An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
Defamed Stockbroker Wins Arbitration Slugfest
September 12, 2014
Some fights are quick. A quick upper-cut in the first round and, wham, the loser is on the canvass being counted out. Other fights are knock-down-drag-'em-outs that go to the final bell. Consider this recent FINRA arbitration as an example of an employment dispute that went the distance . . . and then some.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2013, registered person Claimant Daniels asserted breach of contract; libel/slander on his Uniform Termination Notice for Securities Industry Registration ("Form U5") in the Central Registration Depository record ("CRD") record; violation of FINRA Rule 2010; and wrongful termination. Claimant sought at least $1 million in compensatory damages; punitive damages; interest; costs; and amendment or expungement of defamatory information contained in CRD and on his Form U5. At the close of the hearing, Claimant sought $2,920,283.00 in compensatory damages plus attorneys' fees and punitive damages. In the Matter of the FINRA Arbitration Between Kevin Christian Daniels, Claimant, vs. COR Clearing LLC, formeriy known as Legent Clearing LLC and Steven Alan Sugarman, Respondents (FINRA Arbitration 13-01262, August 13, 2014 )
Respondent COR Clearing LLC generally denied the allegations and asserted various affirmative defenses.
They Look Like They've Been In A War These Two
Ya got yer nasty disputes and then you have your thermonuclear nasty disputes. This bit of commentary from the FINRA Arbitration Decision suggests that this case was very, very personal:
On or about November 26, 2013, Claimant filed a Motion to Strike Answer. Claimant asserted that Respondent attempted to suborn perjury, committed witness tampering, and performed actions to unlawfully suppress evidence and witness testimony by filing court proceedings to intimidate Claimant and attempting to buy a witness's testimony. Respondent denied Claimant's accusations and argued that Claimant's Motion was based on lies and misrepresentations. Respondents further stated that due to failures in their roles, Claimant and another of Respondent COR Clearing's former most senior compliance, risk and legal officers almost caused Respondent COR Clearing to be shut down by regulators. Claimant replied that statements in Respondents' Opposition to the Motion prove that Respondents attempted to buy a witness's testimony and that Respondents attempts to smear Claimant's professional reputation are inappropriate and should be sanctioned accordingly by the Panel.
SIDE BAR: In case you missed it all, here's a recap of the blow by blow. Claimant jabbed with a sharp accusation of perjury, followed by a peppering of witness tampering, and then with a roundhouse of unlawfully suppressing evidence and testimony. Respondent bobbed and weaved and counter-punched with upper-cuts of lies and misrepresentations and landed a kidney punch in the form of charges that the clearing firm's senior compliance, risk and legal officers failed to do their jobs and almost forced regulators to shut the firm down. After taking a standing count, Claimant fought back with punches of attempts to buy testimony and dastardly efforts to smear the firm's reputation.
On top of all that motion practice was yet another flurry:
On or about January 13, 2014, Respondent Sugarman filed a Motion to Dismiss asserting that controlling law mandates that he is not to be held personally liable in this arbitration as he was not a party to any alleged employment contract and did not publish the allegedly defamatory information on Claimant's CRD Form U5. Claimant responded that the Panel could not dismiss Claimant's claims against Respondent Sugarman prior to Claimant's case-in-chief under Rule 13504(a) of the Code for industry disputes, as Respondent Sugarman was involved with the conduct at issue. Respondent Sugarman replied that Claimant concedes that he had no claim for breach of contract against Respondent Sugarman, that Respondent Sugarman has no individual liability for wrongful termination, and that Respondent Sugarman did not publish the CRD Form U5 information.
The FINRA Aribtration Panel denied the November and January motions.
There Ain't Gonna Be No Rematch
You might think that with the Panel's denial of that round of motions there might have been some calm brought to the proceedings. Think again. As noted in the Decision, the combatants went at each other, yet again:
On or about April 17, 2014, Respondents filed a Motion to Strike Claim. In the Motion, Respondents asserted that Claimant misrepresented his attorney-client relationship with a witness to forestall the discovery process and requested that the Panel dismiss Claimant's claims as a sanction. Claimant responded that he had no relationship to the independent witness, except that the legal advice he received from that witness, which constituted an attorney-client relationship, was not discoverable. Respondents replied that Claimant secretly withheld documents and emails and deceived the Panel members when he advised them that all documents had been produced.
Yet again, the Panel denied the motion.
Don't Want One
Bloodied but unbowed, the fighters once again answer the bell for another round of motions:
On or about July 1, 2014, Respondents filed a Motion to Exclude and requested that the Panel exclude emails which they alleged were secretly and improperly acquired by Claimant Claimant responded that the emails had previously been produced and the contents of the emails were not privileged. At the outset of the evidentiary hearings, the Panel heard the parties' oral arguments and denied Respondents' Motion.
After the bell rings but before returning to their neutral corners, we have one more flurry:
At the close of Claimant's case-in-chief, Respondents filed with the Panel a written Motion to Dismiss in which they asserted that there was not enough evidence to support a finding of liability on Claimant's claim for defamation against Respondents. Respondents further stated that Claimant failed to present the requisite evidence to establish his case as it related to the breach of contract and wrongful termination claims. Claimant denied the allegations asserted by Respondents in their Motion.
Yet again, the Panel denied Respondents' Motion and the arbitration proceeded through closing arguments.
Adriaaaaan . . . Adriannnn!!
The Panel ruled that:
- Respondent COR Clearing violated FINRA Rule 2010, but did not render an award of damages for that violation;
- Claimant met his burden of proof under Florida law regarding defamation, and Respondent was liable and ordered to pay to Claimant $247,641 in compensatory damages with any applicable post-award interest but without pre-award interest;
- There was no liability per Claimant's claims for wrongful termination and breach of contract;
- All claims against Respondent Sugarman were dismissed; and
- All parties were to pay their own costs.
Finally, the Panel declined to recommend the expungement of the "Reason For Termination" but did recommend the expungement of of the "Termination Comment' on Claimant's Form U5 and suggested that "Firm Restructuring" be used as a replacement.
Bill Singer's Comment
By way of recap, Claimant Daniels sought $2.9 million in damages for defamation, wrongful termination, breach of contract, and violation of FINRA rules. The Arbitrators found that Respondent had violated FINRA Rule 2010 but declined to award damages; and, also, the Panel dismissed his claims for wrongful termination and breach of contract. On the defamation claim, however, Claimant landed a knockout punch and was awarded nearly a quarter of a million in damages plus post-award interest. Finally, Claimant obtained some further relief in the form of a recommended expungement of the Termination Comment on his Form U5.