Hernandez, M. v. E Trade Securities

J-A05007-16
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
MARCUS HERNANDEZ IN THE SUPERIOR COURT OF
PENNSYLVANIA
v.
E*TRADE SECURITIES, LLC AND
FINANCIAL INDUSTRY REGULATORY
AUTHORITY, INC. AND MATHEW P.
DENN, ATTORNEY GENERAL FOR THE
STATE OF DELAWARE
APPEAL OF: MATTHEW P. DENN,
ATTORNEY GENERAL FOR THE STATE OF
DELAWARE
Appellee No. 1316 EDA 2015
Appeal from the Judgment Entered July 7, 2015
In the Court of Common Pleas of Montgomery County
Civil Division at No(s): 2014-06945
-------------------------------------------------------------------------------------
MARCUS HERNANDEZ IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant
v.
E*TRADE SECURITIES, LLC AND
FINANCIAL INDUSTRY REGULATORY
AUTHORITY, INC. AND MATHEW P.
DENN, ATTORNEY GENERAL FOR THE
STATE OF DELAWARE
No. 1639 EDA 2015
Appeal from the Judgment Entered July 7, 2015
In the Court of Common Pleas of Montgomery County
Civil Division at No(s): 2014-06945
J-A05007-16
BEFORE: OLSON, J., OTT, J., and STEVENS, P.J.E.*
MEMORANDUM BY OTT, J.: FILED JUNE 14, 2016
These consolidated cross appeals arise from the judgment that
resulted from the order entered on April 10, 2015, in the Court of Common
Pleas of Montgomery County, that granted in part, and denied in part, the
Petition to Confirm Arbitration Award filed by Designated Appellant Marcus
Hernandez (Hernandez), and the Petition to Vacate Arbitration Award filed
by Matthew P. Denn, Attorney General for the State of Delaware (Attorney
General).1, 2
Specifically, the trial court confirmed the Arbitration Award that
recommended expungement of seven customer complaints against
Hernandez’s securities license, and vacated the Arbitration Award regarding
____________________________________________
*
Former Justice specially assigned to the Superior Court.
1
Although the Attorney General and Hernandez brought their respective
appeals from the trial court’s April 10, 2015 order, the appeal lies from the
judgment entered as a result of that order, not from the order itself. See
Seay v. Prudential Ins. Co., 543 A.2d 1166 (Pa. Super. 1988) (42 Pa.C.S.
§§ 7320 and 7316 must be read in conjunction with each other; § 7320 sets
forth the general rule for order from which an appeal may be taken, while
§ 7316 mandates that judgment shall be entered on such orders).
Judgment was later entered on July 6, 2015. Therefore, the notices of
appeal relate forward to July 6, 2015. See Pa.R.A.P. 905(a) (stating notice
of appeal filed after announcement of determination but before entry of
appealable order shall be treated as filed after such entry and on day of
entry). We have therefore corrected the captions in the appeals.
2
Pursuant to Pa.R.A.P. 2136(a), Hernandez is the designated appellant in
these consolidated appeals, even though the Attorney General’s appeal from
the trial court’s April 10, 2015 order was filed prior to Hernandez’s cross-
appeal.
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expungement of one complaint, namely, the complaint made by Jeffrey B.
Horowitz, Trustee of the Horowitz Family Trust (“Horowitz complaint”).
Hernandez claims that the trial court erred in vacating the arbitration award
with respect to expungement of the Horowitz complaint. Appellee, Financial
Industry Regulatory Authority, Inc. (FINRA), asks this Court to uphold the
trial court’s order.3 The Attorney General contends that the trial court erred
in confirming the arbitration award as to the other seven customer
complaints.4 Based upon the following, we affirm.
Briefly, on December 24, 2013, an arbitration award was entered in
favor of Hernandez, a financial advisor, recommending expungement of
eight, publicly available, customer complaints that arose as a result of
investments sold by Hernandez during his employ with E*Trade. On March
28, 2014, Hernandez petitioned the trial court to confirm the arbitration
award, naming E*Trade and FINRA as respondents. Subsequently, the
Attorney General was granted leave to intervene and filed a petition to
____________________________________________
3
FINRA, in its brief, states: “Appellee, FINRA, appearing solely in its
regulatory capacity, seeks to uphold the Lower Court’s Order, which denied
expungement of a single customer complaint by Jeffrey B. Horowitz, Trustee
of the Horowitz Family Trust (“Horowitz complaint”) from Mr. Hernandez’s
Central Depository (“CRD®”) record. FINRA owns and operates the
electronic database CRD® from which Mr. Hernandez sought to have the
Horowitz complaint expunged.” FINRA’s Brief at 1.
