The California statute allowing a consumer to evade an arbitration agreement if a business does not pay its share of arbitration fees does not require an affirmative finding from an arbitrator and applies to voluntary arbitration agreements.
Not long ago, we covered in SAA 2022-46 (Dec. 8) De Leon v. Juanita’s Foods, No. B315394 (Calif. Ct. App. 2 Nov. 23, 2022. Quoting the De Leon Court:
“California Code of Civil Procedure sections 1281.97 and 1281.98: “provide that if a company or business that drafts an arbitration agreement does not pay its share of required arbitration fees or costs within 30 days after they are due, the company or business is in ‘material breach’ of the arbitration agreement. (Code Civ. Proc., §§ 1281.97, subd. (a)(1); 1281.98, subd. (a)(1). In the case of such a material breach, an employee or consumer can, among other things, withdraw his or her claim from arbitration and proceed in court. (§§ 1281.97, subd. (b)(1); 1281.98, subd. (b)(1).)”
Next, the facts:
“Following commencement of arbitration proceedings between appellant Juanita’s Foods and respondent Kail De Leon, Juanita’s Foods failed to pay its share of arbitration fees within 30 days after such fees were due. Based on that late payment, the trial court concluded that Juanita’s Foods was in material breach of the parties’ arbitration agreement and allowed De Leon to proceed with his claims against Juanita’s Foods in court.”
“Juanita’s Foods argues that the trial court should have considered factors in addition to its late payment—for example, whether the late payment delayed arbitration proceedings or prejudiced De Leon—to determine the existence of a material breach of the arbitration agreement.”
And, the holding:
“We conclude that the trial court correctly declined to consider these additional factors, and we affirm.”
No Need for Finding from an Arbitrator …
The issues before the Court in Williams v. West Coast Hospitals, Inc., No. H049177 (Calif. Ct. App. 6 Dec. 22, 2022), were:
“to decide (1) whether sections 1281.97 or 1281.98 required plaintiffs … to first obtain an arbitrator’s determination of West Coast’s default before returning to the trial court; and (2) whether these statutory provisions apply only to mandatory predispute arbitration agreements.”
Based on statutory construction and legislative history, the Court holds in the negative on both questions. On the need for an arbitrator to make a finding, the Opinion says:
“Because nothing in the statute authorizes the restrictive interpretation that West Coast posits, we affirm the trial court’s order permitting the resumption of litigation…. [W]e see no hint from the Legislature of any requirement for consumers to first seek a purely ministerial determination from the arbitrator before making the election the Legislature has empowered them to make unilaterally. Although the clarity of the statute’s text obviates the need for further inquiry, we observe that the legislative history is consistent with the statute’s plain language.”
… and No Distinction Between Mandatory and Voluntary Arbitration
On the voluntary vs. mandatory arbitration issue, the Court states:
“The Legislature similarly chose not to condition the remedies of sections 1281.97 and 1281.98 on litigation of the voluntary or mandatory character of the predispute execution of the arbitration agreement. To limit the scope of the statute to mandatory arbitration agreements would, furthermore, invite ancillary litigation of voluntariness that would undermine the purpose of the statute…. We will not disturb the balance struck by the Legislature. Accordingly, we conclude that whether an arbitration agreement was ‘mandatory’ or ‘voluntary’ in its execution is immaterial to the section 1281.98 analysis.”
(ed: Seems right. In our experience, the administrator will deem the case withdrawn well before an arbitrator is appointed.)
FINRA Dispute Resolution Services (“DRS”) has updated its neutral roster diversity statistics, showing impressive gains in most areas.
FINRA DRS launched an annual Neutral Roster Demographic Survey in 2016. Recall that this is an annual, voluntary, and confidential survey of neutrals that FINRA relies on to keep its diversity statistics accurate and up-to-date. DRS promises to publish annual survey results toward the beginning of each year and, true to its word, the Authority on December 22 posted updated 2022 demographic survey results.
In Short: Much Progress is Being Made
To track progress, FINRA: “hired a third-party consultant to survey – on an anonymous and voluntary basis – the demographics of the neutrals on our roster from 2017 to 2022. In sharing the findings, FINRA strives to provide transparency about the current makeup of our arbitrator roster. In 2022, we saw increases across a number of categories ….”
