FINRA Arbitrator Sings Signed, Sealed, Delivered and Return to Sender In Default Award

June 9, 2020

In both FINRA's Code of Procedure (which is used for regulation of member firms and their associated persons) and FINRA's Code of Arbitration Procedure (which is used to handle arbitrations in both customer and intra-industry disputes), it is critical for associated persons to ensure that their "last known address" is maintained by FINRA in current form. Around far too many office water coolers on Wall Street where dubious wisdom is dispelled by folks lacking law degrees, the advice has been given that if you get sued by a customer just don't open any certified mail. If you don't open it and you don't sign for it, the water-cooler wisdom goes, they can't nail you. I mean sure, that all sounds good but for the fact that the advice is garbage. 

2017 FINRA Arbitration Claim

In a FINRA Arbitration Statement of Claim filed in June 2017, public customer Claimant New Brunswick Theological Seminary asserted suitability; breach of fiduciary duty; negligent supervision; violation of FINRA Rules 2090 and 2111; and control person liability in relation to "various securities including ETFs." Claimant sought $3,229,097 in compensatory damages, restitution, fees, and costs. In the Matter of the Arbitration Between New Brunswick Theological Seminary, Claimant, v.  Pamela Calabrese, Richard Calabrese, Corinthian Capital Corporation, Corinthian Holdings, L.L.C., Corinthian Partners Asset Management L.L.C., Corinthian Partners, L.L.C., Mitchell Manoff, and Victoria Anne Vandyke, Respondents (FINRA Arbitration Decision 17-01878 / January 12, 2018)

Down to One: Vandyke

In August 2017, Claimant dismissed Respondents P. Calabrese, R. Calabrese, Corinthian Capital, Corinthian Holdings, Corinthian Partners Asset Management, Corinthian Partners, and Manoff without prejudice. 

Side Bar: Online FINRA BrokerCheck records disclose that on August 18, 2017, Vandyke was barred by FINRA for failure to respond to FINRA request for information.

Respondent Vandyke did not file a Uniform Submission Agreement, did not enter an appearance, and as set forth in pertinent part in the FINRA Arbitration Decision:

The Arbitrator determined that Respondent Victoria Anne Vandyke was served notice of the Statement of Claim by regular mail, Overdue Notice and Notification of Arbitrator by certified mail and is therefore bound by the Arbitrator's ruling and determination. 

The sole FINRA Arbitrator found Respondent Vandyke liable and ordered her to pay to Claimant $3,229,097 in compensatory damages plus interest. 

NYS Supreme Court 2018

The New Brunswick Theological Seminar petitioned the New York State Supreme Court ("NYSC") to confirm the FINRA arbitration award, and, in response, Vandyke moved to vacate the award. 
In the Matter of the Arbitration Between New Brunswick Theological Seminary, Petitioner, v. Victoria Anne Vandyke, Respondent (Order, New York State Supreme Court, 600869-18, August 13, 2018)  

NYSC ordered that the Petition for Confirmation be granted in Petitioner's favor for $3,229,097 with interest, and that the Motion to Vacate be denied

FINRA Bars Vandyke: 2017

The NYSC Order offers this background about Vandyke: 

The respondent is a retired investment banker. In 2000, she entered into an agreement with the petitioner to act as its investment advisor and broker. The respondent managed the petitioner's investment account until May 4, 2016, when the petitioner terminated her services. The Financial Industry Regulatory Authority ("FINRA") subsequently opened an investigation concerning the respondent's alleged mishandling of customer accounts, including the petitioner's account. On May 15, 2017, FINRA issued a notice of its intention to suspend the respondent due to her failure to respond to FINRA's request for information. On June 5, 2017, she appeared and requested a hearing. On June 26, 2017, she withdrew her request for a hearing. As a result, she was deemed to have abandoned her claimed defense, and she was permanently barred from the securities industry effective August 18, 2017.