4
We note that North American Securities Administrators Association, Inc.
(NASAA) has filed an amicus curiae brief on appeal and takes the same
position as the Attorney General. See NASAA Amicus Curiae Brief.
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vacate the arbitration award. On April 10, 2015, the trial court confirmed
the award regarding expungement of seven customer complaints; the trial
court vacated the award regarding expungement of the Horowitz complaint,
finding an “irregularity” in the arbitration because expungement of the
Horowtiz complaint had been previously litigated and denied.
The Honorable Richard P. Haaz has summarized in detail the
background of this case, as follows:
Hernandez is a financial advisor who was formerly employed by
E*Trade Securities, LLC (E*Trade) from 2006 through January
2008. Hernandez is registered as a general securities
representative with the Financial Industry Regulatory Authority,
Inc. (FINRA) and as a broker-dealer agent in Pennsylvania,
Delaware and other states. As part of FINRA’s regulatory
scheme, various forms and information are stored in a Central
Registration Depository (CRD). All customer dispute disclosures,
customer complaints and arbitration filings are stored in the
CRD. A limited amount of this information is available to the
public free of charge to allow investors to research investment
firms and individual brokers. FINRA requires brokers, like
Hernandez, to agree to arbitrate all customer dispute claims.
During his employment at E*Trade, Hernandez sold a[u]ction
rate securities (ARS) which are defined by FINRA as:
Long-term investments that have a short-term twist: the
interest rates or dividends they pay are reset at frequent
intervals through auctions, which typically occur every 7,
14, 28 or 35 days. Usually, these auctions also provide
the primary source of liquidity to ARS investors who wish
to sell their investment.
Eight customer complaints were made against Hernandez
relating to the sale of ARS during his employment with E*Trade.
Four of these were informal complaints which did not proceed to
arbitration or litigation. The remaining four complaints proceeded
to FINRA Dispute Resolution Arbitration. Two complaints settled
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before an arbitration hearing was conducted. The remaining two
complaints, made by Jeffrey B. Horowitz (“Horowitz”) and David
and Amy Wechsler (“Wechsler”), resulted in arbitration awards in
favor of the complainants in each case. All eight of these
customer complaints appeared on Hernandez’s CRD report.
Hernandez filed a “statement of claim” with FINRA on August 22,
2012 seeking to expunge all eight complaints from his CRD
record. He appeared before a FINRA arbitrator (“Arbitrator”) for
an expungement hearing on November 12, 2013. On December
24, 2013, the Arbitrator issued an award (Award)
“recommending” the expungement of all references to the eight
customer disputes on Hernandez’s CRD report.
On March 28, 2014, Hernandez filed a Petition to Confirm
Arbitration Award in this court pursuant to FINRA Rule 2080,
which states:
Members or associated persons seeking to expunge
information from the CRD system arising from disputes
with customers must obtain an order from a court of
competent jurisdiction directing such expungement or
confirming an arbitration award containing expungement
relief.
The Respondents to this Petition were E*Trade Securities, LLC3
and FINRA4 as required by FINRA Rule 2080. On May 12, 2014,
the Attorney General filed a Petition to Intervene which was
granted by the court on June 20, 2014. On July 1, 2014, the
Attorney General filed an Answer in opposition to Hernandez’s
Petition to Confirm and a Counter-Petition to Vacate Arbitration
Award arguing the award suffered from numerous irregularities.
On November 25, 2014, the Attorney General filed an Amended
Answer and Counter Petition to Vacate Arbitration Award, which
added the additional argument that the arbitration Award was
merely a recommendation and not a confirmable award.5
______________________________________________________
3
E*Trade filed an Answer stating it did not take a
position on Hernandez’s Petition to Confirm. [See also
Oral Argument N.T. 3/30/15, 40:15-45:6]
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4
FINRA filed an Answer and New Matter which opposed
Hernandez’s Petition to Confirm expungement of the
Horowitz complaint.