Results in the Past Year
What are the results? In a letter to the editor published in SAA 2022-48 (Dec. 22), Dispute Resolution Services’ Associate Director, Recruitment and Training Nicole Haynes said (ed: the chart is in her letter): “the results of the 2022 arbitrator demographic survey demonstrate that FINRA continues to make progress on the diversity front, particularly with respect to gender. To truly illustrate the results of FINRA’s recruitment efforts, highlighted below is a comparison of the newly added diverse arbitrators who joined the roster in 2015 and 2022.
|FINRA Arbitrator Demographic Survey ResultsFor Arbitrators Added Within the Past Year|
|Black or African American||4%||20%|
|Hispanic or Latino||17%||5%|
Adds Ms. Haynes: “FINRA has seen a huge increase in the number of applications that we receive each year, as well as an increase in the diversity of FINRA’s arbitrator roster. Notwithstanding this success, our efforts to further diversify the arbitrator roster is ongoing. FINRA will continue to aggressively recruit new arbitrators and continue to devise innovative strategies to expand the reach of our recruitment efforts in order to meet the needs of our constituents.”
A Multi-year Lookback
We decided to look back to see what’s changed over the last several years. The headlines? The roster has definitely become more diverse, albeit slightly older. We’ve compiled the results in the chart below (ed: numbers in groups will not always total 100%*):
|Panel Demographic||Pct in 2022||Pct in 2017|
|Spanish, Hispanic or Latino||5%||4%|
|American Indian or Alaska Native||0%||0%|
|Age 60 or less||29%||29%|
|Age 70 or older||42%||39%|
FINRA: We’ll Keep at It
The Authority states: “While we are encouraged by these short-term results and incremental progress made, we recognize this is a long-term effort and our work is ongoing as we remain fully committed to achieving our diversity goals.”
(ed: *Since the age category covers all ages, the 2017 total should be 100% (as is the case for the other years). It adds up to only 95%, however. The explanation? In the earlier years, arbitrators did not have to answer a question in order to proceed to the next question. As a result, some of the categories do not always add up to 100%. Later, FINRA started adding the option “Prefer Not to Answer,” thus forcing a response so the category totaled 100%. **Kudos to DRS for making this data public. ***DRS separately surveyed mediators; the results are similar to those for the arbitration panel, although the roster is older – 49 percent of those responding were 70 or older. ****DataStar conducted the 2021 and 2022 surveys. Consulting firm Alight Solutions conducted the surveys from 2017 to 2020. *****The response rate was 31%, about the same as last year.)
For the second time in a few months, the Supreme Court has refused to take up a case involving a FINRA arbitration award.
We reported in SAA 2022-41 (Nov. 3) and blogged that the Supreme Court on October 31, 2022 denied Certiorari in Caputo v. Wells Fargo, No. 22-265, a case involving a FINRA Award. We analyzed in SAA 2022-19 (May 19) the underlying Third Circuit decision, Caputo v. Wells Fargo Advisors, LLC, No. 20-3059 (3rd Cir. May 9), reh’g den. (Jun. 17, 2022). There, a unanimous Court held that, even if a FINRA Panel’s Award was legally erroneous, this alone did not meet the stringent standard for a finding of “manifest disregard of the law.” The September 2022 Certiorari Petition in Caputo had presented these issues:
- Whether this Court’s public policy exception is inapplicable to an arbitral award enforcing contractual provisions that are expressly illegal, void, and unenforceable under applicable statutes, on the supposition that such statutes do not embody sufficiently well-defined and dominant public policy.
- Whether this Court’s public policy exception to judicial deference toward arbitral awards is displaced by a deferential manifest-disregard-of-law standard of judicial review where, as here, the public policy issue was presented to the arbitrators.
- Whether this Court’s public policy exception is applicable under the FAA in light of Hall Street Associates v. Mattel, 552 U.S. 576 (2008) (holding that grounds set out in the FAA for vacating arbitral awards are exclusive), as to which lower courts are split.
SCOTUS: The Answer is Still “No”
The Court on January 9 again declined to take up the case, denying a November 2022 Petition for Rehearing filed by Caputo. As usual, SCOTUS provides no explanation.
FINRA’s Board met in mid-December and among other matters approved changes to the arbitrator listing process. FINRA’s Board of Governors met in person December 14 – 15.
