Among my more common reactions to lawsuits is a simple question: What the hell were they thinking? That query covers a whole host of sins. What the hell were the defendants/respondents thinking when they did that stupid thing that they are charged with doing? Why is the plaintiff/claimant filing such a weak complaint? Why didn't the innocent and wrongly named defendant/respondent file a counterclaim for monetary damages? Why didn't the defendant/respondent settle this indefensible case before getting hammered? Why did the triers of fact rule in the idiotic way that they did? How did they come up with that inexplicable monetary award?
Recently, I was overwhelmed with questions about why a FINRA Arbitration was filed, why there was no counterclaim for damages, and what the hell was really going on behind the scenes. I just couldn't believe that this particular case was filed in 2016 and adjudicated in 2017. See what you think.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2016, and as amended thereafter, Claimant Estate of Louis J. Levy asserted breaches of contract and fiduciary duty; errors/charges; failure to supervise; negligence; transfers; misrepresentations; unauthorized trading; and omission of facts. Claimant sought $5,008,960.00 in compensatory damages; $51,317,211.25 in punitive damages; interest; costs; and attorneys' fees. In the Matter of the FINRA Arbitration Between Estate of Louis J. Levy, Claimant, vs. Morgan Stanley & Co., LLC and Citigroup Global Markets, Inc., Respondents (FINRA Arbitration 16-00079, August 10, 2017).
The FINRA Arbitration Decision asserts:
REPRESENTATION OF PARTIES
For Claimant Estate of Louis J. Levy: Richard J. Sillman, Columbus, Ohio.
For Respondents Morgan Stanley & Co., LLC and Citigroup Global Markets, Inc.: Adam M. Kauff, Esq., Kauff Laton Miller LLP, New York, New York.
Respondent Morgan Stanley and Citgroup Global Markets generally denied the allegations and asserted affirmative defenses.
Six Years And Counting
In April 2017, Respondents filed a Motion to Dismiss pursuant to FINRA Rule 12206: Time Limits and FINRA Rule 12504: Motions to Dismiss, which was opposed by Claimant. As set forth in FINRA's Code of Arbitration Procedure for Customer Disputes Rule 12206: Time Limits:
(a) Time Limitation on Submission of Claims. No claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim. The panel will resolve any questions regarding the eligibility of a claim under this rule.
(b) Dismissal under Rule. Dismissal of a claim under this rule does not prohibit a party from pursuing the claim in court. By filing a motion to dismiss a claim under this rule, the moving party agrees that if the panel dismisses a claim under this rule, the non-moving party may withdraw any remaining related claims without prejudice and may pursue all of the claims in court.
(1) Motions under this rule must be made in writing, and must be filed separately from the answer, and only after the answer is filed.
(2) Unless the parties agree or the panel determines otherwise, parties must serve motions under this rule at least 90 days before a scheduled hearing, and parties have 30 days to respond to the motion. Moving parties may reply to responses to motions. Any such reply must be made within 5 days of receipt of a response.
(3) Motions under this rule will be decided by the full panel.
(4) The panel may not grant a motion under this rule unless an in-person or telephonic prehearing conference on the motion is held or waived by the parties. Prehearing conferences to consider motions under this rule will be recorded as set forth in Rule 12606.
(5) If the panel grants a motion under this rule (in whole or part), the decision must be unanimous, and must be accompanied by a written explanation.
(6) If the panel denies a motion under this rule, a party may not re-file the denied motion, unless specifically permitted by panel order.
(7) If the party moves to dismiss on multiple grounds including eligibility, the panel must decide eligibility first. If the panel grants the motion to dismiss the case on eligibility grounds on all claims, it shall not rule on any other grounds for the motion to dismiss. If the panel grants the motion to dismiss on eligibility grounds on some, but not all claims, and the party against whom the motion was granted elects to move the case to court, the panel shall not rule on any other ground for dismissal for 15 days from the date of service of the panel's decision to grant the motion to dismiss on eligibility grounds. If a panel dismisses any claim on eligibility grounds, the panel must record the dismissal on eligibility grounds on the face of its order and any subsequent award the panel may issue. If the panel denies the motion to dismiss on eligibility grounds, it shall rule on the other bases for the motion to dismiss the remaining claims in accordance with the procedures set forth in Rule 12504(a).
(8) If the panel denies a motion under this rule, the panel must assess forum fees associated with hearings on the motion against the moving party.
(9) If the panel deems frivolous a motion filed under this rule, the panel must also award reasonable costs and attorneys' fees to any party that opposed the motion.
(10) The panel also may issue other sanctions under Rule 12212 if it determines that a party filed a motion under this rule in bad faith.
(c) Effect of Rule on Time Limits for Filing Claim in Court. The rule does not extend applicable statutes of limitations; nor shall the six-year time limit on the submission of claims apply to any claim that is directed to arbitration by a court of competent jurisdiction upon request of a member or associated person. However, when a claimant files a statement of claim in arbitration, any time limits for the filing of the claim in court will be tolled while FINRA retains jurisdiction of the claim.
d) Effect of Filing a Claim in Court on Time Limits for Filing in Arbitration. If a party submits a claim to a court of competent jurisdiction, the six-year time limitation will not run while the court retains jurisdiction of the claim matter
After hearing arguments on the Motion to Dismiss, the FINRA Arbitration Panel granted the motion on June 30, 2017. The arbitrators found that more than six years had elapsed from the occurrence or event giving rise to the claims. Accordingly, the Panel dismissed without prejudice to any right the Claimant has to file in court.
