Santander Bank, N.A. v. Klein, SUCV2019600D
| Decision Date | 05 June 2019 |
| Docket Number | SUCV2019600D |
| Parties | SANTANDER BANK, N.A. v. Michael KLEIN |
| Court | Massachusetts Superior Court |
File Date: June 6, 2019
The Complaint in this case seeks to vacate an Arbitration Award of the Financial Industry Regulatory Authority’s ("FINRA") Office of Dispute Resolution dated January 22, 2019 ("FINRA Decision") in Michael Klein v. Santander Bank, N.A., Perry Vachon and Charles Wermuth, Case Number 17-02674 ("Arbitration Proceeding"). The plaintiff here is Santander Bank, N.A. ("Santander"), which was the respondent in the Arbitration Proceeding. The defendant is Michael Klein ("Klein"), who prevailed as the claimant in the Arbitration Proceeding. Before the court is Petitioner’s Application to Vacate, or in the Alternative Modify Arbitration Award ("Motion"). Klein has filed a "Cross-Motion to Confirm Arbitration Award" ("Cross-Motion"). After hearing, the Motion is DENIED and the Cross Motion is ALLOWED.
By written Submission Agreement, dated February 16, 2018 ("Agreement"), Mr. Klein and Santander agreed:
The undersigned parties ("parties") hereby submit the present matter in controversy, as set forth in the attached statement of claim, answers, and all related cross claims, counterclaims and/or third-party claims which may be asserted, to arbitration in accordance with the FINRA By-Laws, Rules, and Code of Arbitration Procedure.
Agreement ¶11. The parties also agreed that their dispute would be decided pursuant to FINRA procedures and rules:
Klein’s Statement of Claim, dated November 30, 2017 alleged six counts against Santander: (1) violation of the public policy exception to the Employee at will doctrine, (2) breach of the covenant of good faith and fair dealing, (3) promissory estoppel, (4) fraudulent misrepresentation, (5) breach of contract, and (6) retaliation. The allegations of the statement of claim focused upon a former Santander employee, John Bartolo, who reported to Mr. Klein. The statement of Claim alleges that Santander improperly terminated Mr. Klein based on his complaints about Mr. Bartolo on various matters, including personal safety issues and complaints related to Mr. Bartolo’s failure to pass a FINRA securities licensing exam. It does not allege that other supposedly unlicensed employees at Santander sold managed products and did not make broad allegations regarding a series of partnerships where licensed individuals would split commissions with unlicensed individuals. Nor did it allege that Santander circumvented its automated exception monitoring of regulated products.
A three-member FINRA arbitration panel heard evidence on November 26-29, 2018 in Boston, Massachusetts. The presiding chairperson was Paul Peter Nicolai. During the hearing Mr. Nicolai called for testimony on licensing issues and questioned Mr. Klein regarding his complaints specific to Mr. Bartolo, as well as about broader licensing issues at Santander Securities, LLC ("SSLLC"), which was not a party to the arbitration proceeding. He also issued a warning to SSLLC’s Chief Compliance to review his records on licensing issues and later questioned that witness on licensing issues. The Chairperson disclosed during the hearing that he had reviewed evidence outside of the record relating to licensing and regulatory issues. By Santander’s count, the Chairperson asked about 330 questions during the hearing and occupied close to one hour of testimony.
The parties submitted post-hearing briefs addressing Mr. Bartolo’s licensing activity, not broader licensing issues concerning other employees.
The FINRA decision was entitled "Award." It also contained a separate section entitled "AWARD," which read:
Following this "Award" is a section with 28 paragraphs entitled "Arbitrators’ Findings."
The Arbitrators found (¶5) that:
Within one month to six weeks after commencing his employment with Respondent Santander, Claimant became aware that one of the sales representatives reporting to him did not have the appropriate licensure to recommend and sell products in that the particular representative had repeatedly failed the Series 65-66 examination and had, in fact, ceased taking it. That person is referred to as "employee."
Klein reported the matter to the compensation at Santander. Findings, ¶7. Santander takes particular issue with findings 8, 9, 10 and 23 which discuss the employee in broader context and are quoted below. Unchallenged findings (¶¶11-17) conclude that Klein followed up with Santander’s management and compliance staff, that the customers were never advised even though the employee continued to counsel them and that, for a variety of reasons the employee was recommended for termination but was reported as having voluntarily resigned. On September 23, 2015, Klein was called into a meeting at which his employment was terminated without prior notice, warning or explanation, despite the improvement in his sales group’s performance. The Findings’ central conclusion appears in paragraph 25, which Santander also challenges for reasons set forth below:
We determine that the termination of Claimant’s employment was principally motivated by retaliation for his reporting the violation of FINRA rules to Respondent Santander’s management and his pressing for their resolution in the face of Respondent Santander’s determination to avoid exposing the fact that it was managing a process of subverting its securities software package and allowing unlicensed individuals to effect transactions which required licensure.
In context, "the violation of FINRA rules" reasonably is read to refer to the employee’s activities without a license, because that is what Klein reported. The second part of this finding (after "in the face of ...") places Santander’s decision in broader context for the purpose of assessing motive ("to avoid exposing" its improper activities).
The court’s jurisdiction over this matter derives from G.L.c 251, § 12, which confers the power to "vacate an award." The first question is: what constitutes the "award"? The parties have not expressly addressed this question, but it is jurisdictional.
The case law speaks in terms that distinguish between the award and the findings upon which the award is based. Pittsfield v. International Brotherhood of Police Officers, 480 Mass. 634, 638 (2018) (); Lynn v. Thompson, 435 Mass. 54, 60 (2001) () (internal quotes and citations omitted). The principle is essentially the same as applied by the appellate courts who "review ‘judgments, not statements in opinions.’" Sexual Minorities Uganda v. Lively, 899 F.3d 24, 29 (1st Cir. 2018), citing Black v. Cutter Labs., 351 U.S. 292, 297 (1956). Accord, Elkin v. Metro. Prop. & Cas. Ins. Co. (In re Shkolnikov ), 470 F.3d 22, 24 (1st Cir. 2006), citing California v. Rooney, 483 U.S. 307, 311 (1987). Any potential harshness in this principle is completely remedied by the rules of collateral estoppel, which provide that a fact finder’s findings have no preclusive effect unless necessary to the judgment. See, e.g., Alba v. Raytheon Co., 441 Mass. 836, 841 (2004). See generally Pierce v. Morrison Mahoney LLP, 452 Mass. 718, 730-31 (2008) ().
Here Santander’s challenge to paragraphs 8, 9, 10, 19, 23 and 25 of the Arbitrators’ Findings does not qualify as a challenge to an "award" within the meaning of G.L.c. 251, § 12. Rather, it is a challenge to statements or findings. The court lacks authority to adjudicate such a claim. It follows that the court cannot grant the alternative request to See...
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