Posts tagged with "United States District Court"

Several Different Legal Theories May Allow Creditors To Reach a Debtor’s Assets Held in Trust

In a recent case before the United States District Court for the Eastern District of New York, the United States government sought to collect delinquent taxes by accessing assets held in a trust established for the benefit of the taxpayer’s children. The current case was remanded to the District Court by the United States Court of Appeals for the Second Circuit after the Second Circuit reversed an earlier District Court ruling on the same matter. On remand, the District Court ruled that the government may collect against all assets held by the trust.

Between 1978 and 1982, the taxpayer invested in a series of tax shelters that generated deductions that were later disallowed by the Internal Revenue Service (IRS).  In December 1990, after being audited, the taxpayer received notification that he owed over $227,000 in taxes and penalties.  This amount was later corrected.  In January 1992, the taxpayer received a notice of deficiency indicating that he had accrued more than $700,000 in tax liability.  The taxpayer challenged the IRS calculation of his tax liability in a petition to the United States Tax Court.  In November 1992, the Tax Court entered judgment against the taxpayer in the amount of $209,113 in taxes and penalties, and $560,000 in interest.

In June 1992, the taxpayer established a trust, naming a series of family friend and business associates as the trustees and naming his two sons as the beneficiaries.  In the same month, he transferred approximately $220,000 to the trust and in October 1992 he transferred his primary residence, valued at $515,000, to the trust.  The taxpayer received no consideration and there was no evidence the trust assumed the individual taxpayer’s mortgage obligations. Pursuant to the transfer agreement, the taxpayer was allowed to live in the residence and was responsible for the expenses of the residence, including the mortgage and property taxes.  At the time of the transfer, the mortgage was scheduled to be paid off in five years; however, the transfer agreement did not specify an end date for the taxpayer’s occupancy.

At the bench trial held in 2005, the government advanced several theories for recovering assets from the trust, all of which were rejected by the District Court. The government appealed.  In 2008, the United States Court of Appeals for the Second Circuit reversed the judgment and remanded the case.  In its remand order, the Second Circuit directed the District Court to reconsider its findings with respect to whether the conveyances by the taxpayer to the trust were actually fraudulent, whether the trust held property as the taxpayer’s nominee and whether the trust was the taxpayer’s alter ego.

According to New York law, every conveyance made with “actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud” one’s creditors is fraudulent as to both present and future creditors.  N.Y. Debtor and Creditor Law § 276.  The primary issue is the intent of the debtor in making the conveyance, not the actual financial status of the debtor at the time of the conveyance.  The requisite intent required by this section does not need to be proven by direct evidence; it may be inferred from circumstances surrounding the allegedly fraudulent transfer.  Factors, known as “badges of fraud,” that a court may consider in determining fraudulent intent include: lack or inadequacy of consideration; close relationship between the transferor and the transferee; debtor’s retaining possession, benefit or use of the property; series of transactions after incurring the debt; the transferor’s knowledge of the creditor’s claim and the inability to pay it; the financial condition of the debtor before and after the transfer; and the shifting of assets to a corporation wholly owned by the debtor.  See Steinberg v. Levine, 6 A.D.3d 620 (N.Y. 2004); In re Kaiser, 722 F.2d 1574, 1582–83 (2d Cir.1983) (citations omitted).  To support a fraudulent conveyance finding, the creditor must have suffered some actual harm; however, actual harm may be found if the debtor depletes or diminishes the value of the assets of the debtor’s estate available to the creditors.  Lippe v. Bairnco Corp., 249 F.Supp.2d 357, 375 (S.D.N.Y. 2003)

The District Court found that the taxpayer was well aware of his tax liabilities and other potential demands on his assets when he transferred his residence and $220,000 to the trust in 1992.  Evidence of the taxpayer’s conduct at the time of the transfers supported the court’s finding that the taxpayer acted with the intention to hinder or delay collection of his assets. The taxpayer retained the benefits of ownership of the residence after it was transferred to the trust for no consideration.  His payments of mortgage and other property-related expenses, in lieu of rent, were the type of payments that would be made by a property owner, not a renter.  Much of the taxpayer’s net worth consisted of cash, which he was continually transferring among bank accounts held by family and close associates, as well as withdrawing to hold in an office safe. These transfers and withdrawals made it difficult for the IRS to locate and value the taxpayer’s assets.  The District Court also found that the transfers of cash and real estate to the trust unambiguously caused the requisite actual harm to his creditors by reducing the assets that the taxpayer had available to satisfy his tax debt and reducing the value of his readily accessible assets well below the amount of his tax debt.  After the transfers, the IRS would have had to collect between fifty and ninety percent of his remaining assets to satisfy his tax debt.  As a result of this analysis, the District Court found that the taxpayer’s intent to evade the IRS collection efforts was substantial and sufficient on its own; therefore, the court concluded that the taxpayer’s transfer of the residence and $220,000 to the trusts was actually fraudulent within the definition of New York law.  The remedy for fraudulent conveyance is that the creditor may collect upon the fraudulently conveyed property.  Therefore, the District Court held that the government may collect against the assets in the trust on this basis.

