In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in October 2011, public customer Dean represented herself pro se following the July 11, 2012 withdrawal of her attorney.  Claimant alleged  violation of common law fraud; breach of fiduciary duty;  negligent failure to supervise; and negligence arising in connection with her investments in a Barclay Bank PLC 6-month reverse convertible note. Claimant sought up to $55,000.00 plus interest, fees, and expenses. In the Matter of the FINRA Arbitration Between Miriam Dean, Claimant, vs. Wells Fargo Advisors, LLC, Respondent (FINRA Arbitration 11-03911, October 22, 2012).

Respondent Wells Fargo Advisors generally denied the allegations and asserted various affirmative defenses.

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On August 19, 2012, the FINRA Arbitrator ordered

• the extension of the date of the Discovery cut-off to August 31, 2012;  and
• the production of certain documents by the Claimant.

Following the August 31st cut-off without further production by Claimant, Respondent Wells Fargo moved on September 12, 2012, for the dismissal of the claims pursuant to Rule 12511(b) of the Code of Arbitration Procedure (the “Code”) for failure to comply with the Arbitrator’s August 19,2012Order. Claimant did not file a response.

SIDE BAR: FINRA Code Rule 12511. Discovery Sanctions

(a) Failure to cooperate in the exchange of documents and information as required under the Code may result in sanctions. The panel may issue sanctions against any party in accordance with Rule 12212(a) for:

• Failing to comply with the discovery provisions of the Code, unless the panel determines that there is substantial justification for the failure to comply; or
• Frivolously objecting to the production of requested documents or information.

(b) The panel may dismiss a claim, defense or proceeding with prejudice in accordance with Rule 12212(c) for intentional and material failure to comply with a discovery order of the panel if prior warnings or sanctions have proven ineffective.

On September 27, 2012, the Arbitrator issued a new Order giving Claimant an extended due date of October 12, 2012, coupled with three options:

1. Proceed with the October 16 to 18 hearing dates, at which Claimant would be precluded from presenting evidence pursuant to Rule 12511(a) of the Code;
2. Claimant may request a postponement of the hearings to permit mutually agreeable dates for discovery compliance subject to Claimant paying postponement fees; or
3. Claimant could voluntarily request withdrawal of her claim subject to the equal assessment of forum fees between Claimant and Respondent.

NOTE:The September 27^th Order required Claimant’s response by the close of business October 12, 2012, or the Arbitrator would dismiss the case and assess all forum fees against Claimant as provided by Rule 12511(b) of the Code.

As you might have anticipated, Claimant responded to the orders and the options with thundering silence.

Decision

On  September 27, 2012, the sole FINRA Arbitrator dismissed the claim with prejudice citing Code Rules 12511(b) 12212 (c)  as granting that power.

SIDE BAR: FINRA Code Rule 12212. Sanctions 

(a) The panel may sanction a party for failure to comply with any provision in the Code, or any order of the panel or single arbitrator authorized to act on behalf of the panel.

Unless prohibited by applicable law, sanctions may include, but are not limited to:

• Assessing monetary penalties payable to one or more parties;
• Precluding a party from presenting evidence;
• Making an adverse inference against a party;
• Assessing postponement and/or forum fees; and
• Assessing attorneys’ fees, costs and expenses.

(b) The panel may initiate a disciplinary referral at the conclusion of an arbitration.

(c) The panel may dismiss a claim, defense or arbitration with prejudice as a sanction for material and intentional failure to comply with an order of the panel if prior warnings or sanctions have proven ineffective.

Bill Singer‘s Comment

The art of delay is an arrow in the quiver of both claimants and respondents, of both industry employees and their employers, of both public customers and their industry adversaries.  Depending upon your perspective, delay is either an appropriate litigation tactic to buy time for negotiating a settlement or delaying the payment of a likely award; or, it is a demonic device that should be relegated to the bowels of Hell.

In this case, we sort of knew that things could be heading over the cliff when we were advised that Claimant’s lawyer had withdrawn — such a development often implies that the case is going to prove difficult to adjudicate. It’s tough to figure out whether Claimant gained a net benefit from her Discovery foot dragging.  Going by the numbers, Claimant sought a fairly modest amount of dollars; a sum not inclined to break Wells Fargo’s bank.  As such, this was a case that typically would settle but for the fact that there may have been something more going on behind the scenes than we are privy to.

Ultimately, the outcome here is not surprising.  What is perplexing is why was the case was brought in the first place if the Claimant customer was not prepared to cooperate in Discovery?  Alas, that’s the stuff of lawsuits.

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