September 20, 2017
Among the most frustrating aspects of practicing
law is when you have a client who has been wronged, terribly wronged, but it's
just too late to do anything about it. Whether called statutes of repose,
eligibility, or limitation, there are laws and rules that impose limits on how
long a potential plaintiff/claimant can wait before filing a claim. In
particularly egregious cases where a proposed defendant/respondent has
intentionally hidden facts and lied as part of a cover-up, some relief may be
available in the form of tolling the count-down by which a complaint must be
filed; however, there are limits to even that equitable stoppage. In fairness,
there is merit in sun-setting the filing of claims because with the passage of
too much time, evidence is destroyed and memories impaired. Similarly, in the
financial services sector, you don't want to encourage consumers to game the
system by holding on to investments in order to see if they pan out and then,
years later, allege that those same investments were unauthorized. In the end,
lawsuits should be promptly filed so as to ensure due process for all.
In a vacuum, in a perfect world,
talk about due process and fairness and equity is appropriate. In the real
world, however, we're not all starting out even-steven. Next time you try to
open a bank or brokerage account, see what happens if you attempt to cross-out
the mandatory arbitration provision. Next time you open a brokerage account,
see if they warn you about all the letters, emails, and telephone calls that
will bombard you about opening an account at the affiliated bank -- and also
see what happens when you open just a banking account and get flooded with
solicitation from the affiliated brokerage firm. See what happens when you fail
to timely pay a charge or fee for you bank or brokerage account but note how
it's just an "oops" when the bank or broker-dealer fail to timely
forward your funds to you or "mistakenly" charge you for services.
Yeah, it never quite seems to be one-size-fits-all. You fail to pay a $25
charge and it mushrooms up to $250 with late fees and service charges and dings
on your credit history. They fail to pay you and you're forced to wait hours on
the phone or online, and good luck trying to get to talk to someone at the
branch. As today's BrokeAndBroker.com Blog featured arbitration shows, life on Wall Street ain't always fair, and time doesn't stop just because a large financial services firm isn't playing by the rules.
In a Financial Industry
Regulatory Authority ("FINRA") Arbitration Statement of Claim filed
in December 2016, public customer Claimant Monteath asserted against Respondent
Wells Fargo Advisors fraud/unsuitability; breach of fiduciary duty; breach of
contract; negligence; unjust enrichment; deceptive practices; strict liability;
negligence; and failure to supervise. The causes of action arose in connection
with Claimant's investment in mutual funds through Respondent's
"FundSource" program. Claimant sought $100,000 in compensatory
damages plus interest, punitive damages, attorneys' fees, expenses, and costs.
In the Matter of the FINRA Arbitration Between Don Monteath,
Claimant, vs. Wells Fargo Advisors, LLC, Respondent
(FINRA Arbitration 17-00015, September 11, 2017).
Respondent Wells Fargo generally
denied the allegations and asserted various affirmative defenses.
Six Years And Yer Out
In June 2017, Respondent Wells
Fargo moved to dismiss Claimant's claims pursuant to FINRA's Code of Arbitration Procedure for Customer
Disputes Rule 12206: Time
(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.
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
Motions under this rule must be made in writing, and must be filed separately
from the answer, and only after the answer is
(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
(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
(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
(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
(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
(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
(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
On July 14, 2017, the sole FINRA
Arbitrator conditionally granted Respondent's motion to dismiss pursuant to a
Rule 12206 of the
Code provides that no claim is eligible for submission to arbitration if six years have elapsed
from the occurrence or event giving rise to the
The undisputed facts establish
that the Statement of Claim in this case was filed in December 2016. The last
solicited investment transaction in Claimant's account occurred on September 9,
2009. In February 2010, Claimant instructed his advisor to liquidate his entire
portfolio and transfer the proceeds to another financial institution. The final
amount was transferred from the account with Respondent on March 2, 2010.
Therefore, unless Claimant's late filing is excused or ignored, his claim was
not eligible for submission when filed with FINRA Office of Dispute Resolution.
