FINRA Arbitrator Tells Customers Suing Citigroup That It's Too Late Baby

[C]laimants explained why there was no written response. After a lengthy discussion about FINRA Rules 12206 and 12504, at my suggestion, the parties agreed to adjourn this hearing and that Claimants would offer a written response addressing Respondent's Motion. Respondent was afforded an opportunity to respond to any submission. . . 

SIDE BAR: Okay, sure, the Claimants explained to the sole FINRA Arbitrator why they didn't respond. Unfortunately, the FINRA Arbitration Decision doesn't explain to us what that explanation was, which sort of leaves us hanging. Moving along, let's reference the FINRA  Code of Arbitration Procedure for Customer Disputes rulebook:

FINRA Rule 

12504: Motions to Dismiss

(a) Motions to Dismiss Prior to Conclusion of Case in Chief

(1) Motions to dismiss a claim prior to the conclusion of a party's case in chief are discouraged in arbitration.

(2) Motions under this rule must be made in writing, and must be filed separately from the answer, and only after the answer is filed.

(3) Unless the parties agree or the panel determines otherwise, parties must serve motions under this rule at least 60 days before a scheduled hearing, and parties have 45 days to respond to the motion. Moving parties may reply to responses to motions. Any such reply must be made within 5 days of receipt of a response.

(4) Motions under this rule will be decided by the full panel.

(5) The panel may not grant a motion under this rule unless an in-person or telephonic prehearing conference on the motion is held or waived by the parties. Prehearing conferences to consider motions under this rule will be recorded as set forth in Rule 12606.

(6) The panel cannot act upon a motion to dismiss a party or claim under paragraph (a) of this rule, unless the panel determines that:

(A) the non-moving party previously released the claim(s) in dispute by a signed settlement agreement and/or written release;

(B) the moving party was not associated with the account(s), security(ies), or conduct at issue; or

(C) The non-moving party previously brought a claim regarding the same dispute against the same party that was fully and finally adjudicated on the merits and memorialized in an order, judgment, award, or decision.

(7) If the panel grants a motion under this rule (in whole or part), the decision must be unanimous, and must be accompanied by a written explanation.

(8) If the panel denies a motion under this rule, the moving party may not re-file the denied motion, unless specifically permitted by panel order.

(9) If the panel denies a motion under this rule, the panel must assess forum fees associated with hearings on the motion against the moving party.

(10) If the panel deems frivolous a motion filed under this rule, the panel must also award reasonable costs and attorneys' fees to any party that opposed the motion.

(11) The panel also may issue other sanctions under Rule 12212 if it determines that a party filed a motion under this rule in bad faith.

(b) Motions to Dismiss After Conclusion of Case in Chief

A motion to dismiss made after the conclusion of a party's case in chief is not subject to the procedures set forth in paragraph (a).

(c) Motions to Dismiss Based on Eligibility

A motion to dismiss based on eligibility filed under Rule 12206 will be governed by that rule.

(d) Motions to Dismiss Based on Failure to Comply with Code or Panel Order

A motion to dismiss based on failure to comply with any provision in the Code, or any order of the panel or single arbitrator filed under Rule 12212 will be governed by that rule.

(e) Motions to Dismiss Based on Discovery Abuse

A motion to dismiss based on discovery abuse filed under Rule 12511 will be governed by that rule.

FINRA Rule 12206: Time Limits

(a) Time Limitation on Submission of Claims. No claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim. The panel will resolve any questions regarding the eligibility of a claim under this rule.

(b) Dismissal under Rule. Dismissal of a claim under this rule does not prohibit a party from pursuing the claim in court. By filing a motion to dismiss a claim under this rule, the moving party agrees that if the panel dismisses a claim under this rule, the non-moving party may withdraw any remaining related claims without prejudice and may pursue all of the claims in court.

(1) Motions under this rule must be made in writing, and must be filed separately from the answer, and only after the answer is filed.

(2) Unless the parties agree or the panel determines otherwise, parties must serve motions under this rule at least 90 days before a scheduled hearing, and parties have 30 days to respond to the motion. Moving parties may reply to responses to motions. Any such reply must be made within 5 days of receipt of a response.

(3) Motions under this rule will be decided by the full panel.

(4) The panel may not grant a motion under this rule unless an in-person or telephonic prehearing conference on the motion is held or waived by the parties. Prehearing conferences to consider motions under this rule will be recorded as set forth in Rule 12606.

(5) If the panel grants a motion under this rule (in whole or part), the decision must be unanimous, and must be accompanied by a written explanation.

(6) If the panel denies a motion under this rule, a party may not re-file the denied motion, unless specifically permitted by panel order.