Bill Singer's Comment
Who am I if not a raconteur? And what raconteur would want to kill a good tale by giving away the juiciest part in a matter-of-fact manner? As such, my dear readers, now that you know that the Estate of Louis J. Levy's claims were found to be too stale under FINRA Rule 12206, the so-called "Eligibility Rule." Also, consider this federal statute:
28 U.S. Code § 1658: Time limitations on the commencement of civil actions arising under Acts of Congress
(a) Except as otherwise provided by law, a civil action arising under an Act of Congress enacted after the date of the enactment of this section may not be commenced later than 4 years after the cause of action accrues.
(b) Notwithstanding subsection (a), a private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), may be brought not later than the earlier of-
(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation.
So . . . at this juncture, let me stand back, just a bit -- Can you see back there? Can you hear back there? -- Yes? -- Okay, great! And now for the FINRA arbitrators' explanation as to why they ruled against the Estate and in favor of the two brokerage firms:
Louis J. Levy's account had been closed since on or about March 8, 1982 with no
evidence of there being any assets in the account. In 1998 a similar case was brought
by Suzanne Sillman, daughter of Mr. Levy and mother of Richard J. Sillman
in respect of Mr. Levy's account. It was dismissed. Rule 12206(a) is a statute of repose, not a statute of limitation and is not subject to equitable tolling. It has been 35 years since the occurrence or event that gave rise to this claim. Although the Panel does not have to reach a decision under 28 U.S.C. §1658(b)(1) and (b)(2) cited by Claimant, it could be denied under that statute for exceeding the statute of repose under clause (b)(2) which prohibits an action brought "five years after the violation". The claimant must under such statute choose the earlier of the 2-year discovery statute of limitations under clause (b)(1) and the 5-year statute of repose under clause (b)(2). Clause (b)(2) is the earlier of the two. In addition, under the 2-year discovery period the Claimant alleges that he first learned of violations at the 55 Water Street branch in 2014 and instituted this action in 2016 within the 2-year statute of limitation discovery period. Even ignoring that statutes of repose control, there is doubt about what a reasonable claimant would discover given the Claimant's footnote 3 in his June 5, 2017 Opposition to Respondent's Motion to Dismiss The revelations of the violations at 55 Water Street were reported by both the Los Angeles Times and the New York Times in 1991 and 1992. This information would have been knowable to Ms. Sillman, or the "reasonable" claimant. It is unknown whether these violations had anything to do with Mr. Levy's account. The regulatory action principally addressed trading issues at that branch with limited discussion of record retention policies, with no express mention of Mr. Levy's account. As stated by the arbitrator deciding Ms. Sillman's arbitration "Industry requirements mandate that Smith Barney retain copies of the monthly account statements for six years after an account was closed." Mr. Sillman's speculation about violations at 55 Water Street would be insufficient to permit equitable tolling under the 2-year discovery period, even if the statutes of repose did not control.
In sum, the Panel holds that Claimant's Claim is dismissed under FINRA Rule 12206(a) a six-year statute of repose. The Panel would not have to address the Claimant's Motion to Dismiss under FINRA Rule 12206(b)(7) but has. The dismissal of Claimant's case has met all prerequisites under FINRA public arbitration rules. The Panel was cognizant of the admonition under FINRA Rule 12504(a)(1). Dismissal of a claim prior to the conclusion of a party's case in chief under FINRA Rule 12504(a)(1) is not a prohibition. The Panel unanimously agreed to grant Respondents Motion to Dismiss based on eligibility and the Panel thinks its decision is correct and appropriate given the facts before it and the law.
The account had been closed since 1982? With no assets?? Since 1982??? Since . . . 1982!!!
Having digested the oddity of an account with no assets that was closed in 1982, we are then asked to ingest the additional inedible morsel that Louis Levy's daughter, Suzanne Sillman, brought a "similar case" in 1998 that was dismissed. As it turns out, Suzanne Sillman is the mother of Richard J. Sillman, who was the lawyer for the Claimant in this 2017 rendition of the ongoing litigation -- nothing wrong with that relationship but the FINRA Arbitration Decision certainly made a point of pointing the father-mother-son connection.
Just because I lead a lonely life and apparently have far too much time on my hands, I dug up In the Matter of the Arbitration Between Susan Sillman v. Salomon Smith Barney(Decision, New York Stock Exchange, 1998-007059, July 21, 1998). In the 1998 arbitration, Claimant Sillman filed a claim on April 3, 1998, for "failure to furnish an accounting." Not sure how come she was "Susan" in the 1998 NYSE Arbitration but "Suzanne" as referenced in the 2017 FINRA Arbitration but, who knows, nearly two decades passed and maybe she changed her name? Getting back to the story, the sole NYSE Arbitrator found in pertinent part that
[T]here has been no showing by the claimant that the respondentwas [sic] withheld any information or documents in its custody or control concerning any account or accounts of Louis J. Levy or his estate. Accordingly, the award is in favor of the respondentand [sic] the claim is dismissed. Parties are to bear their own costs and disbursements."
Today's BrokeAndBroker.com Blog is brought to you by the Zombies and their song about time -- duh!
For more background about the "55 Water Street" reference by the FINRA Arbitration Decision, READ:
In the Matter of Shearson Lehman Brothers, Inc. (NYSE Hearing Panel Decision (Settlement), 91-69, May 14, 1991): "In view of the above findings, the Hearing Panel, by unanimous vote, imposed the penalty consented to by the Firm of a censure, a fine of
$750,000, and an undertaking by the Firm that a review will be performed under the supervision of the Audit Committee of the Board of Directors of the Firm (the "Audit Committee"), of the policies, procedures and systems for compliance with Regulation T in the Firm's margin department, which review will be in addition to any regularly scheduled audit of the margin department, and that a written report of the findings and recommendations of such review will be submitted to the Audit Committee . . ."