FINRA Customer Claimant Says Arbitrators Left Out Zeros In Award

February 8, 2022

The nice thing about saying nothing is that it makes it difficult to put words in your mouth. All of which may be a commendable way to keep the peace. When it comes to judge's ruling on matters of fact and law, biting one's tongue fails to develop a useful record on appeal. A decision is supposed to resolve the dispute, not leave the allegations suspended in the air and open to further interpretation. A recent FINRA customer arbitration shows what happens when arbitrators take "summary" too literally.

2021: FINRA Arbitration Award

In a FINRA Arbitration Statement of Claim filed in September 2020, public customer Claimant Rifkind "asserted that he opened an IRA account after being told the interest earned would be about 4.5% but eventually learned that interest only accrued for a short time thereafter, although he continued to pay an annual fee." Claimant Rifkind sought $37,892.61 in compensatory damages and $12,500 in punitive damages; however, at the hearing, Claimant sought $100,000 in total damages. Respondent Wells Fargo generally denied the allegations and asserted affirmative defenses. Nicholai Rifkind, Claimant, v. Wells Fargo Securities, Respondent (FINRA Arbitration Award 20-00934 / March 24, 2021)

The sole FINRA  Public Arbitrator hearing the dispute, Thomas J. Dolina, ruled in pertinent part as follows:

After considering the pleadings, the testimony and evidence presented at the hearing, and any post-hearing submissions, the Arbitrator has decided in full and final resolution of the issues submitted for determination as follows: 

1. Respondent is liable for and shall pay to Claimant the sum of $75.00 in compensatory damages. 

2. Any and all claims for relief not specifically addressed herein, including any requests for punitive damages, treble damages, and attorneys' fees, are denied. 

FINRA Rule 12904

Just for the hell of it, let's reprint in full FINRA Code of Arbitration Procedure for Customer Disputes Rule 12904: Awards [Ed: highlights added]:

(a) All awards shall be in writing and signed by a majority of the arbitrators or as required by applicable law. Such awards may be entered as a judgment in any court of competent jurisdiction.
(b) Unless the applicable law directs otherwise, all awards rendered under the Code are final and are not subject to review or appeal.
(c) The Director will serve the award on each party, or the representative of the party.
(d) The panel shall endeavor to render an award within 30 business days from the date the record is closed.
(e) The award shall contain the following:
(1) The names of the parties;
(2) The name of the parties' representatives, if any;
(3) An acknowledgement by the arbitrators that they have each read the pleadings and other materials filed by the parties;
(4) A summary of the issues, including the type(s) of any security or product, in controversy;
(5) The damages and other relief requested;
(6) The damages and other relief awarded;
(7) A statement of any other issues resolved;
(8) The allocation of forum fees and any other fees allocable by the panel;
(9) The names of the arbitrators;
(10) The dates the claim was filed and the award rendered;
(11) The number and dates of hearing sessions;
(12) The location of the hearings; and
(13) The signatures of the arbitrators.
(f) The award may contain a rationale underlying the award.
(g) Explained Decisions
(1) This paragraph (g) applies only when all parties jointly request an explained decision.
(2) An explained decision is a fact-based award stating the general reason(s) for the arbitrators' decision. Inclusion of legal authorities and damage calculations is not required.
(3) Parties must make any request for an explained decision no later than the time for the prehearing exchange of documents and witness lists under Rule 12514(d).
(4) The chairperson of the panel will be responsible for writing the explained decision.
(5) The chairperson will receive an additional honorarium of $400 for writing the explained decision, as required by this paragraph (g).
(6) This paragraph (g) will not apply to simplified cases decided without a hearing under Rule 12800 or to default cases conducted under Rule 12801.
(h) All awards shall be made publicly available.
(i) Fees and assessments imposed by the arbitrators under the Code shall be paid immediately upon the receipt of the award by the parties. Payment of such fees shall not be deemed ratification of the award by the parties.
(j) All monetary awards shall be paid within 30 days of receipt unless a motion to vacate has been filed with a court of competent jurisdiction. Absent specification to the contrary in the award, when arbitrators order opposing parties to make payments to one another, the monetary awards shall offset, and the party assessed the larger amount shall pay the net difference. An award shall bear interest from the date of the award:
(1) If not paid within 30 days of receipt;
(2) If the award is the subject of a motion to vacate which is denied; or
(3) As specified by the panel in the award.
Interest shall be assessed at the legal rate, if any, then prevailing in the state where the award was rendered, or at a rate set by the arbitrator(s).

