Frivolous Customer Claims Fall To Eligibility Rule

September 11, 2013

Among the great legal maxims is You Snooze, You Lose.  Litigants must seek timely redress in courts or arbitration forums and always be mindful of the ticking statutes of limitation and so-called eligibility rules. Although extensions, tolls, and exemptions from deadlines may be granted, it's best not to run things down to the wire or count upon the sympathy of a judge or arbitrator. Consider this case in which a public customer failed to get off one last play before the final whistle blew.

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2012, and as thereafter amended, public customer Claimant Ferrer asserted causes of action including negligence, breach of contract, unsuitability, and failure to supervise in connection with her investments in R&G Financial Corporation and the Puerto Rico Conservation Trust Fund.  Claimant ultimately sought $632,387 in compensatory damages plus punitive damages and costs. In the Matter of the FINRA Arbitration Between Lilliane Ferrer, Claimant, vs. Popular Securities, Inc., Respondent (FINRA Arbitration 12-01316, September 6, 2013).

Respondent Popular Securities generally denied the allegations, asserted various affirmative defenses

Turn, Turn, Turn

On July 24, 2013, Respondent submitted a Pre-Hearing Brief to which, in turn, Claimant replied - and to which, in turn, Respondent filed a motion to strike Claimant's reply and to which, in turn, Claimant filed a motion in opposition.  Y'all got that? 

The FINRA Arbitration Panel granted Respondent's Motion to Strike and denied Claimant's Reply Motion and Claimant's Motion in Opposition. 

After the conclusion of Claimant's case-in-chief, Respondent moved to dismiss based on FINRA's Eligibility Rule but the Panel denied that request. 

During the evidentiary hearing, Respondent orally requested expungement of the arbitration from non-party Vanessa L. Perez Fernandez's Central Registration Depository records ("CRD").


The FINRA Arbitration Panel denied with prejudice Claimant Ferrer's claims.  

The Panel ordered Claimant Ferrer to pay to Respondent Popular Securities:
  • $7,077.67 in expert witness fees;  
  • $70,000.00 in attorneys' fees; and 
  • $11,108.73 in attorneys' costs.
The Panel noted that the awards to Respondent were appropriate "based upon the frivolous nature of this case and the prima facie showing that the FINRA six-year eligibility rule barred Claimant's counsel from bringing this case."

Finally, the Panel recommended the expungement of the arbitration from non-party Fernandez's CRD based, in part, upon:

[C]laimant's direct testimony regarding her complete satisfaction with how her investment decisions were executed over a period of 14 years (1997-2011). The Panel found that non-party Vanessa L. Perez Fernandez made suitable recommendations to Claimant which Claimant acknowledged during her direct testimony. Additionally, Claimant's expert witness acknowledged that non-party Vanessa L. Perez Fernandez's recommendations were suitable for Claimant at the time they were made.

Bill Singer's Comment

Ouch!!!  Talk about adding insult to a customer's alleged injury. Claimant sought nearly $700,000 in damages and walks away with a bill for some $88,000 in fees and costs. Separately, third-party Fernandez was fully exonerated amid the Panel's findings that the customer's claims were frivolous and the stockbroker's recommendations were suitable.

SIDE BAR: In relevant part, FINRA Code of Arbitration for Customer Disputes Rule 12206: Time Limits states:

(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. . .

FINRA's Rule 12206 (also known as the "Eligibility Rule") provides that 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 determination of whether FINRA's Eligibility Rule applies is left for the FINRA Arbitration Panel. The six-year eligibility rule is not a statute of limitations and not subject to tolling; and the period runs from the date of the transaction giving rise to the claim, not from the date of discovery of the alleged claims.

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