That sound you hear is a federal court scratching its head. Before it on appeal is a FINRA Arbitration Award that lacks any explanation as to the factual or legal basis for the arbitrators' decision. That sounds absurd. It is. But it's also a common dilemma because FINRA's default is to provide unexplained awards. You want an explanation? Oh, it's gonna cost you -- and just because you ask, doesn't mean you're gonna get one.
2019 FINRA Defamation Claim
In a FINRA Arbitration Statement of Claim filed in October 2019, associated person Claimant Luckett asserted that the:
[F]orm U5 filed by JPMS, as part of registration records maintained by the Central Registration Depository ("CRD"), is defamatory and asserted the following causes of action: invasion of privacy: false light, tortious interference with prospective business expectancies, and breach of implied covenant of good faith and fair dealing. The causes of action related to events occurring after the conclusion of Claimant's employment with JPMS.
Dustin B. Luckett, Claimant, v. J.P. Morgan Securities, LLC and Todd G. Fannin, Respondents (FINRA Arbitration Award 19-030375 / February 4, 2022)
Respondents generally denied the allegations and asserted affirmative defenses.
The FINRA Arbitration Award states that:
At the hearing and in Claimant's Itemization of Damages exhibit, Claimant requested damages of $5,585,353.00, exclusive of interest and costs, including compensatory damages of $3,689,015.00, punitive damages of $500,000.00, and attorneys' fees of $1,396,338.00. Alternatively, Claimant requested damages of $4,402,769.00 exclusive of interest and costs, including compensatory damages of $2,802,077.00, punitive damages of $500,000.00, and attorneys' fees of $1,100,692.00. Claimant withdrew the request for attorneys' fees on the record.
2022 FINRA Arbitration Award
The FINRA Arbitration Panel found Respondent JPMS liable and ordered the firm to pay to Claimant Luckett $1.4 million in compensatory damages and $600 in reimbursed filing fees. The claims against Respondent Fannin were denied. In granting expungement to Claimant, the Panel recommended the expungement of:
[T]he Termination Explanation in Section 3 of Dustin Blake Luckett's (CRD Number 5126374) Form U5 filed by J.P. Morgan Securities LLC on June 29, 2017 and maintained by CRD. The Reason for Termination shall remain the same and the Termination Explanation shall be replaced with the following language: "Non-investment related. After a dispute about a clerical process, RR became disillusioned with the company's atmosphere requiring separation of his at-will employment." This directive shall apply to all references to the Termination Explanation.
The Panel further recommends the expungement of all references to Occurrence Number 1940121 from the registration records maintained by the CRD for Dustin Blake Luckett. Any "Yes" answers should be changed to "No," as applicable.
The Panel recommends expungement based on the defamatory nature of the information. The above recommendations are made with the understanding that the registration records are not automatically amended. Dustin Blake Luckett must forward a copy of this Award to FINRA's Credentialing, Registration, Education and Disclosure Department for review.
JPMS Moves to Vacate
On March 7, 2022, JPMS moved to vacate the FINRA Arbitration Award on the grounds that the arbitrators had exceeded their powers and manifestly disregarded the law. J.P. Morgan Securities LLC, Plaintiff, v. Dustin Luckett, Defendant (Memorandum Opinion & Order, United States District Court for the Western District of Kentucky ("WDKY"), 22-CV-137) https://brokeandbroker.com/PDF/LuckettWDKY230915.pdf Luckett moved to confirm the Award. In summarizing JPMS' arguments, WDKY stated that:
JPMS argues that the Award should be vacated because it was issued in manifest disregard of the law. [DE 16 at 136-51]. JPMS asserts four reasons why vacatur is warranted on these grounds: (1) Luckett failed to prove the elements of a tortious interference claim. [Id. at 149-51]; (2) New York law, which JPMS argues should have applied to Luckett’s claims, provides absolute privilege for statements on a Form U5 [Id. at 136-39]; (3) Luckett failed to “prove that JPMS published a false statement,” which is a required element of a defamation claim [Id. at 139]; and (4) false light is not a recognized claim under New York law [Id. at 138].
at Page 5 of the WDKY Opinion
Lacking in Any Explanation
Before WDKY embarked upon its analysis of JPMS' arguments, it noted that:
The Award lacks any explanation as to the factual or legal basis for the Panel’s decision.Yet this is “precisely the outcome contracted for between the parties.” Questar Cap. Corp. v. Gorter, 909 F.Supp.2d 789, 821–22 (W.D. Ky. 2012). The parties agreed FINRA rules would govern the arbitration. [DE 16-6 at 320]. FINRA rules provide that parties may request an explained decision. See FINRA Rule 13904 (g). Neither party did so in this case. [DE 9 at 46 n.4].
