Federal Court Says Former Raymond James Employee Was On Notice of FINRA Arbitration

January 14, 2019

It's a common enough problem with all forms of lawsuits. I served you. No you didn't. Yes, I did. No, you didn't. Yes. No. Yes. No . . . and it goes on and on and on until some judge weighs in with the final "yes" or "no;" and even at that point, a round of appeals may follow. In delving into what did and didn't happen during service, we often come across the scenario where the party to be served used to live at address A but moved to address B, and service was made at A. Then there's the other variation on the theme where we have an affidavit swearing on a stack of bibles that the process server made honest-to-goodness service but, you know, turns out that the service wasn't so "honest" and there wasn't much "goodness" about it. Finally, we got the oh-so clever party who won't answer his door, won't pick up the certified mail, and does everything possible to legally avoid service. In a recent FINRA intra-industry arbitration, we got Raymond James Financial Services attempting to sue a former registered representative over repayment of a loan. The former employer says the former employee was served with the Statement of Claim. The former employee says he didn't get served with jack.

Case In Point

In a FINRA Arbitration Statement of Claim filed in February 2018, FINRA member firm Raymond James Financial Service, Inc. ("RJFS") asserted breach of contract against former employee Respondent Lawrence in connection with his Loan Terms Agreement and a Financial Advisor Agreement executed in March 2017. Claimant RJFS sought $134,217.63 plus interest, fees, and costs.  In the Matter of the Arbitration Between Raymond James Financial Services, Inc., Claimant, v. Andrew Michael Lawrence, Respondent (FINRA Arbitration Decision 18-00820 / June 21, 2018) http://brokeandbroker.com/PDF/LawrenceFINRAArb.pdf 

Respondent Lawrence did not file an Answer and did not enter an appearance.

Service: Ball's in your court

The sole FINRA Arbitrator determined that:

[R]espondent was served with the Claim Notification Letter dated March 2, 2018 by regular mail. The Claim Notification Letter notified Respondent that FINRA rules require parties (except pro se investors) to use the online DR Portal on a mandatory basis and that failure to register for the DR Portal will prevent him from submitting pleadings, selecting arbitrators and receiving notifications relating to case information and deadlines. 

On May 21, 2018, FINRA Office of Dispute Resolution ("ODR") issued another letter to Respondent that reiterated the requirement that all parties (except pro se investors) use the DR Portal on a mandatory basis. The letter further advised Respondent that his failure to register for the DR Portal would be indicated in the final Award. FINRA ODR sent the May 21 letter to Respondent by regular mail. 

The Arbitrator also determined that Respondent was served with an Overdue Notice dated April 26, 2018 and Notification of Arbitrator dated May 21, 2018 by regular mail. The Arbitrator further determined that Respondent was served with the Notification of Arbitrator by certified mail as evidenced by the executed signature card on file. 

Although Respondent failed to register for the DR Portal, the Arbitrator determined that Respondent was properly served and is bound by the Arbitrator's ruling and determination. 


The FINRA Arbitrator found Respondent Lawrence liable and ordered him to pay to Claimant RJFS $134,217.63 in compensatory damages with 10% interest from September 25, 2017, until June 7, 2018; plus $1,000 in attorneys' fees and costs and $1,000 in reimbursed FINRA filing fees. 

SDNY Motion to Vacate

In July 2018,  Lawrence moved in the United States District Court for the Southern District of New York ("SDNY") to vacate the FINRA Arbitration Award. Andrew Michael Lawrence, Petitioner, v. Raymond James Financial Services, Inc., Respondent (Verified Petition to Vacate Arbitration Award, SDNYT, 18-CV-06590  / July 23, 2018).
In pertinent part, Lawrence asserted that:

38. Petitioner herein had no knowledge of the claim. F1NRA's failure to serve notice on the Petitioner was the reason. The award should be vacated as the arbiter exceeded his authority due to F1NRA' s numerous failures to serve process properly pursuant to FINRA §12301. Service on Associated Persons (a) and Regulatory Notice 17-03. Such a failure was a manifest disregard of the law. Given that FINRA failed to follow the agreement set forth between the parties in violation of the FAA, any such decision would render any decision that resulted from the arbiters exceeding their powers under the contract subject to being vacated by this Court. See, Encyclopaedia Universalis S.A. at 92. See also Avis at 23. Given the failure to follow the parties' agreement, the arbitrator breached the arbitration contract. Therefore, the award should be vacated. 

