dispute resolution | Assouline & Berlowe, P.A. Blog

Michael Dasher, a checking account customer, sued RBC Bank (Bank) in the District Court for the Southern District of Florida alleging that the Bank, rather than depleting debit card purchases chronologically, reordered them at the end of each day drawing funds for larger purchases before smaller ones. The alleged result: larger purchases were accounted for first; leaving smaller and more numerous purchases (each) subject to a $35 overdraft fee each.

Dasher’s 2008 Account Agreement (typically signed when opening an account and governing the bank–customer relationship) included a provision subjecting overdraft disputes to arbitration. The Bank asked the District Court to halt the litigation and compel arbitration. The Court, relying on earlier precedent, denied the Bank’s motion; and voided the provision as it effectively impaired Dasher’s ability to vindicate his rights in Court. The Bank appealed to the 11^th Circuit Court of Appeals.

Before the appeal was heard, the U.S. Supreme Court decided AT&T Mobility v. Vincent Concepcion et ux., 131 S. Ct. 1740 (2011). The decision is significant in (1) confirming the liberal federal policy of the Federal Arbitration Act (9 U.S.C. 2) favoring arbitration; and (2) declaring that certain class-wide arbitration agreements are enforceable, notwithstanding states law to the contrary. Recognizing that the two factors (if considered earlier by the District Court) could have changed the outcome, both parties successfully had the Appeals Court remand the case to the trial court for reconsideration. Parenthetically, Dasher’s action is part of a larger case now pending in the District Court: the Checking Account Overdraft Multidistrict Litigation.

In 2012, PNC Financial Group, Inc. (PNC) acquired RBC Bank and Dasher’s account. Before completing the acquisition, PNC issued a new Account Agreement that neither contained an arbitration clause nor mentioned arbitration. The Bank renewed its motion to compel arbitration. It argued that the earlier RBC Account Agreement controlled. Dasher challenged; arguing that the PNC Account Agreement (which was silent on arbitration) superseded the earlier Account Agreement. The District Court agreed with the later position; and the Bank Appealed.

In its February 10, 2014 decision, the 11^th Circuit Court of Appeals upheld the District Court’s decision that arbitration provisions do not automatically survive in a superseding contract unless specifically adopted in the new contract. Dasher v. RBC Bank, Case No.: 13-10257 (11th Cir. 2014). Neither silence nor the courts’ policy favoring arbitration will help save the provisions.

As the Bank saw it, the District Court made five reversible errors:

The Federal Arbitration Act created a presumption of arbitration that the District Court failed to apply;
Contrary to the district court’s holding, the PNC Agreement’s silence on arbitration cannot invalidate the RBC Agreement’s arbitration provision;
The district court improperly ignored the termination clause in the RBC agreement;
The district court improperly applied the PNC Agreement retroactively to disputes that arose while the RBC Agreement was still in effect; and
The district court relied upon provisions in the RBC Agreement to support its analysis, undermining its holding that the RBC Agreement was entirely superseded and proving that the arbitration clause was “singled out” for disfavored treatment in violation of the FAA.

The Appeals Court, in a 33 page opinion, was not persuaded.

Although the FAA does create a presumption in favor of arbitration, the presumption applies in the case of ambiguity. Where it is not clear if the parties did indeed agree to commit themselves to arbitration as their exclusive dispute resolution process. Here, both contracts are valid agreements. The earlier RBC Account Agreement contains an arbitration clause the later PNC Account Agreement.
The District Court’s holding was proper. Under state law, the PNC Account Agreement superseded the RBC Account Agreement in its entirety. The provisions of the latter agreement did not survive; and, specifically, the arbitration clause was ineffective.

The Dasher decision is in agreement with other Second and Sixth Circuit decisions.

For more information about arbitration, contact:

Carl H. Perdue, JD, LLM

Senior Counsel and Partner

ASSOULINE & BERLOWE, P.A.

1801 N. Military Trail, Suite 160

Boca Raton, Florida 33431

Main: (561) 361-6566

Fax: (561) 361-6466

Email: CHP@assoulineberlowe.com

http://www.assoulineberlowe.com/

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Securities disputes are traumatic. The loss of investment capital can be devastating whether one is a sophisticated investor in search of capital appreciation or a retail customer looking for a safe haven for retirement funds.

The subprime real estate meltdown, an accompanying sharp decline in securities valuations, and a host of well-publicized, questionable (in some cases illegal) business practices in the financial markets resulted in systemic economic dislocations. The so-called “Great Recession” brought into sharp focus individual investor risk of loss as well as a sharp increase in customer and broker/dealer disputes.