The nominee theory focuses on the relationship between the taxpayer and the property to determine whether a taxpayer has engaged in a legal fiction, for federal tax purposes, by placing legal title to property in the hands of another while, in actuality, retaining all or some of the benefits of being the property’s true owner. Richards v. United States, 231 B.R. 571, 578 (E.D.Pa.1999).  The overall objective of the nominee analysis is to determine whether the debor retained the practical benefits of ownership while transferring legal title.  Id. The critical consideration is whether the taxpayer exercised active or substantial control over the property.  Factors examined by the court include: (1) whether inadequate or no consideration was paid by the nominee; (2) whether the property was placed in the nominee’s name in anticipation of a liability while the transferor remains in control of the property; (3) where there is a close relationship between the nominee and the transferor; (4) whether they failed to record the conveyance; (5) whether the transferor retains possession; and (6) whether the transferor continues to enjoy the benefits of the transferred property.  Giardino v. United States, No. 96–CV–6348T, 1997 WL 1038197, at *2 (W.D.N.Y. Oct.29, 1997).  A nominee finding can be made even where there is no intent to defraud creditors or hinder collection efforts.  Where a nominee relationship is found, the government may access only the property held on the taxpayer’s behalf by the nominee and not all the property of the nominee.

The District Court found that the trust was the taxpayer’s nominee with respect to the residence only, and not with respect to the $220,000. The taxpayer had a close relationship with the trustees and the trust paid no consideration for the transfer of the residence. There was no evidence in the transfer agreement that the trust prevented the taxpayer from benefitting from the use and occupancy of the residence as much as when he held legal title to it.  The District Court found the evidence that the taxpayer made some payments relating to the property to be insufficient evidence to rebut the inference that he was the de facto owner of the property.  The payments that the taxpayer made in exchange for his occupancy were precisely those that an owner would make.  Once the mortgage was paid off, the taxpayer was only responsible for upkeep and expenses for the property; therefore, the trust received no net return from this asset.  The District Court considered that, were the trust acting as the owner of the property, it would have sought market rental rates that would have exceeded the taxpayer’s payments.  Therefore, the District Court found that the trust held the residence as the taxpayer’s nominee and that the government could recover the taxpayer’s debts against the residence under a nominee theory.

The alter ego theory differs from the nominee theory because the nominee theory focuses on the taxpayer’s control over and benefit from the actual property, while the alter ego theory emphasizes the taxpayer’s control over the entity that holds the property.  The alter ego doctrine arose from the law of corporations and allows the creditor to disregard the corporate form (also known as “piercing the corporate veil”) by either using an individual owner’s assets to satisfy a corporation’s debts or using the corporation’s assets to satisfy the individual owner’s debts.  Although the New York Court of Appeals has never held that the alter ego theory may be applied to reach assets held in trust, the District Court found no policy reason not to extend the application of veil piercing to trusts.  The policy behind piercing the corporate veil is to prevent a debtor from using the corporate form to unjustly avoid liability, which applies equally to trusts.  Therefore, the District Court held that the alter ego theory could be applied to the trust in the instant case.

To pierce the corporate veil in New York, a plaintiff must show that “(1) the owner exercised such control that the corporation has become a mere instrumentality of the owner, who is the real actor; (2) the owner used this control to commit a fraud or ‘other wrong’; and (3) the fraud or wrong results in an unjust loss or injury to the plaintiff.” Babitt v. Vebeliunas,332 F.3d 85, 91–92 (2d Cir.2003) (citations omitted); see also Wm. Passalacqua Builders, Inc. v. Resnick Developers S. Inc., 933 F.2d 131, 138 (2d Cir.1991).  With respect to analyzing the taxpayer’s control over the trust, the relevant factors can be drawn by analogy from the corporate context.  In analyzing the alter ego question as it relates to a corporation, courts consider factors such as the absence of formalities, the amount of business discretion displayed by the allegedly dominated corporation, whether the related corporations deal with the dominated corporation at arm’s length and whether the corporation in question had property that was used by other of the corporations as if it were its own. Vebeliunas,332 F.3d  at 91 n.3 (citation omitted).

The District Court that the trust was an alter ego of the taxpayer.  The trust formalities were so poorly observed as to give rise to the inference that the trust was not a bona fide independent entity. Between 1992 and 1998, the trust did not record the taxpayer’s payment of expenses for the residence as income and, during this period, the trust did not claim the mortgage interest deduction for the residence.  The individual taxpayer remained as the named beneficiary of the flood and fire insurance policies of the residence.  The accounting work for the trust was performed by a business associate of the taxpayer as a professional courtesy.  The trust tax statements were sent directly to the taxpayer instead of to the trustees. The District Court also found that the manner in which the trust was managed also demonstrate that it was an extension of the taxpayer because there was little evidence that the trustees were actively involved in managing the trust or its assets.  Having trustees play an active role in managing the trust is an important factor in deciding whether to respect the form of a trust because active involvement of trustees would support the separate existence of a trust. Dean v. United States, 987 F.Supp. 1160, 1165 (W.D.Mo.1997).  Finally, the taxpayer demonstrated his domination of the trust by controlling its property to a high degree.