May Contain a Rationale

Just going by the three highlighted sections above in FINRA Rule 12904, a customer-dispute FINRA Arbitration Award should contain a "summary of the issues, including the type(s) of any security or product, in controversy. . ." The Award will be made publicly available and, go figure, but when it comes to stating a rational for the disposition of the case, in its infinite wisdom and in a half-assed nod to investor protection, FINRA decided that the best option is that an Award "may contain a rationale underlying the award." Not shall contain. Not must contain. Not should contain. But, y'know, "may" contain. Of course, FINRA cynically offers the so-called "Explained Decision" option but that requires "all parties jointly request an explained decision," which may explain the paucity of such explained decisions because if one of the parties won't join in with the request then the Rule says it ain't gonna happen. On top of that, FINRA imposes a $400 honorarium for the privilege of having the Chair of the Arbitration Panel write the Explained Decision.

When a Summary Ain't So Much Even That

In the Rifkind FINRA Arbitration Award, I don't think we even got a "summary of the issues" as required by Rule 12904, and I sure as hell think the sole Arbitrator emphasized the "may" aspect of providing a "rationale," and opted to say nothing. Why is FINRA's say-nothing default policy harmful in advancing the goals of public protection? For starters, you'd sort of think that the industry's largest self-regulatory-organization, FINRA, might feel an obligation to ensure that its Arbitration Awards disclose enough information about public customer disputes against one of its largest member firms, Wells Fargo, so as to alert the public about any developing trends -- and, you know, while we're at it, howsabout alerting FINRA to emerging problems? On top of that, the way Wall Street works, its customers are forced into mandatory arbitration against FINRA member firms and effectively denied redress for most disputes in court. Strike out the mandatory arbitration provision in any New Account Form and see if any FINRA member firm will open a new account for you; and, for good measure, complain to FINRA about this contract of adhesion and see how the regulator responds. It's one thing when an industry's culture of collaboration forces contracts of adhesion upon the public; however, it's quite another when the industry has been granted to luxury of self regulation but the self-regulatory-organization looks the other way.

Having effectively swept all the facts in dispute under the rug provided by FINRA Rule 12904, Wall Street brokerage firms often beat a hasty retreat to the very courts whose steps have been barred to the industry's customers pursuant to mandatory arbitration. At times, the brokerage firms are in court seeking a temporary restraining order or a remand to arbitration; however, other times, the whole hasty retreat to the court thing  appears a cynical effort to ramp up costs and extend delays. Ahhh, the gamesmanship of litigation! Ironically, when mandatory arbitration disputes wind up in court -- be that via appeal or motion practice -- a lot of details that are suppressed under the rubric of "summary of the issues" and the pay-for-play "explained decision" come out in the wash before the court. 

2022: DMD Opinion

On or about May 28, 2021, Rifkind filed suit for review of the Award in the Circuit Court for Baltimore County, Maryland. In response. Wells Fargo removed the case from state to federal court citing federal question and diversity jurisdiction. Nicholai Rifkind, Plaintiff, v. Wells Fargo Clearing Services, LLC d/b/a Wells Fargo Advisors, Respondent (Opinion, United States District Court for the District of Maryland ("DMD") 21-CV-01838 / January 31, 2022) (the "2022 DMD Opinion")  As DMD picks up the procedural thread:

