Defendant, Motorola, Inc., moves, for an order pursuant to CPLR 3211, dismissing the amended complaint. (Motion Sequence No. 3)

Defendants, TD Ameritrade, Inc. and TD Waterhouse Investor Services, Inc., move for an order, pursuant to CPLR 3211, dismissing the amended complaint. (Motion Sequence No. 4)

BACKGROUND

Plaintiff, Louis Theodore ("Theodore"), was the beneficial holder of 40,000 par Motorola Liquid Yield Option Notes ("bonds or securities") which were scheduled to mature on September 7, 2009. He held these securities with Defendant, TD Waterhouse Investor Services, Inc. ("Waterhouse").

The securities were registered in a "street name". That is, they were registered and held in the name of the brokerage house on the issuer's books. Waterhouse kept the beneficial ownership record, while the records of the issuer, Defendant, Motorola, Inc. ("Motorola"), showed Waterhouse as the holder or owner of the securities.

On February 25, 2004, Motorola issued a press release announcing an early redemption of the bonds held for Plaintiff. Holders were entitled to either redeem the bonds or convert them to Motorola stock. If no election was made, the bonds were automatically redeemed. On or before March 26, 2004, holders were required to elect between redemption ($724.42 per $1,000 in principal) and conversion (58.804 shares of Motorola stock per $1,000 in principal). As to Theodore's securities, the redemption was worth $28,786.80, while the conversion was worth approximately $42,000. Theodore was unaware of the press release and Motorola's redemption call. He was not advised directly by either Waterhouse or Motorola. As a result, his shares were automatically redeemed on the call date, March 26, 2004.

Theodore proceeded pro se to arbitration with the National Association of Securities Dealers, Inc. ("NASD") against Waterhouse Investor Services, Inc., which is now known as TD Ameritrade, on March 16, 2005. Theodore asked that the NASD "look into" the matter.

Plaintiff's Statement of Claim alleged that, had he known of the option, he would have chosen conversion. He alleged that the failure of Waterhouse to advise him of the call and option caused him to lose the difference between the value of the redemption and the value of the conversion, approximately $14,000.

Theodore claims that Waterhouse and Motorola each had "absolved themselves" of any responsibility for failing to notify him of Motorola's offer. Waterhouse indicated that it was Motorola's duty to notify him, and that he should pursue the matter with Motorola. Motorola advised him that it followed appropriate procedures by notifying the Depository Trust Company, as Trustee, to provide notice to all holders of record. An indenture trustee is intended to "protect and enforce the rights and to represent the [*2]interests of" investors "in notes, bonds, debentures, evidences of indebtedness, and certificates of interest." Trust Indenture Act of 1939, 15 USC § 77bbb (a)(1).

An NASD hearing was held on February 27, 2006. A decision was issued April 3, 2006. The decision reflected that the arbitrator considered the pleadings, the testimony and evidence presented at the hearing. The arbitrator dismissed Theodore's claims "in their entirety". No rationale for the dismissal was set forth.

Theodore commenced this action approximately 15 months later on July 16, 2007. In his complaint, he raises the same claims against Waterhouse for failing to notify him, and alleging the same breach of a duty to provide him with notice of Motorola's call on the bonds. He asserts an additional cause of action for false advertising under General Business Law ("GBL") § 350. He also now asserts a claim against Motorola sounding in breach of contract and negligence.

Waterhouse and Motorola each move for dismissal of the amended complaint pursuant to CPLR 3211 (a)(1) - a defense founded upon documentary evidence; (a)(5) - arbitration and award and statute of limitations; and (a)(7) - failure to state a cause of action.

DISCUSSION

A.Motorola's Motion to Dismiss

1.Breach of Contract

In order to properly plead a cause of action for breach of contract, "a complaint must allege the provisions of the contract upon which the claim is based . . . The pleadings must be sufficiently particular to give the court and [the] parties notice of the transactions . . . intended to be proved as well as the material elements . . . " Maldonado v. Olympia Mechanical Piping & Heating Corp., 8 AD3d 348, 350 (2nd Dept. 2004). The original complaint served herein failed to identify any contract between Motorola and Theodore. However, after Motorola's initial motion to dismiss was served, Plaintiff amended the complaint and now identifies the Indenture dated September 1, 1989 with the First National Bank of Chicago as Trustee as the subject contract.

