any other agreement between you and us, whether entered into or arising before, on, or after the date this Agreement is effective) shall be determined by arbitration in accordance with the rules then prevailing of FINRA, and/or any other securities self-regulatory organization or securities exchange of which the entity against whom the claim is made is a member, as you may designate.

Graham Cert., Ex. 6.

Plaintiff's twelve-count complaint contains two general claims. One, plaintiff alleges defendants breached their financial services contracts. See Compl. at 27-40. The Court refers to this claim as plaintiff's financial mismanagement claim which includes tax-related issues. For example, plaintiff claims that defendants fraudulently induced her to enter into various securities contracts, failed to monitor her investments and subjected her to tax penalties. Compl. at 27, 34. Two, plaintiff alleges Graham engaged in an improper sexual relationship and sexually abused her. Compl. ¶¶ 5-51. The Court refers to this as plaintiff's sex-related claim. Without getting into the details regarding the sordid allegations in the complaint, plaintiff generally alleges, inter alia, that Graham forced her into a nonconsensual sexual relationship and subjected her to severe and pervasive sexual harassment. Compl. at 19-24. Plaintiff asserts claims against all defendants which include violations of the New Jersey Law Against Discrimination, the Securities Act of 1933 and the Exchange Act of 1934, breach of contract, breach of the implied covenants of good faith and fair dealing, duress, assault and sexual battery. See generally Compl.[2]

One of the defendants is Graham Financial Services, LLC, a financial services firm owned by Donald Graham. Plaintiff alleges that when Graham rendered her tax advice he was acting in his capacity as her tax advisor and not as her broker, thus implicating Graham Financial Services. Pl.'s Opp at 11. Although Graham Financial Services is not a party to any of the agreements containing arbitration clauses, defendants (including Graham Financial Services) argue they may compel plaintiff to arbitrate her claims. Defendants argue that the claims against Graham Financial Services are "intertwined" with plaintiff's other claims. Defs.' Reply at 12. Further, defendants generally assert that all of the conduct alleged in plaintiff's complaint was committed "through and in the course of Mr. Graham's role as her professional financial advisor" and is therefore subject to the arbitration agreements contained within the contracts plaintiff signed. Defs.' Br. at 4. Conversely, it is plaintiff's position that her tax-related claims are only directed to Graham in his capacity as a tax preparer for Graham Financial Services and that her tax-related claims are not subject to any of the arbitration provisions. Pl.'s Opp. at ...

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