Public Customer, Brokers, and Brokerage Firm Spit Nails, Eat Lightning, and Crap Thunder

September 24, 2018

They say that news isn't when a dog bites a man but when a man bites a dog. If that's the case, we start today's BrokeAndBroker.com Blog with a news story: Stockbrokers sue customer in a FINRA arbitration. From there, it's less about news and more about an epic battle among various contenders. In Round Two, the Customer sues. In Round Three, the New York State Supreme Court throws out one of the arbitrations and remands. In Round Four, one of the brokerage firms sues its former associated persons. We got Rocky. We got Apollo Creed. We got Drago. We even got some wise words from Mickey Goldmill.

ROUND ONE: 2015 FINRA Arbitration

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2014, three associated persons alleged that public customer Wijk had failed to repay a margin debit balance. Claimants sought $25,338.70 in compensatory damages plus interest, attorneys' fees, and costs. In the Matter of the FINRA Arbitration Between Steven Scott Baldassarra, Joseph Benjamin Baldassarra, and Carl Joseph Smith, Claimants, vs. Pieter Van Wijk, Respondent (FINRA Arbitration 14-03768, July 10, 2015) (the "2015 FINRA Arbitration")

Online FINRA BrokerCheck records as of July 16, 2015, disclosed that the three Claimants were then registered with FINRA member firm Newbridge Securities. Claimants were represented in the 2015 arbitration by "Carl Joseph Smith, President, CJS Financial Corp., Coral Springs, Florida" but there is no indication that he is a lawyer.

Respondent Wijk did not file an appearance and was apparently not represented by a lawyer.

Award

The sole, non-public FINRA arbitrator found Respondent Wijk liable and ordered him to pay to Claimants $25,388.70 in compensatory damages; and a further $600 reimbursement for FINRA filing fees.

The 2015 FINRA Arbitration Decision asserts:

OTHER FEES: Newbridge Securities Corporation has paid to FINRA Dispute Resolution the $750.00 Member Surcharge previously invoiced.

Bill Singer's Comment

No . . . you're right . . . not a particularly complicated or interesting case. It's a basic they-said-he-didn't-answer case; however, there were a few aspects of this matter that did catch my eye.

For starters, I have frequently mused in the BrokeAndBroker.com Blog as to why we don't see more FINRA arbitrations brought by member firms and registered representatives against public customers, particularly for defamation or non-payment. In this case, we have three individuals suing a non-paying public customer. Oddly, there is no FINRA member firm on the Claimant-side of the caption. I am, as such, curious as to the legal theory underpinning the Statement of Claim (which is not available online at FINRA's Arbitration website). Assuming that the public customer had an unpaid margin balance, that would typically be owed to the member firm. How did these individuals wind up suing for a debit typically carried on a firm's books? A possible answer is that they were charged by their employer firm for the debit or took an assignment of same, and then sued on their own behalf. One odd issue here is why member firm Newbridge Securities paid the FINRA member firm surcharge for the arbitration but didn't join as a Claimant -- or, to take the pondering a bit further, why Newbridge Securities wasn't the only Claimant.

Another aspect about this case that is worth noting is that the public customer lost and now owes the full amount for which he was sued. Of course, winning the award and collecting are two very different challenges.

Generally, when the equity in a margin account is deficient according to the maintenance levels in effect, your brokerage firm can sell securities in your account without your prior consent, agreement or authorization. Frankly, if you re-read your Margin Agreement, you will likely see buried among the thousands of words that you agreed to that circumstance as a condition precedent to opening that account. If the equity in your account falls below the legally proscribed margin maintenance requirements or the brokerage firm's "house" maintenance requirements, the firm can, without prior notice to you, sell the securities in your account to cover the margin deficiency. While many brokerage firms will send courtesy notices to clients prior to undertaking such margin liquidations, those notices are not legally required. If, however, you have negotiated a specific margin agreement that imposes different terms, that would be a different situation -- good luck trying to extract such concessions from most brokerage firms. Similarly, many customers believe that they are entitled to an extension of time on a margin call if they simply ask for one. While an extension of time to meet initial margin requirements may be available to customers under certain conditions, a customer is not legally entitled to an extension nor is a brokerage firm obligated to grant one. What if the forced sale doesn't raise enough cash? You may be responsible for any resulting deficiency.