Once the District Court found that the taxpayer controlled the trust, the next steps were to determine whether he used that control to commit a fraud or a wrong against the government, in its capacity as a creditor, and whether that wrong resulted in an unjust loss.  The court found these elements to be plainly satisfied by the facts and its previous findings with respect to actual fraudulent conveyance and the nominee doctrine.  Therefore, the District Court concluded that the existence of the trust as a separate entity was a legal fiction. Under the alter ego theory, the government may collect against all assets held by the trust as if they were held by the taxpayer himself.

Therefore, the District Court held that the government may proceed to collect against all the assets held by the trust that the taxpayer established for benefit of his sons in order to satisfy his delinquent tax liabilities.

Should you have any questions relating to trusts and 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.

United States v. Evseroff, 00-CV-06029 KAM, 2012 WL 1514860 (E.D.N.Y. Apr. 30, 2012)

Trustees May Be Liable in their Own Person and Estate for Failure to Comply with IRS Notices of Levy Issued against Trust Beneficiaries

In a recent case before the United States District Court for the Eastern District of New York, the United States government commenced an action against a trustee in order to collect unpaid federal taxes owed by the trust beneficiary. The District Court granted the government’s summary judgment motion and found the trustee liable for unpaid federal taxes plus interest.

In 1995, the beneficiary’s mother died.  Pursuant to her will, the majority of her estate was left to be held in trust, and administered, managed, invested and reinvested by the trustee as set forth in the will.  The relevant provision of the will directed the trustee to pay her son, the sole beneficiary of the trust, at least $1,000 per month, but not more than 60-percent of the net income of the trust.  The same provision also provided the trustee with sole discretion to pay trust principal to her son as necessary for the comfortable “maintenance, support, health, education and well being” of her son, and his two sons.  In February 1996, the trustee was issued letters of trusteeship for the trust created by the will.

In April 1996, the trustee was informed by his attorney by letter that the son owed the federal government for various taxes totaling $246,579.  The attorney additionally informed the trustee that whatever income was going to the son, regardless of the source, must go first to the creditor.  In June 1996, the trustee was served with an Internal Revenue Service (IRS) Notice of Levy and Notice of Federal Tax Lien. The Notice of Levy listed federal income tax liabilities and civil penalties that the son owed to the IRS for tax years 1979 through 1989.  The notice further stated that the levy required the trustee to turn over to the IRS “this person’s property and rights to property (such as money, credits and bank deposits) that you have or which you are already obligated to pay this person.”  In either 2000 or 2001, the trustee was directed by his new attorney to make distributions from the trust to the son because the IRS had been satisfied.  The trustee did not see the paperwork documenting satisfaction of the IRS levy and signed blank checks to permit the attorney to draw on the trust account for the son.  The government then commenced action against the trustee to collect the son’s delinquent tax liability through the judicial enforcement of the IRS levy.

The IRS has two principal tools to collect delinquent taxes.  The first is a lien foreclosure suit, brought pursuant to 26 U.S.C. § 7403(a).  The other is the issuance of a levy upon all property and rights to property belonging to the delinquent taxpayer, pursuant to 26 U.S.C. § 6331(a).  Where the taxpayer’s property is being held by another, the notice of levy is customarily served upon the custodian of the property pursuant to 26 U.S.C. § 6332(a).  Serving the notice on the custodian creates a custodial relationship between the person holding the property and the IRS so that the property comes into constructive possession of the government.  If the custodian fails or refuses to surrender the property or rights to property subject to the levy, the custodian becomes liable in his own person and estate to the government in the sum equal to the value of what he failed to surrender.  26 U.S.C. § 6332(d)(1).

Pursuant to New York law, the plain language of the trust instrument must be analyzed in order to determine a trust beneficiary’s property rights in trust income or principal.  The Second Circuit has held that a beneficiary has a property interest in trust income when the trust instrument sets out the trustee’s duty to pay income in mandatory terms.  Magavern v. United States, 550 F.2d 797, 801 (2d Cir.1977).  Therefore, when the trustee is required to make a payment of trust income to a beneficiary, even when the amount and timing of the mandatory income distribution are left to the trustee’s discretion, the trust beneficiary has a property right in trust income that is subject to a tax levy.

In the instant case, because the trustee’s duty pay out a certain amount of trust income was set forth in mandatory terms, the beneficiary had a right to property in the trust income, and the government tax levy could attach to this right.  However, the will did not require the trustee to pay trust principal to the beneficiary.  The terms of the trust left decisions with respect to the trust principal entirely to the trustee’s discretion.  Therefore, the beneficiary had no attachable right to property in the trust principal until the trustee decided to make a distribution of such principal to him.  The District Court concluded that the beneficiary had some property rights to both the trust income and that portion of the trust principal, if any, that was distributed to him.  These rights to property were in the possession of the trustee, and it was undisputed under the facts of the case that the trustee did not surrender any levied property to the IRS in compliance with 26 U.S.C. § 6332(a).  Therefore, the trustee could be liable in his own person and estate to the government under 26 U.S.C. § 6332(d)(1).

