Posts tagged with "attorney"

Connecticut Supreme Court affirms order of Accounting for attorney-in-fact appointed under Durable Power of Attorney

In re Bachand, 306 Conn. 37 (2012)   

Lisa Charette, the plaintiff and attorney-in-fact for Mary E. Bachand, appealed from a Superior Court judgment upholding the decision of the Probate Court for the district of West Hartford.  The decision required the plaintiff to provide an accounting of her actions as attorney-in-fact for Ms. Bachand who executed a durable power of attorney.  Ms. Bachand had progressive Alzheimer’s disease and was relocated to a long-term care facility in West Hartford, CT.  The Superior Court ruled that the Probate Court had subject matter jurisdiction to order an accounting in accordance with Conn. Gen. Stat. § 45a-175 (b) because Ms. Bachand resided within the district of West Hartford.

On appeal, the plaintiff claimed the Superior Court improperly ruled that the Probate Court had subject matter jurisdiction to order the accounting under the circumstances and erroneously found that the defendant, Cheryl Miller-Gray, had standing to make an application for an accounting.

The Supreme Court held that Ms. Bachand’s lack of intent to reside in West Hartford was not relevant to the Probate Court’s jurisdiction. Under Conn. Gen. Stat. § 45a-175 (b), the term “resides” means the place where a person actually lives no matter whether they have the intention to remain there.  Further, the defendant had standing to proceed with an application for an accounting because she was the sole remaining successor attorney-in-fact pursuant to the durable power of attorney.  The defendant did not need to present evidence to establish cause for the accounting pursuant to Con. Gen. Stat. § 45a-175 (b).  Therefore, the judgment of the Superior Court was affirmed.

Accepting Funds from a Charitable Trust may Create a Contract that Cannot be Unilaterally Modified

Blumenthal v. Getraer, CV106007120S, 2011 WL 4953727 (Conn. Super. Ct. Oct. 4, 2011)

In a case before the Superior Court of Connecticut which found that a contract cannot be unilaterally modified, the Attorney General of the State of Connecticut brought a declaratory judgment action to represent the public interest in protecting gifts intended for charitable purposes, pursuant to Connecticut General Statute § 3-125.   The action posed four specific questions to the court regarding a charitable trust that was intended to honor a respected synagogue member and provide funds for capital improvements to the synagogue to which he belonged.

Case Background

In 2002, a respected member of the synagogue passed away, and was survived by his wife and son.  The following year, a charitable foundation in New York City gave the synagogue he attended a gift of $40,000, which was contingent upon the synagogue’s agreement to name its sanctuary after the deceased.  The gift and additional donations of over $100,000 were placed in a memorial fund, which was controlled by the widow and her son.

After receiving the gift, the synagogue erected a plaque over the entrance to the sanctuary declaring that it was named in honor of the deceased.  At the synagogue’s next board of directors meeting, the widow offered, on behalf of the memorial fund, to give the money in the fund to the synagogue with the restriction that it be used only for capital improvements and not ordinary expenses.  The widow and the son would act as the trustees of the fund and disburse monies for capital improvements at their absolute discretion.  The board of directors approved the arrangement.

The Dispute

A dispute later arose between the widow and her son, and the board of directors.  The widow and her son were dissatisfied because the memorial plaque was covered on several occasions so that it was not visible to people in the synagogue.  For example, during the 110th anniversary celebration of the synagogue, a sign announcing the name of the synagogue was placed over the memorial plaque.  During one Chanukah celebration, decorations were placed over the plaque and left there until July of the following year.

The board of directors was dissatisfied because the widow and her son stopped paying for capital improvements.  The board of directors that approved the arrangement with the widow and her son was dismissed and replaced with a new board.  This new board of directors voted to request the widow and her son to turn control of the fund over to the synagogue.

Court Finds Existence of a Contract

In an action seeking declaratory judgment, the sole function of the trial court is to ascertain the rights of the parties under existing law.  Ginsberg v. Post, 177 Conn. 610, 616 (1979).  Four specific questions were posed to the court to determine the rights of the trustees and the rights of the synagogue.

Prior to addressing these questions, the court found that a contract had been formed between the fund and the synagogue based on the synagogue’s acceptance of monies from the fund and other actions taken by the synagogue board of directors.  Therefore, the court found that the vote by the new board of directors had no legal significance because they could not unilaterally change the terms of the previous contract with the widow and her son.

Trial Outcome

Based on finding the existence of a contract, the court determined that the widow and her son were entitled to continue to control the fund and act as its trustees.  However, the court also found that equity required them, in their capacity as trustees, to reimburse the synagogue for the capital expenditures made in reasonable reliance on the agreement that the fund would pay for capital improvements.  The trustees had discretion to determine what constituted a capital improvement.

