April 27, 2020
A public customer filed a FINRA arbitration case against Merrill Lynch. According to the customer, Merrill Lynch didn't exactly comply with Discovery rules. Then the customer filed a class action in federal court. Then we wind up with something involving the United Nations . . . yeah, that's not a typo: the UN. Movin' along here, things don't go well at FINRA and the customer appeals. It all comes down to the issue of whether the customer's resort to the federal courts was an improper effort to relitigate claims that had already been submitted to FINRA arbitration. Ah yes, the old second bite of the lawsuit apple.
2015: FINRA / Arbitration Statement of Claim
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in June 2015, public customer Claimant Fang asserted breaches of fiduciary duty and contract in connection with her investment in at least 5,000 shares of Peet's Coffee & Tea, Inc. Claimant Fang sought unspecified compensatory, punitive, and exemplary damages plus restitution, disgorgement, attorneys' fees, and costs. In the Matter of the FINRA Arbitration Between Winnie B. Fang, Claimant, vs. Merrill Lynch Pierce Fenner & Smith Inc., Respondent (FINRA Arbitration 15-01322, February 9, 2018).
Respondent Merrill Lynch generally denied the allegations and asserted various affirmative defense.
2016: FINRA/ Motion to Postpone
On October 4, 2016, Claimant Fang filed a Motion to Continue/Postpone the deadline for the exchange of witness lists and submission of the arbitration briefs. The FINRA Arbitration Decision states that the "Motion was emailed ex parte directly to the Panel, in violation of the Initial Pre-hearing Conference Scheduling Order issued by the Panel on November 11, 2015."
During oral argument on the motion on October 12, 2016, Claimant argued that the previously scheduled October 24, 2016, hearing should be postponed because:
- Respondent did not produce certain documents during discovery; and
- Claimant was planning to file a class action dealing with the same claims.
In deliberating the merits of the motion, the arbitrators noted that Claimant Fang had not moved to compel discovery and had not filed any proof of the certification of a class for the alleged action. On October 12, 2016, the Panel denied Claimant's motion and ordered Fang to submit witness lists and her pre-hearing brief by October 14, 2016.
2016: FINRA / Motions to Dismiss and Reconsider
On October 12, 2016, Claimant Fang moved to dismiss without prejudice. On October 13, 2016, Claimant also moved to reconsider the previously denied Motion to Postpone. Further, Claimant requested the Panel to withdraw its order setting a new witness lists and brief submission.
On October 18, 2016, the Panel issued an order requiring that Claimant file her arbitration brief and witness list by October 20, 2016. On October 19, 2016, the Panel ruled that Claimant's motions to reconsider and dismiss would be heard on October 24, 2016.
2016: NDCA Class Action
On October 20, 2016, Claimant purportedly filed a class action in the United States District Court for the Northern District of California covering the same claims as in the FINRA arbitration.
2016: FINRA / Amended Notice of Motion/Motion for TRO
The FINRA Arbitration Decision asserts that after 9 p.m. on October 23, 2016, and, thereafter, around 10 a.m. on October 24, 2016, Claimant Fang:
delivered to the Panel, ex parte, an Amended Notice of Motion and Motion for Temporary Restraining Order and/or Preliminary Injunction (the "Motion for the TRO") which was intended to enjoin the arbitration from proceeding but which, at that point, appeared not to have been filed with any court. In both the Complaint filed in the District Court and the Motion for the TRO, Claimant represented to the Court that the Panel had assessed attorneys' fees against Claimant in its order denying the original Motion to Postpone. The Order issued by the Panel assessed forum fees and did not in any way refer to attorneys' fees.
2016: FINRA / October 24th Hearing
At the October 24, 2016, FINRA Arbitration evidentiary hearing, Claimant Fang did not appear to argue her motions to dismiss and reconsider, or to argue the merits of the case. Respondent appeared and argued both motions, however, and moved to recover costs. The FINRA Arbitration Panel suspended the arbitration proceeding pending the outcome of the Motion for the TRO. As set forth in the FINRA Arbitration Decision:
See: Winnie B. Fang, M.D., Plaintiff/Appellant, v. Merrill Lynch, Pierce, Fenner & Smith, Inc. Defendant/Appellee (Memorandum, United States Court of Appeals for the Ninth Circuit ("9Cir"), 16-CV-06071 / July 24, 2017)
[O]n October 26, 2016, Claimant's counsel emailed the Panel, ex parte, asserting that the District Court had issued a TRO. In fact, the District Court denied Claimant's request for a TRO on November 10, 2016. On December 5, 2016, Claimant appealed the denial of the TRO to the Ninth Circuit, and on December 8, 2016, the Panel issued an order suspending the arbitration proceeding further until the Ninth Circuit decided the appeal. On July 24, 2017, the Ninth Circuit upheld the District Court's ruling. Respondent submitted a copy of the Ninth Circuit's decision to FINRA. On August 3, Claimant filed a "Responsive Pleading" to Respondent's submission of the Ninth Circuit decision, which the Panel interpreted to be a Motion to Dismiss Without Prejudice (the "Motion"). On August 8, 2017, Respondent filed a response to Claimant's Responsive Pleading.