5
The Attorney General filed a Motion to Amend Answer
and Counter Petition which was contested. After oral
argument, the court granted the Attorney General leave
to file an Amended Answer and Counter-Petition.
________________________________________________________
On January 29, 2015, the Attorney General filed a Motion for
Summary Judgment, which requested the same relief in the
Amended Answer and Counter-Petition. Oral argument was held
before the undersigned on March 30, 2015. On April 10, 2015,
the court … vacat[ed] the expungement award with respect to
one customer complaint, that of Jeffrey Horowitz (“Horowitz”),
and confirmed that part of the award which expunged the
remaining seven customer complaints[.] [The trial court noted in
the April 10, 2015, order, that there was no need for a separate
order regarding the Attorney General’s motion for Summary
Judgment since its claim for relief was subsumed in the Counter-
Petition to Vacate Arbitration Award.]
Trial Court Opinion, 7/22/2015, at 1–4. The trial court explained that it
applied Pennsylvania’s common law arbitration standard, 42 Pa.C.S. § 7341,
and vacated the arbitration award as to the Horowitz complaint based upon
a “procedural irregularity” in the arbitration proceeding, specifically,
relitigation of the expungement issue in violation of collateral estoppel. See
id. at 14.
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The Attorney General filed an appeal and Hernandez filed a cross
appeal.5 As we have already noted, Hernandez is the designated appellant
pursuant to Pa.R.A.P. 2136(a). See Footnote 2, supra.
In the appeal at 1639 EDA 2015, Hernandez raises the following claim:
Where the arbitrator issued an Arbitration Award recommending
expungement of the Hororwitz Complaint, should the award be
confirmed where (1) the standard of review of arbitration awards
is very limited; (2) no party to the arbitration raised collateral
estoppel and/or res judicata as a basis to object to the
expungement of the Horowitz Complaint; (3) there is no basis
under the Federal Arbitration Act (FAA) to vacate the Arbitration
Award based on an alleged “irregularity”; and (4) in any event,
no “irregularity” exists since, at most, the arbitrator made [an]
error [of] law by failing to apply the principles of collateral
estoppel and/or res judicata (to the extent those principles even
applied).
Hernandez’s Brief at 3.
In the appeal at 1316 EDA 2015, the Attorney General raises two
claims:
Did the Trial Court err as a matter of law in granting (in part)
[Hernandez’s] Petition to Confirm, given that the Expungement
Recommendation that was the subject of the Petition to Confirm
is not a confirmable arbitration award for the reason that (a) the
underlying proceeding was not a valid arbitration, in that the
proceeding did not involve a dispute, or (b) the Expungement
Recommendation was not a full and final resolution of the claims
presented in that it only “recommended” the requested relief?
____________________________________________
5
The Attorney General and Hernandez both complied with the trial court’s
order to file a concise statement of errors complained of on appeal pursuant
to Pa.R.A.P. 1925(b).
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Did the Trial Court err as a matter of law or abuse its discretion
in denying (in Part) the Attorney General’s Counter-Petition to
Vacate the Expungement Recommendation, given that the
rendition of the Expungement Recommendation was irregular
within the meaning of 42 Pa.C.S. § 7341 because (a) relitigation
of the expungement of the Wechsler complaint was barred by
the doctrine of res judicata; (b) the Expungement Arbitrator
failed to adhere to the rules governing the Expungement
Proceeding; and (c) the parties whose truthfulness Hernandez
put at issue were not notified of or provided an opportunity to
participate in the proceeding?
Attorney General’s Brief at 5.
Preliminarily, we state our standards of review.
“Questions of law are subject to de novo review, and our scope of
review is plenary.” Moscatiello v. Hilliard, 939 A.2d 325, 327 (Pa. 2007).
“[W]e will reverse a trial court’s decision regarding whether to vacate
an arbitration award only for an abuse of discretion or error of law.” Joseph
v. Advest, Inc., 906 A.2d 1205, 1208 (Pa. Super. 2006).
Furthermore,
[t]he award of an arbitrator in a nonjudicial arbitration
which is not subject to statutory arbitration or to a similar
statute regulating nonjudicial arbitration proceedings is
binding and may not be vacated or modified unless it is
clearly shown that a party was denied a hearing or that
fraud, misconduct, corruption or other irregularity caused
the rendition of an unjust, inequitable or unconscionable
award. The arbitrators are the final judges of both law
and fact, and an arbitration award is not subject to
reversal for a mistake of either. A trial court order
confirming a common law arbitration award will be
reversed only for an abuse of discretion or an error of
law.
