Broker Sues to Vacate ‘Stealth’ Promissory Note Award
A former Merrill Lynch broker has asked a court to vacate an arbitrator’s finding that he owes $141,000 on a promissory note balance because the Financial Industry Regulatory Authority sent notice of the firm’s complaint against him to the wrong address.
Bruce N. Townsend, now a Wells Fargo Advisors private client group broker in Birmingham, Mich., charged that Finra served notice of Merrill’s January 2018 claim against him to a temporary address where he lived for a few weeks while his house was being repaired, and failed to get in touch with him in a timely manner through Wells Fargo when he did not respond.
“Petitioner had no knowledge of the claim, the arbitration, or the result,” Newell’s lawyer, Joshua Brinen, wrote in the petition to a federal court in the Southern District of New York that was dated last Friday. Townsend named Merrill as respondent in the filing because Finra has virtual immunity in arbitration proceedings, the lawyer said.
An earlier Second Circuit decision rejected a wirehouse’s claim that it was not at fault for failing to properly serve a broker who had moved to Switzerland without notifying Finra. “Here, the Petitioner did not move, FINRA merely served a temporary address, and not the Petitioner’s permanent address or work until the Petitioner had failed to appear and ‘defaulted’ in proceedings,” Brinen wrote in a filing accompanying the petition to vacate the award.
Petitions to vacate arbitration awards are rare, and rarely granted, because of the deference judges give to arbitrators under the Federal Arbitration Act. But Brinen argued that the regulator’s “numerous failures to serve process properly pursuant to FINRA §12301(a)” was a “manifest disregard of the law,” one of the few conditions that courts have recognized for vacating awards.
Finra ultimately sent copies of Townsend’s promissory note agreements to him via Wells, signaling that a proceeding was occurring, but he received them just nine days before the sole arbitrator rendered his award, according to the filing. “FINRA knew the Petitioner’s business address as his U4 was transitioned from Respondent to Well Fargo,” the lawsuit says.
Townsend, who has 26 years of experience and no complaints on his BrokerCheck record, signed his initial promissory note in February 2011 when he moved to Merrill from RBC Wealth USA. It obligated him to repay $827,000 in monthly installments deducted from his pay over seven-and-a-half years.
Merrill agreed in October 2017 to lower the interest rate on the loan because of “personal circumstances” making it difficult for him to remain current on his payment obligations, according to an exhibit filed with the court.
Reached at Wells, which he joined in November 2017, Townsend said he has sufficient funds to pay the debt but was upset by the short notice he received through Wells.
A Merrill spokesman and a Finra spokeswoman declined to comment on the lawsuit.
Brinen has filed a handful of procedural challenges to Finra arbitration awards in recent months, an approach that acknowledges that courts do not allow re-arguing of the facts of underlying arbitration cases.
The New York-based lawyer last month filed a motion to vacate an arbitration award on behalf of a California broker who has been ordered to pay Morgan Stanley more than $1 million on a promissory note. Finra had improperly characterized an arbitrator on the panel as a “public” representative, according to her petition to vacate.
Says it all: Finra has virtual immunity in arbitration proceedings,