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Hammad v. Lewis

August 3, 2009


The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge


Plaintiffs Jawad Hammad, Deena Hammad and Jude J. Hammad (collectively, " the Hammads") bring this action against defendants Kenneth Lewis of Bank of America Corp. ("BOA") and Colleen Hankins of National Financial Services ("NFS") (collectively "defendants") alleging that BOA made an improper margin call and improperly liquidated their accounts. The Hammads also allege that NFS made a fraudulent report to the IRS, and that the Financial Industry Regulation Authority ("FINRA") acted with bias and prejudice when it reviewed their case. The Hammads seek $10,333,000 in relief.

Before the court are both Lewis's [#8] and Hankins'00 [#11] motions to dismiss for failure to state a claim upon which relief can be granted. Upon consideration of the motions, the opposition thereto, and the record of this case, the Court concludes that the motions should be granted.


In March 2008, the Hammads held margin shares of Lehman and Citigroup with BOA. After the collapse of Bear Stearns, the prices of the Hammads' shares dropped significantly. As a result of the drop in price, the Hammads owed a margin debt to BOA. On March 17, 2008, Banc of America Investment Services*fn1 notified the Hammads by phone that they must deposit funds to cover their margin debt. The Hammads deposited no funds, and pursuant to their margin agreement, BOA liquidated the Hammads' shares and funds from the Hammads' personal account to satisfy a portion of the margin debt. After liquidation, the Hammads remained approximately $15,000 in debt.

In March 2008, the Hammads brought suit against defendants in the Circuit Court for the City of Alexandria. The Alexandria court referred the matter to arbitration, and the case then proceeded to an arbitration hearing before FINRA. The Hammads asserted causes of action "related to [BOA's] alleged unauthorized liquidation of [the Hammads'] position to meet a margin call." (BOA's Mot. Dismiss Ex. E at 2.)*fn2 During the arbitration proceedings, the Hammads requested a forensic search of BOA's computers to locate a recording of the margin call phone conversation between the Hammads and a BOA employee. FINRA refused this request and, after the hearings, dismissed the Hammads' claims. FINRA further found that the Hammads owed BOA $15,589.92.


This action comes before the court on defendants' motions to dismiss, or, in the alternative, to confirm the arbitration award. Defendants argue that the doctrine of collateral estoppel bars the Hammads from bringing forth claims that mirror those brought before FINRA. Defendants further aver that the Hammads have not established a basis for vacating or modifying the FINRA arbitration award. The Hammads rejoin that the FINRA arbitration panel was biased and that the court should adjudicate the matter independently.

A complaint must be "liberally construed in favor of the plaintiff." Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979). Accordingly, the court must grant the plaintiff "the benefit of all inferences that can be derived from the facts alleged." Id. A plaintiff, however, must plead factual allegations capable of raising a right to relief "above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint will be dismissed if, given the benefit of all favorable inferences, plaintiffs can prove "no set of facts in support of their claim which would entitle them to relief." Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). The court is not required to "accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint." Id.

As an initial matter, the Hammads' claim of fraudulent reporting to the IRS is dismissed pursuant to Fed. R. Civ. P. 12(b)(6). Brokers such as NFS are required to file returns "showing the name and address of each customer, with such details regarding gross proceeds and such other information as the Secretary may by forms or regulations require with respect to such business." I.R.C. § 6045 (2009). Furthermore, federal regulations require that a broker's returns "report the name, address, and taxpayer identification number of the customer, the aggregate gross proceeds of all sales of the account during the reporting period." 26 C.F.R. § 6045-1(p) (2009). At best, the Hammads' claim points to an error by the IRS in classifying the Hammads' gross proceeds as profits. In any event, this claim presents no set of facts under which relief may be awarded. See Kowal, 16 F.3d at 1276.

The Court's review of the motions to dismiss the remaining claims requires a two-step analysis. First, the Court must decide whether any of the Hammads' claims are barred by collateral estoppel. This determination turns primarily on whether the basic facts underlying the claims presently before the Court "are indistinguishable from the facts at issue in the prior adjudication." Bryson v. Gere, 268 F. Supp. 2d 46, 58 (D.D.C. 2003). The Court's application of collateral estoppel to any of the Hammads' claims would necessarily eliminate the "entitlement to relief" with respect to those claims. See Bell Atlantic Corp., 550 U.S. at 555.

Next, the Court must determine whether the Hammads' claim of bias and prejudice warrants a review of the arbitration proceedings in their entirety. Such a determination is dependent predominately on whether the Hammads plead sufficient factual allegations to state a claim for vacatur under the Federal Arbitration Act, 9 U.S.C. § 10(a).

A. Collateral Estoppel

The Hammads contend that the Court should conduct an independent inquiry into the conflict regarding the margin call despite the fact that the issue was already adjudicated by FINRA. Defendants rejoin that the Court's review of the issues already decided ...

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