U.S. Claims, Inc. v. Dougherty, 2006 PA Super 337, 914 A.2d
874, 876 (Pa. Super. 2006) (internal citations omitted); 42
Pa.C.S. § 7341. “The appellant bears the burden to establish
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both the underlying irregularity and the resulting inequity by
clear, precise, and indubitable evidence.” McKenna v. Sosso,
1999 PA Super 299, 745 A.2d 1, 4 (Pa. Super. 1999).
Andrew v. CUNA Brokerage Servs., 976 A.2d 496, 500 (Pa. Super.
2009).
HERNANDEZ APPEAL
1639 EDA 2015
We first address the first and third arguments raised by Hernandez,
regarding the applicable standard of review. Hernandez contends that this
case “involves interstate commerce”6 and, therefore, the trial court should
have applied the Federal Arbitration Act (FAA) standard of review, 9 U.S.C. §
10, rather than the Pennsylvania common law standard under 42 Pa.C.S. §
7341. This identical argument, however, was rejected in Trombetta v.
Raymond James Financial Services, Inc., 907 A.2d 550 (Pa. Super.
2006).
In Trombetta, this Court held that the standards of review set forth in
42 Pa.C.S. § 7341 are not pre-empted by the standards outlined in the FAA:
[W]e believe the FAA standards of review cannot pre-empt the
Pennsylvania standards of review for arbitration awards unless
the Pennsylvania standards of review frustrate the underlying
objectives of the FAA, as standards of review are an inherently
procedural mechanism used to facilitate judicial resolution of
controversies after the underlying arbitration agreement already
has been enforced in accordance with the FAA.
____________________________________________
6
Hernandez’s Brief at 12.
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Id. at 568 (emphasis in original). This Court noted that “the primary
purpose of the FAA is to overcome judicial hostility towards arbitration,
without displacing state arbitration schemes, by giving arbitration
agreements equal standing with other contractual agreements [and]
requiring courts to enforce arbitration agreements pursuant to their terms.”
Id. at 569. This Court concluded “that the standards of review outlined in
42 Pa.C.S. § 7341 facilitate rather than impede the goals of the FAA,” id.,
and refused to apply the FAA therein.7 Accordingly, in light of Trombetta,
we find the FAA is clearly inapplicable.
The second and fourth arguments raised by Hernandez relate to his
contention that the trial court improperly vacated the arbitration award as to
expungement of the Horowitz complaint upon the basis of an “irregularity.”
Pursuant to Section 7341, common law arbitrations are “binding and
may not be vacated or modified unless it is clearly shown that a party was
denied a hearing or that fraud, misconduct, corruption or other irregularity
caused the rendition of an unjust, inequitable or unconscionable award.” 42
____________________________________________
7
The Trombetta Court also found that Section 10 of the FAA, setting forth
the federal standards of review, by its plain language only applies to
proceedings in United States district courts.
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Pa.C.S. § 7341 (emphasis added).8 Hernandez maintains there was no
“irregularity” in the arbitration with regard to the Horowitz complaint.
Hernandez argues there is no dispute that in the arbitration wherein
he sought expungement of the eight customer complaints, including the
Horowitz complaint, he followed the FINRA arbitration rules in a precise
manner. Id. at 15. He states he properly named as a respondent
E*Trade, his former employer responsible for reporting the customer
complaints on his license, and that E*Trade through counsel took no
position on the expungement of any complaints, including the Horowitz
complaint. Id. Hernandez points out that, although he was required to
name FINRA as a respondent in the trial court action for confirmation of the
expungement award, FINRA had no requirement that it be named in the
arbitration expungement proceedings.9 Id.
Hernandez points to the trial court’s statement in its decision that an
irregularity only occurs in connection with “the process employed in
reaching the result of the arbitration, not the result itself.” Hernandez’s
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8
As the trial court properly noted, the Pennsylvania common law arbitration
standard of review applied in this matter, “[s]ince there was no express
agreement to apply either state or federal statutory arbitration[.]” Trial
Court Opinion, 7/22/2015, at 8.
