In September 2017, Constantine Gus Cristo sued Charles Schwab & Co., Inc., a FINRA member firm, and certain of its affiliates (collectively, "Schwab") in federal district court. Cristo alleged that Schwab violated federal law by releasing financial records to the Internal Revenue Service ("IRS") beyond those requested in an administrative summons. The court granted Schwab's motion to compel Cristo to arbitrate his claims before FINRA.Cristo requested that FINRA declare his claims ineligible for arbitration. But FINRA explained that its rules reserved that determination for an arbitration panel to make based on a developed record. Cristo also submitted a complaint about Schwab to FINRA's Investor Complaint Center. The complaint restated the allegations made in Cristo's federal lawsuit. FINRA investigated Cristo's complaint and closed the matter.Cristo then filed an application for review of FINRA's actions under Section 19(d) of the Securities Exchange Act of 1934. Because Cristo does not challenge any action that we have jurisdiction to review under Section 19(d), we dismiss his appeal for lack of jurisdiction.
at Pages 2 - 3 of the June 2021 SDCA Orderagainst the U.S. Securities and Exchange Commission ("SEC"), Financial Industry Regulatory Authority ("FINRA"), Jay Clayton, in his official capacity as Chairman of the SEC, William Barr, in his official capacity as the United States Attorney General, and Robert W. Cook, in his official capacity as President and Chief Executive Officer of FINRA. (Case No. 18cv1910-GPC(MDD), Dkt. No. 1.) In the complaint, Plaintiff alleged improper FINRA investigation of his Investor Complaint, improper SEC review of FINRA's investigation as well as inconsistent statements/advisements by FINRA and the SEC concerning his attempts to obtain a ruling of ineligibility for arbitration and seeking to return the arbitrable issues back to this Court. (Id.) On May 26, 2020, and June 17, 2020, the Court granted all Defendants' motion to dismiss for lack of subject matter jurisdiction. (Id., Dkt. Nos. 29, 35.) In the May 26, 2020 order, the Court noted that Plaintiff was attempting to undermine the Court's prior order compelling arbitration and explained that "[o]nce the arbitration panel issues its decision, Plaintiff may seek to vacate or confirm the arbitration award." (Id., Dkt. No. 29 at 19.3 )
[F]irst, he argues that he did not agree to participate in any virtual Zoom hearing and due to his lack of experience and unfamiliarity in using the Zoom platform, he will be at an extreme disadvantage against an attorney who has experience in the Zoom medium. (Id. at 9.) Second, he seeks to enjoin FINRA's evidentiary hearing because of numerous rulings that favor Schwab Defendants demonstrating collusion and bias against him. (See id. at 16-79.) In the conclusion, he also asks, "[i]f permitted, Plaintiff moves [the] Court to reverse the FINRA Panel's denial of Plaintiff's Motion to Dismiss, and remand this case back to this Court." (Id. at 81.) Schwab Defendants oppose arguing that, under Ninth Circuit precedent, courts should not intervene in pending arbitration.
Here, Plaintiff seeks an extraordinary relief of a temporary restraining order enjoining a pending arbitration. However, Plaintiff does not present evidence, arguments or legal authority demonstrating an extreme case that warrants the Court's intervention in a pending arbitration. At most, Plaintiff disagrees with a number of procedural decisions concerning the arbitration which is not subject to judicial scrutiny during the arbitration. See Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634, 643 (9th Cir. 2010) ("In the absence of an express agreement to the contrary, procedural questions are submitted to the arbitrator, either explicitly or implicitly, along with the merits of the dispute.")For example, Plaintiff argues that he never agreed to a Zoom hearing and it would be prejudicial since he is not familiar with the platform. Yet, the transcript of the prehearing conference recording of March 26, 2021 shows Plaintiff was aware and agreed to the evidentiary hearing on June 28-30, 2021, presumably by Zoom. (Dkt. No. 42-4, Garrett Decl., Ex. H.) Plaintiff had sought a postponement of the evidentiary hearing with the Director of FINRA Dispute Resolution but his request for postponement was denied on June 22, 2021 with the right to re-raise the issue with the arbitration panel for final decision. (Id., Ex. J.) Further, Plaintiff agreed to be bound by FINRA's rules and procedures relating to the arbitration. (Dkt. No. 42-2, Garrett Decl., Ex. A.) FINRA Rule 12213(a) gives FINRA the authority to determine the hearing location. See Legaspy v. Fin. Indus. Regulatory Auth., Inc., Case No. 20 C 4700, 2020 WL 4696818, at *2 (N.D. Ill. Aug. 13, 2020) (denying TRO to enjoin a scheduled remote Zoom hearing).In addition, Plaintiff disagrees with a number of procedural rulings concerning scheduling, discovery and eligibility without demonstrating a legal or factual basis of an "extreme case" for the Court to intervene in a pending arbitration. (See Dkt. No. 40 at 16-63.) Further, Plaintiff's general claim without specific facts of bias by the arbitrator or collusion between the arbitrator and Schwab Defendants, (see id. at 63-77), are also insufficient reasons for the Court to intervene. See In re Sussex, 781 F.3d at 1073. Accordingly, the Court DENIES Plaintiff's motion for temporary restraining order and preliminary injunction. Moreover, even if the Court were to consider the TRO, Plaintiff has failed to satisfy the elements to support it.