(7) If the party moves to dismiss on multiple grounds including eligibility, the panel must decide eligibility first.  If the panel grants the motion to dismiss the case on eligibility grounds on all claims, it shall not rule on any other grounds for the motion to dismiss.  If the panel grants the motion to dismiss on eligibility grounds on some, but not all claims, and the party against whom the motion was granted elects to move the case to court, the panel shall not rule on any other ground for dismissal for 15 days from the date of service of the panel's decision to grant the motion to dismiss on eligibility grounds.  If a panel dismisses any claim on eligibility grounds, the panel must record the dismissal on eligibility grounds on the face of its order and any subsequent award the panel may issue.  If the panel denies the motion to dismiss on eligibility grounds, it shall rule on the other bases for the motion to dismiss the remaining claims in accordance with the procedures set forth in Rule 12504(a).

(8) If the panel denies a motion under this rule, the panel must assess forum fees associated with hearings on the motion against the moving party.

(9) If the panel deems frivolous a motion filed under this rule, the panel must also award reasonable costs and attorneys' fees to any party that opposed the motion.

(10) The panel also may issue other sanctions under Rule 12212 if it determines that a party filed a motion under this rule in bad faith.

(c) Effect of Rule on Time Limits for Filing Claim in Court. The rule does not extend applicable statutes of limitations; nor shall the six-year time limit on the submission of claims apply to any claim that is directed to arbitration by a court of competent jurisdiction upon request of a member or associated person. However, when a claimant files a statement of claim in arbitration, any time limits for the filing of the claim in court will be tolled while FINRA retains jurisdiction of the claim.

d) Effect of Filing a Claim in Court on Time Limits for Filing in Arbitration. If a party submits a claim to a court of competent jurisdiction, the six-year time limitation will not run while the court retains jurisdiction of the claim matter.

The Respondent relied on FINRA Rule 12206(a) while Claimants Bishop and Jackson argued in response that FINRA Rule 12206(d) is controlling in this matter. Respondent cited several reasons for its position. First, the investment and subsequent strategy occurred at Merrill Lynch in 1999 and the account was transferred to Respondent in the spring of 2000 when the broker joined Respondent. Second, the broker left Respondent in July 2002. Neither Claimant made any complaint to Respondent until they filed separate Writs of Summons in Common Pleas Court in late 2014. Therefore, Respondent argued, all of the complaints in the Statement of Claim exceed the 6 year rule promulgated by FINRA. (I note that Respondent does not accept the 2014 Writ as a trigger date since it argues it did not receive notice. Respondent argues that 2017 is the appropriate date, if I am to consider FINRA Rule 12206(d) in my ruling).

The Claimants countered that the "clock" stopped effective 12/2014 when Writs of Summons were filed on behalf of the Claimants. Claimants further argued that the violation is a continuing violation and the clock began when the Claimants first knew of the fraud, excessive trading, and misrepresentations. Claimants maintained that occurred when they met with counsel sometime in 2014. While Claimants conceded the original investment was established at Merrill Lynch, Respondent CMGI must remain a Respondent because "the fraudulent scheme" continued at Respondent CMGI.

Claimants further argued that the parties are in arbitration by order of the Court. Respondent considers FINRA arbitration proper under the Claimants' account agreement with Respondent and that the Courts simply ratified a Stipulation Agreement with the preservation of all rights for each party.

. . .

I find the "clock stopped" on December 31, 2014 pursuant to the Writs. I further find Respondent did not relinquish its right to submit a Motion to Dismiss in arbitration by signing the Stipulation of Agreement.

It helps to return to the Statement of Claim in this matter. Claimants made four claims: fraud, misrepresentation, unauthorized and excessive trading, and suitability violations. It is undisputed that Claimant Jackson made the investment decision at Merrill Lynch in 1999, transferred to Respondent in 2000 and left Respondent (except for an annuity contract) in July 2002 and returned to Merrill Lynch. There is no record of any complaint by Jackson to Respondent until his attorney filed a Writ in 2014. Jackson's time at Respondent is virtually identical to that of the original Broker. There is no continuing violation. Therefore, I find Jackson's six years to file a FINRA claim against Respondent began on or about August 1, 2002 and ended on or about August 1, 2008 when he removed his investment from Respondent.

Claimant Bishop, like Jackson, made his original investment in 1999 while at Merrill Lynch and filed the same Statement of Claim. However, Bishop remained with Respondent long after the original Broker left its employ. Therefore, I find Bishop's six year period to file the misrepresentation, fraud, and excessive and unauthorized trading claims began on or about August 1, 2002 and ended on or about August 1, 2008.There is no continuing violation by Respondent. Claimant Bishop took advantage of an IRS ruling and modified his 72(t) withdrawals with a new CMGI Broker in 12/2003. Therefore, I find that his six year period to file a suitability claim against Respondent relative to this investment ended on or about 12/2009. . .

Bill Singer's Comment

A truly superb -- superior -- FINRA Arbitration Decision penned by an arbitrator who knows what he's doing. I see no need whatsoever to lawyer-splain what the Arbitrator has so succinctly set out for our consideration. It's too late, baby. Now, it's too late. 

• FINRA
• Arbitration
• Motion to Dismiss
• Citigroup
• Merill Lynch
• Suitability
• Unsuitability
• Continuing Violation
• Rule 12504
• Rule 12206
• BrokeAndBroker
• Bill Singer