Also see: FINRA Suspends CEO And CCO Over Failed Supervision Of Exotic ETFs  ( Blog /  March 20, 2019)

FINRA Arbitration Notices: 2017

In addition to the above explanation as to what prompted FINRA's imposition of a Bar upon Vandyke, the NYSC Order offers some additional detail about the efforts undertaken during the FINRA arbitration to notify Vandyke about the pending charges and subsequent hearing:

[B]y a memorandum dated July 26, 2017, FINRA advised the respondent that she had been named as a party in an arbitration commenced by the petitioner. The memo also advised the respondent that, pursuant to FINRA's rules, she was required to use the DR Portal, inter alia, to download the petitioner's Statement of Claim. The memo was sent by certified mail to the respondent's home addresses in New York City and Sag Harbor, New York. Both were returned as "unclaimed, unable to forward." In a memorandum dated August 24, 2017, that was sent to the respondent's New York City address, FINRA advised the respondent that all of the petitioner's claims against the other respondents had been dismissed and that the case would continue to proceed against her. In a memorandum dated September 18, 2017, that was sent to the respondent's New York City address, FINRA again advised the respondent that she was required to use the DR Portal and that her failure to register therefor would prevent her from submitting pleadings, selecting arbitrators, and receiving notifications related to the case. The record does not reflect that either the August 24, 2017, memo or the September 18, 2017, memo was returned. FINRA also sent an Overdue Notice and List of Potential Arbitrators to the respondent's New York City address. The record reflects that the Overdue Notice and List of Potential Arbitrators was not returned. 

A Matter of Address: Sag Harbor, New York City, and California

Vandyke argues that the FINRA Arbitrator deprived her of due process by entering a Default Award against her based upon the assertions in the FINRA Service History Report that service had been effected upon her by certified mail although said mail was not delivered. In furtherance of her Due Process argument, Vandyke alleged that she was in California from June 27, 2017, until December 2, 2017. As further detailed in the NYSC Order, Vandyke:

avers that, while she was in California, the mail sent to her Sag Harbor address was held at the Post Office and that the mail sent to her New York City address was de minimus enough to fit in the mailbox. She contends that, when she returned to New York, she did not prioritize going through the months of held mail and that she was still going through it when she was served with the petition and arbitration award on January 19, 2018. The respondent contends that, since the petitioner knew how to contact her by email, it should have notified her of the arbitration by email. The respondent also contends that FINRA advised the petitioner that service had not been perfected. In support thereof, she relies on a memorandum dated September 13, 2017, from FINRA to the petitioner's counsel advising him that FINRA had been unable to perfect service on her and that, since the petitioner had the burden of proving proper service, it might use an outside source to locate and serve her.[FN2] The respondent also relies on FINRA's September 18, 2017, memorandum to her, which was copied to counsel for the plaintiff, in which FINRA recommended that the petitioner serve her "by first class mail, overnight mail or delivery service, hand delivery, facsimile, or electronic mail" until she was registered on the DR Portal. The respondent contends that, instead of attempting to [*4]perfect service, the petitioner continued to prosecute its claim against her while she was in California and unaware of the arbitration

= = = = =

Footnote 2: The petitioner contends that the September 13, 2017, memo was sent in error and subsequently withdrawn. In support thereof, the petitioner relies on a hearsay email between two of its own attorneys and the fact that the memo does not appear in the case docket on the DR Portal.

No Requirement for an Alternative Address

In parsing through the various allegations by the parties, the NYSC Order notes that the NYS Court of Appeals finds that Due Process is satisfied when legal notice is sent by certified mail and returned as "unclaimed," but ordinary mailings are not returned -- and when faced with such a history of the sending of and the unclaimed returning of notice, the Court of Appeals does not require the sender to obtain an alternative address. NYSC notes that Vandyke was required to maintain and update her address of record for service of process with FINRA, and that said address was reflected on FINRA's records as Vandyke's New York City address. In attempting to pull on the disparate addresses, conduct, explanations, and excuses together, the NYSC Order explains that:

FINRA served the respondent by certified mail, in accordance with its rules, at that address and at an alternate address in Sag Harbor. After the initial notices were returned as "unclaimed," FINRA sent multiple documents and correspondence to one or both addresses that were not returned. In addition to the August 24, 2017, memo; the September 18, 2017, memo; and the Overdue Notice and List of Potential Arbitrators, FINRA sent three mailings to the respondent after she returned to New York. Copies of the petitioner's Supplemental Submission in Further Support of the Statement of Claim were sent to the respondent's New York City address by certified mail and to her Sag Harbor address by regular mail on December 5, 2017. Another copy was sent to her New York City address on December 20, 2017, and an updated copy of the Arbitrator Disclosure Report was sent to her New York City address on January 2, 2018. The record does not reflect that any of those mailings were returned. Moreover, all of the documents and correspondence related to the arbitration were available to the respondent on FINRA's DR Portal. Pursuant to FINRA's rules, the respondent was required to register for the DR Portal. The respondent proffers no excuse for her failure to register for the DR Portal or for her failure to update her address with FINRA while she was in California. 