FINDINGSDuring the evidentiary hearing on June 28, 2021, the Panel noted that Claimant refused at all times to accept the Panel's composition, but could provide no evidence of conflict of interest for any of the panelists.AWARDAfter considering the pleadings, the testimony and evidence presented at the hearing, the Panel has decided in full and final resolution of the issues submitted for determination as follows:1. Claimant's claims are denied in their entirety.2. Any and all claims for relief not specifically addressed herein, including any requests for punitive damages, are denied.
(1) where the award was procured by corruption, fraud, or undue means;(2) where there was evident partiality or corruption in the arbitrators, or either of them;(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.9 U.S.C. §§ 10(a)(1)-(4).
[D]efendants' disclosure of Plaintiff's financial records to the IRS in response to an IRS summons that occurred in 2006. (See Dkt. No. 8, FAC.) Plaintiff did not learn of the alleged improper disclosures until 2016. (Id.)
Because the event giving rise to Plaintiff's claims occurred more than six years ago, Plaintiff insists his claims are ineligible for arbitration under Rule 12206(a). When Plaintiff learned about Defendants' disclosure of his financial records to the IRS, he reached out to FINRA, and on October 20, 2016, a FINRA Principal Investigator informed Plaintiff that his claims against Schwab based on the IRS summons issued in 2006 were ineligible for FINRA arbitration pursuant to Rule 12206(a) and directed him to a court of competent jurisdiction. (Dkt. No. 57-3, App'x A3 , at pp. A-1 to A-2.) Therefore, Plaintiff filed the complaint in this case. (Dkt. No. 1, Compl.) Defendants then moved to compel arbitration which the Court granted and the matter was returned to FINRA. (Dkt. No. 57-3, App'x A at pp. A-2 to A-3.)
Based on this history, Plaintiff claims that FINRA entrapped him because even though the panel ruled that his claims were eligible for arbitration, the FINRA investigator initially determined that his claims were not eligible and directed him to file his claims in a court of competent jurisdiction. (Dkt. No. 57-3, App'x A at pp. A-2 to A3.) He also alleges Defendants were complicit because even though they knew his claims were ineligible, they still moved to compel arbitration without informing the Court of the eligibility issue. (Id.) Additionally, Plaintiff argues that the panel failed to comply with the Court's order compelling arbitration by failing to first, as a threshold issue, determine whether the claims are eligible under Rule 12206(a). (Dkt. No. 57-1 at 25; Dkt. No. 57-3, App'x A at pp. A64 to A67.) Instead, the panel waited two years and merely adopted Defendants' argument that the claims were eligible under Rule 12206(c), not Rule 12206(a); therefore, he maintains that the panel has not yet ruled on eligibility under Rule 12206(a). (Dkt. No. 57-3, App'x A at pp. A-65 to A-66.)
[P]laintiff has not demonstrated that the arbitration award was procured by fraud, undue means or corruption as contemplated by
governed law and merely challenges the procedural and substantive rulings of the arbitration panel. Specifically, all issues were known to Plaintiff and raised during the arbitration, and he is simply re-litigating issues raised before the arbitrators. Under the FAA, the Court is barred from conducting a plenary review of the arbitrators' decision. . . .