The fund was also required to continue to pay for capital improvements, on the condition that the memorial plaque was visible to all who would be able to see it.  The court ordered that the memorial plaque not be covered and, if it was, that would constitute a breach of contract on the part of the synagogue.  In that event, the widow and son would be free to terminate the trust and the fund, and either return the money to the donors or use it for other charitable purposes at their discretion.

Finally, the court suggested that the fund cease soliciting further donations and allow the remaining monies to be depleted to that the relationship between the parties could be terminated.

Should you have any questions relating to charitable trusts or other personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

Federal Court Narrows the Definition of “Customer” to Limit Compelled Arbitration Under the FINRA Code of Arbitration Procedure for Customer Disputes

Herschel and Mona Zarecor, et al, v. Morgan Keegan & Company, Inc., 2011 WL 5508860 (E.D. Ark. Nov. 10, 2011)

In a case before the United States District Court for the Eastern District of Arkansas, Herschel and Mona Zarecor (“the Zarecors”) filed a petition to confirm a Financial Industry Regulatory Authority (“FINRA”) arbitration award entered in their favor in October 2010.  Morgan Keegan & Company, Inc., (“Morgan Keegan”) filed a counterclaim to vacate the award.  The court granted Morgan Keegan’s motion for vacatur.  In a later action before the same court, the Zarecors filed a motion for reconsideration.  The court denied the motion for reconsideration.

Case background

The underlying dispute in this case is based on a Statement of Claims that the Zarecors filed with FINRA to institute an arbitration proceeding against Morgan Keegan.  The Zarecors alleged that Morgan Keegan violated state laws by failing to disclose risks associated with the Regions Morgan Keegan funds (“RMK Funds”) that the Zarecors purchased for their individual retirement accounts.  The Zarecors alleged that the prospectus and written sales materials for the RMK funds represented these funds as traditional income or bond funds, when these funds were invested instead in risky structured financial products and derivatives.  The Zarecors lost over ninety-percent of their original investment in the RMK funds.

The Arguments

In their Statement of Claims, the Zarecors asserted that FINRA had jurisdiction to arbitrate the dispute in absence of a written arbitration agreement because Morgan Keegan was a FINRA member and the Zarecors were public customers.  Pursuant to FINRA Rule 12200, a member firm must arbitrate a dispute if:  (a) arbitration is required by written agreement or requested by the customer; (b) the dispute is between a FINRA member or associated person of a FINRA member and its customer; and (c) the dispute arises in connection with the business activities of the member or the associated person.

Morgan Keegan alleged that the Zarecors did not qualify as their customers because the Zarecors never sought advice from or held accounts with Morgan Keegan; the Zarecors purchased the RMK funds from competitor brokerage firms, held accounts at competitor brokerage firms and had no direct dealings with Morgan Keegan. Morgan Keegan also filed a motion to dismiss under FINRA Rule 12504(a)(6)(B), which the arbitration panel denied after hearing oral arguments from the parties.  After three days of arbitration hearings, the FINRA arbitration panel issued an award finding Morgan Keegan liable to the Zarecors for $541,000 in compensatory damages.  In November 2010, the Zarecors commenced an action to confirm the award and Morgan Keegan filed a counterclaim to vacate the award.

Grounds for Vacating Arbitration

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 9-11, provides statutory grounds for judicial review to confirm, vacate or modify an arbitration award.  Where there has been an arbitration agreement between the parties, judicial review is severely limited and the arbitration decision may be vacated on very narrowly defined statutory grounds.  See 9 U.S.C. § 10(a).

Morgan Keegan asked the court to vacate the arbitration award on two grounds:  (1) there was no such arbitration agreement between the parties; and (2) the underlying dispute is not subject to mandatory arbitration under FINRA Rule 12200 because the Zarecors were not customers entitled to request arbitration.  The Zarecors countered that, because Morgan Keegan had not sought to enjoin the arbitration proceedings and had participated in the arbitration hearings, they claimed that the firm had waived its right to contest whether the underlying dispute could be submitted for arbitration.

Morgan Keegan may Contest Arbitrability

A party opposed to arbitration has several alternatives to preserve the issue for judicial review:  (1) object to the arbitrator’s authority, refuse to argue the arbitrability issue, and proceed to the merits of the agreement; (2) seek declaratory or injunctive relief from a court prior to commencement of arbitration; (3) notify the arbitrators of a refusal to arbitrate altogether; or (4) file a timely motion to vacate in district court. See International Broth. of Elec. Workers, Local Union No. 545 v. Hope Elec. Corp., 380 F.3d 1084, 1101–02 (8th Cir. 2004).