A custodian of property or rights to property that are subject to an IRS levy has only two defenses to avoid liability in his own person and estate.  The first available defense is that the trustee is neither in possession of nor obligated with respect to the property or rights to property belonging to the delinquent taxpayer.  26 U.S.C. § 6332(a).  The second available defense is that the taxpayer’s property or rights to property at issue are subject to attachment or execution under a judicial process.  Id. In the instant case, the first defense was not applicable because, pursuant to the terms of the will, the trustee was both obligated to pay the beneficiary certain amounts of trust income at given intervals and empowered to make discretionary distributions.  The trustee made no suggestion that the second defense was applicable. The absence of intentional or negligent conduct is not relevant as to whether an enforcement action may be maintained against the custodian; therefore, good faith could not absolve the trustee of liability for his failure to comply with his statutory obligations to surrender property pursuant to a valid IRS Notice of Levy.  Therefore, the District Court found that the trustee could not avoid liability for his actions under either of the two statutorily available defenses.

The District Court determined that the government established as a matter of law that the trustee failed to honor the Notice of Levy served on the trust beneficiary in June 1996 by improperly distributing estate assets to the trust beneficiary after the date of the levy.  However, the court also held that the trustee was liable for less than the judgment amount requested by the government, but the court permitted the government to submit a supplemental briefing as to its entitlement to additional estate money to which the trust beneficiary had a property right.

Should you have any questions relating to 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.

United States v. Michel, 08 CV 1313 DRH WDW, 2012 WL 3011124 (E.D.N.Y. July 23, 2012)

The “Manifest Disregard of the Law” Standard for Judicial Review of a FINRA Arbitration Award Excludes Questions of Fact

The “Manifest Disregard of the Law” Standard for Judicial Review of a FINRA Arbitration Award Excludes Questions of Fact

Patrick R. Murray v. Citigroup Global Markets, Inc., 2011 WL 5523680 (N.D. Ohio Nov. 14, 2011)

In a recent case before United States District Court for the Northern District of Ohio, Patrick R. Murray (“Murray”) filed motions to vacate, modify or correct portions of a Financial Industry Regulatory (“FINRA”) arbitration award. Citigroup Global Markets, Inc., (“CGMI”) filed a cross-motion to confirm the arbitration award and to award costs and fees incurred while seeking confirmation. The court denied Murray’s motions to vacate, modify or correct the arbitration award and granted CGMI’s motion to confirm the arbitration award. CGMI’s request for costs and fees was denied.

In July 2000, Murray was hired as a financial advisor in a local Smith Barney office, which was later acquired by CGMI. As required by FINRA rules, Murray executed a Uniform Application for Securities Industry Registration or Transfer (“Form U–4”). He also executed a promissory note for a $1,508,401 forgivable loan, and an addendum to the promissory note that extended the length of the repayment period from seven years to nine years. The instruments provided that the loan was to be repaid in nine equal annual installments commencing on the first anniversary date of its execution and that, if Murray terminated his employment prior to full repayment, the outstanding balance would be immediately payable with interest accruing from the date of termination. In April 2009, Murray resigned after having made eight annual payments on the loan.

In May 2009, Murray sued CGMI in state court alleging that CGMI fraudulently induced him to sign the addendum to the promissory note and illegally confiscated his assets related to a capital accumulation plan account. CGMI removed the case to federal court, where it filed a motion to compel arbitration. The court found that the arbitration clauses in the Form U-4, the promissory note, the addendum to the promissory note and a separate signed acknowledgment of the CGMI employee hand book were valid and enforceable; therefore, it granted CGMI’s motion to compel arbitration. FINRA appointed a panel of three neutral arbitrators to hear the matter. In April 2011, the FINRA panel awarded CGMI compensatory damages of $40,153.00 representing the unpaid balance on the promissory note and awarded Murray compensatory damages of $25,705.95.

Murray filed the instant motion to vacate, modify or correct portions of the arbitration award in federal court and CGMI filed its response and cross-motion to confirm the arbitration award. Murray challenged the arbitration award on the following grounds: (1) the award was irrational; (2) the award did not draw its essence from the contract between the parties; (3) the award violated public policy; and (4) the award manifestly disregarded the law.

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, defines four limited statutory grounds on which a court may vacate an arbitration award, including instances of fraud or corruption, evident partiality, misbehavior or misconduct and acts exceeding the arbitration panel’s authority. 9 U.S.C. § 10(a). The court found that none of Murray’s first three grounds for vacatur satisfied these statutory requirements.

Several federal circuits, including the Sixth Circuit, have held that an arbitration award can be vacated “if it displays ‘manifest disregard of the law.’ ” Jacada, Ltd. v. Int’l Mktg. Strategies, Inc., 401 F.3d 701, 712 (6th Cir. 2005), overruled on other grounds, (citing Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 718, 421 (6th Cir. 1995)). However, the court found that Murray’s assertions of manifest disregard of the law were based on questions of fact rather than questions of law. A federal court does not have the authority to re-litigate facts when reviewing an arbitration award to determine whether the arbitrators manifestly disregarded the law. See Bd. Of County Commis of Lawrence County, Ohio v. L. Robert Kimball & Assocs., 860 F.2d 683, 688 (6th Cir.1988). Therefore, the court denied Murray’s motion to vacate the arbitration award.