Against that back-drop of service, NYSC found that Vandyke's explanation about not prioritizing the need to go through her unopened mail as one that "strains credulity." As such, the Court found that Vandyke was not deprived of Due Process. Reduced to its essentials, the NYSC Order finds that Vandyke declined to timely open her mail at her peril; and that peril compelled the granting of the Petition to Confirm the FINRA Arbitration Decision.

NYS Appellate Division Opinion 2020

Vandyke appealed the NYSC's Order granting the Petition to Confirm to the New York State Appellate Division ("NYS App Div"). In the Matter of New Brunswick Theological Seminary v. Van Dyke (Opinion and Order, New York State Supreme Court Appellate Division, 2020 NY Slip Op 03114, 2018-12323, Index. No. 600869/18, June 3, 2020) In analyzing Appellant Vandyke's claim on appeal, the NYS App Div muses that:

[T]he parties have revealed a deep misunderstanding of the interplay between the constitutional rights to due process and freedom of contract, and the somewhat thorny issues that may arise when the parties have agreed to arbitrate their disputes in a nonjudicial setting. Given the parties' confusion and the relatively few writings devoted to this issue, we deem it appropriate to set forth some guidance on this topic in an effort to promote certainty and predictability in this important area of the law.

It's Simply a Private Contract

In its effort to elucidate the confused litigants, the NYS App Div explains that

In this case, the appellant does not dispute that she agreed to arbitrate this dispute pursuant to FINRA's rules, which, as relevant here, set forth a mailing procedure by which service was to be effected (see generally Harris v Wells Fargo Clearing Servs., LLC, 2018 WL 6523384, 2018 US Dist LEXIS 202576 [SD NY, No. 18 Civ 4625 (GBD)]). The arbitrator in this case determined that the appellant was properly served in accordance with FINRA's rules. The appellant does not contend that FINRA's rules precluded the arbitrator from deciding this issue (cf. CPLR 7511[b][1][iii]), or contend that service was effected in violation of those rules (cf. Matter of Republique Francaise [Cellosilk Mfg. Co.], 309 NY at 275-276).

In short, the appellant does not contend that the agreement to arbitrate was breached in any way. Rather, she asks this Court to find that FINRA's notice of arbitration procedure, to which she consented and which was concededly followed, violated her right to due process. The appellant asks this Court, in effect, to refuse enforcement of the contractual notice provision unless it would have, in the absence of the parties' consent to the arbitral forum, formed an adequate and independent basis for a court to exercise personal jurisdiction over her. It is unnecessary to analyze this hypothetical scenario, however, as the arbitrator's power was derived from the appellant's consent, and the appellant's argument misapprehends the basic role of a court in enforcing a contract, regardless of whether it implicates arbitration or not.

In affirming the NYSC Order, the NYS App Div found in part that:

In this case, we have little difficulty in concluding that the appellant is bound by the procedure to which she consented. The appellant agreed to receive notice of any dispute requiring arbitration by certified mail sent to an address that she provided to FINRA. The appellant did not dispute that, pursuant to those rules, she was required to maintain and update her mailing address with FINRA for that specific purpose. Although the initial notice of the arbitration that was sent to that address was returned "unclaimed," the appellant's decision not to claim mail sent to her designated residence, regardless of her reasons, does not render the contractual provision void against public policy. The appellant was on notice of the method by which she would receive notification and, by agreeing to that method, she was bound to take steps to ensure that such notice would be received. The appellant's contention that the contractual notice provision, to which she agreed, was inadequate in light of her travel habits, without more, does not justify their invalidation on public policy grounds. "The fact that with the benefit of hindsight, a party believes that it had agreed to an unfavorable contractual term, does not provide courts with authority to rewrite the terms of a contract or to extricate parties from poor bargains" (159 MP Corp. v Redbridge Bedford, LLC, 160 AD3d 176, 190 [Dillon, J.], affd 33 NY3d 353).