The court determined that Morgan Keegan did not waive its right to contest arbitrability by failing to enjoin the arbitration proceedings; its motion to dismiss, its objections to the arbitration panel’s jurisdiction during the hearings and its timely motion to vacate the award supported the court’s finding that Morgan Keegan sufficiently preserved its right to contest that the underlying dispute was not subject to FINRA arbitration.

Definition of “Customer”

FINRA Rule 12100(i) provides the following definition of a “customer” to be used throughout the FINRA Code of Arbitration Procedure for Customer Disputes: “A customer shall not include a broker or dealer.”  The district court was concerned that the definition of a “customer” under this rule not be construed too narrowly, nor be interpreted in a manner that would ignore the reasonable expectations of FINRA members.

For the purposes of compelling a member firm to arbitrate a dispute, precedent within the Eighth Circuit limits the definition of a “customer” to “one involved in a business relationship with [a FINRA] member that is related directly to investment or brokerage related services.” Fleet Boston Robertson Stephens, Inc. v. Innovex, Inc., 264 F.3d 770, 772 (8th Cir. 2001).   This narrower definition excludes individuals who receive only financial advice, not investment or brokerage services, from the FINRA member.  Id.

Zarecors not Qualified as Customers

In the instant case, it is undisputed that the Zarecors purchased the RMK Funds from competitor brokers and did not have a direct transactional relationship with Morgan Keegan; however, the Zarecors asserted that they qualified as customers of Morgan Keegan based on phone conversations with Morgan Keegan representatives regarding the funds, including their liquidity and exposure to the sub-prime market.

Courts have found a customer relationship based on interactions between an investor and a FINRA member’s representative only where there is conduct on the part of the representative that indicates the existence of a business or investment relationship, such as soliciting a purchase, taking money from an investor, or facilitating investment transactions. See Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352 (2d Cir. 1995).  The Zarecors’ interaction with Morgan Keegan did not satisfy this standard.  Therefore, the district court determined that there were no connections or customer relations between the parties that would justify compelling arbitration under FINRA Rule 12200.

Because the district court found that the requirements for compelling arbitration under FINRA Rule 12200 were not satisfied, the court denied the Zarecors’ motion for judgment confirming the arbitration award and granted Morgan Keegan’s counterclaim to vacate the award.

Motion for Reconsideration Denied

In November 2011, the Zarecors filed a motion for reconsideration pursuant to Rule 59(e) of the Rules of Federal Civil Procedure, which permits a district court to correct its own mistakes in the time period immediately following entry of judgment.  Rule 59(e) cannot be used to introduce new evidence, tender new legal theories or raise arguments that could have been offered prior to entry of judgment.  In their motion for reconsideration, the Zarecors contended that the court overlooked the material fact that Morgan Keegan signed an agreement to submit to arbitration and that this submission agreement had been part of the record.

Although the submission agreement was part of the record, the Zarecors failed to reference it or discuss its relevance in briefs filed prior to judgment.  The court’s failure to notice the submission agreement, therefore, did not amount to manifest error of law or fact.  The Zarecors additionally contended that Morgan Keegan submitted the issue of arbitrability to the arbitration panel for decision.  The court considered this argument to be a new legal theory, contradictory to the Zarecors’ previous argument that Morgan Keegan had waived its right to object to arbitrability by failing to contest the issue before the arbitration panel. Therefore, the district court rejected both contentions as sufficient bases for reconsideration under Rule 59(e).

The district court determined that that the Zarecors were not entitled to relief under Rule 59(e) and, therefore, denied their motion for reconsideration.  The court’s previous order and judgment to vacate the FINRA arbitration award were undisturbed.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Federal Court Does Not Vacate FINRA Arbitration Award Denying ERISA Claims

Stephen P. Finkelstein v. UBS Global Asset Management (US) Inc. and UBS Securities LLC, 2011 WL 3586437 (S.D.N.Y. Aug 9, 2011)

In a case before the Southern District of  New York, Stephen P. Finkelstein (“Finkelstein”) filed a petition to vacate part of a Financial Industry Regulatory Authority (“FINRA”) Arbitration Award dated October 20, 2010, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10. UBS Global Asset Management (US), Inc., and UBS Securities LLC, (collectively “UBS”) filed a cross-motion to confirm the arbitration award pursuant to the FAA, 9 U.S.C. § 9.  The court denied Finkelstein’s motion to vacate and granted UBS’s motion to confirm the arbitration award in their favor.