9
Hernandez notes that FINRA has recently provided updated guidance that
states “[w]hen an arbitration panel has issued an award denying a broker’s
expungement request, the broker may not request expungement in another
arbitration case.” Hernandez’s Reply Brief at 37.
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Brief at 17, citing Trial Court Opinion, 7/22/2015, at 13 (emphasis added).
Hernandez notes the trial court also recognized that “courts have generally
denied relief where an irregularity has been alleged ….” Id. Hernandez
asserts the cases cited by the court in support of its determination that an
“irregularity” occurred with respect to the Horowitz complaint are
distinguishable and involve procedural irregularities. Id. at 18. Hernandez
maintains that “[a]t most, [the arbitrator] committed an error of law by not
applying principles of res judicata and/or collateral estoppel.” Id.
In response, FINRA disputes Hernandez argument that “at most” the
arbitrator committed an “error of law” by not applying principles of res
judicata and/or collateral estoppel. FINRA asserts:
[T]his was not a minor casual mistake; in the current arbitration,
there was no party in interest to oppose the request for
expungement. Mr. Horowitz was not a party; FINRA was not a
party. The current arbitrator did not just ignore the Original
Award – he essentially nullified the original arbitration, where,
real parties in interest attended and argued the case before a full
panel that recommended expungement of others and
unquestionably, on the record before them, denied expungement
to Mr. Hernandez. Mr. Hernandez did not seek to vacate that
Original Award, which would be the only permissible legal
manner in which that Original Award could be diminished.
FINRA’s Brief at 12-13 (footnote omitted). Similarly, the Attorney General
responds:
[A] violation of res judicata rises above the level of a garden-
variety legal error. If the doctrine could be ignored, then an
arbitration party would be free to repeatedly submit a claim to
binding arbitration — experimenting with different evidence,
arbitrators and parties, over and over again — until they got the
desired result. Ignoring the preclusive effect of a prior arbitration
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is irregular within the meaning of 42 Pa.C.S. § 7341 because it
demonstrates ignorance of the law and indifference to justice (if
not bad faith). If allowed, it would lead to competing awards,
serial litigation, and other untenable consequences.
Attorney General’s Brief at 54.
The trial court analyzed the Horowitz complaint, as follows:
Horowitz filed his Statement of Claim on February 4, 2009
against E*Trade, Hernandez and three other individual
respondents. Horowitz requested relief in the form of
compensatory damages, specific performance by E*Trade,
punitive damages, costs and attorneys’ fees. The respondents,
including Hernandez, requested the dismissal of the Statement
of Claim in its entirety, the expungement of all references to the
claim and arbitration from the CRD records of the individual
respondents, costs and attorneys’ fees. An arbitration was held
from December 7-10, 2009. The arbitration award was issued on
February 3, 2010, and, among other things, awarded Horowitz
$93,953.60 in attorneys[’] fees and costs for which E*Trade and
Hernandez were jointly and severally liable. The award also
recommended the expungement of the CRD records of all three
of the other individual respondents but explicitly stated
“Respondent Hernandez’s request for expungement is denied.”
Hernandez claims that an exculpatory piece of evidence, a
voicemail from Horowitz, was excluded from this arbitration
because it was produced late by his counsel. Hernandez chose
not to file a Petition to Vacate the February 3, 2010 award which
denied Hernandez’s claim for expungement. Instead, he filed a
“statement of claim” thirty months later on August 22, 2012 to
seek expungement after the same issue was already decided on
its merits. Hernandez is collaterally estopped from raising the
same claim and benefiting from an opposite award.
Collateral estoppel applies if (1) the issue decided in the
prior case is identical to one presented in the later case;
(2) there was a final judgment on the merits; (3) the
party against whom the plea is asserted was a party or in
privity with a party in the prior case; (4) the party or
person privy to the party against whom the doctrine is
asserted had a full and fair opportunity to litigate the
issue in the prior proceeding; and (5) the determination
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in the prior proceeding was essential to the judgment.
Weissberger v. Myers, 90 A.3d 730, 733 (Pa. Super.
2014) (citation omitted).
In the instant matter, the issue of expungement of the Horowitz
complaint was fully litigated and a final decision was made on its
merits two and one-half years before Hernandez filed his
Statement of Claim. “An award of arbitrators from which no
appeal is taken has the effect of a final judgment. An unappealed
from award is final and estops the party against whom it is made
from proceeding further with the same cause of action.”
