Given the high cost of retaining a lawyer, we frequently see parties forced to represent themselves in courts and arbitration hearings. In some cases, it's not merely a matter of funds but of disagreement with the advice of counsel -- often whether to accept or propose a settlement. From the perspective of an adversary, few things are calculated to cause more happiness than to learn that some amateur is going to cross swords with your lawyer during a trial or hearing. On the other hand, veteran lawyers know that judges and arbitrators often allow pro se litigants to get away with murder in an effort to ensure that the unrepresented get their day in court. Unfortunately, too many pro se parties seem to prepare for their day by watching endless hours of "Law & Order" reruns. In a recent pro se FINRA arbitration, the public customer represents himself after two lawyers had withdrawn. Things went about as well as you would expect from this preamble.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in February 2016, and as amended, public customer Claimant Green representing himself pro se asserted breaches of fiduciary duty, the covenant of good faith and fair dealing; negligence; violation of Rule 10b5 of Securities Exchange Act and 15 U.S.C. §78j(b) due to account unsuitability; failure to supervise; common law equity; equity; unsuitability, violation of the NYSE, FINRA and NASD rules; and common law fraud. The causes of action relate to the sale of Fannie Mae and Freddie Mac stocks. Claimant Green sought at least $250,000 in compensatory damages, punitive damages, interest, fees, and costs. In the Matter of the FINRA Arbitration Between Versel Green, Claimant, vs. Merrill Lynch, Pierce, Fenner & Smith Inc., Bank of America Merrill Lynch, and Merrill Edge Advisory Center, Respondents (FINRA Arbitration 16-00361, December 11, 2018).
Respondent Merrill Lynch, Pierce, Fenner & Smith Inc. ("Merrill Lynch") generally denied the allegations and asserted various affirmative defenses.
Respondents Bank of America Merrill Lynch and Merrill Edge Advisory Center are not members or associated persons of FINRA; did not voluntarily submit to arbitration; and did not enter an apperance in this matter. Accordingly, the FINRA Arbitration Panel made no determination with respect to Claimant's claims against Respondents Bank of America Merrill Lynch and Merrill Edge Advisory Center.
Claimant Walks Out
The FINRA Arbitration Decision asserts that:
At the hearing on October 23, 2018, Claimant declined to complete his case-in-chief and left the hearing. Respondent made a Motion for a Directed Verdict on the grounds that Claimant failed to sustain his burden of showing a violation or violations. After due consideration, the Panel determined that the Claimant failed in his case-in-chief and that Merrill Lynch need not present any evidence in rebuttal.
Given that Claimant Green did not fully present his evidence, it's not surprising to learn that the FINRA Arbitration Panel denied his claims. The following fees were assessed:
Claimant Green: $1,425 FINRA Initial Claim Filing Fee; $1,125 postponement fees; $600 "last minute" postponement fees; and $4,950 hearing fees. TOTAL: $8,100
Respondent Merrill Lynch: $1,700 Member Surcharge; $3,250 Member Process Fee; $600 "last minute" postponement fees; $200 Discovery Fee; and $2,700 hearing fees. TOTAL: $8,450
Thankfully,the FINRA Arbitration Panel offered us some meaningful content and context in a wonderful "Arbitrators' Report":
The Claimant appeared pro se. He had retained two prior counsel who both withdrew and he was unable to retain any other counsel. His initial claim alleged that 3 trades of Fannie Mae and Freddie Mac stocks in March and December of 2014 were unreasonably delayed costing him unspecified damages. The Respondent denied the initial claim. In two subsequent amended claims, the Claimant alleged that a myriad of unauthorized trades was made in his account. As mentioned above in the "Other Issues Considered and Decided" section, Respondent made a motion for a more Definitive Statement of Claim, which the Panel granted. Claimant was directed to file a Definitive Statement of Claim citing, with particularity and specificity, dates and securities involved in the unauthorized trades. The Claimant failed to abide by that order and merely submitted a generalized claim of unauthorized trades. The Respondent filed a Motion to Dismiss which was denied by the Panel despite his failure to abide by the order.
At the morning of the hearing, the Claimant was allowed to introduce documents without establishing a foundation for the evidence and present testimony which failed in any way to establish any violations and/or improper conduct. He discussed at length generalized grievances and conspiracies but nothing to substantiate his claims. During the afternoon session the Panel advised the Claimant that he could only testify to the alleged unauthorized trading that referred to securities on statements or other exhibits submitted into evidence. Despite this ruling the Claimant continued to testify to trades but could not specify securities or dates. He also did not know if he had any evidence that could show in detail those unauthorized trades. He also referred to documents that were not evidence of any trades to establish possible unauthorized trades. When that was ruled improper, the Claimant refused to continue with the hearing or present any more evidence or to submit to cross examination and left the hearing room accusing the Panel of racism and violation of his right to a fair hearing. The Respondent then made a motion for a directed verdict stating that the Claimant failed to sustain his burden of showing a violation or violations. The Panel heard oral argument and determined that the Claimant failed in his case-in-chief and that the Respondent need not present any evidence in rebuttal.
