Morgan Stanley Loses Rip Van Winkle Promissory Note Case Against Employee

March 16, 2012

Morgan Stanley files Rip Van Winkle claim against former employee

In a Financial Industry Regulatory Authority ("FINRA") ArbitrationStatement of Claim filed in September 2011, Claimant Morgan Stanley sought to recover the principal balance due and owing under a promissory note dated May 17, 2002, with Respondent Jackson in the amount of $221,588.00 plus interest, costs, and fees. The matter arose following Respondent's resignation on January 21, 2005. In the Matter of the FINRA Arbitration Between Morgan Stanley & Co. Incorporated, Claimant, vs. Joseph D. Jackson,Respondent (FINRA Arbitration 11-03487, March 13, 2012).

Respondent Jackson generally denied the allegations, asserted various affirmative defenses and  submitted an intriguing Answer on November 8, 2011, which is described in the FINRA ArbitrationDecision as:

Answer Specifically Preserving His Motion to Dismiss Pursuant to N.C. Gen. Stat. §1-52(1), N.C. Gen. Stat § 25-3-118, and FINRA Rule 13206 Based Upon the Claim Being Filed Outside of the Controlling Statute of Limitations and the Six Year Limitations Provided Under FINRA Rule 13206

In his Motion to Dismiss, Respondent asserted that the claim was filed outside of the controlling North Carolina six-year statute of limitationsand the six year limitations provided under FINRA Rule 13206.

In its Response, Claimant asserted that the Code provides that motions to dismiss based on statutes of limitations are not permitted prior to the conclusion of a party's case-in-chief, and that its claims were eligible for arbitration.

SIDE BAR: Not to be too picky but if you read FINRA's published, online guidance titled: Motion to Dismiss and Eligibility Rules, you would note this fairly precise advisory (I have added the boldface emphasis):


panel may grant a motion to dismiss on eligibility grounds at any stage of the proceeding under Rules 12206(b)(7) and13206(b)(7), including a prehearing motion, if the claim is not eligible for submission to arbitration because six years have elapsed from the occurrence or event giving rise to the claim. Parties seeking this exception should provide arbitrators with valid documents that indicate when the occurrence or event took place.

On February 22, 2012, following a telephonic hearing on the Motion, the FINRA Arbitrator granted Respondent's Motion to Dismiss. The Arbitrator explained that:

[C]laimant did not file its Statement of Claim until on or after September 5, 2011, which is more than six years from the date of his resignation. The claim was not filed within six years from the occurrence or event giving rise to the claim and, therefore, is not eligible for arbitration pursuant to Section 13206 of the Code.

Bill Singer's Comment

This is quite the oddball case because it was filed by a major brokerage firm.  Typically, these Rip Van Winkles are filed by public customers hoping to squeeze out a few bucks via a grudging settlement from a brokerage firm willing to avoid the litigation expense involved in having to defend against an arbitration.  At best, claimants may get nuisance value.

Of course, that's an oft-repeated reason given to clients by a lot of contingency claimant's lawyers - in reality, the cost of defending against such a claim isn't all that expensive for a large financial services firm, particularly if the case is handled in-house.  Further, at JP Morgan, Merrill Lynch, Morgan Stanley, UBS, Wells Fargo, and the other big boys, the mirror image of the issue is the belief that a contingency lawyer taking a stale case may not actually show up for a bunch of hearings if there's no settlement and little chance of surviving a motion to dismiss.  Ya gotta love the gamesmanship on the chessboard of litigation.

Still - what the hell was Morgan Stanley thinking here? And why didn't the firm file a Statement of Claim in 2005 or, at the latest, 2006?  Did the file fall between someone's desk and the window?

All of which prompts me to wonder why no sanctions were awarded to Respondent by the Arbitrator because this case seemed dead on arrival.  If I were hearing this case, I might have been very disposed to deeming the filing frivolous or in bad faith given the seemingly palpable staleness of the matter - but I do acknowledge that I am unaware of many facts and circumstances that may have influenced this Arbitrator differently.  Pointedly, maybe there was no demand by Respondent for such damages or sanctions.

Recently,  FINRA  imposed a massive regulatory fine on Merrill Lynch for abuses in collection efforts on its own promissory notes, see:

FINRA Hits Merrill Lynch With Historic $1 Million Fine For Circumventing Mandatory Arbitration During Collection of Employee Promissory Notes ("Street Sweeper" January 26, 2012).

For a variation on the Rip Van Winkle theme involving public customers, see:

Customer Loses Rip Van Winkle Securities Arbitration("Street Sweeper" May 13, 2011)

You Snooze, You Lose - FINRA Arbitration Deemed Too Old to Proceed ("BrokeAndBroker" August 2, 2010)