Claimant presents what are
essentially two arguments against dismissal. First, he contends that FINRA arbitrators
have the discretion to refuse to apply Rule 12206. To the extent the Arbitrator
might have such discretion, he chooses not to exercise it. The initial part of
the second argument is that the eligibility rule is akin to a statute of
limitation and is subject to equitable tolling. The Arbitrator agrees that the
eligibility period may be extended if an injured party is not aware of both the
fact and cause of injury, but only if the lack of awareness is because of
wrongful concealment of necessary facts by the alleged wrongdoer or if the
injured party could not have reasonably discovered the necessary facts through
an investigation after receiving enough information to cause a reasonable
person to conduct an inquiry.
Regarding concealment, Claimant
alleges that he raised concerns with his advisor in 2007 and 2008 when the
investments in his account lost approximately 40% of their value and indicated
his desire to liquidate his portfolio at that time. Instead of telling Claimant
that the reason for the decline in value was the unsuitable nature of the
investments, the advisor counseled against liquidation and attributed the
losses to the market decline suffered during the Great Recession. Assuming for
the sake of argument that such advice was unwise, it was not the type of
concealment that would toll a limitation period. What would have been necessary
to prove concealment would be something like withholding monthly reports and
access to on-line account information while lying to Claimant about the value
of his portfolio. In addition, because many financial advisors were counselling
clients to try to ride out the recession, advice to liquidate might have been
an indication of an attempt to conceal bad or unsuitable investments by having
the losses appear to be caused by the recession. By advising Claimant to hold,
rather than sell, his advisor was, in reality, demonstrating his confidence in
Claimant contends that he had no
reason to believe that he had any actionable claim against Respondent until he
learned how Wells Fargo Bank had engaged in the fraudulent opening of accounts.
But even his counsel had to admit that what Wells Fargo Bank had done bore no
relationship to the investment account with Respondent. That is especially true
considering that when the investments at issue were made, Claimant's account
was with Wachovia Securities, which was later acquired by Respondent.
Claimant's bigger problem is that he admittedly knew, no later than March 2,
2010, that he had lost a large portion of his portfolio's value and had to go
back to work as a result. He made the decision to liquidate his investments
before leaving Respondent, so he must have believed that those investments were
not what he wanted or thought he should have, whether that was because of what
kind they were or simply because they had lost value. A reasonable person in
Claimant's position should have brought the matter up with his new financial
advisor in 2010 and asked why he had lost so much money. Either in conjunction
with such an inquiry, because of it, or independently, a reasonable person
would also have examined the investments on his own, or if not competent to do
so, sought help from a knowledgeable person, to determine if they were
appropriate. Since the investments were, according to the Statement of Claim,
all in mutual funds, such an investigation would not have been very difficult.
Neither the Statement of Claim nor the response to the motion to dismiss allege
any facts to show that Claimant acted diligently to investigate.
For the foregoing reasons, the
Statement of Claim is not eligible for submission to arbitration. However,
Claimant should be given the opportunity to allege sufficient facts to show
that, notwithstanding that he actually did conduct a reasonable and timely
inquiry regarding the reason for his investment losses, he still had a valid
reason for not filing with FINRA until the end of 2016. Therefore, Claimant has
through August 4, 2017, to submit a proposed Amended Statement of Claim. Should
he not do so, this case will be dismissed as ineligible. If such a proposed
pleading is proffered, Respondent may submit an opposition by August 18, 2017.
Unless the Arbitrator determines that a reply to the opposition or an oral
argument would be helpful, the Arbitrator will rule based on written
submissions whether the proposed Amended Statement of Claim may be filed and
the case will proceed or whether it is insufficient to overcome Rule 12206.
In the absence of Claimant's submission of an Amended Statement
of Claim, the Arbitrator converted his conditional order into a final order of
dismissal without prejudice to any right to file in court.
