Bartleby the Scrivener Sues Banc of America Investment Services (an esoteric literary reference!)

October 24, 2010

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Mark your calendar for October 28, 2010.

Bill Singer unleashes an unusual Blog
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In a FINRA statement of claim filed in December 2009,  Jeffrey McMorrow, Esq. sought to recover unspecified compensatory and punitive damages for the purchase of various unspecified mutual funds and corporate bonds in his accounts from Banc of America Investment Services, Inc. and Ryan Tidwell.  Additionally, Claimant McMorrow sought damages for the rejection of a mortgage application. In furtherance of his claims, Claimant alleged, among other causes of action, breaches of fiduciary duty and contract; negligence, misrepresentations, and failure to supervise.In the Matter of the Arbitration Between Jeffrey Paul McMorrow, Esq., Claimant, versus Banc of America Investment Services, Inc. and Ryan Paul Tidwell, Respondents (FINRA Arbitration 09-06846, October 15, 2010).

The unspecified mutual funds and corporate bonds damages I get -- fact is, we see those allegations all the time. The rejection of a mortgage application?  Okay, gotta admit,  that one caught my attention, and, hence, this blog results.  How the hell does a rejected mortgage application wind up in a FINRA arbitration?

Respondents generally denied the allegations and asserted various affirmative defenses.

Don't Bank on It?

At the commencement of the final FINRA arbitration hearing, Respondents asserted a motion to dismiss any claims against Bank of America ("BANA") relating to loans that Claimant sought from BANA since BANA is not a member of FINRA and not subject to FINRA jurisdiction. Note that BANA was not named as a Respondent in this arbitration.

Ah ha!  That's exactly what I was trying to figure out from the get-go.  How do you bring a FINRA non-member into a FINRA arbitration?  Moreover, since that non-member bank was not even named as a Respondent, how are you going to recover alleged damages from a loan that was generated by that non-party?

Claimant opposed the motion on the basis that BANA's banking services were a "package deal" with BAI, the investment side of the corporation.

Hmm...I see.  Well, sort of.  Frankly, that's an interesting theory and a clever way to plead around the jurisdiction problem.  Sometimes "interesting" and "clever" are enough -- and, then again. . .

Executive Session #1

After holding an executive session, the FINRA Arbitration Panel granted the Respondent's Motion to Dismiss as against BANA, but ruled that Claimant could present evidence of BANA's actions that affected any claims he might have within FINRA's jurisdiction.

Motion for Directed Verdict

During the final hearing and after Claimant's case-in-chief, Respondents moved for a directed verdict alleging that Claimant McMorrow had not presented any evidence on damages, nor any evidence to support any claims, and that any losses Claimant incurred were due to the market.

Claimant argued that he had a contract with Respondents with certain expectations of performance and that some of his losses could have been averted with better management of his accounts.

Executive Session #2

The Panel held another executive session and subsequently granted Respondents' Motion for a Directed Verdict. That decision was pased upon Claimant's

  • decision to rest on the presentation of his evidence;
  • failure to request an opportunity to cross examine any further witnesses presented by Respondents;
  • failure to request an opportunity for rebuttal; and,
  • request that the panel could decide this arbitration based on the evidence presented to that point.

Accordingly, the Panel found  Respondents are found not liable and Claimant's claim is denied in its entirety, with prejudice.

Bill Singer's Comment: Umm . . . okay . . . uhh . . . what? 

As best I can tell, Claimant was a lawyer who represented himself. Moreover, he presented an interesting theory of liability concerning BANA, but he didn't name BANA as a Respondent in the FINRA Arbitration, and, even if he had, BANA is not a FINRA member firm (and, hence, not subject to FINRA's jurisdiction). Which sort of raises the question as to why McMorrow didn't seek to try this case in a non-FINRA forum -- such as a state or federal court and argue that he could not be compelled to try the case at FINRA because it involved inextricably intertwined conduct by a non-FINRA entity (BANA). There may be many reasons for that choice (or non-choice) of forum, including costs, but it's not spelled out in the FINRA Decision, so, all that you can do is speculate.

Moreover, it appears that Claimant presented his case and then "rested." If I take the literal legal definition of that term at face value, then we are asked to infer that after Claimant presented his evidence/testimony during his case in chief that he sort of sat idly by.  He may have attended the hearing and diligent taken notes. He may have sat in his Claimant's chair and read a newspaper.  Frankly, he may have done (or not done) any number of things, but whatever he did or didn't do, it's pretty clear that the defense put on its case without too much interaction from the Claimant. The FINRA decision tells us that Claimant rested after he presented his case, didn't cross examine any of Respondents' witnesses, didn't ask to rebut any testimony/evidence presented by Respondents, and pointedly asked the Panel to make a decision based upon that lack of involvement in the process.  Hey, sometimes that's a gutsy strategic decision that works.  Then again, sometimes you just have to wonder.

Maybe something else is in the works from the Claimant. Maybe some fancy legal two-step will result in an appeal or a separate court action. If not, well, you know, okay.  Still, I'm not exactly sure what the hell happened here.



Street Legal: The Message And The Medium

The Securities and Exchange Commission recently tackled some thorny issues involving independent contractors, their use of electronic business communications, and their broker-dealers' responsibility to archive and subsequently produce such communications.



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