Morgan Stanley Sex Discrimination Arbitration Ends In Federal Court

July 29, 2015

Take a deep breath. Okay . . . ready? . . . now, start reading this sentence: First there was a dispute between a brokerage firm and an employee that was settled pursuant to a Settlement Agreement, which itself was subsequently disputed and that second falling-out apparently prompted the brokerage firm to sue its former employee, who then Counterclaimed and went through two lawyers before defending herself pro se, and, after she lost the arbitration, the whole mess wound up on appeal in federal court.

Yeah that's a mouthful! Not so much a lawsuit and an appeal as an ordeal and an odyssey through the legal system.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2011 and amended thereafter, Claimants Morgan Stanley asserted breaches of promissory note and contract in connection with former employee Facsina's alleged failure to repay the balance due from a Promissory Note dated March 10, 2009. Claimants sought $245,000.00 in compensatory damages plus interest, attorneys' fees, and costs. In the Matter of the FINRA Arbitration Between Morgan Stanley Smith Barney LLC and Morgan Stanley Smith Barney FA Notes Holdings LLC, Claimants/Counter-Respondents, vs. Laurie Facsina, Respondent/Counter-Claimant (FINRA Arbitration 11-03113, December 11, 2014).

In And Out Counsel

Respondent Facsina was represented from approximately October 26, 2011, until about May 2013 by legal counsel; and, thereafter, by substituted legal counsel from January 24, 2014, until approximately October 20, 2014. After October 20, 2014, Facsina represented herself pro se.

Sex Discrimination Counterclaim

Respondent Facsina generally denied the allegations in the arbitration Statement of Claim, asserted various affirmative defenses, and filed a Counterclaim asserting breach of contract and unlawful discrimination based on gender. Facsina asserted that she had been mistreated after the settlement of her sex discrimination claims with Claimant.

From March 10th Forward

In April 2013, the Panel granted Facsina's Motion to Dismiss to the extent that "evidence of matters that accrued or could have accrued before March 10, 2009, that would lead to damages before that date are precluded from this arbitration proceeding."

Pro Se And Out the Door

At the beginning of the FINRA Arbitration hearing, Facsina, appearing pro se, made an opening statement, offered no evidence, and left the hearing. The Panel proceeded with the hearing in her absence.

FINRA Arbitration Panel Award

The FINRA Arbitration Panel found Facsina liable and ordered her to pay to Claimants

$248,207.38 in damages
$19,513.68 in accrued interest, and
$152,155.28 in costs and attorneys' fees

Federal Court Appeal

Facsina appealed the FINRA Arbitration Decision to the United States District Court for Northern Ohio and moved for an order to vacate the arbitration Award. Laurie Sasala Facsina, Plaintiff, v. Morgan Stanley Smith Barnery LLC, et al., Defendants (Opinion and Order, NDOH, 15-CV-447, July 20, 2015). On appeal, the United States District Court for the Northern District of Ohio was presented with:

Plaintiff Facsina's "Complaint/Motion to Vacate Arbitration Award" and
Defendants' "Opposition to Complaint/Motion to Vacate Arbitration Award and its Cross-Motion to Confirm Arbitration Award"

Vacatur

Facsina urged the vacatur based upon the fact that the FINRA Arbitration panel had

(1) failed to recuse itself after reviewing the terms of the 2013 Contract;
(2) refused to hear relevant evidence and testimony;
(3) denied her request for postponement; and
(4) committed fraud by failing to rule on her motion for discovery sanctions.

The 2009 Agreement

The FINRA Arbitration Decision made, at best, a passing reference to the March 2009 Settlement Agreement and did not fully set forth many of the underlying issues that prompted the arbitration. In the Court's Opinion and Order, we are offered some helpful context:

[T]he parties entered into a settlement agreement on March 10, 2009 (the "Effective Date"). (Id.; Doc #: 1-2 (2009 Agreement).) The 2009 Agreement included a provision that precluded Facsina from raising claims, or evidence about claims, against MSSB that accrued, or could have accrued, before the Effective Date ("the release-of-claims provision").
Included in the 2009 Agreement was a promissory note ("Note"), which extended Facsina a loan of $280,000.00. (Id. at 20.) Facsina agreed to repay the Note in yearly installments of $35,000 with 2 % interest beginning on March 4, 2010. (Id.) The Note also stipulated that, in the event Facsina terminated her employment before she repaid the loan, MSSB could immediately collect on the remaining balance. (Id.)
In October 2010, Facsina resigned from her position at MSSB with an outstanding loan balance of $245,000 plus interest. (Opp'n at 5.) MSSB immediately sought to collect on the loan but, when Facsina refused to comply, filed a breach of contract claim with the Federal Industry Regulatory Authority ("FINRA") to resolve the dispute through arbitration. (Id.) The parties thereafter engaged in settlement negotiations; however, they dispute whether or not they reached a deal in May 2013 ("2013 Contract"). (Comp. H 13.) MSSB contends that the parties did in fact reach a settlement, and added another breach-of-contract claim to the pending arbitration proceeding. (Opp'n at 6-7.).