As the Securities and Exchange Commission warns in its online Investor Bulletin "Understanding Margin Accounts" (SEC Pub. No. 156 (8/13) ) :

Understand Margin Calls
You Can Lose Your Money Fast and With No Notice.

If your account falls below the firm's maintenance requirement, your firm generally will make a margin call to ask you to deposit more cash or securities into your account. If you are unable to meet the margin call, your firm will sell your securities to increase the equity in your account up to or above the firm's maintenance requirement.

However, your broker may not be required to make a margin call or otherwise tell you that your account has fallen below the firm's maintenance requirement. Your broker may be able to sell your securities at any time without consulting you first. under most margin agreements, even if your firm offers to give you time to increase the equity in your account, it can sell your securities without waiting for you to meet the margin call.

READ the BrokeAndBroker.com Blog "Margin" Archive
http://www.brokeandbroker.com/index.php?a=topic&topic=margin

ROUND TWO: 2017 FINRA Arbitration

Public customer Wijk was not prepared to go down without a fight -- or at least another round. About five months after losing the 2015 FINRA Arbitration, Wijk filed his own FINRA arbitration claims against the three Claimants who had sued him, and he added a few more respondents for good measure.

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2015, public customer Wijk asserted churning, suitability, unauthorized trading, negligence, breaches of fiduciary duty and contract, misrepresentation, disciplinary history and failure to supervise, and quantum meruit. Claimant Wijk sought $185,035.75 in compensatory damages plus lost opportunity costs, punitive damages, costs; and reasonable attorneys' fees. In the Matter of the FINRA Arbitration Between Pieter Van Wijk, Claimant, vs. Joseph Benjamin Baldassarra, Steven Scott Baldassarra, Thomas Joseph Casolaro, CJS Financial Corp., Leslie Anne Moore, NewBridge Securities Corp., and Carl Joseph Smith, Respondents (FINRA Arbitration 16-00002, December 28, 2017). (the "2017 FINRA Arbitration")

Respondents generally denied the allegations and asserted various affirmative defenses.

This is the legal representation noted in the 2017 FINRA Arbitration Decision:

Claimant Pieter Van Wijk was represented by Hilton Wiener, Esq., Law Office of Hilton M. Wiener, New York, New York.
Respondents Joseph Benjamin Baldassarra , Steven Scott Baldassarra, CJS Financial Corp., and Carl Joseph Smith were represented by David Feingold, Esq., Feingold Morgan Sanchez, Palm Beach Gardens, Florida.
Respondents Thomas Joseph Casolaro, Leslie Anne Moore, and NewBridge Securities Corp. were represented by Gregg J. Breitbart, Esq., Kaufman Dolowich Voluck, LLP, Boca Raton, Florida.

SIDE BAR: In the 2015 FINRA Arbitration Decision, the firm's name is set forth as "Newbridge" but in the 2017 arbitration it is set forth as "NewBridge."

Settlement

By correspondence dated May 18, 2017, Claimant Wijk notified FINRA that he settled his claims against Respondents NewBridge, Casolaro, and Moore.

Award

The FINRA Arbitration Panel denied Claimant Wijk's claims and found him liable to and ordered him to pay to Respondents the Baldassarras, CJS Financial Corp., and Smith:

$99,450.00 in attorneys' fees pursuant to Florida Statute 57.105: Attorney's fee; sanctions for raising unsupported claims or defenses; exceptions; service of motions; damages for delay of litigation; and
$3,307.00 in costs.

Additionally, the Panel assessed the full $13,950.00 in hearing session fees against Claimant.

Bill Singer's Comment

Ouch!!! Wijk can't be a happy camper. Not only did he lose the 2015 FINRA Arbitration brought against him but he also lost the 2017 FINRA Arbitration that he filed.

Respondents Joseph and Steven Baldassara, CJS Financial, and Smith went the distance and came away with what amounts to a second KO of Wijk. Compliments to their lawyer David Feingold, Esq.! Given the six-figures in damages awarded by the FINRA Arbitration Panel in favor of Respondents Joseph Benjamin Baldassarra, Steven Scott Baldassarra, CJS Financial Corp., and Carl Joseph Smith, it's only reasonable for us to wonder why Respondents NewBridge, Casolaro, and Moore settled with Claimant Wijk and for how much? I don't know the answer to those questions because it's not stated in the FINRA Arbitration Decision. Maybe the three settling respondents simply got out of the case for far less than what it would have cost them in legal fees to fully contest the case? Maybe these three respondents paid "nuisance value" and never gave their settlement a second thought? Your guess is as good as mine.

