Only One Litigant Shows Up For the FINRA Schoolyard Fight

July 27, 2020

Among the mysteries of litigation is when a Plaintiff or Claimant initiates a lawsuit but then seems to disappear or run out of gas. As kids often say as the after-school fistfight begins: "You started it." If you're going to start something, you sort of need to show up for the inevitable settlin' of scores -- be that fistfight, court, or an arbitration hearing room. There are times, however, when one of the combatants can't make it to high noon at the playground. You're grabbed by a teacher for detention. Your mother won't let you go. Your algebra tutoring is at the same time as the fight. You're six inches shorter than the kid who's waitin' for ya. You need to rush home so that the dog can eat your homework. There's an afternoon Mets game on television and you want to get home to watch the Mets' reliever surrender the winning run with two outs and two strikes in the ninth.

2017: Claimant Piston's FINRA Arbitration Statement of Claim

In the Matter of the Arbitration Between Zane Piston, Claimant, v. Transamerica Capital, Inc., Respondent (FINRA Arbitration Award 17-01968 / June 15, 2018)
In a FINRA Arbitration Statement of Claim filed in July 2017 and as amended, associated person Piston alleged that following his termination from FINRA member firm Respondent Transamerica Capital, Inc., that his former employer made a false, misleading, erroneous and/or untrue, libelous statement on his Form U5Further, Claimant Piston alleged that the cited statement rendered him unable to secure comparable employment and forced him to incur significant financial losses, loss of reputation, embarrassment, and emotional distress. Accordingly, Claimant sought the expungement of the cited statement from his Form U5 and from the Central Registration Depository ("CRD"); and he also sought compensation for his alleged losses plus costs and fees. Respondent Transamerica generally denied the allegations and asserted various affirmative defenses. 

2018: Respondent Transamerica's Motion to Compel 

On April 2, 2018 Respondent filed a Motion to Compel. As explained in the FINRA Arbitration Award:

[O]n April 18, 2018, Respondent advised FINRA ODR that since there was no opposition submitted to the motion to compel, the Chairperson could issue a decision on the papers, as opposed to holding a pre-hearing conference. In response to Respondent's April 18 filing, Claimant advised FINRA ODR that he planned on filing a response to the motion to compel within the next business day and requested that the Panel withhold a decision on the motion until he has filed a response nunc pro tunc. That same day, Respondent submitted a response objecting to the late filing of any opposition to Respondent's motion to compel. FINRA ODR did not receive any further filings from the parties

On May 2, 2018, the Arbitration Chair ruled that the Motion to Compel was granted and Claimant Piston had until May 9, 2018 to serve responsive answers. On May 10, 2018, Respondent Transamerica filed a Motion for Sanctions citing Claimant's alleged failure to comply with the Chair's May 2nd Order. Further, Respondent moved to preclude Claimant from presenting evidence at the hearing, and also sought attorneys' fee incurred per the motion practice. Claimant did not file any response.Respondent largely renewed its motion on May 16, 2018, with the addition of seeking to preclude testimony and seeking the dismissal of the claims. Again, Claimant did not respond.

On May 26, 2018, the FINRA Arbitration Panel removed the June 4 - 8 scheduled hearings from the calendar and substituted a June 4, 2018, pre-hearing telephonic conference. On May 31, 2018, Claimant submitted a response to the pending issues and sought a continuation of the June 4th pre-hearing conference, which the Panel denied. During the June 4th conference, both Claimant and Respondent presented oral argument.

2018: FINRA Panel Dismisses Claimant's Claims

The FINRA Arbitration Panel dismissed with prejudice Claimant Piston's claims. Under the heading of "Findings," the arbitrator stated:

After due deliberation, the Panel has determined that Claimant has failed to: 

1. demonstrate good cause for failing to comply with discovery orders; 
2. timely respond to efforts to set a pre-hearing conference on discovery matters; and 
3. adhere to the agreed upon and ordered deadlines for pre-hearing exchanges of witness lists and hearing exhibits. 

The conduct of Claimant's counsel caused a last-minute delay of a scheduled five-day evidentiary hearing, and caused Respondent to incur costs and fees in preparing for the hearing. This conduct also resulted in substantial prejudice to Respondent as it was prepared to conduct the hearing on the scheduled date. 

The testimony of Claimant's counsel failed to demonstrate that there was any justification for his conduct or that it constituted excusable neglect on his part. Claimant's counsel's conduct has also necessitated additional review and deliberation of the Panel which has resulted in additional costs. 

Pursuant to the Code Rule 13212, the Panel finds that this case merits dismissal of Claimant's claims with prejudice as a sanction due to the material and intentional failure to comply with prior orders of the Panel despite its of the need to comply with FINRA rules and deadlines.

SIDE BAR: FINRA Code of Arbitration Procedure for Industry Disputes. 

Rule 13212: Sanctions

(a) The panel may sanction a party for failure to comply with any provision in the Code, or any order of the panel or single arbitrator authorized to act on behalf of the panel. Unless prohibited by applicable law, sanctions may include, but are not limited to:
•  Assessing monetary penalties payable to one or more parties;
•  Precluding a party from presenting evidence;
•  Making an adverse inference against a party;
•  Assessing postponement and/or forum fees; and
•  Assessing attorneys' fees, costs and expenses.