The evidence presented at the abbreviated hearing did not in any form or manner establish any failure on the part of the Respondent to abide by all rules, law, and regulation and in fact demonstrated an improper motive to unnecessarily place the Respondent in the impossible position to respond to claims that were not specific or detailed to allow a viable defense. As such, the Panel had no choice but deny the claimants claims in their entirety and assess forum fees to the Claimant.
Bill Singer's Comment
It's enough of a troubling sign when a public customer embarks upon a FINRA arbitration and one lawyer withdraws, but when two lawyers both withdraw, that tends to take on the appearance of a coming apocalypse. Putting aside whether the inference of such a double-withdrawal is attributed to the client being "difficult" or to the rising costs of litigation, the most common response is joy (albeit muted) for the industry adversary and consternation among the arbitrators hearing the resulting pro se case. Time and time again, when pro se litigants attempt to pick up the ball fumbled by their previous quarterbacking lawyer, the ensuing run produces a flurry of activity lacking in any forward progress -- and that pertains to both public customer and associated person pro se litigants. Although arbitrators tend to offer great latitude to pro se litigants, there are limits to such allowances because proceedings cannot be allowed to ramble on incessantly and too much leeway for a pro se party may end up causing unfair detriment to the adversary. It is often a very difficult balancing act.
Claimant Green's case was presented to the Panel via a Statement of Claim, an Amended Statement of Claim, and something called a Definitive Statement of Claim. All of which forced the arbitrators to read a first set of allegations and then flush it down the toilet. Now . . . forget about the first document and read this Amended Claim. Tell you what, flush that second set of claims down the toilet and, really, seriously, just read this third version -- I promise you, it's definitive!
To be fair, in court there are often many versions of amended Complaints; however, arbitration is not a court-trial and arbitrators are not full-time judges and, well, you really want to avoid asking three part-time arbitrators to consider three variations of your complaints. Reminds me of a football game where the kicker made a 30 yard field goal but there was a penalty and he had to kick again. The kicker made the 40 yard filed goal but there was a penalty and he had to kick again. The 50 yard, third attempt, went wide right. You want to kick the damn ball through the uprights on the first try. In Green v. Merrill Lynch we are asked to weigh the consequences of the Panel ordering a more Definitive Statement of Claim, and, in response:
[C]laimant was directed to file a Definitive Statement of Claim citing, with particularity and specificity, dates and securities involved in the unauthorized trades. The Claimant failed to abide by that order and merely submitted a generalized claim of unauthorized trades. The Respondent filed a Motion to Dismiss which was denied by the Panel despite his failure to abide by the order.
Perhaps having bent over backwards a bit too much when they denied Respondent Merrill Lynch's Motion to Dismiss after finding that Claimant Green had failed to abide by their order, the Arbitrators continued to contort by allowing the pro se customer to present evidence and testimony in a less than compliant procedural manner. Unfortunately, the arbitrators appear to have made their bed and were now forced to uncomfortably sleep in it. In keeping with wisdom of "No good deed goes unpunished," after the Panel extended extraordinary leeway to pro se Claimant Green, he apparently storms out of the hearing room and accuses the arbitrators of being racists and having violated his right to a fair hearing.
As I often counsel parties who cannot afford the full range of a lawyer's services, if you have no choice but to pursue your claims or defenses pro se, there are certain things that you can do to help yourself. One, go on to FINRA's Arbitration Awards Database at http://www.finra.org/arbitration-and-mediation/arbitration-awards and try to familiarize yourself with as many cases involving fact patterns similar to yours. Two, try to locate FINRA Arbitration cases that were appealed to the courts (or were there on motions to vacate or confirm) and go online to the court's website and see if you can download some of the filed documents -- you may find pleadings that you could use as a template. Also, in such court files, you may be able to read hearing transcripts or portions thereof, which will further prepare you for direct- and cross-examination. Similarly, court files may contain copies of motions made during the arbitration, which will further provide you with some templates or advance warning of things to come.
All the pro se preparation in the world will no more bring you to the level of a veteran arbitration lawyer than watching hours of YouTube videos involving a surgery would prepare you to operate with the skill of a veteran surgeon. Read all you want about how to drive a golf ball. Watch every instructional video about how to drive a golf ball. Good luck hitting your very first shot off the tee over 200 yards on a straight line. In the event that you have limited funds to retain a lawyer, you might wish to ask a veteran arbitration litigator to review your proposed Statement of Claim or Answer and provide you with some comments -- or you might ask a lawyer to provide you with a flat-fee charge to review various motion papers to which you must respond and advise you as to how best to address them. Keep in mind that for such a limited scope of retention, many lawyers will either decline the assignment out of malpractice exposure concerns, or will prepare a written Retainer that clearly warns you that they are merely offering guidance and not a formal "legal" opinion. Finally, you may wish to retain the services of a lawyer to accompany you to each day of an arbitration hearing so as to assist you in handling the presentation of evidence and the examination of witnesses -- but such a retainer will again be turned down by many lawyers or severely limited in scope.