The court additionally determined that, although Murray was incorrect on the merits of his case, he did not engage in the degree of bad faith or vexatious behavior that would compel the court to award CGMI fees and costs for the instant litigation. Therefore, the court confirmed the arbitration award in its entirety without awarding CGMI additional fees and costs.

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.

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California Court Does Not Compel FINRA Arbitration of Statutory Discrimination Claims

California Court Does Not Compel FINRA Arbitration of Statutory Discrimination Claims

John Simmons v. Morgan Stanley Smith Barney, LLC, et al, 2012 WL 1900110 (S.D. Cal. May 24, 2012)

In January 2008, John Simmons (“Simmons”) was offered employment by Morgan Stanley Smith Barney, LLC (“Morgan Stanley”) as the Executive Director and District Manager in the Global Wealth Management Department. The offer letter stated that Simmons would be entitled to a $1 million forgivable loan, relocation benefits and a stock award. Simmons accepted the employment offer by signing the Morgan Stanley offer letter. In February 2008, Simmons and Morgan Stanley entered into bonus agreement and a promissory note that each contained a clause agreeing to arbitrate disputes related to these instruments in accordance with the Financial Industry Regulatory Authority (“FINRA”) rules. In March 2008, Simmons signed a Uniform Application for Securities Industry Registration or Transfer (“Form U-4”) which also contained an arbitration clause citing FINRA rules. In May 2009, Simmons and Morgan Stanley entered into a second bonus agreement and a second promissory note, each of which contained the same arbitration clauses as the previous instruments. In March 2011, Simmons’s employment with Morgan Stanley was terminated. In September 2011, Morgan Stanley initiated a Statement of Claim with FINRA seeking to arbitrate its claim against Simmons for violation of the bonus agreements and promissory notes.

In December 2011, Simmons initiated an action in California state court asserting statutory claims for discrimination pursuant to Cal. Govt.Code section 12940(a) and for violation of 42 U.S.C. § 2000e (“Title VII”). Simmons claimed that Morgan Stanley employees made disparaging remarks to him regarding his religious beliefs because he was a member of the Church of Jesus Christ of Latter Day Saints. Simmons also alleged that, despite his high level of performance, he was not paid in accordance with the terms of his employment agreement. Finally, the complaint also alleged that, in February 2011, shortly before his termination, Simmons informed his supervisor that he was aware of the fact that he was paid less than other co-workers who performed similar duties but who did not share his religious beliefs. Simmons’s complaint stated that these discrimination claims were “inextricably related” to Morgan Stanley’s allegations that he violated the two promissory notes because he was “illegally terminated before he was able to fully perform his obligations thereunder.” In addition to the two statutory discrimination claims, Simmons’s complaint also asserted non-statutory claims of wrongful termination in violation of public policy, fraud, and breach of contract.

Morgan Stanley removed the matter to the United States District Court for the Southern District of California and filed motions to compel arbitration and stay litigation. Simmons filed a motion for a preliminary injunction asserting that he should not be compelled to arbitrate the claims that Morgan Stanley filed with FINRA in September 2011. Simmons presented five distinct legal arguments for why he should not be compelled to arbitrate with Morgan Stanley. The federal court dedicated the most discussion to Simmons’s argument that the arbitration agreements which he allegedly entered into did not encompass his statutory discrimination claims.

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, embodies both a fundamental principle that arbitration is based in contract and a federal policy favoring arbitration. A written arbitration agreement “shall be valid, irrevocable and enforceable,” unless the arbitration agreement can be invalidated by a generally applicable contract defense, such as fraud, duress and unconsionability. 9 U.S.C. §2. Therefore, federal courts deciding motions to compel or stay arbitration examine (1) whether a valid arbitration agreement exists; and (2) whether the agreement encompasses the dispute at issue. Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008). Courts apply state contract law to determine whether an arbitration agreement exists and whether such agreement is enforceable. Only if both findings are affirmative can a federal court enforce an arbitration agreement in accordance with its terms.

Causes of action premised on statutory rights are just as subject to contractual arbitration agreements as non-statutory common law claims. However, Congress may pass federal legislation that removes certain claims from the purview of the FAA. Precedent within the Ninth Circuit is that “a Title VII plaintiff may only be forced to forego her statutory remedies and arbitrate her claims if she has knowingly agreed to submit such disputes to arbitration.” Renteria v. Prudential Ins. Co. of Am., 113 F.3d 1104, 1105-06 (9th Cir. 1997)(citing Prudential Ins. Co. of America v. Lai, 42 F.3d 1299, 1305 (9th Cir.1994)). Both the public policy of protecting victims of sexual discrimination and the Congressional intent motivating Title VII legislation required that there be a knowing waiver of statutory remedies for civil rights violations, including employment discrimination based on gender. Id. at 1108. An earlier case within the Ninth Circuit held that parallel state anti-discrimination laws were made part of the Title VII enforcement scheme. Lai, 42 F.3d at 1301 n.1. Because the agreements to arbitrate in the February 2008 and May 2009 promissory notes and bonus agreements did not explicitly state that Simmons waived his right to a jury trial on claims of statutory employment discrimination, the court refused to find that Simmons knowingly waived his statutory remedies on these claims. Therefore, the court concluded that these arbitration provisions did not encompass Simmons’s first claim for violation of Cal. Govt. Code section 12940(a) and his second claim for Title VII violation. However, the court determined that Simmons’s remaining non-statutory claims were encompassed by the existing arbitration agreements.

