Lanza v. Fin. Indus. Regulatory Auth., Civil Action No. 18-10859-PBS
| Decision Date | 25 September 2018 |
| Docket Number | Civil Action No. 18-10859-PBS |
| Citation | 333 F.Supp.3d 11 |
| Parties | Giovanni LANZA and Mariantonia Lanza, Plaintiffs, v. FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA), Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Robert D. Loventhal, Newport, RI, for Plaintiffs.
Ian D. Roffman, Nutter, McClennen & Fish, LLP, Boston, MA, for Defendant.
Plaintiffs Giovanni Lanza and Mariantonia Lanza initiated an arbitration through Defendant Financial Industry Regulatory Authority ("FINRA")'s Office of Dispute Resolution against their securities brokers as part of a dispute involving mismanagement of their accounts. After a three-day hearing, the arbitrators summarily dismissed Plaintiffs' claims in a two-sentence decision. Plaintiffs sued FINRA for breach of contract, alleging that the arbitrators' failure to issue a reasoned explanation for their decision constituted a breach of the implied covenant of good faith and fair dealing. Plaintiffs request an order compelling FINRA to refer their dispute back to the arbitrators to write a full decision explaining their dismissal of Plaintiffs' claims. They also seek $200,000 in damages.
For the reasons set forth below, the Court ALLOWS FINRA's motion to dismiss (Docket No. 9).
The following factual background comes from the complaint and attached documents and must be taken as true at this stage. See Foley v. Wells Fargo Bank, N.A., 772 F.3d 63, 71-72 (1st Cir. 2014).
Plaintiffs are an elderly married couple living in Campton, New Hampshire and Cambridge, Massachusetts. Both are 91-year-old former professors. Defendant FINRA is a private regulatory organization headquartered in New York and Washington, D.C. that monitors and regulates the financial industry and the relationship between financial institutions and their customers.
This action arises from a dispute between Plaintiffs and their former securities brokers, Ameriprise Financial Services, Inc. ("Ameriprise") and Richard Ewing ("Ewing"). Ameriprise is a securities brokerage company headquartered in Minnesota. Ewing is employed at Ameriprise as a securities broker in its office in Palm Beach Gardens, Florida. Ameriprise and Ewing managed two brokerage accounts of over $800,000 in total assets for Plaintiffs from 2006 to 2014. Neither Ameriprise nor Ewing is a party to this action.
In 2015, Plaintiffs filed suit against Ewing and Ameriprise in the United States District Court for the District of Massachusetts, alleging that Ewing and Ameriprise had mishandled their brokerage accounts. They contended, inter alia, that Ewing had fraudulently convinced them to move their accounts when he transferred in 2006 from Merrill Lynch to H & R Block (which Ameriprise subsequently acquired), failed to administer their accounts in line with their stated goals, carelessly managed their accounts, was nonresponsive to their concerns, and lied about the investments he made on their behalf and the performance of their investment portfolio. They claimed losses of over $400,000 for negligence, breach of contract, and fraud, as well as violations of federal securities law.
After Ameriprise and Ewing notified Plaintiffs that they had signed an arbitration agreement when they opened their accounts, Plaintiffs consented to the dismissal of their federal court action. Plaintiffs and Ewing then submitted their dispute to arbitration with FINRA's Office of Dispute Resolution.1 In December 2015, they attended mediation in Concord, New Hampshire and entered into a settlement agreement for $52,500.
Shortly thereafter, Ewing refused to comply with the settlement agreement. Plaintiffs therefore filed a new statement of claim against Ewing and Ameriprise for arbitration with FINRA in June 2016, alleging similar claims based on the same misconduct. To submit their dispute for arbitration, Plaintiffs signed the "FINRA Arbitration Submission Agreement" ("Submission Agreement"). In the Submission Agreement, Plaintiffs acknowledged that they had "read the procedures and rules of FINRA relating to arbitration" and agreed "to be bound by these procedures and rules." In the same vein, they agreed to submit their claim to arbitration "in accordance with the FINRA By-Laws, Rules, and Code of Arbitration Procedure" and to conduct the arbitration "in accordance with the FINRA Code of Arbitration Procedure." Ewing and Ameriprise signed the same agreement a few months later. Plaintiffs paid $1,700 in filing fees and agreed to pay half of the arbitration charges, which exceeded $10,000.
Before the arbitration hearing, Plaintiffs requested that the arbitrators write a reasoned decision explaining the award. Ameriprise did not agree to this request. The arbitrators declined to issue such a decision based on FINRA Rule 12904(g), which requires an "explained decision ... stating the general reason(s) for the arbitrators' decision" only if "all parties jointly request" it.2 FINRA Code of Arbitration Procedure for Customer Disputes § 12904 (2018), http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4192.
A panel of three arbitrators heard the dispute between Plaintiffs and Ameriprise in Boston over three days in December 2017.3 In its written award after the hearing, the arbitrators listed Plaintiffs' causes of action and requested relief and provided a brief procedural history of the claim. The arbitrators then ruled as follows: The arbitrators did not provide any additional explanation for their decision. Based on these findings, the arbitrators dismissed all of Plaintiffs' claims.
After entry of the arbitrators' decision, Plaintiffs contacted both FINRA and the arbitrators to seek the reasoning behind the decision. They reached one of the arbitrators, who declined to speak with them without FINRA's permission. FINRA refused to allow Plaintiffs to speak with the arbitrators in accordance with its rules. See FINRA Code of Arbitration Procedure for Customer Disputes § 12211(h) (2018), http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4117 ("Parties may not communicate orally with any of the arbitrators outside the presence of all parties.").
I. Standard of Review
In analyzing whether a complaint states a claim sufficient to satisfy Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must set aside any statements that are merely conclusory and examine only the pleader's factual allegations. See Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Court may also consider documents attached to the complaint. See Foley, 772 F.3d at 71-72. "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678, 129 S.Ct. 1937.
As a threshold matter, FINRA argues that the complaint should be dismissed because, as an arbitral forum, it is entitled to arbitral immunity for its conduct of the arbitration. In some circumstances, an organization that sponsors arbitrations is entitled to immunity from civil liability for the administrative tasks it performs, insofar as they are "integrally related to the arbitration." New Eng. Cleaning Servs., Inc v. Am. Arbitration Ass'n, 199 F.3d 542, 545 (1st Cir. 1999) (). The immunity likely does not, however, cover all disputes with an organizing body. See Caudle v. Am. Arbitration Ass'n, 230 F.3d 920, 922 (7th Cir. 2000) (). Here, the challenge to the failure to provide sufficient reasons for an arbitration award, rather than a failure to issue any award at all, appears to be well within FINRA's arbitral immunity.
Even if arbitral immunity were inapplicable, Plaintiffs' argument that FINRA committed a breach of contract and the implied covenant of good faith and fair dealing when the arbitrators declined to provide a reasoned explanation for their decision fails as well. The Submission Agreement bound FINRA to conduct the arbitration in accordance with its own rules. Its rules explicitly require an explained decision "only when all parties jointly request" one. FINRA Rule 12904(g), supra. Without the consent of both parties, the FINRA rules allow arbitrators to provide a reasoned decision for the award but do not require them to do so. See FINRA Rule 12904(e)-(f), supra (). Here, interpreting the plain language of the rules, FINRA did not breach its contractual obligation because Ameriprise, the other party to the arbitration, did not agree to Plaintiffs' request for a reasoned decision. Without Ameriprise's consent, the FINRA rules imposed no duty to provide it.
Recognizing this problem with their legal theory, Plaintiffs allege that FINRA's failure to provide a reasoned decision breached the...
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