Case Background

The underlying dispute is based on UBS’s denial of Finkelstein’s claim for a special payment under the UBS severance pay plan, which is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132.  Finkelstein began his employment with UBS in 2002.  In April 2006, he was internally transferred to a hedge fund as a portfolio manager responsible for a variety of subprime securities.  Within a year of his transfer, the hedge fund suspended his trading authority due to losses of over $300 million in his positions.  A few months later, UBS closed the hedge fund based on its overall losses; hedge fund employees were either offered new jobs or terminated.  Finkelstein was terminated without cause in August 2007.

The UBS separation program contained a provision offering a special payment to employees who were terminated on or after October 1, but before the date on which bonuses are usually paid.  As part of the closure of the hedge fund, UBS adopted a supplemental program that amended the special payment provision to provide eligible employees with a special payment at the discretion of the hedge fund’s management, even though these employees were not terminated on or after October 1.

The written eligibility requirements of the supplemental program specified dates of employment and involuntary termination; the hedge fund’s management exercised its discretion to define the formula for calculating the amount of the special payment and to exclude employees who were responsible for substantial losses at the time of the hedge fund’s closure.  Therefore, despite having satisfied the written eligibility requirements of supplemental program, Finkelstein was offered a separation package that did not include a special payment.

Finkelstein’s Claims

Pursuant to the separation program’s grievance procedures, Finkelstein submitted a claim for benefits demanding a special payment that was equivalent to 25-percent of his 2006 bonus, which was in accordance with the formula determined by the hedge fund management.  Although he acknowledged the losses on his 2007 trading book, Finkelstein attempted to explain that greater than half the losing positions were purchased by his partner without his consent and that the remainder of the losses could be recovered over time.

The severance committee denied Finkelstein’s claim, stating that the hedge fund’s management had appropriately exercised its discretion in denying him a special payment.  Finkelstein requested a review of the severance committee’s denial of his claim, and was again denied his demand for a special payment.

In December 2008, Finkelstein filed a Statement of Claim with FINRA seeking an award of the special payment.  FINRA appointed a panel of three arbitrators to hear the matter and, in October 2010, entered an award in favor of UBS without any explanation or rationale.

Finkelstein filed a petition in federal district court to vacate the arbitration award on the following three grounds: (a) the arbitration panel decision was in “manifest disregard” of ERISA, 29 U.S.C. § 1145; (b) the arbitration award was procured through the fraudulent concealment of material information by UBS; and (c) the arbitrators refused to hear evidence pertinent and material to the controversy.

Basis of Manifest Disregard

Vacating an arbitration award on the basis of manifest disregard of the law requires the challenging party to demonstrate that the arbitrators clearly defied the law either by rejecting precedent or pronouncing a decision that strains credulity.  See Stolt–Nielsen SA v. AnimalFeeds Int’l Corp., 548 F.3d 85, 92–93 (2d Cir.2008), reversed on other grounds, 130 S.Ct. 1758 (2010).

However, even if the arbitrators do not explain the reasons for their decision, the court will uphold the arbitration award “if a justifiable ground for the decision can be inferred from the record.”  Id. at 97. In his petition, Finkelstein contended that the FINRA arbitration panel manifestly disregarded ERISA, 29 U.S.C. § 1145, on four different grounds.  The most significant basis for his contention was that the arbitration panel should have rejected UBS’s unwritten, oral modification of the ERISA severance pay plan to exclude employees responsible for substantial losses from special payment eligibility.  Both the ERISA statute, 29 U.S.C § 1102(a)(1), and case law within the Second Circuit require that all amendments to employee benefit plans be in writing.

Court’s Ruling on Manifest Disregard

However, the written documents of the hedge fund supplemental program expressly conferred the hedge fund management with certain discretionary powers; therefore, the court determined that it was not erroneous for the arbitration panel to conclude that the unwritten rule excluding employees who incurred substantially losses was a permissible exercise of this discretionary authority, rather than an oral modification of the supplemental program.  Because the ERISA provision on oral modifications cited by Finkelstein was inapplicable, the arbitration panel had colorable justification to conclude that it was not violated.

Consequently, the court determined that Finkelstein failed to demonstrate manifest disregard of ERISA on these grounds. The court also found that each of the remaining challenged panel determinations was supported by a colorable justification.  Therefore, the court concluded that the arbitration award could not be vacated for manifest disregard of the ERISA statute.