The appellant cites no authority to support her contention that public policy prohibits the enforcement of the specific mailing procedure set forth in the arbitration agreement. To the contrary, it has long been recognized that "[i]t is not contrary to natural justice that [an individual] who has agreed to receive a particular mode of notification of legal proceedings should be bound by a judgment in which that particular mode of notification has been followed, even though he [or she] may not have actual notice of them" (Pennoyer v Neff, 95 US 714, 735 [internal quotation marks omitted]; see Gilbert v Burnstine, 255 NY at 355-356).

Where, as here, the parties to an arbitration agreement set forth in that agreement the procedure that is to be used to provide notice of arbitration, the contractual notice provision, like the other terms of the arbitration agreement, remains "valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the revocation of any contract" (Gilbert v Burnstine, 255 NY at 353; see Matter of Monarch Consulting, Inc. v National Union Fire Ins. Co. of Pittsburgh, PA, 26 NY3d 659, 665; see also 9 USC § 2). Contrary to the appellant's contention, in this case, there is "no constitutional or other legal impediment" to the enforcement of her consent to this arbitration procedure . . .

Bill Singer's Comment

Vandyke was sent certified mail. It was returned unopened. 

Vandyke was sent first class United States Postal Service mail. That was not returned. 

When you couple mailings of both unopened Certified mail with unreturned first class USPS mail, the NYS courts do not require FINRA or the Claimant to find yet another address for service. The courts seem to infer that it's likely that a recipient got some form of notice or, in the alternative, is trying to evade service. So much for the old water cooler.

In addition to FINRA arbitration service requirements, consider the notice process for matters on FINRA's regulatory docket; for example, as set forth in part in FINRA Rule 8210: Provision of Information and Testimony and Inspection and Copying of Books [Ed: highlighting added]::

(d) Notice

. . .

If the Adjudicator or FINRA staff responsible for mailing or otherwise transmitting the notice to the member or person has actual knowledge that the address in the Central Registration Depository is out of date or inaccurate, then a copy of the notice shall be mailed or otherwise transmitted to:

(1) the last known business address of the member or the last known residential address of the person as reflected in the Central Registration Depository; and

(2) any other more current address of the member or the person known to the Adjudicator or FINRA staff who is responsible for mailing or otherwise transmitting the notice.

If the Adjudicator or FINRA staff responsible for mailing or otherwise transmitting the notice to the member or person knows that the member or person is represented by counsel regarding the investigation, complaint, examination, or proceeding that is the subject of the notice, then the notice shall be served upon counsel by mailing or otherwise transmitting the notice to the counsel in lieu of the member or person, and any notice served upon counsel shall be deemed received by the member or person.

The oddity of the Rule 8210 provision is that upon actual knowledge of an inaccurate/out-of-date CRD address, notice may be sent to the last known business or residential address on CRD (which seems a bit circular in logic). In fairness to FINRA, Rule 8210 does make it clear that if the inaccurate/outdated CRD address is known to be so to Staff or an Adjudicator, that notice shall be sent to "any other more current address." Additionally, note that pursuant to FINRA Code of Procedure Rule 9134(b) Procedures (1) Service on Natural Persons, there is a provision to serve on a "last known residential address" and business address if there is actual knowledge of an out of date CRD address [Ed: highlighting added]:

Papers served on a natural person may be served at the natural person's residential address, as reflected in the Central Registration Depository, if applicable. When a Party or other person responsible for serving such person has actual knowledge that the natural person's Central Registration Depository address is out of date, duplicate copies shall be served on the natural person at the natural person's last known residential address and the business address in the Central Registration Depository of the entity with which the natural person is employed or affiliated. Papers may also be served at the business address of the entity with which the natural person is employed or affiliated, as reflected in the Central Registration Depository, or at a business address, such as a branch office, at which the natural person is employed, or at which the natural person is physically present during a normal business day. The Hearing Officer may waive the requirement of serving documents (other than complaints) at the addresses listed in the Central Registration Depository if there is evidence that these addresses are no longer valid, and there is a more current address available. If a natural person is represented by counsel or a representative, papers served on the natural person, excluding a complaint or a document initiating a proceeding, shall be served on the counsel or representative.

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