On August 6, 2021, Rifkind filed a Motion to Remand the case back to state court arguing that this Court does not have diversity jurisdiction. (ECF No. 5). On August 9, 2021, Wells Fargo filed its Corporate Disclosure Statement. (ECF No. 10). On August 13, 2021, Rifkind filed a "Notification and Disclosure" regarding Wells Fargo's corporate citizenship as an apparent supplement to his Motion to Remand. (ECF No. 12). Wells Fargo filed an Opposition to the Motion to Remand on August 20, 2021, (ECF No. 13), and Rifkind filed a Reply on September 2, 2021, (ECF No. 16).

at Page 5 of the 2022 DMD Opinion 

The Underlying Dispute and Settlement Offers

In contrast to the tabula rasa of background facts in the Rifkind FINRA Arbitration Award, consider the wealth of background that makes its way onto DMD's canvass [Ed: footnotes omitted]:

A. Rifkind's IRA with Wells Fargo

Self-represented Plaintiff Nicholai Rifkind opened an IRA account with Defendant Wells Fargo Clearing Services, LLC d/b/a Wells Fargo Advisors ("Wells Fargo") in 2007, funding the account with about $49,000. (Statement Claim ["Claim"] at 1, ECF No. 8-1). He alleges that an employee of Wells Fargo told him that the rate of return would "be about 4.5%," but certainly over 4.25%. (Id.). Rifkind contends that he began receiving statements from Wells Fargo five to six years ago and discovered "that there was no interest applied." (Id.). He called Wells Fargo "many times" to resolve his concerns regarding his account. (Id.). Eventually, someone at Wells Fargo "explained that interest was paid at the beginning and very soon after stopped being paid." (Id.). Wells Fargo credited Rifkind's account with $400 and a small amount of interest. (Id.). Later, a representative named Katrina Hubbard offered Rifkind "a settlement of [an] additional $440" if he accepted within thirty days. (Id.). Rifkind did not reply. (Id.). 

B. Arbitration 

Rifkind initiated arbitration proceedings before the Financial Industry Regulatory Authority ("FINRA") on March 20, 2020. (See Sept. 1, 2020 FINRA Notice at 1, ECF No.8-1). On September 1, 2020, FINRA sent Wells Fargo a copy of Rifkind's Statement of Claim. (Id.). In it, Rifkind alleges that if Wells Fargo had properly managed his account, his $49,000 principal sum would have grown to $86,837.61, assuming a rate of return of 4.5%. (Claim at 1). Rifkind requests compensatory damages in the amount of $37,892.61, the claimed loss of interest, plus punitive damages of $12,500. (Id.). Wells Fargo filed its Answer on October 21, 2020. (See Award at 1, ECF No. 8-3).6 The parties signed a Submission Agreement wherein they agreed to arbitrate under the FINRA By-Laws, Rules, and Code of Arbitration Procedure. (See Submission Agreement at 1, ECF No. 8-1; Award at 1).

A merits hearing was held on March 19, 2021 before FINRA's Sole Public Arbitrator, Thomas J. Dolina ("Arbitrator Dolina"). During the hearing, Rifkind increased his demand to $100,000 "in total damages." (See Award at 2-4). Wells Fargo responded that Rifkind's claim was untimely and that he was responsible for the languishing account because he had not submitted the proper authorization forms "to permit Wells Fargo to invest the funds." (Def.'s Opp'n Rifkind's Mot. Vacate, Correct, Modify FINRA Arbitration Award ["Opp'n Mot. Modify"] at 1, ECF No. 8). 

On March 24, 2021, Arbitrator Dolina issued an Award finding as follows: 

1. [Wells Fargo] is liable for and shall pay to [Rifkind] the sum of $75.00 in compensatory damages.

2. Any and all claims for relief not specifically addressed herein, including any requests for punitive damages, treble damages, and attorneys' fees, are denied. 