Court’s Ruling on Fraud

Vacating an arbitration award on the basis of fraud under the FAA, 9 U.S.C. § 10(a)(1), requires the challenging party to produce clear and convincing evidence that there was fraud that could not have been discovered during the arbitration process and that such fraud is materially related to the award. Chimera Capital, L.P. v. Nisselson (In re MarketXT Holdings, Corp.), 428 B.R. 579, 590 (S.D.N.Y. 2010) (citing A.G. Edwards & Sons, Inc. v. McCollough. 967 F.2d 1401, 1404 (9th Cir. 1992) (per curiam).   Finkelstein alleged that UBS concealed material information relevant to the dispute.

However, the court determined that UBS could not have fraudulently concealed information that they had no obligation to disclose, and also determined that UBS did voluntarily disclose the challenged information in an accurate manner.  Therefore, the court concluded that the arbitration award could not be vacated on the basis of fraud under the FAA.

Court Ruling on Refusing to Hear Evidence

Vacating an arbitration award on the basis of refusing to hear evidence pertinent to the dispute, 9 U.S.C. § 10(a)(3), has been interpreted by courts to mean that an arbitration award will not be opened to evidentiary review except “where fundamental fairness is violated.”  Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16, 20 (2d Cir.1997) (quoting Bell Aerospace Co. Div. of Textron v. Local 516, 500 F.2d 921, 923 (1974)).

The arbitration panel denied Finkelstein’s request for production of evidence concerning the value of any parallel investments held by the UBS Investment Bank.  He contended this evidence was highly relevant because it would have negated UBS’s assertion that his trading activities sustained substantial losses.  It was within the arbitration panel’s broad discretion to determine that the requested materials would have been irrelevant and/or unduly burdensome for UBS to produce.

The court determined that the arbitration panel’s refusal to compel UBS to produce this evidence did not deny Finkelstein a “fundamentally fair” hearing because the scope of inquiry afforded him was sufficient to provide him with a reasonable opportunity to be heard and to enable the arbitration panel to make an informed decision.  Therefore, the court concluded that the arbitration award could not be vacated on the basis of refusing to hear evidence.

The court denied Finkelstein’s petition to vacate the FINRA arbitration award, and entered judgment to confirm the arbitration award in UBS’s favor.

Should you have any questions relating to FINRA, arbitration or employment issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Connecticut Superior Court denies Prejudgment Remedy and declines to impose a Constructive Trust

Connecticut Superior Court denies Prejudgment Remedy and declines to impose a Constructive Trust
Marinelli v. Estate of Marinelli, 2011 Conn. Super. LEXIS 1857 (2011)

The plaintiff, Michael Marinelli, brought an action against Joanne Marinelli, the executrix of the Estate of Anthony V. Marinelli, Jr. (the “Estate”) and the trustee of the Anthony V. Marinelli, Jr. Revocable Trust (the “Trust”).  The decedent, Anthony V. Marineeli, Jr., fraudulently induced the plaintiff, his brother, to believe that he would receive a 50% ownership interest in real property according to the plaintiff.  A family car repair business was operated on the real property in question and the plaintiff sought to impose a constructive trust.  The plaintiff filed an application for a prejudgment remedy against the Estate and the Trust pursuant to Conn. Gen. Stat. § 52-278d.

The Court held a hearing on the application and found there was an absence of probable cause to believe the plaintiff would prevail.   The plaintiff’s father clearly transferred title of the real property to the decedent who maintained the car repair business and assumed liability for all of its debts.  The evidence presented indicated that the plaintiff voluntarily relinquished his interest in the car repair business.  The apparent representations by his father and brother indicating that the plaintiff would be “taken care of” were imprecise assurances that did not persuade the Court.   There was no evidence of wrongdoing engaged in by the decedent. As a result, the plaintiff’s application for a prejudgment remedy was denied.

Should you have any questions relating to wills, trusts, estates or probate issues generally, please feel free to contact Joseph C. Maya, a lawyer in the firm’s Westport, Connecticut office in Fairfield County by telephone at (203) 221-3100 or by e-mail at jmaya@mayalaw.com.

“The Fact That You Were An Attorney, Sir, Makes the Crime Worse,” Sentence Review Division Denies Modification Request

Superior Court of Connecticut: Sentence Review Division

In a criminal law matter, the Sentence Review Division (Division) of the Superior Court of Connecticut declined to modify a defendant’s sentence because it was neither inappropriate nor disproportionate.

In this case, the petitioner, an attorney, was hired by the complainants to provide services related to the sale of their home. The complainants gave him nearly $111,000 to pay off their mortgage, but the money was never tendered to the bank. The petitioner was charged with larceny in the first degree, a violation of General Statutes § 53a-122 with a maximum punishment of twenty years incarceration. He entered into a plea agreement, and the court sentenced him to twelve years incarceration, execution suspended after four years, with five years of probation and special conditions, including restitution.