The amended complaint asserts that Motorola breached the Indenture by failing "to insure notification of the beneficial owners of the bonds of the call and the option to redeem or convert" (Amended Complaint ¶ 65), and that its "failure to provide the requisite notice" caused Plaintiff economic harm. He alleges a violation of § 3.03 of the Indenture entitled Notice of Redemption and § 12.02 entitled Notices.

Section 3.03 of the Indenture states, in relevant part:

At least 15 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail, postage prepaid, to each Holder of Securities to be redeemed.

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At the company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense (emphasis supplied).

The Indenture defines "Holder" and "Securityholder" as "the person in whose name a Security is registered on the Registrar's books".

The plain language of § 3.03, relied upon by Theodore, does not require notice to a beneficial owner whose bonds are held in street name. Indeed, the issuer is not in possession of the names of beneficial owners, a feature of "street" ownership which often raises problems in notifying stockholders in class action suits. See, e.g., In re Franklin Nat. Bank Securities Litigation, 574 F.2d 662 (2nd Cir. 1978); and Silber v. Mabon, 957 F.2d 697 (9th Cir. 1992). Moreover, a consumer publication issued by the Securities and Exchange Commission entitled "Holding Your Securities - Get the Facts" explicitly explains that street name registration means the security is "registered in the name of your brokerage firm on the issuer's books . . ."

Construction of a plain and unambiguous contract is for the court to rule upon as a matter of law. Greenfield v. Philles Records, Inc., 98 NY2d 562, 569 (2002); and WWW Assoc. Inc. v. Giancontieri, 77 NY2d 157, 162 (1990). The Court finds no ambiguity in the language providing for notice to a "holder" which, as defined in the Indenture, means the record holder, not the beneficial holder. The clear terms of § 3.03 of the Indenture do not require notice to a beneficial holder.

Section 12.02 requires notices to "securityholders" be mailed to the securityholder at the securityholder's address as it appears on the "registration books of the Registrar." Again, no mention is made of beneficial holders. Thus, notice to the registered security holder the broker complies with this section.

2.Negligence

Plaintiff's additional claim sounding in negligence is premised upon Motorola's failure to notify him of his option to redeem or convert his bonds, or to request that Waterhouse contact the beneficial owners and provide the necessary materials to do so. The alleged omission to notify or cause notification necessarily occurred prior to the redemption call date of March 26, 2004. Upon redemption, Plaintiff suffered the alleged injury and his cause of action accrued. Redemption is the point "when all the facts necessary to the cause of action have occurred and an injured party can obtain relief . . . " Williamson ex rel. Lipper Convertibles, L.P. v. PricewaterhouseCoopers LLP, 9 NY3d 1, 8 (2007), quoting Ackerman v. Price Waterhouse, 84 NY2d 535 (1994). The statute of limitations for negligence required Theodore to file his complaint within three years of March 26, 2004 (CPLR § 215[5]) . The summons and complaint were not filed until July 16, 2007. Accordingly, the negligence claim is untimely and must be dismissed.

3.Estoppel

In opposition to Motorola's motion, Theodore avers that the arbitrator found that Motorola breached its duty to him. However, he relies, not upon the arbitrator's decision, but upon the answer of Waterhouse in the arbitration proceeding. [*4]Specifically, the affirmation of Plaintiff's counsel in opposition to Motorola's motion herein states that "Waterhouse's statements in the arbitration pointed the finger squarely at Motorola for Plaintiff's failure to receive notification. If those statements are to be credited, as they apparently were by the arbitrator leading to the dismissal of Plaintiff's claim against Waterhouse, then it is clear that Motorola is liable to the Plaintiff for failing to notify it of the redemption/conversion offer . . . " (Kelly affirmation ¶ 18 ).