[L]astly, because the panel determined that Plaintiff's claims were eligible for arbitration, it could not grant Plaintiff's motion to dismiss based on eligibility, even if it was unopposed.Plaintiff's argument relies on the idea that a FINRA representative's advice to him binds FINRA and Defendants as to preclude them from seeking arbitration or avoiding the six-year time limit provided in FINRA Rule 12206. Plaintiff does not offer any case to support this proposition and the Court has not found any authority in support of this argument. As such, Defendants were entitled to raise FINRA Rule 12206(c) before the arbitration panel and the arbitrator's decision to rely upon it does not evidence corruption, fraud, or undue means.The Court recognizes Plaintiff's dissatisfaction with the panel's eligibility rulings; however, the Court may not second-guess the panel's interpretation of FINRA Rule 12206(a), even if erroneous.. . .
[1)] in 2019, FINRA "staff" treated Plaintiff more harshly than Defendants due to deficiencies in their respective pleadings, (Dkt. No. 57-1 at 23-24; Dkt. No. 57-3, App'x A at pp. A-50 to A52); 2) on November 19, 2020, FINRA "staff" showed favoritism towards Defendants by informing them that Plaintiff had filed a separate federal court lawsuit attempting to enjoin the pending arbitration, (Dkt. No. 57-1 at 24; Dkt. No. 57-3, App'x A at pp. A-53 to A-55); 3) FINRA's procedure in appointing the original panel, its failure to respond to
his objection to each of the arbitrators proposed by FINRA because they cannot rule on constitutional issues and the panel's selection solely from Defendants' ranking list show evident partiality in favor of Defendants, . . .
Here, Plaintiff appears to raise an actual bias claim. As noted by Defendants, the first three allegations do not concern any actual bias by an arbitrator but conduct by FINRA administrative staff; therefore, they cannot support a vacatur under section 10(a)(b) which requires bias in the arbitrators that affects the award. The last issue again raises eligibility of his claims which the Court has already concluded is not subject to vacatur. Moreover, Plaintiff has failed to provide specific facts demonstrating any improper motive by any of the arbitrators on the panel. Accordingly, Plaintiff provides no basis for vacating the award under § 10(a)(2).
Next, Plaintiff argues that the panel assessed 100% of the pre-hearing conference costs to him because he refused to accept the panel. (Dkt. No. 57-3, App'x A at pp. A-86 to A-87.) Defendants argue that the panel has discretion to assess fees and does not have to provide reasons. (Dkt. No. 58 at 23.)Without providing reasons, the panel assessed all pre-hearing conference costs against Plaintiff. (Dkt. No. 51-4, Garrett Decl., Ex. I at 343.) The panel does not have to provide reasons for its decisions and courts must presume it addressed it properly. See A.G. Edwards, 967 F.2d at 1403. Plaintiff appears to disagree with the fairness of the panel's decision to impose pre-hearing conference fees solely on him, yet Plaintiff does not explain why the panel's assessment of fees constitutes misbehavior. See 9 U.S.C. § 10(a)(3). Therefore, Plaintiff has not demonstrated reasons sufficient to vacate the assessment of pre-hearing conference fees imposed on him.
On the sixth claim, Plaintiff argues that Chair Rosen7 admitted he was not a constitutional lawyer, yet ruled it was authorized to rule that the claim was eligible for FINRA arbitration. (Dkt. No. 57-1 at 29; Dkt. No. 57-3, App'x A at A-129 to A-131.) He claims that the "panel ruled on a question of constitutionality during the prehearing conference, while openly admitting it is not qualified to rule on constitutional issues." (Dkt. No. 57-3, App'x A at A-129.) It is not clear what Plaintiff is alleging and how a ruling on eligibility involves a question of constitutional law. Therefore, the Court concludes Plaintiff's sixth issue is without merit.= = =Footnote 7: In his reply, Plaintiff, for the first time, argues that Chair Rosen's diminished intellectual capacity either due to "dementia, gross negligence of crippling incompetence" caused him to be incompetent to arbitrate the dispute. (Dkt. No. 59 at 6, 7.) The Court declines to consider Plaintiff's new argument raised for the first time in reply. See Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007) (citing Koerner v. Grigas, 328 F.3d 1039, 1048 (9th Cir. 2003)).
Is Cristo done -- will there be further appeals? Will there be a lawsuit against FINRA citing its investigator's advice? Who knows. Of course, should FINRA find itself in court as a named Defendant contra to Cristo, I'm wondering whether there could be fertile ground, somewhere, for raising the Doctrine of Invited Error or the Doctrine of Judicial Estoppel.Awards are rendered by independent arbitrators who are chosen by the parties to issue final, binding decisions. FINRA makes available an arbitration forum-pursuant to rules approved by the SEC-but has no part in deciding the award.