As reported in SAA 2022-47 (Dec. 15), the agenda had a somewhat mysterious dispute resolution-related item: “review amendments to the Codes of Arbitration Procedure to make various clarifying, technical and procedural changes.” At that time we were stumped as to what this meant.
Clarity Provided by FINRA …
The post-meeting memo sheds further light on the subject:
“The Board approved the submission to the SEC of proposed amendments to the Codes of Arbitration Procedure to make clarifying, technical and procedural changes to the arbitrator selection process. The amendments would codify current practices and guidance relating to arbitrator selection and increase selection opportunities for public arbitrators who are not chair-qualified” (emphasis added).
While this description is still somewhat cryptic, we have a good read on the highlighted planned changes to the arbitrator list selection process.
… and the Alert
In a letter to the editor published in SAA 2022-48 (Dec. 22), Dispute Resolution Services’ Associate Director, Recruitment and Training, Nicole Haynes said:
“In addition to current recruitment efforts to bolster the forum’s neutral roster, in 2023, FINRA will propose changes to the arbitrator selection process to provide new and more diverse public arbitrators with greater opportunities to serve. Currently, public chairpersons have two opportunities to appear on a list. Chairpersons not appointed to the chairperson list also appear in the public arbitrator pool along with the public arbitrators in each hearing location for possible inclusion on the list, thereby giving eligible public chairpersons an advantage. To correct this imbalance, the proposal would provide non-chair qualified public arbitrators with two opportunities to appear on the public list. Chair-qualified arbitrators would have one opportunity to appear on the public list, as they already had one opportunity to be selected on the chairperson list. The goal of the proposal is to provide new and more diverse public arbitrators with greater opportunities to serve, to gain experience and ultimately become eligible to join the chairperson roster.”
And … Early Release of Regulatory Targets
The Board also previewed the 2023 Report on FINRA’s Examination and Risk Monitoring Program, “which will provide firms with insight into findings from recent oversight activities of FINRA’s Regulatory Operations to help inform the development and operation of firms’ compliance programs.” The memo added that FINRA plans to release the report early in the new year, which is much earlier than in recent years.
(ed: *This would be a good rule change. We’ll be on the lookout for a Reg Notice seeking comments, or a rule filing with the SEC. **This was the last meeting for 2022. Next year’s schedule is: March 9–10; May 17–18; July 12–13; September 13–14; and December 6–7.)
The President has signed into law a new statute barring enforcement of predispute nondisclosure or nondisparagement clauses in disputes involving sexual assault or harassment.
Mr. Biden on December 7 signed the bipartisan Speak Out Act, S. 4524. The Act passed the House on November 16 by a vote of 315-109, and the Senate by unanimous consent on September 29. The text provides:
“… with respect to a sexual assault dispute or sexual harassment dispute, no nondisclosure clause or nondisparagement clause agreed to before the dispute arises shall be judicially enforceable in instances in which the conduct is alleged to have violated Federal, Tribal, or State law.”
There is a carveout protecting trade secrets and proprietary information, and the statute expressly does not preempt state law:
“that is at least as protective of the right of an individual to speak freely, as provided by this Act.”
The stated purpose:
“Prohibiting nondisclosure and nondisparagement clauses will empower survivors to come forward, hold perpetrators accountable for abuse, improve transparency around illegal conduct, enable the pursuit of justice, and make workplaces safer and more productive for everyone.”
It was effective immediately: “with respect to a claim that is filed under Federal, State, or Tribal law on or after the date of enactment of this Act.”
Companion to EFASASHA
The Act complements the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFASASHA”), which the President signed into law on March 3. As we have reported many times, EFASASHA expressly amended the Federal Arbitration Act (“FAA”) to make predispute arbitration agreements and class action waivers voidable at the option of the victim. The new law has been codified as FAA Chapter 4. It consists of § 401 (definitions) and § 402 (no validity or enforceability).
(ed: That the new law also covers arbitrations to us is very clear; “disputes” is defined broadly in the Act.)
Reversing a recent trend, the Supreme Court has agreed to review an arbitration-related case this Term.
“Under § 16(a) of the Federal Arbitration Act, when a district court denies a motion to compel arbitration, the party seeking arbitration may file an immediate interlocutory appeal. This Court has held that an appeal ‘divests the district court of its control over those aspects of the case involved in the appeal.’ Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982) (per curiam).