September 2017: FINRA / Suspension of Arbitration Decision
After hearing oral argument on September 13, 2017, the FINRA Arbitration Panel ordered the suspension of its decision on Claimant's motion until the District Court ruled on the class certification.
2017: FINRA / The United Nations Matter
On November 27, 2017, Respondent filed a Motion for Panel to Issue Award, to which it attached a November 21, 2017, Order of the District Court staying the case in its entirety on August 21, 2017, so that the FINRA proceedings could be completed, and vacating all scheduled dates and terminating without prejudice all motions filed by the parties in violation of the stay order.
Following receipt of Claimant's response, the FINRA Arbitration Panel held a conference on December 18, 2017, which was postponed to January 17, 2018, at which time:
[C]ounsel represented that, in Claimant's Motion to Continue the October 25 (sic), 2016 Hearing dated October 4, 2016 (the "Motion"), Claimant's counsel had argued that he needed the arbitration hearing to be postponed because he had to appear in a matter for the United Nations on October 24, 2016. However, that Motion does not refer to any particular conflict on October 24, 2016, only that "Claimant's counsel is under contract with the United Nations and was absent during July/August 2016, and must return to the South Pacific during the first and second weeks of November."
2018: FINRA / Claims Denied
The Panel denied Claimant's Motion to Dismiss. Thereafter, the Panel denied Claimant's claims and found Claimant liable to and ordered it to pay to Respondent $6,000 in expert witness fees.
2018: NDCA Order
Having previously denied Fang's request for a TRO and Motion to Vacate the FINRA Arbitration, NDCA next considers Merrill Lynch's Motion to Dismiss the First Amended Complaint ("FAC"). Winnie B. Fang, M.D., Plaintiff, v. Merrill Lynch, Pierce, Fenner & Smith, Inc. Defendant
(Order, 9Cir, 16-CV-06071 / December 10, 2018)
NDCA found that the FAC was largely an:
improper effort to relitigate in court the
claims Fang arbitrated unsuccessfully. Fang herself voluntarily initiated the arbitration with
FINRA pursuant to an agreement to "submit the present matter in controversy, as set forth in the
attached statement of claim, answers, and all related cross claims, counterclaims, and/or thirdparty claims which may be asserted, to arbitration in accordance with the FINRA By-Laws, Rules,
and Code of Arbitration Procedure." Dkt. No. 53, Ex. D2. She filed for arbitration on the same
operative facts that are alleged again in the FAC, and for the same causes of action. See id.,
Ex. D1 (arbitration statement of claim). By submitting those claims to the FINRA arbitration
panel, Fang waived any right she might have had to litigate them in federal court. . . .
Additionally, NDCA found that Fang had no likelihood of being able to allege further viable claims against Merrill Lynch and, accordingly, dismissed her case with prejudice.
2020: 9Cir / Memorandum
Fang appealed NDCA's denial of her vacatur and dismissal of her class-action Complaint. Winnie B. Fang, M.D., Plaintiff/Appellant, v. Merrill Lynch, Pierce, Fenner & Smith, Inc. Defendant/Appellee (Memorandum, 9Cir, 16-CV-06071, 19-05022 / April 23, 2020)
In somewhat studied and careful language, 9Cir preliminarily notes that:
The FINRA panel did not exceed its authority by adjudicating Fang's claim -- proceedings, we are careful to note, that she voluntarily initiated. See 9 U.S.C. § 10(a)(4); Nghiem v. NEC Elec., Inc., 25 F.3d 1437, 1440 (9th Cir. 1994) ("Once a claimant submits to the authority of the arbitrator and pursues arbitration, he cannot suddenly change his mind and assert lack of authority.").
As to Fang's various complaints about Merrill Lynch's conduct during Discovery, 9Cir offers this commentary in support of its ultimate affirmation of NDCA's dismissal:
Nor was its eventual award in Merrill Lynch's favor "procured by . . . undue
means." 9 U.S.C. § 10(a)(1). The alleged withholding of documents and
information by Merrill Lynch's counsel during discovery does not impugn the
integrity of the panel's award. As an initial matter, the record lends little credence
to Fang's accusations. Even if it did, such discovery gamesmanship "occurs with
such frequency" that this alone scarcely constitutes "undue means." See A.G.
Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1404 (9th Cir. 1992) (reaching
same conclusion when opposing party invoked "meritless defense").
Still more importantly, Fang raised her concerns with the FINRA panel, which
ultimately was unmoved-something we cannot reexamine. . . .
Coming to BrokeAndBroker.com Blog on April 28 - 29, 2020, an analysis of a significant new case for industry registered and associated persons.