FINRA Arbitration Award Vacated Due to Faulty Service of Statement of Claim


[author: Mark Hancock]

One of the few grounds on which an arbitration award may be challenged in Superior Court is that the arbitrator exceeded his authority by denying a litigant a fair hearing.  In a recent unpublished decision, Hansalik v. Wells Fargo Advisors, 2012 Cal.App. Unpub. LEXIS 3145, the California Court of Appeal, Second Appellate District, Division Two, cited these grounds as a basis for overturning a default award entered in favor of Wells Fargo and against an individual respondent.

Under FINRA Rule 13301(a), the FINRA director serves “the initial statement of claim on an associated person directly at the person’s residential address or usual place of abode.”  Alternatively, the director is to serve the statement of claim “at the person’s business address.”  Although the respondent was living in Switzerland at the time of the commencement of arbitration, FINRA served the statement of claim on what was the respondent’s former residential address in California.  The Post Office notified FINRA that the respondent’s forwarding address was in Switzerland, as did Wells Fargo.  Nevertheless, FINRA proceded to send various notices to the respondent’s former address in California.

FINRA then issued a default award against the respondent for $1.3 million, and the award stated that the “Arbitrator determined that [the respondent] was properly served notice of the Statement of Claim and Notification of the Arbitrator.”  Wells Fargo then arranged for a Swiss attorney to contact the respondent in Switzerland to demand payment.  The respondent then promptly filed a petition with the Superior Court to vacate the arbitration ward.  The trial court granted the petition on the ground that the respondent was not properly served and denied due process.  The Court of Appeal affirmed, rejecting Wells Fargo’s argument that the arbitrator’s finding of valid service was not reviewable under Moncharsh v. Heily and Blase(1992) 3 Cal.4th 1.  The court concluded, “Based on the unique facts of this case, FINRA’s procedure was unfair.”


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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