The Financial Industry Regulatory Authority (FINRA), the successor to the National Association of Securities Dealers, Inc.’s (NASD), is the non-governmental, self-regulatory organization regulating New York Stock Exchange brokerage firms and the exchange markets. FINRA monitors 6 billion share trades a day. With 20 offices across the United States and 3,400 employees, the Authority writes and enforces rules governing more than 4,145 securities firms and 636,290 brokers.

FINRA’s dispute resolution forum is the largest in the country for the securities industry, handling nearly 100 percent of securities-related arbitrations and mediations from more than 70 hearing locations—including at least one in all 50 states, London and Puerto Rico. Its District 7 Office in Boca Raton covers Florida, Puerto Rico, Panama, and the Virgin Islands.

In 2012, FINRA referred 692 fraud cases for prosecution, and levied $102 million in fines and restitution against fraudulent traders. Through November 2013

4,181 arbitration cases were resolved (18% after hearing; 5% after document review; 52% by parties’ settlement; and 10% in mediation) and 3,342 new cases were filed. During the same period, 513 mediation cases were closed (80% of which settled) 451 new disputes filed.

The following Tables reflect FINRA’s latest dispute resolution statistics.

Arbitration Cases Served by Controversy Involved

Type of Controversy¹	2009	2010	2011	2012	November 2013
Margin Calls	128	83	80	68	46
Churning	306	270	236	245	219
Unauthorized Trading	478	397	288	313	240
Failure to Supervise	2,691	2,372	2,007	1,657	1,364
Negligence	3,405	2,698	2,249	1,941	1,570
Omission of Facts	2,453	1,941	1,603	1,355	1,128
Breach of Contract	2,802	2,184	1,904	1,573	1,300
Breach of Fiduciary Duty	4,206	3,162	2,589	2,216	1,728
Unsuitability	2,473	1,974	1,619	1,354	1,144
Misrepresentation	3,408	2,601	2,102	1,769	1,398

1 Each case can be coded to contain multiple controversy types. Therefore the columns in this table cannot be totaled to determine the number of cases served in a year.

Security Types Involved in Arbitration Cases

Type of Security¹	2009	2010	2011	2012	November 2013
Corporate Bonds	373	239	179	124	79
Certificates of Deposit	71	41	31	31	30
Mutual Funds	1,556	863	652	392	289
Options	275	161	161	151	106
Common Stock	1,367	862	838	736	511
Limited Partnerships	73	80	104	70	79
Annuities	300	208	172	147	113
Preferred Stock	481	232	197	112	81
Variable Annuities	300	279	212	220	165
Derivative Securities	607	228	54	8	0
Auction Rate Securities	276	149	80	58	27

1 Each case can be coded to contain multiple security types. Therefore the columns in this table cannot be totaled to determine the number of cases served in a year.

As an alternative to litigation, FINRA arbitration, generally confidential, proceeds with the convening of a panel comprised of one or three arbitrators selected by the parties. Each party, either represented by counsel or proceeding pro se, submits written pleadings to the arbitrators setting his or her claim or defense. After considering the pleadings, the panel will consider any documentary evidence and under oath testimony at a formal hearing. Thereafter, the arbitrator or arbitrators, as the case may be, will issue a formal award that is binding on the parties. The prevailing party can then submit the award to the appropriate court for enforcement. And, unless challenged on very limited grounds, the court will not overturn the award.

Arbitration cases are eligible to be heard in FINRA’s forum if the following criteria are met:

For disputes with investors:
- The cases involve an investor and an individual or entity registered with FINRA, such as cases between investors and brokers, between investors and brokerage firms, and between investors and brokers and brokerage firms; and
- The claim is filed within 6 years from the time the events giving rise to the dispute occurred.

For disputes involving industry parties only:
- The cases involve an individual or entity registered with FINRA, such as cases between brokerage firms, between brokers, and between or among brokerage firms and brokers; and
- The claim is filed within 6 years from the time the events giving rise to the dispute occurred.

An investor must arbitrate at FINRA if:

The arbitration is required by written agreement;
The dispute is with a member of FINRA, which could be a broker and/or brokerage firm; and
The dispute involves the securities business of the broker and/or brokerage firm.

A broker or a brokerage firm must arbitrate at FINRA if:

The dispute arises out of the securities business activities of a broker and/or a brokerage firm; and
The dispute is between or among the following members of FINRA: brokerage firms, brokerage firms and brokers, or brokers.

If an investor requests arbitration, a broker or a brokerage firm must arbitrate at FINRA.

Either during or as an alternative process and by mutual agreement, the parties may submit their dispute to mediation. In such case, FINRA staff facilitates the mediation process and provides a roster of qualified mediators from which a mediator is selected to facilitate the parties’ discussions towards a mutually agreeable resolution. Mediation is confidential and non-binding until resolution.

For more information, please visit www.finra.org and contact:

Carl H. Perdue