Pages 1 - 2 of the Court Opinion and Order

Procedural Disputes

In offering us further insight into the procedural dispute that beset the FINRA Arbitration, the Court explains that on October 17, Facsina moved the FINRA Arbitration Panel to sanction Respondents for violating the discovery deadline. Eleven days before the scheduled arbitration hearing, Facsina's counsel filed a motion for orders of appearance to call witnesses to the hearing. On October 15, Facsina's counsel represented to Respondents that five to seven witnesses would appear at the hearing. One day before the FINRA Arbitration hearing, however, Facsina's counsel withdrew.

On the morning of the first day of hearings, October 21, 2014, Facsina, representing herself, told the Panel that she had not received the orders of appearance and asked for a postponement to provide her with time to call her witnesses. In response to her request, the Panel stated that it would send the orders to her later that day but refused her request for a continuance. It was apparently contemplated by the arbitrators that the hearing would extend over multiple sessions.

Two Openings And One Early Exit

The Court noted that during the first day of the Arbitration Hearings, both Respondents and Facsina gave opening statements. Facsina argued that she should not be restricted to offering evidence that had accrued before the 2009 Agreement and that the Panel recuse itself because it was privy to the terms of a 2013 Contract that set forth the terms of the now- disputed settlement. The Panel denied both requests.

At the conclusion of her opening argument before the FINRA arbitrators, Facsina apparently declared that she was declining to further participate in the hearing. In response the arbitrators tried to dissuade her and admonished that she would be unable to assert her defenses and claims. Notwithstanding, Facsina left the hearing room and following Claimants' presentation, the arbitrators rendered their Award in the firms' favor.

Rationale

In setting the stage for its findings, the Court notes that under the Federal Arbitration Act, 9 U.S.C. § § 1 et seq. ("FAA"), a court's review of an arbitrator's decision is very limited, and as such, its vacatur of an arbitration award occurs "only in very unusual circumstances." Pointedly, the Court states that:

Section § 10 of the FAA provides district courts with four grounds upon which to vacate 4 arbitration awards: (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).

Page 4 - 5 of the Court Opinion and Order

Amorphous Institutional Bias

As to Facsina's claims that the FINRA Arbitration Panel was biased in favor of Respondents, the Court dismissed that contention as merely alleging an amorphous institutional bias that did not rise to the necessary standard of bias.

Not So Formal

As to her contentions that the Panel may have engaged in misconduct for declining to postpone the hearing, the Court reiterated the long-held position that arbitrators are not bound by formal rules of evidence or procedure, and that the proper inquiry by a court when confronted with such an allegation is whether arbitrators' conduct denied the party a fundamentally fair hearing. Pointedly, the Court found that Facsina had failed to prove by clear and convincing evidence that the arbitrators had abused their discretion and had no reasonable basis for declining to postpone the hearing.

An Unmade Effort

The Court suggests that Facsina may have done herself a far better service in terms of buttressing her appeal if she had waited an additional day to obtain the witness orders and then attempted service - even if there may have been insufficient time for that gesture to have accomplished its intent:

Since she chose not to receive the witness orders, and therefore made no attempt to serve them, she has forfeited any argument that the Panel deprived her of the opportunity to call witnesses or present a defense.

Page 6 of the Court Opinion and Order

Confirmation Granted And Vacatur Denied

Accordingly the Court granted Defendants' Motion to Confirm and denied Plaintiff's Motion to Vacate.

READ the Court Opinion and Order

Bill Singer's Comment

You know the old saying about sleeping in the bed you made?

When this whole mess is boiled down to its essence, Facsina wound up handling her own arbitration and, at least in the Court's eyes, made a key procedural mistake. As the Court would have it, she likely should have complained to the FINRA arbitrators about not having the witness orders as of the start of the hearing, then made all reasonable efforts to serve those orders while the hearing was proceeding, and then, finally, if she could not call certain witnesses for lack of timely service, she should have requested an adjournment or continuance. If the facts demonstrated that such a request was reasonable and that the Panel arbitrarily denied that delay, it is possible that the appeal would have come down in Facsina's favor. Alas, if my aunt were a man, she'd be my uncle.

I am NOT disagreeing with the Court's ruling. Based upon the fact pattern, it seems supported by the law. I will note that the procedural nuances that are expected from Facsina might prove daunting to some lawyers; however, that sympathy is counter-balanced by the knowledge that she had retained two prior lawyers and opted to go it alone. Regardless, it is quite the task to ask a layperson to serve witness orders while cross-examining the Claimants' witnesses, and preparing to call witnesses for her defense against Claimants' charges and on behalf of her own Counterclaim.

As to her pro se appearance, that must be considered with some ambivalence. On the one hand, the withdrawal of the first and second lawyer and the absence of the second could be predicated upon the inability to pay legal fees, costs, and expenses, the byproduct of personality/professional disputes. We are not made privy to the causes and motivations for this issue. Whatever the reasons, Facsina served as her own counsel. It did not work out well. Ya makes yer bed, ya sleeps in it.

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Morgan Stanley Sex Discrimination Arbitration Ends In Federal Court

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