Ottaviana v. Southeastern Pennsylvania Trans. Authority,
361 A.2d 810, 814-15 (Pa. Super. 1976) (citations omitted).
An arbitration award will be vacated when “such bad faith,
ignorance of the law and indifference to the justice of the result”
occurs. Allstate Insurance Company v. Fioravanti, 229 A.2d
585, 589 (Pa. 1973) “In an arbitration proceeding, an
irregularity refers to the process employed in reaching the result
of the arbitration, not to the result itself.” Chervenak, Kean &
Co., Inc. v. Hotel Rittenhouse Associates, Inc., 477 A.2d
482, 485 (Pa. Super. 1984) Although courts have generally
denied relief where an irregularity has been alleged, certain
procedural irregularities here warranted vacatur of arbitration
awards. See Alaia v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 928 A.2d 273 (Pa. Super. 2007) (finding an irregularity
when an arbitration panel effectively altered a Statement of
Claim by entering an award against a party from whom
claimants had not sought relief and failing to enter an award
against a party from whom claimants had sought relief) ….
The second arbitration on the expungement of the Horowitz
complaint constitutes a procedural irregularity because it is a
repeat of the same arbitration proceeding previously decided on
its merits.
****
In the instant matter, all of the conditions giving rise to collateral
estoppel are clearly present. The identical issue whether the
Horowitz customer complaint against Hernandez should be
expunged was decided in the prior arbitration. The 2010 award
from the arbitrator was unappealed and, thus, a final judgment
on the merits. The party, Hernandez, against whom the doctrine
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is being asserted, was the same in both the 2010 and 2013
arbitration proceedings. Lastly, Hernandez had a full and fair
opportunity to litigate the issue in the prior proceeding.
****
Relitigating the previously decided issue of expungement of the
Horowitz customer dispute was precluded and constitutes an
irregularity warranting vacatur. Any other conclusion would
allow unlimited, repetitive arbitration proceedings without regard
to the finality or collateral estoppel. Thus, it was proper to
vacate the portion of the Award made on December 24, 2013
which expunged Horowitz’s complaint.
Trial Court Opinion, 7/22/2015, at 12–15 (footnote omitted).
Based on our review, we discern no abuse of discretion in the trial
court’s finding of an “irregularity” with regard to expungement of the
Horowitz complaint, based upon the fact that a prior arbitration panel had
denied Hernandez’s expungement request of the Horowitz complaint. In this
regard, we note:
[I]rregularity refers to the process employed in reaching the
result of the arbitration, not the result itself. A cognizable
irregularity may appear in the conduct of either the arbitrators or
the parties. Our Supreme Court has stated that the phrase
“other irregularity” in the process employed imports “such bad
faith, ignorance of the law and indifference to the justice of the
result” as would cause a court to vacate an arbitration award.
Toll Naval Assocs. V. Chun-Fang Hsu, 85 A.3d 521, 529 (Pa. Super.
2014), citing Allstate Insurance Company v. Fioravanti, 299 A.2d 585,
589 (Pa. 1973). “The phrase ‘other irregularity’ … is the most definitionally
elastic of the grounds for vacatur.” Fioravanti, at 589.
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Here, the arbitrator’s decision that allowed expungement of the
Horowitz complaint was based on evidence not presented at the earlier
arbitration.10 However, this justification was error since the consideration of
additional evidence permitted relitigation of the previously decided claim in
violation of collateral estoppel.11 As such, we conclude the Award evidences
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10
The arbitrator explained:
During [the Horowitz arbitration], Mr. Horowitz testified that he
listened to every voicemail and “if I heard the word ‘auction’ I
would have known I had the wrong security.” During the
expungement hearing, [Hernandez] played the recording of a
voicemail (which was not permitted into evidence in the Horowitz
arbitration because it was produced late by counsel) he left for
Mr. Horowitz, mentioning the word “auction” twice and stating
“we will be in Monday’s auction with 7 day paper.” Although
[Hernandez] lost the Horowitz arbitration and was required to
pay counsel fees (where this recording, and 4-5 other[s] like it
were not admitted), in a subsequent arbitration with [E*Trade]
where the recordings were admitted, the panel did not hold him
responsible for fees.