An arbitration provision may be challenged “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Under California law, a contract clause is unenforceable only if it is both procedurally and substantively unconscionable. Davis v. O’Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir.2007) Procedural unconscionability analysis focuses on the oppression or surprise of a contract clause. The court found that the arbitration provisions at issue contain a minimal element of procedural unconscionability because they were standard FINRA agreements and clearly visible. Substantive unconscionability considers the effect of the contract clause, specifically whether the clause is so one-sided as to shock the conscience. Id. at 1075. The court found that the arbitration provisions were substantively unconscionable because the rules of FINRA may require Simmons to pay hearing session fees in excess of what he would pay in court. However, the single substantively unconscionable provision can be severed from the arbitration agreements; therefore, the court held that the arbitration agreements in the February 2008 and May 2009 promissory note and bonus agreements were enforceable once the unconscionable provision was severed.

The court granted Morgan Stanley’s motion to compel arbitration on Simmons’s non-statutory claims pursuant to the arbitration provisions set out in the February 2008 and May 2009 promissory note and bonus agreements. Likewise, pursuant to 9 U.S.C. § 3, the court granted Morgan Stanley’s motion to stay litigation on these claims pending arbitration. Because the court found that valid arbitration provisions exist, it denied Simmons’s motion for a preliminary injunction.

With respect to Simmons’s first two claims of employment discrimination under California and federal statutes, the court denied Morgan Stanley’s motions to compel arbitration and stay litigation. Simmons was permitted to litigate these claims in federal district court.

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.

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Federal Appellate Court Affirms Lower Court Ruling Not to Vacate FINRA Award

Federal Appellate Court Affirms Lower Court Ruling Not to Vacate FINRA Award

Javier Aviles v. Charles Schwab & Co., Inc., 435 Fed.Appx. 824 (11th Cir. 2011) (per curiam)

In a case before the United States Court of Appeals, Eleventh Circuit, Javier Aviles (“Aviles”) appealed a decision by the United States District Court for the Southern District of Florida that confirmed a Financial Industry Regulatory Authority (“FINRA”) arbitration award of $1.4 million in favor of Charles Schwab & Co., Inc. (“Charles Schwab”). The appellate court affirmed the district court ruling.

In 2007, Aviles left his employment with Charles Schwab to join Banc of America Investment Services, Inc. (“BAI”). Later that year, Charles Schwab came to believe that Aviles was improperly soliciting its clients. Schwab filed a Statement of Claims with FINRA against both Aviles and BAI, alleging multiple claims arising from Aviles’s resignation from Charles Schwab and his subsequent employment with BAI: breach of contract, misappropriation and misuse of trade secrets, breach of duty of loyalty, breach of fiduciary duty, tortious interference with contractual and business relations and unfair competition. BAI was later dismissed from the arbitration proceedings. In April 2009, the arbitration panel entered an award finding Aviles liable to Charles Schwab for $1.4 million.

Aviles filed a timely motion to vacate the arbitration award in state court, and Charles Schwab removed to federal court. After removal, Aviles filed a motion to amend in order to add a new claim of arbitrator bias. The district court found that the grounds for vacating the award set out in the original motion were without merit. Additionally, the district court found that the amended motion was not filed in a timely manner and did not relate back to the original motion. Finally, the district court found that the claim of arbitrator bias contained in the proposed amended motion also failed to warrant vacatur of the arbitration award.

Appellate courts do not use a different legal standard to review arbitration related judicial decisions: district court findings of fact are reviewed for clear error and district court legal conclusions are reviewed de novo. The Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a), provides limited statutory grounds for vacating an arbitration award, including where arbitrators refused to hear evidence pertinent and material to the controversy, or where there was “evident partiality” or corruption in the arbitrator.

When a party seeks vacatur by challenging an evidentiary decision of the arbitration panel, he must show that the arbitrator’s refusal to hear pertinent and material evidence prejudiced the rights of the parties to the arbitration’s proceedings. Rosensweig v. Morgan Stanley & Co., 494 F.3d 1328, 1333 (11th Cir. 2007). Aviles argued that the arbitrators refused to hear evidence material to the controversy because the arbitration panel excluded unsworn declarations completed by former Charles Schwab clients who had followed Aviles to BAI. Aviles asserted that these were material to the controversy because they demonstrated that the clients decided to transfer their accounts to BAI because it was in their personal best interest to maintain the relationship with Aviles. The chair of the arbitration panel stated that he would not allow documents that were not sworn or authenticated; however, he would sign subpoenas to allow Aviles to present this evidence in an acceptable manner and would also permit telephonic testimony if someone was out-of-town or otherwise unable to attend the hearings. The appellate court determined that the exclusion of the unsworn declarations did not prejudice Aviles’s right to present all evidence pertinent and material to the controversy. The chair of the arbitration panel offered Aviles alternate avenues to submit this evidence, and Aviles decided not to avail himself of those options. Therefore, the district court did not err in its ruling that the arbitration award could not be vacated on the grounds that arbitrators refused to hear evidence.