Normally, I would say that this fight ended with a KO in the second round. On the other hand, we got a lot of feisty litigants here and you sort of smell a re-match in the air.

It's time to spit nails, eat lightning, and crap thunder !!!

ROUND THREE: NYS Supreme Court Vacates 2017 FINRA Arbitration

Pieter Van Wijk, Petitioner, v. Joseph Benjamin Baldassarra, Steven Scott Baldassarra, Carl Joseph Smoth [sic] and CJS Financial Corp. (Order and Judgment, Supreme Court for the State of New York, June 4, 2018) http://brokeandbroker.com/PDF/WijkSupCt2018.pdf . By Petition filed April 11, 2018, Wijk moved to vacate the 2017 FINRA Arbitration Award against him based upon his argument that the FINRA arbitrators disregarded the New York State choice of laws provision in his securities account agreement and wrongly applied Florida law.The Court granted the petition and remanded to FINRA.

ROUND FOUR: 2018 FINRA Arbitration

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in July 2017, FINRA member firm Newbridge asserted indemnification and breach of contract, which arose in connection with settlement sums paid to public customer Wijk in the 2017 FINRA Arbitration. Ultimately, Claimant Newbridge sought $74,418 representing the amount due from Respondents for the defense and settlement of FINRA arbitration 16-00002 plus interest. In the Matter of the FINRA Arbitration Between Newbridge Securities Corporation, Claimant, vs. Carl Joseph Smith, Joseph Benjamin Baldassarra, and Steven Scott Baldassarra, Respondents (FINRA Arbitration 17-01966, September 19, 2018). (the "2018 FINRA Arbitration")

Respondents generally denied the allegations and asserted various affirmative defenses.

The parties in the 2018 FINRA Arbitration are represented by some familiar faces:

For Claimant Newbridge Securities Corporation: Gregg J. Breitbart, Esq., Kaufman Dolowich Voluck, LLP, Boca Raton, Florida.
For Respondents Carl Joseph Smith ("Smith"), Joseph Benjamin Baldassarra ("Joseph Baldassarra"), and Steven Scott Baldassarra ("Steven Baldassarra"): David Feingold, Esq., Feingold Morgan Sanchez, Palm Beach Gardens, Florida.

Motion to Dismiss

At the conclusion of Claimant Newbridge's case-in-chief, Respondents moved to dismiss. The FINRA Arbitration Decision characterizes their arguments as follows:

[I]ndemnity provisions which attempt to indemnify a party against their own wrongful conduct cannot be enforced unless the indemnity provision expressly intended to indemnify against the indemnitee's own wrongful act is stated in clear and unequivocal terms. The provision in the contract at issue was not specific and lacked clear, unequivocal terms to indemnify Newbridge Securities for its own wrongful conduct.

Claimant Newbridge responded to the Motion by arguing that it had not committed any wrongful conduct, and, as such, was entitled to indemnification.

The Sole FINRA Arbitrator denied Respondent's motion, and offered this rationale:

[A]ssuming Respondents' arguments, Newbridge Securities' only accusation of wrongdoing was a derivative claim (the underlying arbitration) based on Respondents' own wrongdoing and not an independent wrongdoing on the part of Newbridge Securities.

Award

The FINRA Arbitrator found Respondents jointly and severally liable and ordered them to pay to Claimant Newbridge $53,335.00 in compensatory damages with the proviso that if the Award is not paid within thirty days, Respondents are jointly and severally liable for 4.75% per annum interest.

The following charges/fees were assessed/awarded:

Claimant Newbridge: $1,750 Initial Claim Filing Fee; $1,100 Member Surcharge; $2,250 Member Process Fee; $1,125 hearing session fees.
Respondents on a joint-and-several basis: $1,125 hearing session fees.

Bill Singer's Comment

Will Rocky Balboa avenge Apollo Creed and defeat Ivan Drago -- or, you know, will, Newbridge take on Wijk but lose an exhibition match to CJS Financial; or will Wijk demand another fight with the Baldasaarras but they fail to make weight; or, more to the point: Someone, anyone, just stay down . . . for the count.

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