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Who's Zoomin' Who in J.P. Morgan Securities FINRA Arbitration
June 14, 2022
Way back in 2019, former J. P. Morgan Securities customers filed a FINRA Arbitration Statement of Claim against the brokerage firm seeking about half a million dollars in damages. You remember 2019, that was just before the Covid pandemic. Of course, once the pandemic got under way, the customers found their case in limbo and, go figure, but, gee JPMS just didn't seem in all that much of a rush to expedite things by videoconferenced hearings.
Case in Point
In a FINRA Arbitration Statement of Claim filed in August 2019, Claimants assserted negligent acts and
omissions; professional negligence; improper conduct; breach of fiduciary duty; breach of
security industry rules and regulations; and breach of contract. As alleged in the FINRA Arbitration Award "The causes of action relate to Respondent's investment strategy and transactions in Claimants' accounts." Claimants sought at least $500,000 in compensatory damages plus interest and costs. John L. Atkinson and Lora Atkinson, Individually and as Joint Tenants with Right of Survivorship ("JTWROS"), Claimants, v. J.P. Morgan Securities, LLC, Respondent (FINRA Arbitration Award 19-02212)
https://www.finra.org/sites/default/files/aao_documents/19-02212.pdf
https://www.finra.org/sites/default/files/aao_documents/19-02212.pdf
Respondent J.P. Morgan Securities ("JPMS") generally denied the allegations and asserted various affirmative defense.
Zoomin' Thru a Pandemic
Just by way of reminder, a few months after Claimants filed their August 2019 FINRA Statement of Claim, on January 20, 2020, the Centers for Disease Control and Prevention (the "CDC") confirmed the first U.S. laboratory-confirmed case of COVID-19 in the U.S. from samples taken on January 18 in Washington state. On March 16, 2020, FINRA postponed in-person arbitration hearings.
So . . . movin' forward in time, we come to October 2, 2020, at which time Claimants filed a Motion for Zoom Final Hearing. Zoom as in a videoconference. Videoconference as in not live, face-to-face because, well, you know, at the time no one wanted to contract Covid during an arbitration hearing -- if the choice was between death and arbitration, most folks would opt for the former. Here we are some two years later in 2022 and many folks are still nervous about setting foot in a FINRA arbitration hearing room.
As to Claimants' October 2020 Motion to Zoom things along, there didn't seem to be any light at the end of the Covid tunnel, and, as such, a videoconference on the Zoom platform seemed a reasonable alternative. The thing about reasonable alternatives is that the other side of the equation may not see anything reasonable at all in what you're proposing. In fact, Respondent JPMS filed an Opposition to the Motion arguing that "among other things, that a virtual hearing would be inappropriate under the facts of this case, Claimants' Motion ignored the significant risks associated with virtual hearings, and Claimants' Motion was premature." Not unexpectedly, Claimants replied that "due to the pandemic, many hearings had been successfully held virtually and that Claimants' Motion was timely, that the "risks" referenced by Respondent were manufactured and that Claimant would be unduly prejudiced by a delay of the hearings."
In response to the Motion and Opposition to the Zoom hearing, on October 20, 2020, the FINRA Arbitration Panel "denied Claimants' Motion without prejudice if the hearings are administratively postponed."
In response to the Panel's denial, on November 5, 2020, Claimants renewed their Motion and asserted that "the final hearings in the above matter should proceed via videoconference due to the COVID-19 pandemic, FINRA expressly authorized final hearings via Zoom, multiple in-person hearings had already been cancelled, and that Claimants would face undue delay if the in-person final hearing were cancelled rather than proceeding via videoconference." In addition to reiterating its previously voiced opposition, JPMS stressed that there were "significant risks associated with virtual hearings." As to those virtual-hearing "risks,' Claimants countered that "the "risks" referenced by Respondent were manufactured and that Claimant would be unduly prejudiced by a delay of the hearings." The old two-sides-to-every-story.
If nothing but consistent, on December 8, 2020, the Panel "denied Claimants' renewed Motion and adjourned the final hearings to May of 2021 to be in-person, if circumstances permitted, or remotely, if circumstances did not permit an in-person hearing."
Discovery
Having set aside for the moment the whole who's Zoomin' who thing, we now move forward to April 30, 2021, at which time Respondent JPMS filed an Emergency Motion to Postpone, Compel and for Sanctions. As is typical of many FINRA customer complaint cases, good faith (or not) attendant to Discovery reared its ugly head. In this case, Respondent asserted that Claimants had failed to provide certain documents and information involving another bit of civil litigation. Claimants insisted that the other civil lawsuit wasn't securities related and had jack to do with anything that would even remotely invoke FINRA's Discovery rules. JPMS insisted that the other lawsuit involved a promissory note, which, Respondent further characterized as a "security," and, with a bit more oomph, stated that Claimants were engaging in bad faith by withholding the information about that other matter requested via Discovery. Okay, ball's back in Claimants' court and they counter that not all promissory notes are securities, and, even it they were or weren't or could be, whatever the hell JPMS wanted via Discovery, they didn't have.
On May 17, 2021, the FINRA Arbitration Panel conducted a pre-hearing
conference so the parties could present oral argument on Respondent's Motion, and, thereafter, the arbitrators denied Respondent's Motion to Postpone and for
Sanctions, and granted Respondent's Motion to Compel.
Award
By way of a head's up, the FINRA Arbitration Award states that the "The evidentiary hearing was conducted partially by videoconference."
The FINRA Arbitration Panel found Respondent JPMS liable and ordered the firm to pay to Claimants $390,000 in compensatory damages and to assume ownership of Claimants' 15,000 share short position of AMR Corp. (acquired December 6, 2013).
Bill Singer's Comment
How the hell do you "partially" conduct an evidentiary hearing by videoconference?
If you look at the "Hearing Session Fees and Assessments" portion of the FINRA Arbitration Award, in pertinent part we are told that there were "Nine (9) hearing sessions" held from May 23 through May 27, 2022 (two sessions for each day from May 23 through May 26, and one session on May 27). Did the Panel conduct all, most, or some of the hearing sessions live or by Zoom or what? What exactly does partially mean in terms of conducting a hearing -- that some of the parties and arbitrators were at the hearing sessions by Zoom and others live; or, in contradistinction, that some of the hearings were held by Zoom and others live?
Then there's that mind-twister in which we are informed that the FINRA Arbitration Panel "denied Claimants' Motion without prejudice if the hearings are administratively postponed." Ummm . . . what? The Motion is denied to the extent that the hearings go forward but if they don't, then to the extent that they are "administratively postponed," the Motion would be granted . . . or not denied without prejudice . . . or what?