Division Sentence Review

The petitioner sought a sentence reduction in light of his practice as an attorney aiding minorities, arguing that the sentence he received as inappropriate and disproportionate. When the Division reviews a sentence, it is without authority to modify unless the sentence is “inappropriate or disproportionate” when considering such factors as the nature of the offense and the character of the offender. In this case, the Division found that the trial court properly considered mitigating aspects of the petitioner’s background. It also noted, however, that he previously misappropriated a quarter of a million dollars of funds entrusted to him from a client. Citing the trial court:

The fact that you were an attorney, sir, makes the crime worse, not simply because you were a lawyer who committed a crime, but you committed a crime out of the breach of the very trust that was placed in you by your clients, and that is an aggravating factor.

The Division held that modification was not warranted in this case where “an attorney embezzled substantial funds from clients and the prior criminal history of the petitioner… reflects the same type of criminal behavior.” It additionally noted that the petitioner never paid restitution to the victims between the time he entered into the plea agreement and sentencing. Therefore, the sentence was affirmed.

Written by Lindsay E. Raber, Esq.

Should you have any questions regarding criminal defense, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County at 203-221-3100 or at JMaya@Mayalaw.com.

Court Denies Motion to Vacate and Confirms FINRA Arbitration Award for Securities Brokerage of over $150,000 plus Interest

Freedom Investors Corporation v. Kahal Shomrei Hadath and Sydney V. Pinter, 2012 WL 383944 (S.D.N.Y. Feb. 7, 2012)

Freedom Investors Corp. (“Freedom”), a securities broker-dealer and a member firm of the Financial Industry Regulatory Authority (“FINRA”), filed a petition to confirm an arbitration award pursuant to § 9 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  Sydney V. Pinter (“Pinter”), who controlled Kahal Shomrei Hadath (“Kahal”), a not-for-profit religious entity, filed a cross motion to vacate the arbitration award alleging misrepresentations by Freedom’s agent and improper connections between Freedom’s Chief Executive Officer and the FINRA arbitration panel.

Case Dispute

The underlying dispute in this case arose from a brokerage account that Kahal maintained with Freedom.  In July 2008, Kahal and Pinter used margin credit to purchase preferred stock; however, the stock price dropped dramatically and prompted a margin call by Freedom’s clearing house. When Kahal and Pinter failed to deposit additional funds in the account, the clearing house liquidated the account’s remaining holdings and Freedom paid the remaining margin debt of $149,222.85. Freedom then sought to recover this amount from Kahal and Pinter.

FINRA appointed a panel of three arbitrators to hear the matter after both parties agreed to submit the dispute to arbitration for a decision and award.  On March 22, 2011, the FINRA panel entered an award in favor of Freedom, finding Kahal and Pinter jointly and severally liable for $149,223 in damages, plus eight-percent prejudgment interest, and $5,000 in sanctions for failure to produce documents during the arbitration’s discovery phase.

By August 25, 2011, Kahal and Pinter had failed to comply with the terms of the arbitration award; therefore, Freedom filed this petition for award confirmation in federal district court.  On January 4, 2012, the court received from Pinter an undated “Motion for Oral Arguments to Set Aside Arbitration Award,” which the court construed as opposition to Freedom’s petition and a cross-motion to vacate the arbitration award.  Freedom opposed the motion to vacate.

Dismissal Motion to Vacate on Two Grounds

The court dismissed Pinter’s motion to vacate on two grounds.  First, the motion to vacate was untimely.  “Notice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered.” 9 U.S.C. § 12. The arbitration award was issued March 11, 2011, but the motion to vacate was not submitted until January 4, 2012, approximately ten months later.  Second, the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a), provides four narrowly delineated circumstances in which a federal district court can vacate an arbitration award:

(1) where the award was procured by corruption, fraud or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

The issue with Pinter’s Allegations

Pinter’s allegations raised no credible argument of evident partiality on the part of the arbitration panel and, therefore, he failed to carry his significant burden of showing that the arbitration panel acted in manifest disregard of the law.