The question presented is:
“Does a non-frivolous appeal of the denial of a motion to compel arbitration oust a district court’s jurisdiction to proceed with litigation pending appeal, as the Third, Fourth, Seventh, Tenth, Eleventh and D.C. Circuits have held, or does the district court retain discretion to proceed with litigation while the appeal is pending, as the Second, Fifth, and Ninth Circuits have held?” (links added ).
(ed: *We covered in SAA 2022-17 (May 5) the trial court decision below, Bielski v. Coinbase, Inc., No. C21-07478, 2022 WL 1062049 (N.D. Cal. Apr. 8, 2022). There, the District Court, applying California contract law, held that the predispute arbitration agreement covering the case before it was both substantively and procedurally unconscionable. The subsequent District Court and Ninth Circuit decisions declining to stay the case pending the appeal are unreported. **A prediction in our October 3 blog post, First Monday in October: Some Arbitration-Centric Cases Worth Following, gets partial credit. “We’re reasonably certain another Cert. grant is coming this Term. Time will certainly tell, but closing the loop on FAA section 1 coverage of delivery and rideshare drivers seems very likely.”)
The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) and the Federal Trade Commission (“FTC” or “Commission”) have filed an Amicus Brief in federal court, asserting among other things that the lender’s use of predispute arbitration agreements (“PDAA”) violated the Military Lending Act (“MLA”).
“The message of our brief is simple: when American servicemembers seek to enforce their rights in court, the plain text of the law lets them do that. Congress made clear that when a lender extends a loan to a servicemember that fails to comply with the MLA, the loan is rendered void in its entirety. And there is no doubt that Congress allowed servicemembers to ask federal courts to award restitution for payments made on the illegal loan and provide any other appropriate relief.”
MLA Bars Mandatory PDAAs
The MLA (10 U.S.C. § 987(e)(3)) makes it unlawful when: “the creditor requires the borrower to submit to arbitration or imposes onerous legal notice provisions in the case of a dispute….” The corresponding regulation (32 C.F.R. § 232.8(c)) states: “Title 10 U.S.C. 987 makes it unlawful for any creditor to extend consumer credit to a covered borrower with respect to which …[t]he creditor requires the covered borrower to submit to arbitration or imposes other onerous legal notice provisions in the case of a dispute.” We covered in SAA 2022-39 (Oct. 20) the CFPB’s Complaint in Consumer Financial Protection Bureau v. MoneyLion Technologies Inc., No. 1:22-cv-08308 (S.D.N.Y. Sep. 29, 2022), which states:
“The Bureau brings this action to enforce the Military Lending Act’s protections for U.S. Military active-duty servicemembers and their dependents and to enforce the Consumer Financial Protection Act’s protections for all U.S. consumers. Defendants MoneyLion Technologies, Inc. and the MoneyLion Lending Subsidiaries overcharged servicemembers and their dependents— imposing fees that, together with stated interest-rate charges, exceeded the Act’s limit of 36% Military Annual Percentage Rate (MAPR). Defendants collected on these illegal loans and associated fees, failed to give requisite disclosures, and inserted illegal arbitration clauses designed to take away servicemembers’ ability to vindicate their rights in court.”
The Complaint charges that:
“from about the fall of 2017 until at least August 2019, MLT and the MoneyLion Lending Subsidiaries made loans to covered borrowers by way of loan contracts requiring the borrowers to submit to arbitration in the case of a dispute, without exceptions for covered borrowers. MLT and the MoneyLion Lending Subsidiaries violated the MLA each time they made such a loan to a covered borrower.”
Another Brief Filed Earlier this Year
The Bureau in January this year filed an Amicus Brief in Davidson v. Unit Auto Credit Corp., No. No. 21-1697 (4th Circuit). The CFPB blog post says:
“The MLA also makes it illegal for the lender to require the borrower to waive certain legal rights or to agree to mandatory arbitration. Some car loans, however, are exempt from the MLA. In this case, the government filed a brief arguing that the MLA’s exemption for car loans does not apply to ‘hybrid loans’ that are used to finance both the purchase of a car and also the purchase of a Guaranteed Asset Protection (GAP) insurance policy. Such an interpretation is not only the best reading of the statute but is necessary to ensure that lenders are not able to evade the MLA by packaging MLA-exempt loans with otherwise non-exempt loans.”
