This blog post looks at an interesting FINRA arbitration award issued on January 7, 2020: Daniel Paul Motherway v. UBS Financial Services, Inc., FINRA Arbitration No. 17-02799. This case seems to prove the old adage: a man who is his own lawyer has a fool for a client. Here we have an FA who proved, quite literally, that UBS defamed him, but was nonetheless ordered to stroke a check to UBS for more than $1 million.

Background Facts

On June 28, 2017, UBS fired Motherway and offered the following termination explanation on BrokerCheck: “Financial Advisor’s employment was terminated after review concluded that he made false claims of merchant fraud on his personal credit and debit cards to an affiliate of the firm and made conflicting statement during the review.”

Apparently, UBS’s Form U5 disclosure didn’t sit well with the FA and he filed a FINRA arbitration against UBS for defamation, among other things. The FA sought $12 million in damages and expungement of the Form U5 disclosure.

UBS likewise filed a FINRA arbitration against the FA seeking repayment of an employee forgivable loan. UBS sought damages of $1,012,729, plus attorneys’ fees and expenses.

Underlying Arbitration

The arbitrators consolidated the 2 arbitrations over UBS’s objection. After 3 full days of hearings, the arbitrators found UBS’s termination disclosure to be defamatory and ordered that: (a) the reason for termination be changed to “other” (according to BrokerCheck, the current reason for termination is “discharged”), and (b) the Termination Explanation be changed to “termination for providing conflicting and misleading information in connection with the firm’s inquiry into a non-securities related matter.”

Regrettably for the FA, however, UBS’s Form U5 defamation did not relieve his obligation to repay the promissory note. The arbitrators really dropped the hammer here, ordering him to pay compensatory damages of $1,012,729, interest at 3% until the award is satisfied, $111,400 in attorneys’ fees, and $20,254 in “late fees,” whatever that may be.

This award underscores the fact that the odds are stacked against the FA when challenging a forgivable loan in FINRA arbitration. In this case, the FA got the money, he signed a promissory note, and the arbitrators strictly held him to the terms of the promissory note, which were likely clear and unambiguous. There are instances in which arbitrators refuse to order repayment of a promissory note. But those cases generally involve instances in which the firm actively took steps to harm the FA’s book of business.

Given that UBS’s conduct was questioned by the arbitrators, one is left to wonder whether the FA’s choice to go it alone was a wise one.

Herskovits PLLC has a nationwide FINRA arbitration practice. Feel free to call us for a consultation. 212-897-5410.

FINRA published an interesting arbitration award on December 27, 2019. In Raymond James & Associates, Inc. v. Gregory D. Clark (FINRA Case Number 18-04011), Raymond James claimed that Mr. Clark breached a settlement agreement related to the repayment of a promissory note. Raymond James requested, and was awarded, compensatory damages of $206,000 plus interest pursuant to Florida Statutes § 55.03. You can access the Award by clicking here.

Things get interesting when analyzing the procedural rulings of this case.

Motion to Bar Presentation of Defenses and Facts

Raymond James filed the claim on November 27, 2018 and Mr. Clark failed to file an answer. Perhaps Mr. Clark was unaware of FINRA Rule 13308, which permits an arbitrator to bar the presentation of any defenses or facts for a party that does not timely answer a claim. Not surprisingly, Raymond James filed a Motion to Bar on February 13, 2019 and the arbitrators granted the motion, with the caveat that Mr. Clark can “appear” and “move for relief.”

Apparently, Mr. Clark “appeared” sometime in May 2019 and filed a motion asking the arbitrators to reconsider the order barring him from presenting facts or defenses. Surprisingly, the arbitration panel denied that motion, yet curiously did so “without prejudice.”

So let’s unpack that. The arbitrators grant a motion to bar but invite Mr. Clark to “seek relief.” Mr. Clark’s follows up on the arbitrators’ invitation to seek relief, yet the arbitrators nonetheless deny the relief sought. However, when denying the relief sought, the arbitrators invited Mr. Clark to ask for the same relief at a later date. Hmmm.

As you may surmise, Mr. Clark did ask for the same relief again, this time at the hearing itself, which was held on December 2, 2019. According to the “Findings of Fact” section of the Award, Mr. Clark “endeavored to offer his own testimony” at the hearing. Raymond James objected (no surprise there). It is surprising, however, that the arbitrators sustained Raymond James’ objection and did so pursuant to the arbitrators’ original order granting Raymond James’ Motion to Bar filed in February 2019.

That is some curious logic by the arbitration panel. If the arbitrators were disinclined to hear Mr. Clark’s testimony, why did they invite him to “seek relief” in the first instance? And then when Mr. Clark did seek relief in May, which did they invite him to seek the same relief at a later date by denying the motion “without prejudice”?

But the arbitration panel’s odd rulings did not end there. According to the Award, Mr. Clark’s “representative was permitted to make a proffer of the testimony [Mr. Clark] would have presented had [Raymond James’] objection been overruled.”

What?? Are you kidding me?? The arbitrators refuse to hear testimony from a party and instead ask for a “proffer” from Mr. Clark’s non-attorney representative. And, just to kick Mr. Clark in the groin, the arbitrators noted that “the proffered evidence would not have changed the Panel’s ruling on the merits.” Ouch.

Although Raymond James was obviously well-represented by Dominque Heller, Esq., the arbitrators’ peculiar rulings would seem to invite a motion to vacate the award.

Herskovits PLLC has a nationwide FINRA arbitration practice. Robert Herskovits has successfully handled hundreds of FINRA arbitration. Feel free to call us for a consultation at 212-897-5410. Also feel free to review our practice area page here.