(b) The panel may initiate a disciplinary referral at the conclusion of an arbitration.

(c) The panel may dismiss a claim, defense or arbitration with prejudice as a sanction for material and intentional failure to comply with an order of the panel if prior warnings or sanctions have proven ineffective.

2020: 10th Circuit Order and Judgment

Piston filed a Motion to Vacate the FINRA Award in the United States District Court for the District of Colorado, which denied his motion. Thereafter, he filed an appeal with the United States Court of Appeals for the Tenth Circuit ("10Cir."). Zane Piston, Movant/Appellant, v. Transamerica Capital, Inc., Respondent/Appellee (Order and Judgment, 10Cir, 19-1123 / July 21, 2020) On appeal, Piston argued that 

the arbitration panel exceeded its powers, manifestly disregarded the law, committed misconduct, and denied him a fundamentally fair hearing. He also contends that the district court did not adequately address his arguments. 

at Page 4 of the 10Cir Order

On the Papers

In what was a harbinger of unpleasant things to come, the 10Cir noted that "After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist in the determination of this appeal . . . " at Page 1 of the 10Cir Order. 

FINRA Rule 13212(c)

In framing the case before it, the 10Cir notes in part that:

Many of Mr. Piston's arguments hinge on FINRA Rule 13212(c), which allows an arbitration panel to dismiss a claim "with prejudice as a sanction for material and intentional failure to comply with an order of the panel if prior warnings or sanctions have proven ineffective." Mr. Piston asserts that he received neither a warning nor a sanction before the panel dismissed his claim. By dismissing his claim without prior warning or sanction, he continues, the panel exceeded its powers, manifestly disregarded the law, committed misconduct, and denied him a fundamentally fair hearing. 

at Page 6 of the 10Cir Order

An interesting aspect of this appeal is whether the FINRA Arbitration Panel improperly dismissed Piston's claims without prior warning or sanction. That's an interesting question. Is a party entitled to a prior warning before a panel of arbitrators takes a given action? Is the natural order of things first a warning, second a sanction, and third a dismissal -- or can arbitrators simply find that a party's conduct is so non-compliant that they can skip steps one and two and go directly to three? Can a Panel pursue a policy of fire, aim, ready? Is that what happened in Piston? Keep in mind that FINRA Rule 13212(c) provides that a panel may dismiss a claim with prejudice as a sanction for material and intentional failure to comply with an order of the panel if prior warnings or sanctions have proven ineffective." So, gee, the Rule sort of says that the predicate to a dismissal for noncompliance with an Order is "prior warnings or sanctions." It's tough to get around that word "prior." Maybe the arbitrators thought that they had given Piston prior warnings. It's not all that clear in the FINRA Arbitration Award whether there were or were not any prior warning. Be that as it may, as far as the 10Cir is concerned:

[P]erhaps reasonable people could disagree about whether sufficient warning occurred under Rule 13212(c) through the panel's scheduling order, the panel's order compelling discovery, TCI's sanctions motions, the panel's order requiring Mr. Piston to show good cause to avoid dismissal, or some combination of those things. But whether the panel correctly interpreted Rule 13212(c) is beyond the scope of our review. So long as the panel arguably applied the Rule-and it did-we may not disturb its award. See Oxford, 569 U.S. at 569.

at Page 7 of the 10Cir Order

Manifest Disregard

As to Piston's arguments that the FINRA arbitrators engaged in misconduct that denied him a fundamentally fair hearing, the 10Cir was not persuaded. In part the Court found that:

We must also reject Mr. Piston's claim that the panel manifestly disregarded the law when it found that he had not shown good cause to support denial of TCI's requested sanction. Mr. Piston's assertion that the panel misapplied the good-cause standard, even if true, cannot result in our reversal because he must do more than "show that the panel committed an error -- or even a serious error." Stolt-Nielsen, 559 U.S. at 671. And the record refutes Mr. Piston's argument that the panel recognized that he established good cause and then required him to meet a more demanding excusable-neglect standard. In the award, the panel expressly found that that Mr. Piston failed to "demonstrate good cause for failing to comply with discovery orders." Aplt. App. at 24. Nothing about that finding conflicts with the panel's additional findings that Mr. Piston's counsel failed to show "any justification for his conduct or that it constituted excusable neglect." Id

at Page 9 of the 10Cir Order

Dental Surgery, European Travel, and Wife's Hospitalization

As I often note, in order to understand most litigation we need to understand the "content" of the underlying fact pattern and the "context" in which various conduct occurred. In part, the 10Cir Order offers this context:

[I]n the statement of good cause, Mr. Piston's counsel explained that he underwent dental surgery on May 10, that he travelled to Europe from May 17 through May 24 to visit his son who was studying abroad, and that his wife had been hospitalized for several days after experiencing a "serious medical incident on or about May 19" which required his presence at her bedside when he returned from Europe. Aplt. App. at 140.

at Page 3 of the 10Cir Order

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Only One Litigant Shows Up For the FINRA Schoolyard Fight ( Blog)