Harris v. TD Ameritrade Clearing Inc.

Background

Jan Harris, representing herself, alleged that she bought 2,420,000 Bancorp International Group Inc. shares in 2005 through Scottrade and Ameritrade, which the opinion identifies as predecessors in interest to TD Ameritrade Clearing Inc. Harris alleged that the brokerage firms held the shares in a nominee name through the Depository Trust Company while keeping records showing that she was the beneficial owner.

After Bancorp announced that it had been affected by corporate identity fraud, the Depository Trust Company suspended most services for Bancorp securities. Harris alleged that this prevented the brokerage firms from transferring the shares from the nominee name into her own name. She later demanded that the shares be registered directly to her and pursued related claims in multiple Financial Industry Regulatory Authority arbitrations and federal court proceedings.

The brokerage agreements required arbitration of disputes involving the accounts, transactions, and the parties’ relationship. Earlier arbitration awards denied related claims on the merits. In a prior related federal proceeding, the court compelled arbitration, and the Second Circuit affirmed that Harris was required to arbitrate her claims against TD Ameritrade. Harris then brought this action, asserting breach of fiduciary duty and breach of trust and seeking, in substance, restoration of $17,236.53 to her accounts.

Defendant’s Motion to Dismiss

TD Ameritrade moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim. It argued that Harris’s claims were subject to mandatory arbitration and barred by res judicata, a rule preventing a party from relitigating claims that were already finally decided or that should have been raised earlier. The court applied the Rule 12(b)(6) standard rather than converting the motion into a motion to compel arbitration because TD Ameritrade did not ask the court to compel arbitration.

Arbitration

The court held that the arbitration agreements covered Harris’s claims. Harris did not challenge whether her claims were arbitrable or whether the agreements were enforceable. Instead, she argued that FINRA’s later refusal to accept her claims because they were “not eligible for arbitration” allowed her to sue in federal court.

The court rejected that argument. It explained that the claims were treated as ineligible only after related claims had already been submitted to arbitration and denied on the merits. The court concluded that Harris could not relitigate in federal court whether those claims had to be arbitrated. It dismissed the Second Amended Complaint without prejudice to pursuing any available claims in arbitration.

Res Judicata

The court separately held that res judicata barred the lawsuit even if arbitration were not required. It found that earlier arbitrations had adjudicated Harris’s claims on the merits, involved Harris and a party in privity with TD Ameritrade, and concerned the same underlying dispute over the Bancorp shares.

Although Harris used breach-of-fiduciary-duty and breach-of-trust theories in this case rather than the breach-of-contract theory used in the earlier arbitrations, the court found that all of the claims arose from the same underlying facts. The court also found that the relief was essentially the same: Harris sought to recover the money connected to the Bancorp share purchase. A new legal theory or slightly different remedy did not avoid the preclusive effect of the earlier arbitration decisions.

Statute of Limitations

The court also ruled that the claims were untimely even assuming they were distinct from the earlier claims and were not subject to arbitration or res judicata. It stated that the applicable limitations periods under New York or Nebraska law were shorter than the time between Harris’s earlier demands and the filing of this action.

The court found that Harris knew no later than the earlier disputes and arbitrations that TD Ameritrade had rejected her demands concerning the shares. Even treating the end of the 2014 arbitration as the point when any alleged fiduciary or trust relationship was openly rejected, the court concluded that the limitations period expired in 2020, before Harris filed this action in 2021.

Preliminary Injunction

After the dismissal motion was fully briefed, Harris moved for a preliminary injunction, an extraordinary order intended to preserve a situation or prevent harm while a case is pending. The court denied the motion because Harris could not show a likelihood of success, irreparable harm, or the required urgency. The court noted that the relief she sought could be addressed through money damages and that she had waited years to seek an injunction and several months after filing this case before moving for one.

Leave to Amend and Disposition

The court denied Harris’s request for permission to amend her complaint. Although courts generally give a self-represented plaintiff an opportunity to correct a potentially valid pleading, the court found amendment futile because prior arbitration panels, another district judge, and the Second Circuit had already rejected the relevant legal positions. The court warned that continued abuse of the judicial process could lead to limits on Harris’s future filings.

The court granted TD Ameritrade’s motion to dismiss. It dismissed the Second Amended Complaint without prejudice, denied Harris’s motion for a preliminary injunction, denied her other listed requests as moot, and directed the clerk to close the case.