August 2, 2010
In a Statement of Claim filed in November 2009, Claimant Beja Finance International alleged various causes of action including negligence, breach of fiduciary duty, breach of contract, and unsuitability involving Tucker Portfolio Management Accounts. Claimant alleged that these discretionary accounts sustained damages during the time that Respondent Tucker Anthony was employed as Claimant's investment manager and financial advisor.
Specifically, Claimant alleged that it had informed Respondent of its intention to terminate the management/advisory services in mid-October 2000 and to transfer its assets. The transfer was not completed until late 2001. Claimant alleged over $3 million in losses as a result of Respondent's failure to properly implement Claimant's objectives in the spring of 2000, as well as from Respondent's failure to reasonably execute the requested asset transfers to Julius Baer and VP Bank in 2000 and 2001. In the Matter of the Arbitration Between Beja Finance International, Claimant, versus RBC Dain Rauscher f/k/a Tucker Anthony, Inc., Respondent (FINRA Arbitration #09-06704, July 27, 2010)
Respondent generally denied the allegations and asserted various affirmative defenses. Pointedly, Respondent sought a dismissal of the Claim pursuant to FINRA Arbitration Code Rule 12206(a)
12206. Time Limits
The Customer Code applies to claims filed on or after April 16, 2007. In addition, the list selection provisions of the Customer Code apply to previously filed claims in which a list of arbitrators must be generated after April 16, 2007; in these cases, however, the claim will continue to be governed by the remaining provisions of the old Code unless all parties agree to proceed under the new Code.
(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. . .
You Snooze, You Lose?
Respondent argued that Claimant's claims were ineligible for submission because all of the actions that formed the basis for the claims occurred more than 6 years prior to filing of the Statement of Claim. Moreover, Respondent argued that since Rule 12206 is not a statute of limitation but an eligibility provision, Claimant could not revive the claims by citing to tolling, notice (or lack thereof), or other equitable defenses (typically used to "extend" statutes of limitation).
Claimant countered that the parties had agreed that all controversies that may arise between/among them concerning any transactions (or the construction, performance, or breach of the agreement) shall be arbitrated in accordance with the laws of the State of New York. As such, Claimant argued that it was for the Arbitration Panel to consider such factors as tolling, notice, and estoppel. Pointedly, Claimant argued that Respondent's conduct prevented the timely discovery of potential causes of action and that such conduct continued for a number of years after Claimant's assets were transferred from Respondent.
NOTE: The parties agreed that substantially all of Claimant's assets had been transferred from Respondent's custody and control by the "end of 2001" and that the claim pertained to "activities taking place in 2000 and 2001."
The FINRA Arbitration Panel granted Respondent's Motion to Dismiss based upon Rule 12206(a) because it found that the claims arose out of events that took place more than six years prior to the filing of the Statement of Claim.
Bill Singer's Comment: A well presented and intelligently explained decision. Compliments to this FINRA Panel.
At the heart of the case is a fundamental issue: Were the actions/conduct cited by the Claimant too far removed in time to even be "eligible" for a FINRA Arbitration?
Rule 12206 deems as ineligible for FINRA arbitration, cases that are filed six years or more "from the occurrence or event giving rise to the claim." Litigants may have some success in arguing that various statutes of limitation should not be deemed as "run" because of the misconduct of the other party or for a need to ensure fundamental fairness. However, most statutes of limitation are six years and less (with many of those that are typically presented in arbitrations at four years and under). Consequently, the FINRA six-year eligibility barrier is more of an insurmountable brick wall whereas statutes of limitation are often doors that may be opened following consideration of issues such as tolling, lack of notice, and other equitable concerns.