Thus, the Court has before it an unexplained award, four independent possible legal theories, the parties’ briefings, and relevant portions of the arbitration record. JPMS asks the Court to review the merits of the Award based on the record, eliminating every possible line of reasoning that could support the Panel’s award on each of the Luckett’s four legal theories. Yet if any one of the theories could plausibly support the Award, the Court is bound to confirm it. See Jaros, 70 F.3d at 421 (“If a court can find any line of argument that is legally plausible and supports the award then it must be confirmed.”). If a movant presents multiple possible grounds for vacatur, a reviewing court need address only one legally plausible basis for the arbitrators’ award. See Visconsi v. Lehman Bros., Inc., 244 F. App’x 708, 714 (6th Cir. 2007).
at Pages 6 - 7 of the WDKY Opinion
Coulda (woulda? shoulda??)
Faced with a lack of explanation in the FINRA Arbitration Award, WDKY found that the FINRA Arbitration Panel could have concluded from the testimony during the arbitration hearing that Luckett had a business relationship with other firms when JPMS published the Form U5 notwithstanding that the former employer may not have had any direct knowledge of Merrill Lynch's or Raymond James' interest in recruiting the former employee. Accordingly, the Court further found that:
[JPMS] was likely to know of this practice as a member of the same industry and would have expected Luckett’s potential employers to conduct this kind of review. This establishes a plausible basis from which the Panel could conclude that JPMS knew of the prospective employers and the effect which the Form U5 would have on Luckett’s hiring prospects. . . .
at Page 9 of the WDKY Opinion
Further, WDKY specifically noted that:
[R]ozema testified that Merill [sic] Lynch had scheduled a start date for Luckett, but that the firm ultimately could not approve his hiring after the publication of his Form U5. [DE 21-4 at 608-18]. Hirsch similarly testified that but for Luckett’s termination, Raymond James would have likely extended him an offer. [Id. at 604-05]. Luckett testified that JPMS’s actions led him and his family to sell their home and cars and seek less expensive childcare. [Id. at 574]. He also testified that his current position pays substantially less than what he made while at Chase. [Id.; DE 21 at 459]. This is sufficient grounds on which the Panel could have found the final element of the tortious interference claim satisfied.
at Page 10 of the WDKY Opinion
Although WDKY found that Luckett's tortious interference claim could have properly formed the basis for the FINRA Arbitration Award, the Court still reviewed the defamation and false light claims -- which it also found provided additional bases to sustain the Award.
Accordingly, WDKY ordered that Plaintiff's Motion to Vacate is denied and that Defendant's Motion to Confirm is granted.
Bill Singer's Comment
Among the damages that Luckett apparently alleged were his loss of job offers from Merrill Lynch and Raymond James after those potential employers read the Form U5 filed by JPMS. As the Court observed, the FINRA Arbitration Award is "unexplained." That sounds as ridiculous as it actually is: FINRA imposes mandatory arbitration upon industry employees, and then forces them to litigate before an industry-sponsored forum, which resorts to a default mode whereby the arbitration awards generally lack explanations. Other than that, it's a wonderful system. But this is an old lament and a festering problem; and, frankly, FINRA just doesn't give a crap because its large member firms prefer that arbitrations (industry and customer) largely occur in the dark and within a tightly sealed pro-industry vacuum. See, for example: https://www.brokeandbroker.com/index.php?a=topic&topic=explained-decision
To the extent that "all's well that ends well," we may take some comfort from the outcome if not the process. It's an uneasy comfort, at best, and, at worst, it's despicable. What gets lost in the wash are such considerations as this: "Luckett testified that JPMS’s actions led him and his family to sell their home and cars and seek less expensive childcare." Here it is 2023 and Luckett first filed his FINRA Arbitration Statement of Claim in 2019 -- and the Form U5 at issue was filed in 2017. No wonder FINRA's large firms love this form of mandatory intra-industry arbitration.
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