To be very clear, I understand the Arbitrator's ruling above and concur with it. Not sure that I can make a more definitive statement than that.
of whether you agree or not with the Arbitrator's explanation, regardless of
whether you are outraged (as I am) by the ongoing revelations of Wells Fargo's
apparent anti-consumer practices, this FINRA Arbitration
Decision clearly sets forth a well-reasoned and compelling
rationale for the dismissal of the Claimant's claims. Should Claimant opt to
appeal this outcome, an appellate court will be provided with adequate
rationale upon which to base an order of confirmation or vacatur. Bravo to this arbitrator!
When confronted by its large member firms' unclean hands, at a minimum, FINRA should impose the sanction
of a moratorium and roll-back of such firms' abilities to enforce mandatory
customer arbitration. FINRA just doesn't impose much in the way of accountability or consequence for a large member firm's wholesale disregard of
what FINRA Rule 2110 calls "high standards of
commercial honor and just and equitable principles of trade."
You know, come to think of it, I am
reminded of a football game in which my team is down by three points with only
two seconds left in the game and they throw a hail-Mary pass some 98 yards down
the field and it's caught and we win . . . except . . . there's a flag on the
field. Holding. And time expires and we lose. According to the rules of the game, the penalty negates the winning
touchdown. On the other hand, on instant replay, the hold is sort of
"away from the play" and it was only one brief grab and, oh well, the
whole team gets penalized for the misconduct of the right guard.
In contrast to how
they referee a footbal game, Wells Fargo opened millions of accounts without
permission and engaged in improper billing practices yet the whole team doesn't
pay the price of such a foul. Customers
of the brokerage business are still held to the terms of mandatory arbitration.
Customers of the banking business are still forced into mandatory arbitration.
One thing has nothing to do with the other, they tell us. Oh yeah, you're
right, it's just a sports metaphor. It's not real life. That's not how things
work on Wall Street.
doubt I need to persuade the readers of the BrokeAndBroker Blog that accountability matters. But let me put a finer point on it
for emphasis. Accountability for protecting the nation's safety, health, and
financial security matters because without it we suffer preventable injuries,
deaths, and loss. It also matters because when there is no accountability,
there will be those who seize on it to gain an unfair advantage making a
mockery of the idea of rewarding good management. Most importantly, where
accountability fails it undermines the rule of law, and if it fails repeatedly
and for too long, it undermines the legal system and calls into question
the case of Wells, the failure of accountability is breathtaking. Internally,
Wells allegedly created a system where employees could report issues of fraud
in management. Ms. Guitron, and at least 600 other Wells employees, reported
fraud to this internal system, believing it would stop the fraud. But instead
of stopping the fraud, it became a vehicle for identifying and attacking these
Sarbanes-Oxley was adopted for the purpose of
enabling federal regulators to hold companies like Wells to account when they
engaged in fraud. It's good law, but it's being managed by bad government.
OSHA, through its Whistleblower Protection Program, is tasked to act as a
gate-keeper, screening employee reports of wrongdoing, and when they appear to
have merit reporting them to Agencies authorized as regulators. But OSHA finds
merit in less than 2% of its cases, meaning the canary is dead before they take
it to the coal mine. Worse, by failing to investigate these cases, OSHA sends a
clear message to scofflaw companies that they don't need to fear
accountability, and to employees that they report wrongdoing at their own risk.
All this drives down the notion of public responsibility, producing a
wide-spread culture of corruption in government and in the business community
Even when fraud appears like a tidal wave, as it has
with Wells, the DoJ and Congress act as if they never heard of it before, and
approach it with fear and trepidation like an alien force. Crime is crime,
whether it's committed on the street or in the corporate boardroom, and in a
society devoted to equal justice under law we should expect criminal behavior
will be aggressively pursued wherever it appears. The DoL's quiet abandonment
of its investigation of the Wells-OSHA connection, argues DoL's leadership
endorses the culture of corruption in OSHA that contributed to the fraud. The
DoJ's stealth approach to its Wells investigation, argues that either the DoJ
lacks the will and integrity to pursue the law, or that it wants to hide its
lack of competency from the