Merrimac Sunk In FINRA Arbitration Waters

January 24, 2014

A lot of public customers complain that FINRA member firms don't play fair when it comes to litigation and arbitration. With some justification and a fairly compelling record of abuse, those victimized industry customers argue that it's rarely a fair fight when it comes to going up against a Wall Street brokerage firm. For starters, those firms allegedly drag their feet and try every trick in the book to delay the onset of arbitration hearings -- and then, once the proceedings begin, it's even more fun and games.  In today's BrokeAndBroker Blog, yet another public customer complains about the dilly dallying of a FINRA member firm during arbitration. 

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2012 and as amended thereafter, public customer Claimant Tipton sought compensatory damages of up to $500,000 plus punitive damages, interest, costs, and attorneys' fees. The dispute involved a bond issued by The School Wish Foundation, Inc. and Claimant asserted, among other causes, fraud, breach of fiduciary duty, and negligence. In the Matter of the FINRA Arbitration Between Mary Robin Tipton, Claimant, vs. Merrimac Corporate Securities, Inc., Respondent (FINRA Arbitration 12-01384, January 6, 2014 ).

Respondent Merrimac Corporate Securities generally denied the allegations and asserted various affirmative defenses.

Raising the Bar

In November 2012, Claimant Tipton filed a Motion To Bar Respondent From Presenting Facts And Defenses At The Final Hearing based upon allegations that Respondent Merrimac had engaged in Discovery abuses. In response, Respondent Merrimac asserted that it had no intention to withhold any evidence. The FINRA Arbitration Decision further explains that:

[D]uring the evidentiary hearing, Claimant argued her Motion to Bar. Respondent's counsel opposed the Motion on the grounds that he was recently retained by Respondent and was unfamiliar with the status of discovery. Respondent's counsel indicated that he had delivered certain of the requested documents on the Friday before the hearing. The Panel granted Claimant's Motion and allowed Claimant to proceed with her case but allowed Respondent to cross-examine witnesses. The Panel reserved decision on the issue of Respondent providing a defense until the close of Claimant's case.

On the next to last day of the hearing. Respondent filed a Statement of Answer and Affirmative Defenses. The Panel believed that to permit the filing of the document at that late date would have unduly prejudiced Claimant. Respondent was permitted to provide a defense but was not permitted to submit testimony or evidence regarding its affirmative defenses. The Statement of Answer submitted by Respondent was not accepted for the purpose submitted, but was treated as a pre-trial brief.

Lowering The Boom

The FINRA Arbitration Panel found Respondent Merrimac liable for gross negligence and breach of fiduciary duty and ordered the firm to pay to Claimant Tipton:
  • $60,000 in compensatory damages;  
  • 7% interest accruing from June 16, 2008 until paid (minus $958 to reflect funds Claimant had received from her investments);
  • $60,000 in punitive damages based upon its finding of Respondent's "gross negligence in the operation and supervision of its branch office;" and
  • $300 reimbursement of the non-refundable FINRA filing fee.
Bill Singer's Comment

What's a last-minute lawyer to do?  In this case, Respondent Merrimac's counsel somehow managed to fight a $500,000-plus demand and came away with about a $120,000 hit (which included $60,000 in punitive damages).  Given that the FINRA Arbitration Panel precluded Respondent's filing of a Statement of Answer and Affirmative Defenses, and Respondent's counsel was further hamstrung by the barring of his presentation of facts and defense, the outcome may not be as disastrous as it could have been.  Bottom line: Merrimac wound up getting hit with awards of about 1/4 of the Claimant's $500,000 demand for damages.

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