(ed: *We’ll keep our eye on this issue.)
Those who thought we were nearing the end of the road for FINRA’s proposed changes to the expungement process need to rethink their assumptions. There’s much going on, including possible SEC disapproval.
We reported in SAA 2022-41 (Nov. 13) that FINRA had extended to November 11 the SEC’s time to act on the Authority’s proposed changes to the expungement process. Much has transpired in the recent past. First, some background, borrowed from our past coverage.
We reported in SAA 2022-30 (Aug. 4) that FINRA staff had followed up on Board approval to file a new expungement rule. Specifically, FINRA on August 1 filed with the SEC SR-FINRA-2022-024, Proposed Rule Change to Amend the Codes of Arbitration Procedure to Modify the Current Process relating to the Expungement of Customer Dispute Information. The introduction to the massive rule filing would amend the Codes: “to impose requirements on expungement requests (a) filed by an associated person during an investment-related, customer-initiated arbitration (‘customer arbitration’), or filed by a party to the customer arbitration on behalf of an associated person (‘on-behalf-of request’), or (b) filed by an associated person separate from a customer arbitration (‘straight-in request’).”
Federal Register Publication and Comments
We later reported in SAA 2022-32 (Aug. 18) that Federal Register publication occurred on August 15 (Vol. 87, No. 156, P. 50170), and that comments were due September 6. Last, we analyzed in SAA 2022-35 (Sep. 15) the over 40 comment letters that were posted on the SEC’s Website. The institutional comment letters – including those from PIABA, NASAA, and SIFMA – were mostly supportive, but suggested further improvements. Individual industry commenters, however, mostly panned the proposed rule changes and the expungement process in general (see our analysis in the September 14 Blog post, Institutional Comments, Mostly Supportive But with All Suggesting Further Modifications, on FINRA’s Proposed Expungement Changes. Individual Industry Commenters Uniformly Oppose the Rule).
Extension Given to SEC by FINRA
We had thought it most likely that staff would return to the National Arbitration and Mediation Committee or the Board with changes resulting from the comments received. Then, FINRA would respond to the comments. While at that time there had not yet been a FINRA response to the comments, the Authority on September 27 extended until November 11 the SEC’s time to act on the rule filing. No explanation was given in Associate General Counsel Mignon McLemore’s filing.
FINRA Responds to Comments
On November 10 Ms. McLemore responded to comments in a 35-page, 148 footnote letter. Although FINRA rejected most changes proposed by the commenters, it filed the same day a proposed amendment offering three significant changes. The SEC describes them as follows: “Amendment No. 1 would modify the proposed rule change in three ways. First, it would amend proposed Rules 12805(c)(3)(A) and 13805(c)(3)(A) to state that all customers whose customer arbitrations, civil litigations or customer complaints are a subject of the expungement request are entitled to attend and participate in all aspects of the prehearing conferences and the expungement hearing. Second, it would modify proposed Rules 12805(c)(8)(C) and13805(c)(9)(C) to state that a panel shall not give any evidentiary weight to a decision by a customer or an authorized representative not to attend or participate in an expungement hearing when making a determination of whether expungement is appropriate. Finally, Amendment No.1 would modify the proposed rule change to provide that an associated person shall not file a claim requesting expungement of customer dispute information from the CRD system if the customer dispute information is associated with a customer arbitration or civil litigation in which a panel or court of competent jurisdiction previously found the associated person liable.”
Amendment Published and Comments Sought on Disapproval
The Commission on November 10 noticed the proposed amendment, which was published November 16 in the Federal Register (Vol. 87, No. 220, P. 68779) along with an Order Instituting Proceedings to Determine Whether to Approve or Disapprove the Proposed Rule Change. Why the activity on possible disapproval? Says the Order: “The Commission is publishing this order pursuant to Section 19(b)(2)(B) of the Exchange Act to solicit comments on the proposed rule change, as modified by Amendment No.1, and to institute proceedings to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 1…. The Commission is instituting proceedings to allow for additional analysis and input concerning whether the proposed rule change, as modified by Amendment No. 1, is consistent with the Exchange Act and the rules thereunder” (footnotes omitted). Comments on the amended rule and potential disproval are due December 7. Rebuttals are due by December 21.