The court determined that Freedom sufficiently supported its petition and demonstrated that there is no question of material fact. Therefore, the court granted Freedom’s motion to confirm the arbitration award against the defendants and denied Pinter’s petition to vacate the arbitral award.  Final judgment for Freedom was in the sum of $183,724.18 and costs.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Court Denies Motion to Vacate FINRA Arbitration Award Without A Hearing

Farhang Oshidary v. Grace Purpura–Andriola, Trustee FBO Grace Purpura–Andriola Living Trust and Olga Michel Basil.  2012 WL 2135375 (N.D. Calif.  Jun 12, 2012)

In a case involving FINRA before the Northern District of California, Farhang Oshidary (“Oshidary”), a securities broker, filed a petition to vacate a Financial Industry Regulatory Authority (“FINRA”) Arbitration Award issued on February 10, 2012 in favor of Grace Purpura–Andriola, Trustee FBO Grace Purpura–Andriola Revocable Living Trust (“Andriola”) and Olga Michel Basil ( “Basil”).  Andriola and Basil filed an opposition to the motion, and a request for entry of judgment on the FINRA award pursuant to 9 U.S.C. § 9.   The court denied the motion to vacate without a hearing, and confirmed the FINRA award.

Underlying Dispute

The underlying dispute in this case arose from Oshidary’s investment advice to Andriola, Basil, and others while Oshidary was a broker at the Menlo Park, California office of Smith Barney, now Citigroup Global Markets, Inc (“Citigroup”).  Andriola and several other claimants filed suit against Oshidary and Citigroup in California Superior Court, which ordered the case to FINRA Arbitration. After multiple hearing sessions, the FINRA arbitration panel dismissed all claims against Citigroup and dismissed all claims against Oshidary, except for claims for breach of fiduciary duty brought by Andriola, Basil and three other parties.

On February 10, 2012, the panel issued its Arbitration Award. It found that Oshidary was liable for breach of fiduciary duty to Andriola for $250,000 plus seven-percent interest from April 1, 2001.  Oshidary was also found liable for breach of fiduciary duty to Basil for $120,000 plus seven-percent interest from January 1, 2005.

Two of the four separate theories under which Oshidary proposed to vacate the FINRA award were rejected by the court for failure to satisfy the burden of proof.  Under one of the remaining theories, Oshidary argued that, in violation of California Civil Procedure Code § 1281.9, the Chairman of the FINRA arbitration panel failed to disclose information that might preclude him from being impartial. Under his final theory, Oshidary argued that the FINRA arbitration panel manifestly disregarded the law by acting without jurisdiction over Andriola’s claims, which were barred by the “six year rule” regarding arbitration eligibility.

The Federal Arbitration Act

The Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a), provides four narrowly delineated circumstances in which a federal district court can vacate an arbitration award:

(1) where the award was procured by corruption, fraud or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

Courts may not reverse an arbitration award even in the face of an erroneous interpretation of the law.  However, the court may vacate an award where the arbitrators’ decision is in manifest disregard of the law. Johnson v. Wells Fargo Home Mortg., Inc., 635 F.3d 401, 414–15 (9th Cir.2011).  “Manifest disregard of the law” has been interpreted to mean “something beyond and different from a mere error in the law or failure on the part of the arbitrators to understand and apply the law.” Collins v. D.R. Horton, Inc., 505 F.3d 874, 879 (9th Cir.2007) (quotation omitted).

California Civil Procedure Code § 1281.9`

California Civil Procedure Code § 1281.9, subdivision (a), imposes on arbitrators a duty to “disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.”  In decisions interpreting this statute, courts have highlighted the importance of the link between the subject matter of the arbitration and the matter subject to disclosure. In the instant case, the alleged conflict occurred over two decades ago, and was completely unrelated to the subject of the arbitration. Therefore, the court denied vacatur on these grounds.

FINRA Rule 12206

FINRA Rule 12206(a) provides that “[n]o claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim. The panel will resolve any questions regarding the eligibility of a claim under this rule.”  Eligibility under Rule 12206 is a question for the arbitrators and not for the court.

The FINRA arbitration panel was free to interpret Rule 12206 as it saw fit, in particular with respect to the triggering date, i.e. the “occurrence or event giving rise to the claim.” FINRA Rule 12206.  That the investments at issue were loans supported the Panel’s decision to not choose the purchase date as the triggering event because, unlike other investments, the investor likely will not know whether repayment will occur until the agreed-upon return date.

Because the court denied Oshidary’s vacatur of the award on each of the four separate grounds, the court found that confirmation of the FINRA arbitration award was appropriate.  Judgment would be entered by separate order, once respondents confirmed that they withdrew their parallel request to the state court.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

When Third Party Custody is Awarded in Connecticut

CT Third Party Custody 

Third party custody can be awarded in Connecticut under some very exceptional circumstances. Most third-party actions fail and custody is ultimately awarded to a parent because they have a fundamental right to raise their children. The Connecticut Judicial Branch put out a few publications that outline what it takes for a third party to win in a custody action and the standards that will be applied to such actions.