Page 6 of the Verified Petition

SIDE BAR: As set forth in part in "Dispute Resolution Party Portal / SEC Approves Amendments to the Customer and Industry Codes of Arbitration Procedure Regarding Required Use of the Dispute Resolution Party Portal, FINRA Regulatory Notice 17-03 /January 2017) 

Serving Documents 

Initial Statement of Claim 

FINRA staff will serve the initial statement of claim. FINRA will serve respondents that are not identified as customers with a Claim Notification Letter. The term "Claim Notification Letter" means the notice provided to respondents that they have been named as a party in a statement of claim. The Claim Notification Letter provides information about accessing the Party Portal to obtain a copy of the statement of claim filed by the claimants and information about the arbitration, including the hearing location selected by the Director and the deadline for filing a statement of answer. If a respondent does not access the Party Portal and view the statement of claim, FINRA staff will contact the respondent and ask if the respondent received the Claim Notification Letter. If the respondent indicates that he or she did not receive the Claim Notification Letter, FINRA staff will offer to serve the statement of claim in another manner such as by email or regular mail to afford the respondent an additional opportunity to receive the statement of claim. The transmission will include instructions on how to access the Party Portal. 

Page 3 of the FINRA NTM 17-03

SDNY Opinion and Order

In  denying Lawrence's petition to vacate and granting RJFS's cross-petition to confirm the FINRA arbitration award, Andrew Michael Lawrence, Petitioner, v. Raymond James Financial Services, Inc., Respondent (Opinion and Order, SDNYT, 18-CV-06590  / January 4, 2019).
http://brokeandbroker.com/PDF/RJFSLawrenceSDNY190104.pdf , SDNY provides us with this background:

At all relevant times, Lawrence resided at 3509 20th Ave. Ct. SE, Puyallup, Washington 98372. On March 2, 2018, FINRA mailed the Claim Notification Letter and SOC to Lawrence's residential address. These mailings were not returned to FINRA as undeliverable. On May 1, 2018, RJFS's counsel sent copies of FINRA's Claim Notification Letter and SOC, via certified mail, to Lawrence's business address. Lawrence claims by sworn affidavit that he "was never served with, or received a copy of the SOC." 

On May 21, 2018, FINRA sent a Notification of Arbitrator to Lawrence's residential address via certified mail, advising him that an arbitrator was appointed in the case. FINRA sent the Notification of Arbitrator by certified mail on May 26, 2018, and a domestic return receipt, signed by Haylee Lawrence, was delivered to FINRA on May 30, 2018. Lawrence does not dispute that he received the Notification of Arbitrator.

Pages 2 - 3 of SDNY Opinion

Exceeding Authority

Lawrence argued that the FINRA arbitrator's finding of adequate service of process rose to the level that the arbitrator had exceeded his powers in violation of the Federal Arbitration Act. SDNY disagreed and found that:

Here, the FINRA rules empower the arbitrator to rule on the issue of service. FINRA Rule 13413 provides that "the panel has the authority to interpret and determine the applicability of all provisions under the Code. Such interpretations are final and binding upon the parties." Murray v. UBS Sec., LLC, No. 12 Civ. 5914, 2014 WL 285093, at *13 (S.D.N.Y. Jan. 27, 2014) ("FINRA Rule 13413 ‘clearly and unmistakably evinces an intent to submit any disputes over the interpretation of the Code rules to arbitration.'") (citing Alliance Bernstein Inv. Research and Mgmt., Inc., 445 F.3d 121, 127 (2d Cir. 2006)). Rule 13413, therefore, gives the arbitrator power to interpret and determine the applicability of FINRA Rules 13300, 13301 and 13302 governing service. Because the parties consented to FINRA rules, which empower the arbitrator to make determinations regarding the sufficiency of service, the arbitrator acted within the scope of his authority in determining that Lawrence was properly served. See T.Co Metals, LLC, 592 F.3d at 346.

