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Barot v. R.F. Lafferty & Co., Inc.

United States District Court, S.D. Mississippi, Southern Division

February 13, 2015

DR. NAVIN BAROT, Plaintiff,



BEFORE THE COURT is the Motion to Dismiss this Action and Compel Arbitration [13] filed by Defendants R.F. Lafferty & Co., Inc., and Todd Sherman. Defendant Apex Clearing Corporation has formally adopted and joined [17] the Motion. Plaintiff Dr. Navon Barot has filed a Response [19], and Defendants have each filed a Rebuttal [23] [24]. Having considered the parties' submissions, the record, and relevant legal authorities, the Court finds that the Motion should be granted, Plaintiff's claims should be submitted to arbitration, and this case should be dismissed.


In September 2010, Plaintiff Dr. Navin Barot ("Dr. Barot") entered into a Customer Account Agreement [1-2] and Margin Agreement [1-2] (collectively, "the Agreement") with Defendants R.F. Lafferty & Co., Inc. ("Lafferty"), and Apex Clearing Corporation f/k/a Ridge Clearing & Outsourcing Solutions, Inc. ("Apex").[1] Compl. 1, 4 [1]. Defendant Todd Sherman ("Sherman")[2] "was assigned as [Dr.] Barot's personal broker and contact person with Lafferty and [Apex]." Id. at 4. Pursuant to the Agreement, Defendants provided investment services to Dr. Barot. Id. Defendants allegedly invested Dr. Barot's funds in "suspect, high risk securities" and engaged in "unauthorized trades... at an excessively high volume" all in an effort to "churn [Dr.] Barot's account resulting in large transactional fees for" Defendants and to Dr. Barot's "detriment and cost...." Id. Dr. Barot asserts that he suffered personal losses in excess of $250, 000.00, and he advances claims for breach of fiduciary duty, violations of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j ("the Securities Act"), fraud, misrepresentation, negligence, breach of contract, breach of the duty of good faith and fair dealing, conversion, embezzlement, conspiracy, and negligent and intentional infliction of emotional distress. Id. at 5-10. Dr. Barot also requests an accounting. Id. at 6.

Lafferty seeks an Order dismissing the Complaint and requiring Dr. Barot to submit his claims to arbitration. Mot. to Dismiss and Compel Arbitration 2-5 [14]. Lafferty submits the Affidavit of Henry Hackel, its Chief Executive Officer, and cites the arbitration provision contained in the Customer Account Agreement pursuant to which "[a]ll parties to [the A]greement [gave] up the right to sue each other in court, including the right to trial by jury[]...." Id. at 3; see also Customer Account Agreement ¶ 9(a), attached as Ex. "1" to Compl. [1-2]. The provision states that

I agree that any and all controversies that may arise between or among me, you, and/or your clearing firm, or any of their respective officers, directors, employees, agents, subsidiaries, or affiliates, including, but not limited to, those arising out of or relating to transactions contemplated hereby, the account established hereunder, any activity or claim related to the Account, or the construction, performance, or breach of this or any other agreement between or among us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration.

Id. at 3-4; see also Customer Account Agreement ¶ 9, attached as Ex. "1" to the Compl. [1-2] and Ex. "A" to Aff. of Henry Hackel [13-1].[3] Lafferty reasons that arbitration of Dr. Barot's claims is required because Dr. Barot agreed to arbitrate all disputes between he, Lafferty, and Apex, Dr. Barot's claims fall within the scope of the arbitration provision, and there are no legal constraints preventing arbitration of Dr. Barot's claims. Id. at 7-13 [14].

Dr. Barot responds that the arbitration provision is unconscionable under Mississippi law.[4] Mem. in Supp. of Resp. in Opp'n to Mot. to Compel Arbitration 3-4 [20] ("Resp. in Opp'n"). Dr. Barot contends the Agreement was "unquestionably a pre-printed standard form... not amenable to bargaining[, ]" and amounted to a contract of adhesion which should be construed against Lafferty. Id. at 5. Dr. Barot also contends that a provision in the Agreement allowing Lafferty to amend the Agreement upon written notice renders the arbitration provision unenforceable because it is illusory and "lacks mutuality." Id. at 6-9. Dr. Barot further maintains that Apex did not assert arbitration as an affirmative defense and has thus waived the right to seek arbitration, and Apex's waiver should be imputed to Lafferty. Id.


A. Legal Standard

The Federal Arbitration Act, 9 U.S.C. §§ 1 to 16 ("FAA"), provides that a written agreement to arbitrate contained in a contract involving interstate commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Section 2 of the FAA "create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage" of the FAA. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Section 4 provides for entry of an order compelling arbitration where one party has failed, neglected, or refused to comply with an arbitration agreement. Under section 4,

if a party to an agreement refuses to arbitrate, the opposing party may bring an action to compel arbitration, and after hearing the parties[, ] the court "being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, " shall direct the parties to arbitrate. Further, § 4 declares that "[i]f the making of the arbitration agreement or the failure... to perform the same be in issue, the court shall proceed summarily to the trial thereof."

Bhatia v. Johnston, 818 F.2d 418, 421 (5th Cir. 1987) (quoting 9 U.S.C. § 4).

The Court must first determine whether, pursuant to section 4, the parties agreed to arbitrate the dispute in question. Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996) (citation omitted). If the Court so finds, "[t]he second step is to determine whether legal constraints external to the parties' agreement foreclose[s] the arbitration of those claims.'" Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).

B. Analysis

1. Apex Has Not Waived the Right to ...

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