… [A]n award of expungement is justified in this case because
the recording of [Hernandez’s] voicemail to Horowitz, which was
excluded from evidence in [Horowitz] Case # 09-00708 below
and would have challenged the credibility of Mr. Horowitz’s
testimony, was admitted and subject to additional corroborating
testimony in this record.
Award, 12/24/2013, at 3–4.
11
As the trial court reasoned in its decision, the additional evidence
presented by Hernandez was not a valid reason for the arbitrator to reopen
the issue of expungement of the Horowitz complaint.
Hernandez’s claim that exculpatory evidence was not
introduced in the 2010 arbitration because of its untimely
(Footnote Continued Next Page)
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“ignorance of the law and indifference to the justice of the result.”
Fioravanti, supra, at 589. While Hernandez attempts to cast the collateral
estoppel issue as to the Horowitz complaint as “at most, an error of law,” the
cogent analysis of Judge Haaz fully supports its determination that an
irregularity warranting vacatur occurred in the arbitrator’s award as to the
Horowitz complaint. See Trial Court Opinion, supra. Accordingly, we
conclude there is no basis upon which to disturb the decision of the trial
court that vacated the award with respect to the Horowitz complaint.
ATTORNEY GENERAL’S APPEAL
1316 EDA 2015
The Attorney General first contends that the expungement award is
not subject to confirmation because the arbitration did not involve a
_______________________
(Footnote Continued)
disclosure by his own attorney is of no moment. As
previously stated, Hernandez did not file a petition to
vacate the 2010 arbitration award. Moreover, “The
binding effect of a former adjudication does not depend
upon the evidence or arguments presented. Inadvertent
omission of available evidence is never an acceptable
ground for a new action or a new trial. … Res judicata
encompasses not only those issues, claims or defenses
that were actually raised in the prior proceeding, but also
those which could or should have been raised and were
not.” Scott v. Mershon, 657 A.2d 1304, 1307 (Pa.
Super. 1995) (internal citations omitted).
Trial Court Opinion, 7/22/2015, at 15 n.8.
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“dispute” and because the award was only a “recommendation.” The
Attorney General takes the position that since the named respondent
E*Trade took no position in the arbitration proceeding, there was no
“dispute” and therefore there was no valid arbitration. The Attorney General
also contends that because the arbitrator used the word “recommend” in the
Arbitration Award, there was no Award that could be confirmed by the court.
We find no merit in these arguments.
Here, E*Trade was properly named as a respondent in the
expungement action, and could have objected to Hernandez’s expungement
requests. Moreover, even though E*Trade took no position on the
expungement requests, the arbitrator was free to deny relief as to any of the
complaints. See FINRA Rule 13805(c) (requiring arbitrators to indicate in
the arbitration award which of the FINRA Rule 2080 grounds for
expungement apply and to provide a brief written explanation). Accordingly,
we reject the Attorney General’s argument that there was no valid
arbitration because there was no “dispute.”
Likewise, the Attorney General’s argument that because the word
“recommendation” is used in the body of the Arbitration Award the Award is
not confirmable, is unavailing. The only Pennsylvania case cited by the
Attorney General is Fastuca v. L.W. Molnar & Associates, 10 A.3d 1230(Pa. 2011), which is not controlling since, as the trial court explained:
In Fastuca, the court held that the arbitrator’s findings in a
partnership dissolution claim did not amount to a final award
because they did not fully resolve the dispute between the
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parties. The arbitrator in Fastuca, unlike the instant matter,
retained jurisdiction and contemplated a future hearing to value
the partnership.
Trial Court Opinion, 7/22/2015, at 9.
Here, the arbitrator’s decision contains the heading “Award” in two
places, as well as introductory language that “the Arbitrator has decided in
full and final resolution of the issues submitted for determination as
follows,” explanatory language (as to the Horowitz complaint) that “an
award of expungement is justified in this case,” and concluding language
that “this instrument … is my award.” Award, FINRA Dispute Resolution,
12/24/2013, at 1–2, 4–5 (emphasis supplied). Notwithstanding the
arbitrator’s statement that “recommends” the expungement of eight
customer complaints, see id. at 2, ¶1, the wording of the arbitrator’s
decision clearly demonstrates that it was, in fact, an award of expungement,
and not a recommendation. Accordingly, we conclude the Attorney
General’s position that the arbitrator’s decision was not a confirmable award
is groundless.