Page 5 of the SDNY Opinion

Manifest Disregard

Additionally. Lawrence asserted that the FINRA arbitrator had manifestly disregarded the law. SDNY declined to find that the arbitrator had ignored or refused to apply the governing legal principle that afforded due process protections via the proper service of process. Rather than ignoring that service obligation, the Court found that the FINRA arbitrator had specifically found that Lawrence was notified of the arbitration proceedings via regular mail on March 2, 2018, May 21, 2018, APril 26, 2018, and May 21, 2018; and also via certified mail on May 21, 2018. In refutation of that finding, Lawrence argued that he was entitled to be served with all papers via both certified and regular mail:

[L]awrence references FINRA Regulatory Notice 17-03, which states that "if the respondent indicates that he or she did not receive the Claim Notification Letter, FINRA staff will offer to serve the statement of claim in another manner such as by email or regular mail to afford the respondent an additional opportunity to receive the statement of claim." The Claim Notification Letter was mailed to Lawrence's residential address in compliance with FINRA Rule 13301(a), which provides that the Claim Notification Letter should be served on Lawrence "directly at the person's residential address or usual place of abode." Neither Regulatory Notice 17-03 nor the FINRA rules contain any requirement that the documents be sent to a party via certified mail.

Page 6 of the SDNY Opinion

SDNY made short shrift of Lawrence's assertions:

Regardless of whether regular mail constitutes sufficient service of process, Lawrence was on notice of the arbitration proceedings because he received the Notification of Arbitrator at his residence via certified mail. The return receipt from the Notification of Arbitrator bears a delivery date of May 26, 2018, and Lawrence admits that he received the notification. That Lawrence received certified mail at his home address is strong circumstantial evidence that he received the other arbitration related documents that were sent to his home via regular mail. The arbitrator had at least a "barely colorable justification" for finding that Lawrence had adequate notice of the arbitration proceedings. Wallace v. Buttar, 378 F.3d 182, 190 (2d Cir. 2004). 

Lawrence relies on an "unpublished / nonciteable" California case for the proposition that failure to effect proper service under the FINRA rules constitutes grounds for vacating the Award. See Hansalik v. Wells Fargo Advisors, LLC, No. B232151, 2012 WL 1423014, at *5 (Cal. Ct. App. Apr. 25, 2012). Hansalik is easily distinguishable. In Hansalik, Hansalik moved from California to Switzerland before Wells Fargo initiated a FINRA arbitration to collect an unpaid promissory note. Id. at *1. Wells Fargo mailed its statement of claim and other arbitration documents to Hansalik's California residence, despite receiving notification of Hansalik's forwarding address in Switzerland. Id. at *1. Unlike in Hansalik, Lawrence here occupied the same residence throughout the relevant period, and FINRA and RJFS both sent arbitration documents to that residence, as least one of which Lawrence admits receiving. The California Court of Appeal affirmed vacatur of the arbitration award in Hansalik, in part, because of Hansalik's lack of actual notice. Id. at *5. Here, the certified mail return receipt from the Notification of Arbitrator demonstrates actual notice.

Pages 6 - 7 of the SDNY Opinion

Bill Singer's Comment

Notice how important "notice" is! Pay careful attention to SDNY's position that:

Regardless of whether regular mail constitutes sufficient service of process, Lawrence was on notice of the arbitration proceedings because he received the Notification of Arbitrator at his residence via certified mail. . .