That publication included an analysis of a landmark case in Connecticut, Fish v. Fish, that helped shape the law on this issue in Connecticut. That case has since been cited as the proper way to interpret C.G.S.A. 46b-56 and 46b-57 which deal with custody and visitation. The CT publication and Fish v. Fish will be excerpted in the following to explain this tricky custody issue.

Basic CT Principals

To begin it is helpful to outline a few basic Connecticut principles. First, “third parties cannot initiate custody proceedings, unlike third parties who are permitted to initiate proceedings in visitation cases.” Fish v. Fish, 285 Conn. 24, 72 (2008). Therefore, in order for a third party to make a claim for custody, they would have to intervene in an already initiated custody proceeding.

Next, a third party attempting to intervene in a custody proceeding needs to have proper standing. Unlike a parent who clearly has standing in a custody proceeding, a third party needs to overcome this constitutional hurdle by properly alleging a parent-like relationship.

As stated in Fish, “. . . to avoid constitutional infirmity, the standing requirement that a third party allege a parent-like relationship with the child should be applied for all of the reasons described in Roth to third party custody awards and to third parties seeking intervention in existing custody proceedings.” Id. at 44.

Overcoming a Strong Parental Presumption

If a third party does intervene properly and has standing, then the third party needs to overcome a strong parental presumption. “The statutory presumption in favor of parental custody may be rebutted only in exceptional circumstances and only upon a showing that it would be clearly damaging, injurious or harmful for the child to remain in the parent’s custody.” Id.

“Where the dispute is between a fit parent and a private third party, both parties do not begin on equal footing in respect to rights to care, custody, and control of the children. The parent is asserting a fundamental constitutional right. The third party is not. A private third party has no fundamental constitutional right to raise the children of others.

Generally, absent a constitutional statute, the non-governmental third party has no rights, constitutional or otherwise, to raise someone else’s child.” Id. at 46. Most jurisdictions have observed that third-party custody awards should be exceptional in nature and that the concept of detriment involves a type of analysis qualitatively different from that involving the best interests of the child.

Fish Court Conclusion

The Fish court concluded, “that the statutory presumption in favor of parental custody may be rebutted only in exceptional circumstances and only upon a showing that it would be clearly damaging, injurious or harmful for the child to remain in the parent’s custody.”

See In re B.G., 11 Cal.3d at 698. “We add that this does not mean temporary harm of the kind resulting from the stress of the dissolution proceeding itself but significant harm arising from a pattern of dysfunctional behavior that has developed between the parent and the child over a period of time.” Id. at 57.

“Such a standard is not constitutionally infirm or susceptible to the criticism sometimes leveled against the “best interests of the child” test because it does not allow the court to apply its own “personal and essentially unreviewable lifestyle preferences.” Roth v. Weston, 259 Conn. at 223.

“At the same time, the standard we adopt is narrowly tailored to limit the scope of intervention to those exceptional cases in which parental custody would result in significant harm to the child, thus serving the compelling state interest of protecting the liberty interests of the parents while remaining sensitive to the child’s welfare.” Id.

To Summarise

As you can see there are significant hurdles for a third party to overcome if they have a legitimate reason for wanting custody of someone’s child. In summation, the party must prove by a fair preponderance of the evidence facts demonstrating that he or she has a relationship with the child akin to that of a parent, that parental custody clearly would be detrimental to the child and, upon a finding of detriment, that third party custody would be in the child’s best interest.

Third-party custody is an uphill fight and only a very experienced attorney can help a client navigate these rough waters. If you need a lawyer’s assistance in a custody matter, don’t hesitate to call one of Maya Murphy’s experienced family law attorneys for a free consultation at 203-221-3100.

Written by Kyle M. Buonocore, Excerpts from Fish v. Fish, 285 Conn. 24 (2008).

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If you have any questions or would like to speak to a divorce law attorney about a divorce or familial matter, please don’t hesitate to call our office at (203) 221-3100. We offer free divorce consultation as well as free consultation on all other familial matters. Divorce in CT and divorce in NYC is difficult, but education is power. Call our family law office in CT today.

What Is a ‘Legal Separation’ in Connecticut?

A legal separation is a status that affects the legal rights and obligations spouses have toward each other without formally ending the marriage.  A court decree of legal separation has many of the same effects as a divorce; assets and liabilities will be divided and, if there are children involved, a parenting plan will be implemented as in a divorce proceeding.  Legally separated spouses are freed from most legal obligations, and give up most legal rights, to each other but remain legally married.  Accordingly, neither spouse can remarry without first having the separation decree converted into one for divorce.

If you have any questions related to divorce and legal separations in Connecticut, please contact Joseph C. Maya, Esq. at (203) 221-3100 or e-mail him directly at JMaya@Mayalaw.com.