If it is Plaintiff's contention that Motorola is estopped from contesting his claims against it on the grounds that the NASD referee necessarily found that Motorola rather than Waterhouse was obligated to notify him, the contention suffers from several infirmities. First, the referee gave no rationale for his decision to dismiss the claim against Waterhouse. Thus, Plaintiff cannot establish a fundamental premise of estoppel, that the prior proceeding determined any issue for or against Motorola.

More to the point, Motorola's duty was not necessarily decided in the prior arbitration inasmuch as the arbitrator need not have reached any issue regarding Motorola in order to find in favor of Waterhouse. This is especially true when it is remembered that Motorola was not a party to the arbitration. Thus, Plaintiff has not demonstrated that the "identical issue" relating to a breach of a duty to notify Plaintiff of an early bond call, was "necessarily decided" at arbitration so as to collaterally estop Motorola from asserting otherwise in this proceeding. David v. Biondo, 92 NY2d 318, 322 (1998).

Even had the referee necessarily determined the identical issue such finding would not be binding on Motorola, as it was not a party to the arbitration and there is no allegation of privity with Waterhouse. See, Granston Investors Corp. v. Lopez, 46 NY2d 481, 485-6 (1979)

Privity denominates a rule " to the effect that under the circumstances . . . a person may be bound by a prior judgment to which he was not a party of record." Watts v. Swiss Bank Corp., 27 NY2d 270, 277 (1970). Privity may be found if the nonparty's rights or obligations in a subsequent proceeding are conditional or derivative of the rights of the party to the prior litigation. D'Arata v. New York Central Mut. Fire Ins. Co., 76 NY2d 659, 664 (1990). It is not alleged that Motorola's rights are conditioned upon, or derivative of, the rights of Waterhouse.

Privity may also be found where a nonparty controlled or substantially participated in control of the prior action, considering "the character, right and extent of a party's role" in the proceeding. See, David v. Biondo, supra at 324. There is no assertion that Motorola had any role in the arbitration proceeding, and, clearly, its interests were not represented by Waterhouse. See, Matter of Juan C. v. Cortines, 89 NY2d 659 (1997). Thus, in this action, collateral estoppel may not be asserted against Motorola. Plaintiff must allege some basis for the alleged duty of Motorola to cause notice to be provided to the beneficial owners regarding the bond redemption. The

unsupported submissions of a participant in the arbitration proceeding do not constitute such basis.

4.Breach of NASD Rules

Finally, Plaintiff attempts to establish Motorola's duty by pointing to the

rules of the NASD and the New York Stock Exchange ("NYSE") which provide that a member must forward debt security materials when requested by the issuer if the issuer furnishes the [*5]member with copies and provides satisfactory assurance that it will be reimbursed for out of pocket expenses (NASD rule 2260[e] quoted at ¶ 17; NYSE Rule 465). These sections deal only with the duties of member brokers, and the conditions under which a member is required to notify beneficial holders. Neither section addresses the obligations of issuers.

Thus, Plaintiff has failed to allege a contractual, common law or regulatory basis to support its claim that Motorola was under a duty to provide Waterhouse with the necessary material and reimbursement for expenses to notify beneficial bond holders of the redemption. The claims against Motorola must be dismissed.

B.Waterhouse's Motion to Dismiss

1.Arbitration

Any claim that Waterhouse was required to give notice to Plaintiff regarding Motorola's early bond call is precluded by dismissal of Plaintiff's claim in arbitration. "It is settled that the doctrine of res judicata is applicable to arbitration awards and may serve to bar the subsequent relitigation of a single issue or an entire claim." Matter of Ranni's Claim, 58 NY2d 715, 717 (1982). See gen'lly, McNally International. Corp. v. New York Infirmary—Beekman Downtown Hosp., 145 AD2d 417, 417-418 (2nd Dept. 1988), app. den., 74 NY2d 605 (1989).

2.General Business Law § 350

In addition to the claims addressed in arbitration, Plaintiff now argues that Waterhouse is guilty of false advertising under GBL § 350. The amended complaint asserts that, while Waterhouse advertised and sent correspondence which promised, inter alia, to keep Plaintiff informed with respect to his account "every step of the way", to provide "24/7 client service" and "to send . . . important information regarding changes to [Plaintiff's] account", it failed to provide Plaintiff with notice of the call and disclaimed responsibility. Plaintiff also asserts that Waterhouse advertised its membership in the National Association of Securities Dealers but failed to abide by NASD rules.