When a party seeks vacatur by challenging the impartiality of the arbitration panel, he must show that the alleged partiality is “direct, definite and capable of demonstration rather than remote, uncertain and speculative.” Gianelli Money Purchase Plan & Trust v. ADM Investor Servs., 146 F.3d 1309, 1312 (11th Cir. 1998). Aviles presented an affidavit from a FINRA arbitrator not serving on his panel indicating that the chair of the arbitration panel made statements illustrating a clear bias against him. Specifically, the affidavit alleges that the chair stated that when a court enters a preliminary injunction or a temporary restraining order against a financial advisor prior to arbitration, the arbitrator’s only remaining task is to quantify and award damages. Aviles had been served with a preliminary injunction prior to the arbitration proceedings. The court found that the statements in the affidavit did not indicate that the chair of the arbitration panel was biased against Aviles. According to the court, the affidavit at most illustrated that the chair of the arbitration panel had an incorrect understanding of a legal issue, which is not enough to demonstrate bias or hostility toward a party. Therefore, the district court did not err in its ruling that the arbitration award could not be vacated on grounds of arbitrator bias.

Because the district court did not err in ruling that there were insufficient grounds to vacate the arbitration award on the basis of refusal to hear evidence and arbitrator bias, the appellate court affirmed the district court ruling denying Aviles’s motion to vacate the arbitration award.

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.

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

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 5592861 (E.D. Ark. Jul. 29, 2011).

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.

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.

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.

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, the firm had waived its right to contest whether the underlying dispute could be submitted for arbitration.

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.

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. 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.

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.

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Federal Court Enforces FINRA Arbitration Award Based Solely on the Plain Language of the Award Because the Award was not “Patently Ambiguous”

Federal Court Enforces FINRA Arbitration Award Based Solely on the Plain Language of the Award Because the Award was not “Patently Ambiguous”

Luby’s Restaurants Limited Partnership v. Credit Suisse Securities (USA) LLC, 2011 WL 1740196 (S.D. Tex. May 5, 2011)

In a case before the United States District Court for the Southern District of Texas, Luby’s Restaurants Limited Partnership (“Luby’s”) sought to confirm a Financial Industry Regulatory Authority (“FINRA”) arbitration award pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9. In its petition, Luby’s also sought a court ruling to interpret the arbitration award as requiring Credit Suisse Securities (USA) LLC (“Credit Suisse”) to recompense an additional $186,000 in damages. Luby’s originally filed the petition in state court, but Credit Suisse removed to federal court. The federal district court confirmed the arbitration award in Luby’s favor and denied Luby’s petition to order Credit Suisse to pay the additional sum.

The underlying dispute in this case is based on Luby’s purchase of over $30 million in auction rate securities from Credit Suisse. Credit Suisse had falsely represented that these securities were suitable to Luby’s investment goals because they were equivalent to money market funds, highly liquid, and safe investments for short term investing. In October 2008, when Luby’s filed arbitration proceedings, the company had redeemed all but $8.9 million worth of the securities, which could not be sold at par value. In September 2009, after proceedings had been initiated but before the arbitration hearings had begun, Luby’s redeemed one of the remaining securities for less than par value, sustaining a $186,000 loss. In May 2010, the FINRA arbitration panel ruled that Credit Suisse was liable to Luby’s for the re-purchase of the disputed auction rate securities at par value, and that Credit Suisse was also liable to Luby’s for interest on the par purchase price of these securities from a specific date after the arbitration award through the date the award was paid in full.

Pursuant to the terms of the arbitration award, Credit Suisse purchased all of Luby’s remaining securities at par value and paid the required interest. Neither party contested the award and both parties sought its confirmation. However, Luby’s and Credit Suisse disputed whether the award included the $186,000 loss that Luby’s sustained when it sold securities for less than par value after filing for arbitration. Luby’s did not request the court to modify or correct the award, but to confirm the award as written and interpret the writing as including the additional loss. In raising this issue, neither Luby’s nor Credit Suisse argued that FINRA arbitration did not fully resolve their dispute, nor did they assert that the language of the arbitration award created a collateral dispute.

Courts are required to enforce arbitration awards only as written by the arbitrator; therefore, if an arbitration award is ambiguous, it is unenforceable and must be remanded to the arbitrator with instructions to clarify the particular ambiguities. Brown v. Witco Corp., 340 F.3d 209, 216 (5th Cir. 2003) (citing Oil, Chem. & Atomic Workers Int’l Union Local 4–367 v. Rohm & Haas, Tex., Inc., 677 F.2d 492, 495 (5th Cir. 1982). Remand is only appropriate where: (1) an arbitration award is patently ambiguous; (2) the issues submitted to arbitration were not fully resolved; or (3) the language of the arbitration award created a collateral dispute. Oil, Chem. & Atomic Workers, 677 F.2d at 495.