(ed: *With apologies to Alice in Wonderland, it gets curiouser and curiouser. **As we’ve said before, this is a complex topic, so better right than rushed.)
We reported in SAA 2022-42 (Nov. 10) that the Public Investors Advocate Bar Association (“PIABA”) announced in an October 27 Press Release that Hugh D. Berkson of McCarthy, Lebit, Crystal & Liffman was elected President at its just-concluded annual meeting. As promised, we interviewed Mr. Berkson about his priorities for this upcoming year.
Q: What are PIABA’s top three Priorities for the coming year?
A: As I start my term, I expect to focus on three things this coming year. First: PIABA looks forward to working with both FINRA and the SEC to address the problem surrounding unpaid awards in both the broker dealer/RIA contexts. Since PIABA published its first report on FINRA unpaid awards in February 2016, the problem has only grown worse. FINRA’s most recent data shows that 37% of all awards in 2020 went unpaid: a figure that should not be countenanced by the industry or regulators. There is no centralized reporting concerning RIA arbitration results, and we look forward to the results of SEC and NASAA efforts to gather data on the subject, so that the bounds of the RIA unpaid award problem can be understood and addressed. Second: PIABA will continue its efforts, started last year under Michael Edmiston, to study and address the myriad of problems surrounding registered investment advisors’ imposition of arbitration clauses as shields to immunize themselves from facing claims. RIA arbitration clauses requiring the use of high-cost arbitration forums, far-flung venues, unfavorable choice of law provisions, and hedge clauses designed to scare clients from bringing claims, run afoul of those RIAs’ fiduciary duties to their clients. Third, PIABA will maintain its support for the Investor Justice Act, which would require the SEC to establish a grant program to fund qualified investor advocacy clinics.
Q: Several bills have been introduced in Congress to curb mandatory predispute arbitration agreement use in the consumer and employment areas – including financial services. We know that President Biden on March 3 signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which expressly amended the Federal Arbitration Act to make predispute arbitration agreements voidable at the option of the victim. Do you think any of the other bills have a chance at enactment before this Congress expires January 3?
A: Not only is passage of the referenced bill a substantively good measure in and of itself, I take some comfort seeing that, where arbitration is being flagrantly abused, Congress is willing to act in a bipartisan manner to address the problem. I hope that the spirit of cooperation continues and allows Congress to address other situations in which individuals are denied access to justice regarding matters of critical importance. PIABA will continue to shine the light on problematic issues concerning arbitration in the financial services industry – whether they relate to broker/dealers or registered investment advisors – and bring those matters to legislators’ and regulators’ attention.
Q: In your October 27 formal statement on assuming the PIABA presidency, you say: “The recent market volatility indicates that claims will likely increase, which will, in turn, highlight the problems brought about by problematic investment advisor mandatory arbitration clauses and awards that go unpaid by financial services professionals. Thus, the coming year is poised to be a crucial one for investor protection.” Care to elaborate?
A: Absolutely, and thanks for the opportunity to explain. As the United States has moved away from a retirement system principally based upon defined benefit retirement plans, and toward defined contribution ones, people are often entirely dependent on their hard-earned 401K plan balances to fund their retirement. Much of the industry’s marketing is focused on convincing people that they do not have the skills to manage those funds, and therefore require the use of a financial professional to ensure their 401K accounts will be sufficient to meet their needs. When those professionals act inappropriately, and needlessly deplete their clients’ retirement plans, those clients have no meaningful safety net save Social Security – which was never designed to fund the entirety of those clients’ retirement plans.
As the market volatility continues, and as account balances fall, financial professionals’ wrongdoing will inevitably be exposed, which will lead to more investors bringing claims related to negligence, breach of fiduciary duty, and fraud. If those claims are hindered thanks to arbitration provisions that make it impossible to actually bring claims, or a system that makes it impossible to collect on hard-fought arbitration awards, the investors who did everything right – they worked hard, saved as much as possible, and used a professional to manage their funds – will find themselves in dire straits.
In short: the down market will almost certainly reveal the unintended consequences of the current situation. Baby Boomers are starting to retire in record numbers, and American investors will soon acknowledge that the status quo is intolerable.
Q: The COVID-19 pandemic caused lots of changes in the ADR world, including at FINRA. Besides forever getting rid of the middle seat in coach, what’s the one change you’d like to see continue?