The affirmation of Plaintiff's counsel alters the allegations somewhat by relying upon GBL § 349 for deceptive business practices and alleging that the claim is premised upon representations made by Waterhouse at the arbitration. In order to avoid a statute of limitations defense, he avers that the cause of action for deceptive business practices "did not arise until Waterhouse defended itself in the arbitration on the basis that it had no obligation to provide notification to the Plaintiff" (Kelly affirmation ¶ 6).

This new allegation is an implicit admission that the claim is premised upon conduct prior to the arbitration. In order to dismiss a cause of action pursuant to CPLR 3211(a)(5) on the ground of the statute of limitations, a defendant "bears the initial burden of establishing prima facie that the time in which to sue has expired." In re Schwartz, 44 AD3d 779 (2nd Dept. 2007), quoting Savarese v. Shatz, 273 AD2d 219, 220 (2nd Dept. 2000). The defendant must establish when the plaintiff's cause of action "accrued." Swift v New York Med. College, 25 AD3d 686 (2006). See, In re Schwartz, supra.

Plaintiff's claim that his cause of action did not accrue until Waterhouse denied its obligation in the arbitration pleadings is without merit. The three-year period of limitation for statutory causes of action (CPLR 214 [2]) applies to GBL § 349 claims. Gaidon v. Guardian Life Ins. Co. of America, 96 NY2d 201, 207 (2001). "[A] cause of action accrues, triggering commencement of the limitations period, when all of the factual circumstances necessary to establish a right of action have occurred, so that the plaintiff would be entitled to relief." Id. at 210. [*6]

GBL § 349 prohibits deceptive acts or practices "in the conduct of any business, trade or commerce or in the furnishing of any service", and "affords a right of action to any person who has been injured by reason of any violation of this section." Id. Thus, accrual "first" occurs "when Plaintiff has been injured by a deceptive act or practice violating section 349" Id.

When a plaintiff was "first" injured by an alleged deceptive business practice is determinative. In essence, Theodore alleges that Waterhouse's advertising, correspondence and membership in NASD, induced him to rely upon it to provide notice of important changes with respect to his account, including the bond call by Motorola. Contrary to Theodore's contention, his first injury did not occur when Waterhouse asserted a defense of no duty in arbitration. It occurred when his induced "expectations" were not met. Id. at 211. Plaintiff suffered a "measurable damage" at the "point in time" when his bonds were redeemed rather than converted. Thus, his claim accrued on March 26, 2004. This action, which was commenced more than three years later, is untimely.

3.Trust Indenture Act

It appears that Theodore attempts to establish a discovery rule akin to that provided in § 77www of the Trust Indenture Act of 1939 governing liability for misleading statements (15 USC § 77aaa, et seq.) . The statute applies to any application, report or document filed with the Securities and Exchange Commission. It is not applicable to the claims pursued by Theodore. That is, even if Theodore's claim were governed by the Trust Indenture Act, the discovery rule requires suit to be instituted within one year of discovery of "false or misleading" information or within three year of accrual of a cause of action (15 USC § 77www[a]). If Theodore discovered the deceptive nature of the statements by Waterhouse when it interposed its answer in the arbitration proceeding, he would have had only one year to bring suit, as the cause of action accrued upon injury several years earlier. This action was not commenced within one year of the arbitrator's decision in April 2006. The time of any earlier pleading would necessarily fall outside the limitations period.

Accordingly, the claims against Waterhouse must be dismissed for failure to state a cause of action and for failure to satisfy the statute of limitations.

Accordingly, it is,

ORDERED, that the motion of Motorola, Inc. to dismiss the amended complaint as it is, is granted; and it is further,

ORDERED, that the motion of T.D. Ameritrade, Inc. and T.D. Waterhouse Investor Services, Inc. to dismiss the amended complaint is granted; and it is further,

ORDERED, that the amended complaint is hereby dismissed.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

February 11, 2008Hon. Leonard B. Austin, J.S.C.