(Award at 2). Although FINRA procedure allows for the parties to jointly request an "explained decision," which would have included Arbitrator Dolina's factual determinations and "the general reasons" behind the decision, there is no indication that the parties made such a request. (See Sept. 1, 2020 FINRA Notice at 7).

at Pages 2 - 4 of the 2022 DMD Opinion

Arbitrator Bias?

If nothing else, the investing public owes Rifkind a debt of gratitude for throwing open the manner in which Wells Fargo responded to his complaints about the management of his investments and account. Unfortunately, Rifkind's good deeds go unrewarded as DMD found that it clearly had diversity jurisdiction as a basis to hear the dispute involving him and Wells Fargo. The Court focuses the brunt of its substantive deliberations on Rifkind's argument that:

[A]rbitrator Dolina "was partial (biased?)" by "accepting [Wells Fargo's] misleading answers" and allowing counsel for Wells Fargo "to misquote laws and regulations." (Mot. Modify at 3, ECF No. 1-5). Wells Fargo responds that Rifkind does not identify or substantiate specific facts that demonstrate partiality. Wells Fargo is correct. 

at Page 13 of the 2022 DMD Opinion

[R]ifkind asserts that Arbitrator Dolina was biased in favor of Wells Fargo because he did "not question[]" Wells Fargo's allegedly incorrect, "inappropriate references to regulations." (Mot. Modify at 3-4). Rifkind argues that this demonstrates partiality because when he attempted to reference the Code of Federal Regulations, Arbitrator Dolina asked him "where [he] found it." (Id. at 4). Further, Rifkind argues that Arbitrator Dolina acted like he did not recognize Wells Fargo's mistakes in its recitation of legal standards during the arbitration. . .

In rejecting Rifkind's allegations against Arbitrator Dolina, DMD found that:

Rifkind's allegations are speculative and he offers no evidence linking Arbitrator Dolina financially, personally, or otherwise to Wells Fargo. Accordingly, the Court will not vacate the award under § 10(a)(2).

at Pages 13 - 14 of the 2022 DMD Opinion

A Matter of Missing Zeros?

Finally, Rifkind raised an intriguing allegation, which the Court notes but ultimately rebuffs:

[H]e contends that Arbitrator Dolina may have intended to award him $75,000.00, and not the $75.00 listed in the award, and therefore the award should be modified because it (1) contains a material miscalculation, and (2) is otherwise imperfect in matter of form requiring modification under § 11(a). (Mot. Modify at 1). Rifkind is incorrect. 

First, under § 11(a), the Court may modify an award where there is an evident material miscalculation. The award will only be altered where mathematical errors appear on the face of the award. Apex Plumbing, 142 F.3d at 194; Rhines II, 2012 WL 3239916, at *10. Here, Rifkind does not identify any mathematical errors. Instead, he speculates that Arbitrator Dolina may have mistakenly omitted three zeroes and awarded Rifkind "$75.00" when he intended to award him "$75,000." (Mot. Modify at 5). Rifkind's bald speculation is insufficient to demonstrate that Arbitrator Dolina made a mathematical error in computing his award. Accordingly, Rifkind has not met his burden under § 11(a).

at Page 15 of the 2022 DMD Opinion

Accordingly, DMD denied Rifkind's Motion to Remand and his Motion to Vacate/Modify/Correct the Award.

Also READ:
You know those days when you just want to pull the covers over your head and not get out of bed? Well, FINRA had one of those days. As to what caused all of FINRA's anxiety, let's start with these words in a court's order about a FINRA public customer arbitration hearing: "The transcripts satisfy the Investors' burden of proving the fraud on the panel by clear and convincing evidence. The audio tapes, which were not available to the Investors until after the close of the hearing, confirm that Wells Fargo' s key witness used the delay caused by the medical emergency to materially change his testimony and offer perjured testimony in direct contravention of the earlier testimony. In addition, counsel for Wells Fargo inserted himself as a fact witness and purported to testify to the Panel himself to support the changed story."