Bass, Berry & Sims attorney Chris Lazarini provided insight on a case in which a former financial advisor sought to recover money he contributed to his former firm's Wealth Creation Program. The Court ruled that since the advisor had the opportunity to fully litigate his claims in a prior FINRA arbitration, the doctrine of res judicata barred the advisor's subsequent state court action. Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
Strebler vs. Morgan Stanley & Co., Inc., No. 09-4284, 2015 Ohio 4034 (Ohio App., 9Dist., 9/30/15)
As a general rule, res judicata may not be raised by motion to dismiss. * An exception to the general rule exists where the face of the complaint alleges facts proving the prior opportunity to fully litigate the claims at issue.
This is yet another installment in Plaintiff's efforts to force Morgan Stanley to return $44,000 he contributed to Morgan Stanley's Wealth Creation Program while employed by the firm. Plaintiff first filed his claims in federal court and was compelled to arbitrate. He lost in arbitration (FINRA ID #10-05299 (Cleveland, 11/4/11) and returned to the federal court, seeking vacatur. That request was effectively denied, as the federal court refused to re-open the case, and the Sixth Circuit affirmed. Plaintiff then filed this state court action. Morgan Stanley removed the case to federal court, which subsequently remanded to the state court for lack of subject matter jurisdiction (SLA 2014-38). Plaintiff's remand victory was hollow, as the state court granted Morgan Stanley's Rule 12(b)(6) motion, finding that all of the claims were barred by res judicata.
This appeal followed. Plaintiff argued that the trial court erred in determining that the federal case included a final judgment on the merits of his claims. The Court disagrees. It begins by recognizing the general rule that res judicata may not be raised by a 12(b)(6) motion. After scrutinizing the complaint, however, taking all allegations as true and giving Plaintiff the benefit of all inferences, the Court finds that this case fits the exception to the general rule. Plaintiff's description of the procedural history of the case in the complaint reveals that the claims in the federal case were terminated on their merits after a final judgment from the arbitrator, the federal court's refusal to re-open the matter after the arbitration Award issued and the Sixth Circuit's affirmance. Because those same claims are alleged here, Plaintiff had the prior opportunity to fully litigate the claims and is barred by res judicata from raising them again. One judge dissents, stating that there are gaps in the face of the complaint that can only be explained by considering extraneous matters, a process that is not appropriate for 12(b)(6) motions.
(SLC Ref. No. 2015-39-02)