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UBS Exposes Its Frivolous Briefs In $21 Million FINRA Customer Arbitration
Written: May 10, 2012

People in their underwear try clothes at a Des...

Far more briefs in this case than we cared to see

In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in August 2010, Claimants Rivadavia and Gerson alleged breach of fiduciary duty; unsuitability; misrepresentation; fraud; churning; negligence; and gross negligence in connection with their purchases of Class A and C mutual funds, among which were the Templeton BRIC Fund, the Franklin India Fund, the Templeton Latin American Fund, the Templeton Eastern Europe Fund, the Templeton Asia Growth Fund, the Templeton/Franklin Emerging Market Fund, and the Franklin Templeton China Fund. Claimants sought $7,000,000.00 in compensatory damages, $14,000,000 in punitive damages, interest, attorneys’ fees; costs; and expenses. In the Matter of the FINRA Arbitration Between Rivadavia S.A., a British Virgin Islands Company and Gerardo Gerson, Claimants, vs. UBS Financial Services, Inc. and Olga Nobrega Pereira, Respondents (FINRA Arbitration 10-03793, May 4, 2012).

Respondents UBS and Pereira generally denied the allegations and asserted various affirmative defenses.

Directed Verdict

During the final hearing and at the conclusion of Claimants’ case-in-chief. Respondents moved for a directed verdict, which the FINRA Arbitration Panel granted. Following that decision, the Panel allowed Claimants to introduce into evidence material that was not presented during their case-in-chief (such evidence may have been reserved for cross or rebuttal during Respondents’ case, if at all). With that expanded record, the Panel afforded Claimants’ attorneys the opportunity to cite to any evidence that would negate the directed verdict.  Following such an opportunity, the Panel confirmed its prior ruling in favor of the Respondents.


During the final hearing and after the Panel granted Respondents’ Motion for a Directed Verdict, Respondent Pereira requested the expungement of the arbitration from her Central Registration Depository (the “CRD”) record.  Also, Respondents requested their costs and fees.  Claimants objected to both requests. The Panel determined that they would have separate hearings on Respondent Pereira’s expungement request and Respondents’ requests for costs and fees.

Briefs Galore

In its Brief In Support of its Application for an Award of Attorneys’ Fees and Costs of Litigation, Respondent UBS asserted, among other things, that

  • Claimants filed and prosecuted a frivolous claim;
  • at the time of filing the Statement of Claim, Claimants’ positions at UBS had total profits of $3,500,000.00;
  • Claimants still held $3,500,000.00 worth of the mutual funds at issue;
  • Respondents incurred at least $87,993.00 in attorneys’ fees, travelling, translation, and expert witness costs in defending the alleged frivolous claims; and
  • FINRA Code of Arbitration Procedure  Rule 12212(a) authorizes the Panel to assess attorneys’ fees, costs and expenses as a sanction for failure to comply with any Code provisions or Panel orders.

In Claimants’ Brief on the Tribunal’s Lack of Authority to Award Sanctions for Bringing a Claim In Bad Faith and Frivolous Litigation, it was asserted, in part, that FINRA Arbitration Panel lacked authority to award sanctions under the parties’ Submission Agreements under the Arbitration Code, and New York law. Moreover, Claimants asserted that the Panel had improperly carried out its powers applying procedural rules and mechanisms unknown to Claimants, and failed to advise Claimants of the rules applicable to the proceedings.

In its Reply to Claimants’ Brief on Attorneys’ Fees, Respondent UBS argued that cited caselaw allowed arbitration panels to award legal fees where both parties requested attorneys’ fees.  Further, UBS asserted  that the Panel should reject Claimants’ argument that FINRA rules do not expressly include any language regarding sanctions for bad faith pleading and that the absence of such express language precludes the Panel’s ability to award the specific sanctions sought.  To the contrary, UBS claimed that New York courts have recognized an arbitration panel’s inherent powers to sanction frivolous and bad faith behavior in arbitration. Finally, UBS characterized as frivolous, Claimants’ grievances concerning the propriety of the FINRA arbitration process and the Panel’s decisions.

Respondent Pereira’s Reply Brief adopted the positions of Respondent UBS and added that the Panel’s decision to grant a directed verdict is a substantive ruling on the merits and therefore her expungement is warranted.

In Claimants Brief on the Tribunal’s Lack of Authority to Award Attorneys’ Fees after Ruling on a Motion for a Directed Verdict, Claimants asserted that the FINRA Arbitration Panel had

  • deprived them of due process; and,
  • no authority to interpret the FINRA Code to determine whether to award attorneys’ fees, such determination being within the sole province of the courts.

Respondent UBS’s Brief In Support of Its Application for an Award of Costs of Litigation asserted that FINRA Rules expressly authorize panels to allocate among the parties FINRA fees, costs and expenses of litigation.


After hearing oral arguments, the Panel issued an order denyingRespondents’ Application for an Award of Attorneys’ Fees.  Thereafter, Respondent Pereira withdrew her request for expungement.

Finally, the Panel confirmed that Respondents’ Motion for a Directed Verdict was granted, Claimants; claim was dismissed with prejudice, and Claimants are jointly and severally liable and ordered to pay to Respondent UBS $92,847.00 in costs that exclude member fee.  Inherent in that award is the denial of all of Claimants’ damage requests and Respondents’ demand for attorneys’ fees.

Bill Singer’s Comment

I tend to doubt that we’ve heard the last of this case and suspect that Claimants may file a Motion to Vacate based upon many of the points that they raised before the Panel.  On the other hand, having filed a claim seeking $21 million in damages, not surviving a motion for a directed verdict (an exceptionally rare occurrence in FINRA customer arbitrations), and getting hit with nearly $93,000 in costs, perhaps this case will die a tortured death.  Who knows — it will be interesting to see what the future holds.

Among the more curious aspects of this case was this sentence in the Arbitration Decision:

Claimants further stated that the Panel improperly carried out its powers applying procedural rules and mechanisms unknown to Claimants, and failed to advise Claimants of the rules applicable to the proceedings.

You don’t see that one everyday.  It’s sort of tough to figure out just what the hell that sentence is all about because it could mean that either the Claimants are complaining that the Panel applied unique and non-codified rules and “mechanisms” to the adjudication of this case; or, that Claimants were unfamiliar with FINRA’s arbitration rules and procedures and had expected the Panel to explain the procedures being used. I’m guessing that the gist of this issue is in the former rather than latter camp, but that’s only speculation.

With the issuance of this Panel’s decision, this case finds itself in the odd posture of Claimants seeking millions in damages, having their case dismissed without the Respondents putting on their full fledged defense, and suffering the ignominy of getting dinged for some $93,000 in costs. If filed as a contingency case, the Claimants must surely be unhappy with not only losing the case but having to dig into their pockets for the costs; if handled on a billable fee basis, the Claimants must surely feel that insult has been added to injury.


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