An irreverent Wall Street Blog
Scottrade Customer Margin Case Tossed During Discovery
February 23, 2018
In today's BrokeAndBroker.com Blog, we come upon yet another FINRA arbitration involving a public customer who represented himself. The case involves what appears to be the familiar flashpoint of a customer's purported attempt to timely satisfy a margin call before a sell-out By the time the customer enters into the Discovery phase of his lawsuit against FINRA member firm Scottrade, you get the sense that he is a seething cauldron of rage. Enraged pro se litigants don't tend to do well. This case proved to be no exception.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in June 2017 by public customer Claimant Campbell representing himself pro se, he asserted manipulation; misrepresentation/non-disclosures; omission of facts; failure to supervise; margin calls; transfer; and indemnification. The FINRA Arbitration Decision characterizes Campbell's claims as arising in connection with his allegedly:
unsuccessful attempt to transfer funds to his account to cover a call and a resulting forced sale of Claimant's preferred shares in Hertz Global.
Claimant Campbell sought $5,435.00 in compensatory damages; $350.00 filing costs; and $1,000.00 in damages for pain and suffering. In the Matter of the FINRA Arbitration Between Brian M. Campbell, Claimant, vs. Scottrade, Inc., Respondent (FINRA Arbitration 17-01472, February 20, 2018).
Rule 12212(c) Motion to Dismiss
Although FINRA Arbitration decisions typically include a statement that a given respondent had denied the allegations and asserted various affirmative defenses, there is no such disclosure in this document. It is noted in the Decision, however, that Respondent Scottrade filed a Motion to Dismiss pursuant to Code Rule 12212.
SIDE BAR: FINRA Code of Arbitration Procedure for Customer Disputes 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.
In granting with prejudice Respondent Scottrade's Motion to Dismiss as a discovery sanction pursuant to Rule 12212(c), the sole FINRA Arbitrator offered this rationale:
Bill Singer's CommentClaimant failed to obey two successive orders from the Arbitrator dated September 21, 2017 and December 22, 2017 regarding discovery. During the September 20, 2017 Initial Pre-Hearing Conference, Claimant indicated that he had not read the Discovery Guide and did not intend to follow it. Claimant also said that Respondent did not "need" other materials having decided they are "irrelevant," in spite of the Arbitrator's strong warning that sanctions could follow abuse of the discovery process, including dismissal of his Statement of Claim. Claimant did not file witness or exhibit lists and, in general, indicated that he did not understand the process and would produce only what he determined to be necessary at the hearing, from which Respondent and the Arbitrator could address their concerns.The Arbitrator finds that Claimant subjected himself to the system he now claims not to understand by signing up for self-directed day trading, entering into the brokerage contract (including the incorporation of FINRA rules and procedures), and then asking that same system to provide redress for alleged wrongdoing. Claimant is charged with understanding what he signed and agreed to. Claimant must therefore accept the rules that are intended for the protection of both parties and the integrity of the FINRA arbitration system. Multiple refusals to follow the Arbitrator's orders, after warning, is not acceptable.The Arbitrator concludes that, by not following the rules, Claimant has made it difficult or impossible for the other side to defend itself. The Arbitrator further concludes that Claimant will not change his position, and that no additional orders, hearings, or delay would improve the situation but would instead waste resources of both Respondent and FINRA, to no one's benefit.
Compliments to this FINRA Arbitrator for providing us with a thoughtful rationale.
It should always be a disfavored practice to toss a public customer's case out before a plenary evidentiary hearing, particularly when the dispute is mandated to be resolved before an industry-sponsored forum such as FINRA. Similarly, within bounds, it is also appropriate for arbitrators to show some patience when dealing with self-represented public customers. In Campbell v. Scottrade,it appears that the FINRA Arbitrator understandably lost patience with a pro se public customer Claimant, who declined to follow the forum's Discovery rules.
Under no circumstances do I intend to downplay the anger that many public customers feel after they believe they have been wronged by their brokerage firm and/or servicing stockbroker. Clearly, Wall Street has a long and disgraceful history of disservice to its customers. Similarly, after sustaining losses, I fully empathize with the outrage some public customers feel when they realize that they are forced to "arbitrate" their grievances before what, for all intents and purposes, looks far too much like an industry-owned-and-operated arbitration forum. Consequently, it should be expected and anticipated that many self-represented public customer claimants will enter into FINRA arbitration with a full head of steam and one helluva chip on their shoulder.
All of my above empathy aside, Claimant Campbell did himself no good by purportedly informing the Arbitrator that he had not read FINRA's "Discovery Guide" and had no intention of abiding by the various obligations that he had not read and apparently had no intention of doing. Campbell was apparently warned by the Arbitrator about the ultimate sanction of a dismissal should he persist in not cooperating during Discovery. Reading between the lines, it appears that Campbell was seething with anger at Scottrade and was not prepared to put up with any crap from anyone during the arbitration. Given that context, it would appear that the Arbitrator attempted to accommodate Campbell to the full extent of the Code of Arbitration but at some point got pushed to the wall and dismissed the case. I get the ruling. Based upon the facts presented and the rationale, I concur with the dismissal.
My concurrence with the FINRA Arbitrator's rationale and decision being noted, I am compelled to note a disagreement with this paragraph in the Decision:
How exactly do public customers "subject" themselves to a mandatory arbitration system?The Arbitrator finds that Claimant subjected himself to the system he now claims not to understand by signing up for self-directed day trading, entering into the brokerage contract (including the incorporation of FINRA rules and procedures), and then asking that same system to provide redress for alleged wrongdoing. Claimant is charged with understanding what he signed and agreed to. Claimant must therefore accept the rules that are intended for the protection of both parties and the integrity of the FINRA arbitration system. Multiple refusals to follow the Arbitrator's orders, after warning, is not acceptable.
It is impossible to open a brokerage account with a FINRA member firm without agreeing to arbitration before FINRA. There is no "negotiated" contract that public customers voluntarily sign. I challenge you to cross out the so-called negotiated arbitration clause in any FINRA member firm's new account agreements and see how many firms will accept your business. If the FINRA Arbitrator in Campbell v. Scottrade wanted to be accurate, then the sentence I cite should have stated that "Claimant was forced to accept a mandatory arbitration clause he now claims not to understand . . ."
Similarly, the cited paragraph above downplays the pernicious nature of mandatory arbitration by arguing that a public customer should be charged "with understanding what he signed and agreed to." Agreed to? There was no bargaining about the mandatory arbitration clause. The public customer was offered a take-it-or-leave-it contract of adhesion. In the absence of any voluntary agreement, I see no obligation for any public customer to accept FINRA's Code of Arbitration; and I would certainly reject any suggestion that said Code is a body of rules "intended for the protection of both parties and the integrity of the FINRA arbitration system." Frankly, it is laughable that any alternative dispute resolution forum would raise the prospect of its "integrity" when a given industry's public customers and associated persons are forced to resort only to that forum via contracts of adhesion.
Ultimately, and let me be clear here, Campbell did himself a disservice by acting in the contentious manner depicted by the Arbitrator. As such, the FINRA Arbitrator not only reached the correct decision but did so based upon a compelling rationale. Notwithstanding my concurrence in the conduct of and the outcome of the arbitration, I still note my objection to perpetuating the myth that there is anything voluntary or consensual about mandatory FINRA customer and intra-industry arbitrations.