Bufkin v. Scottrade, Inc.
Posted on Categories Court Decisions, Securities Arbitration

By Burton W. Wiand

Claims by a customer relating to the freezing of account assets, their liquidation and turnover to IRS are subject to arbitration under the account agreement.

Bufkin vs. Scottrade, Inc., No. 19-12003 (11th Cir., 4/28/20).

This unpublished decision from the U.S. Court of Appeals for the Eleventh Circuit reviews a decision from the U.S. District Court for the Middle District of Florida that dismissed Michael Edward Bufkin’s (“Bufkin”) purported “tax” claims against Scottrade, Inc. (“Scottrade”) and certain officials and staff of the Internal Revenue Service (“IRS”) and the U.S. Department of Treasury (collectively “Appellees”). Bufkin filed suit against Appellees for allegedly selling shares in his Scottrade account, at the request of the IRS, to satisfy an alleged tax liability. He attempted to assert a breach of contract claim against Scottrade and various claims against the IRS and the Department of Treasury (collectively, the “government parties”), including intentional tort claims for violating his “right not to contract” with the IRS to pay taxes and failure to prevent conspiracies under 42 U.S.C. § 1983, and requested administrative sanctions. He also sought a declaration that he is not a “taxpayer.”

On appeal, Bufkin argued that the district court erred by: (1) denying his motion to strike the magistrate judge’s order staying discovery; (2) granting the government parties’ motion to dismiss his complaint; (3) granting Scottrade’s motion to compel arbitration; and (4) permitting the clerk to sign and enter judgments against him. The government parties moved for sanctions against Bufkin under Fed. R. App. P. 38. For the reasons below, the Eleventh Circuit affirmed the district court orders and granted the government parties’ motion for sanctions.

First, the Eleventh Circuit disagreed with Bufkin’s contention that the magistrate judge lacked authority to resolve pre-trial discovery matters. Citing to 28 U.S.C. § 636(b)(1)(A), the Eleventh Circuit determined that the district court was well within its discretion to refer discovery disputes to the magistrate judge. It also concluded that discovery was appropriately stayed given the likely meritorious motions filed by the Appellees against Bufkin.

Second, the Eleventh Circuit affirmed the district court’s dismissal of Bufkin’s claims against the government parties, concluding that the district court lacked subject matter jurisdiction over them in their official capacities under the sovereign immunity doctrine. It further concluded that the district court lacked personal jurisdiction over Bufkin’s claims against the government parties in their individual capacities, because Bufkin failed to properly serve them under either federal or Florida law. Lastly, the Eleventh Circuit agreed with the district court that Bufkin failed to state a claim under Fed. R. Civ. P. 12(b)(6), thereby rejecting Bufkin’s “tax protest” arguments challenging the general applicability of tax liability.

Third, the Eleventh Circuit agreed with the district court in granting Scottrade’s motion to compel arbitration. The Eleventh Circuit determined that Bufkin’s claims against Scottrade are arbitrable breach-of-contract claims and such claims are distinct and severable from his claims against the government parties. As such, the district court did not err in requiring Bufkin to arbitrate his claims against Scottrade separately in arbitration. Fourth, the Eleventh Circuit determined that the clerk properly signed and entered judgments against Bufkin in accordance with Rule 58(b), which states, in relevant part, that the “clerk must, without awaiting the court’s direction, promptly prepare, sign, and enter the judgment when … the court denies all relief.”  Fed. R. Civ. P. 58(b)(1)(c).

Finally, the Eleventh Circuit granted the government parties’ motion for sanctions against Bufkin pursuant to Fed. R. App. P. 38 for filing a frivolous appeal. Bufkin had already been warned in a previous appeal to the Court that his “tax protest” arguments were not only frivolous but also barred by sovereign immunity and thus the Eleventh Circuit determined that Rule 38 sanctions are appropriate.

(B. Wiand) (EIC: Mr. Wiand also covered the decision on appeal in an earlier SOLA summary -- see SOLA 2018-39.)

(SOLA Ref. No. 2020-23-01)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis. 

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