A: As someone who has long-embraced technological aids to my practice, I look forward to seeing how tech continues to be adopted in the dispute resolution process. While we’re all getting more comfortable with presenting witness testimony, or conducting entire arbitrations, via videoconferencing, I’m especially curious to see how well we can integrate video feeds with effective document presentation.
Q: Is there anything else you’d like to share with our readers?
A: PIABA has grown in a meaningful way since its inception. While originally formed to help curb abuses found in the NASD and NYSE arbitration spaces, we’ve evolved into a full-fledged investor advocate bar association. Robin Ringo, our executive director for the last 26-odd years, has been instrumental in overseeing and guiding that growth. She is retiring at the end of March 2023, and her successor, Jennifer Shaw, will take the reins. Robin’s presence will be missed terribly, and yet we very much look forward to working with Jennifer in the years to come.
(ed: *The Alert congratulates Mr. Berkson and thanks him for agreeing to answer our questions. We wish him nothing but the best as we head into what promises to be a challenging year on several fronts. **We also wish both Ms. Ringo and Ms. Shaw the best of luck in their respective new endeavors.)
Oppenheimer has moved to vacate a massive Award rendered against it by a FINRA Panel.
We reported in SAA 2022-35 (Sep. 15) that a Majority-Public FINRA Panel had hit Oppenheimer with a $36+ million Award arising out of losses suffered by several investors in a Ponzi scheme perpetrated by a former adviser. The claims asserted in Robinson v. Oppenheimer & Co., Inc., FINRA ID No. 21-02234 (Atlanta, GA, Sep. 6, 2022), were for: “violations of FINRA Rules; negligence; breach of fiduciary duty; violation of the Georgia RICO statute; and breach of contract. The causes of action relate to Claimants’ investments in Horizon Private Equity III.” The Claimants were each awarded almost $5.7 million in compensatory damages and almost $11.4 million in punitive and more than $14.2 million in treble damages pursuant to Georgia’s RICO statute – O,C.G.A. § 16-14-6(c) — which provides: “Any person who is injured by reason of any violation of Code Section 16-14-4 shall have a cause of action for three times the actual damages sustained and, where appropriate, punitive damages. Such person shall also recover attorneys’ fees in the trial and appellate courts and costs of investigation and litigation reasonably incurred.” The award also included more than $5.3 million in attorney fees and $98,655 in costs.
Award Challenge Promised…
Our editorial comment in # 35 was: “According to media reports, Oppenheimer may challenge the Award.” We later reported in SAA 2022-36 (Sep. 22) that, according to a September 15 InvestmentNews story, that certainly appeared to be the case. The article stated that the firm is alleging “evident partiality” by one of the arbitrators. The specifics? “[T]he lawyer for the eight claimants, some of whom had been in the service and went on to be airline pilots, shed light on the broker-dealer’s claim of bias, saying that an attorney for Oppenheimer took issue with an informal conversation between one of the arbitrators, who had been in the military, and one of the investor claimants…. Oppenheimer wants to argue that the common military experience created a conflict because of the affinity that arose from that.’” The story added that Oppenheimer would shortly move to vacate the Award. This next step was referenced in the firm’s September 7 Form 8-K filed with the SEC: “Oppenheimer intends to move to vacate the award in federal court on a number of grounds, including, but not limited to, allowing the hearing to proceed without Mr. Woods and other key parties and witnesses; prematurely rendering an award for damages while a court-appointed receiver continues to collect assets on behalf of all impacted investors, including the Claimants; issuing an award where there was evident partiality against Oppenheimer by one of the arbitrators; and allowing the hearing to proceed when the claims were ineligible for arbitration under FINRA rules that relate to statutes of limitations” (emphasis added).
… Promise Fulfilled
Oppenheimer on October 6 challenged the Award in the Georgia Superior Court, Dekalb County. The matter is Oppenheimer & Co., Inc. v. Robinson, and seeks vacatur under Federal Arbitration Act (“FAA”) section 10 and O.C.G.A. § 9-9-13, or modification under FAA section 11 and O.C.G.A. § 9-9-14. The Award and appeal are referenced in the firm’s quarterly income statement.
(ed: *We were only able to get the Motion to Vacate/Modify. No attachments were available on the FINRA Website. **We will keep our eye on this one.)