Although both Luby’s and Credit Suisse argued different interpretations of the FINRA arbitration award, the district court did not find that the award itself was patently ambiguous. The plain language of the award makes no mention of additional damages sustained by Luby’s during the pendency of the arbitration hearings. Credit Suisse could clearly not purchase back the securities that were sold because they were no longer in Luby’s possession. The award clearly denied any relief other than that which was expressly granted in its plain language. Additionally, during the arbitration hearings, Luby’s presented this loss as a claim distinct from the claim to buy back the auction rate securities at par. The arbitrators did not include this relief in the arbitration award, thereby effectively denying such relief. Therefore, because the federal district court found the arbitration award to be unambiguous, it confirmed and enforced the award as written.

The court ordered that the final FINRA arbitration award in Luby’s favor be confirmed and adopted as the judgment of the court. Luby’s petition to order Credit Suisse to make additional payment of $186,000 was denied as not having been ordered in the final award of the arbitration panel.

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.

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FINRA Arbitrators are Immune from Civil Liability When Making Decisions within Their Jurisdiction

FINRA Arbitrators are Immune from Civil Liability When Making Decisions within Their Jurisdiction

Richard Sacks, d/b/a Investors Recovery Service, v. Dean Dietrich and Teri Coster Boesch, 663 F.3d 1065 (9th Cir. 2011)

In a case before the Ninth Circuit, Richard Sacks (“Sacks”), doing business as Investor Recovery Services, appealed a United States District Court ruling dismissing his claims of intentional and negligent interference with contract and negligent interference with prospective economic advantage against Financial Industry Regulatory Authority (“FINRA”) arbitrators Dean Dietrich and Teri Coster Boesch (“the challenged arbitrators”). The Ninth Circuit affirmed the United States District Court for the Northern District of California ruling that Sacks’s claims were barred by arbitral immunity.

Sacks entered into a written contract with a client to represent him in a FINRA securities arbitration proceeding. In order to submit his dispute to FINRA, Sacks’s client signed a FINRA submission agreement. On behalf of his client, Sacks submitted a Statement of Claim, paid filing fees and requested a hearing. FINRA appointed a panel of three arbitrators, including the challenged arbitrators, to hear and decide the claims of Sacks’s client.

After two telephone hearings, the respondents in the arbitration moved to have Sacks disqualified on the grounds that he was ineligible under FINRA Rule 13208, which disallows representation by a person who is not an attorney and who is also “currently suspended or barred from the securities industry in any capacity.” Sacks was not an attorney and was barred from the securities industry in 1991. In his response to the motion to disqualify, Sacks objected to the arbitration panel’s consideration of the issue arguing that the panel did not have the authority to make a decision on his client’s representation and that he had not contracted with the panel to make any such decision. However, Sacks disputed neither the fact that he was not an attorney nor the fact that he had been barred from the securities industry. The challenged arbitrators signed an order disqualifying Sacks from representing his client. The third arbitrator did not join in the order.

Sacks filed a complaint in state court against the challenged arbitrators alleging that, by preventing him from representing his client, the challenged arbitrators exceeded their authority under his client’s FINRA submission agreement, FINRA rules and state law. The challenged arbitrators removed the case to federal district court. The district court ruled that Sacks’s claims were barred by arbitral immunity, granted the challenged arbitrators’ motion to dismiss and entered judgment dismissing all claims with prejudice. Sacks appealed.

The doctrine of arbitral immunity aims to protect decision makers from undue influence and the decision making process from reprisals by dissatisfied litigants. Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579, 1582 (9th Cir.1987). The doctrine only applies to claims that effectively seek to challenge the decisional act of an arbitrator or an arbitration panel. More specifically, it limits arbitrators’ immunity to “civil liability for acts within their jurisdiction arising out of their arbitral functions in contractually agreed upon arbitration hearings.” Id. at 1582.

Sacks argued that the doctrine of arbitral immunity was inapplicable to bar his claims because the challenged arbitrators exceeded their jurisdiction. The first basis for this argument was that FINRA rules and applicable law prevented the challenged arbitrators from deciding a representational issue. Specifically, Sacks argued that FINRA Rule 13208 itself did not give arbitrators the authority to prohibit him from representing his client. However, the appellate court determined that, taken as a whole, FINRA rules and applicable law dictate that the challenged arbitrators were acting within their jurisdiction. FINRA Rule 13413 grants the arbitration panel authority to interpret and determine the applicability of FINRA rules and provides that “[s]uch interpretations are final and binding upon the parties.” There was no issue regarding Sacks’s lack of qualification under FINRA Rule 13208 because it was undisputed that he was not an attorney and had been barred from the securities industry. Therefore, the challenged arbitrators did not exceed their authority in issuing the disqualification order.

The second basis for Sacks’s argument that the challenged arbitrators exceeded their authority is that he could not be bound by the arbitration panel because he was not a party to the arbitration agreement. The appellate court determined that Sacks was still bound by the arbitration agreement under ordinary contract and agency principles. When Sacks’s client submitted his claim to FINRA, the FINRA arbitrators had jurisdiction to issue binding interpretations of FINRA rules. Therefore, because the challenged arbitrators acted with full authority under the client’s arbitration agreement, they could not be subject to suit by a party representative.

The appellate court determined that the arbitrators were acting within their jurisdiction and Sacks’s claims arose out of a decisional act. Therefore, the district court properly applied the doctrine of arbitral immunity to bar Sacks’s claims. The appellate court affirmed the district court rulings.

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.

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