“Lumping” Multiple Defendants Together Backfires for Plaintiffs; Court Has Discretion to Control Its Docket

A litigant who files a very aggressive lawsuit can sometimes slow down, rather than advance, his or her case.  That is exactly what happened to a retired physician and his irrevocable trust, after they brought suit in Virginia Federal Court against five separate defendants in order to recover over $1 million allegedly defrauded from them.  The case is Cook v. John Hancock Life Ins. Co.

The dispute in the case arises out of the physician’s relationship with his investment advisor.  Plaintiffs allege that the investment advisor gave the physician fraudulent financial advice.  According to Plaintiffs, not only did the financial advisor sell the physician a $10 million life insurance policy so he could retain commission on the sale, but he also then falsely represented  that the physician could resell the policy and gain $1 million in profit.  The other four Defendants are (1) John Hancock Life Insurance (JHLIC), which was the company for which the life insurance policy originated, (2) JP Turner & Co, LLC (JP) and (3) Nationwide, which were both companies that hired the financial advisor at various times, and (4) Crown Capital Securities LP (Crown).  The financial advisor worked as a Financial Industry Regulatory Authority (FINRA) registered representative for Crown and JP during relevant times at issue.

Plaintiffs’ complaint asserts four counts against all five Defendants, and one count against the four companies, excluding the individual financial advisor.  Plaintiffs allege violations of the Virginia Securities Act and the Federal Securities Exchange Act of 1934, fraud and constructive fraud, breach of fiduciary duties, breach of express and implied contracts against all five defendants.  Against the companies, Plaintiffs allege that the companies all failed to adequately supervise the financial advisor and negligently breached the duties owed to plaintiffs under FINRA.

The Court previously ordered FINRA arbitration to resolve the claims against Defendant Crown.  Although arbitration was only ordered for one of the five Defendants, another Defendant JHLIC, asked the Court to “stay,” or halt the entire proceeding, until Plaintiffs and Crown reach a final resolution through arbitration.  Naturally, the Plaintiffs argued that their federal claims should move forward against the remaining four defendants because arbitration was only ordered against one of the five defendants.

The Court disagreed with Plaintiffs.  The Court acknowledged that four of the five defendants were not parties to the arbitration and that the claims against them were appropriately brought in Federal Court.  However, it reminded the parties that the Court has the authority and the discretion to stay litigation in order “to control its docket.”

In reaching its decision to stay the proceedings, the Court pointed out that the Plaintiffs had “lump[ed] all the Defendants together for purposes of almost all the counts.”  In the Court’s opinion, the Plaintiffs created overlapping legal and factual issues because they failed to separate the claims brought against each specific Defendant.  Once a claim is decided through formal Arbitration (in which a neutral third-party arbitrator renders an ultimate decision), the parties forgo the opportunity to have the same matter decided by a court of law because the arbitration decision becomes final and binding.  Therefore, the Court was concerned about the possibility of inconsistent results between the Arbitration decision and the pending lawsuit, and about the unnecessary expenditure of judicial resources.