Next, in the alternative, the Attorney General argues that if the
arbitration award was confirmable, the trial court erred in denying in part
the counter-petition to vacate the arbitration award. The Attorney General
maintains irregularities within the meaning of 42 Pa.C.S. § 7341 warranted
vacatur. Specifically, the Attorney General claims the Award was irregular
because (1) expungement of the Horowitz and Wechsler Complaints was
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barred by res judicata,12 (2) as to the remaining customer complaints, the
arbitrator failed to properly apply the applicable rules and standards, and (3)
the arbitration was conducted without notice to or participation of the
complainants.
We have already determined the Award was “irregular” as to the
Horowitz complaint. The Wechsler complaint, however, does not warrant
the same analysis. In the Wechsler arbitration, the claimants were David
and Amy Wechsler and the respondent was E*Trade Securities, LLC. The
arbitration resulted in an award favorable to the Wechslers. However, with
regard to the issue of expungement of the Wechsler complaint from
Hernandez’s securities license, the Wechsler Award stated:
[E*Trade’s] request for expungement of non-party Marcus
Hernandez’ CRD records is denied; [E*Trade] did not pursue the
request at the hearing.
Wechsler Award, 6/4/2010, at 2.
Unlike the Horowitz arbitration, Hernandez was not a named
respondent in the Wechsler arbitration; only E*Trade was named as a
respondent. The Attorney General, however, asserts Hernandez stood in
privity with his former employer, E*Trade, that E*Trade asserted
expungement relief on Hernandez’s behalf, and, therefore, Hernandez was
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12
The Attorney General notes that res judicata “encompasses two related,
yet distinct principles: technical res judicata and collateral estoppel. ….”
Attorney General’s Brief at 52–53, citing J.S. v. Bethlehem Area School
District, 794 A.2d 936, 939 (Pa. Cmwlth. 2002).
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collaterally estopped from relitigating issues decided in the FINRA
expungement proceeding. In support of this contention, the Attorney
General cites two cases. See Attorney General’s Brief at 56, citing Irizarry
v. Office of Gen. Counsel, 934 A.2d 143 (Pa. Cmwlth. 2007); and Penns
Valley Area Sch. Dist. v. Mid-State Constr. Inc., 14 Pa. D. & C. 5th 273,
283 (Pa. Com. Pl. 2010).
In Irizarry, supra, the Commonwealth Court found collateral estoppel
applied to a prior labor arbitration award and that Irizarry was barred from
litigating an action against the Office of General Counsel, because “[w]hile
the arbitration action was nominally between the Department and the Union,
Irizarry was in privity with the Union as the grievant in the action before the
arbitrator.” Id. at 152. In Penns Valley Area Sch. Dist., supra, in an
action by the school district for reimbursement of costs to replace a
defective gymnasium floor, the Centre County Court of Common Pleas
applied collateral estoppel to the issue of defective gymnasium floor that had
been litigated at prior arbitration, finding, inter alia, that subcontractor and
contractor “shared a contractual relationship and their interests in the
arbitration proceedings were substantially identical.” Id. at 283.
We find these cases to be non-binding and inapposite to the issue of
privity between a non-party and former employer. Although the Attorney
General contends that E*Trade represented Hernandez’s interests by
asserting an expungement claim on his behalf, and that Hernandez —
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through E*Trade — had a full and fair opportunity to litigate the issue of
expungement of the Wechsler complaint, we agree with the assessment of
the trial court, as follows:
The Wechsler complaint sits in a different posture
because Hernandez was not a named respondent in the
Wechsler’s statement of complaint. The Wechsler statement
of complaint was filed on May 19, 2009 solely against E*Trade.
An award was issued on June 4, 2010 in favor of the Wechslers
and stated “Respondent’s request for expungement of non-party
Marcus Hernandez’s CRD records is denied; Respondent did not
pursue the request at the hearing.” At the time of the hearing,
there was no privity between E*Trade and Hernandez because
Hernandez left E*Trade in 2008. The award clearly stated that
E*Trade did not pursue this claim for relief. The expungement
request claim was not fully litigated at the Wechsler arbitration
and the doctrine of collateral estoppel does not apply. Hence,
there was no irregularity with regard to the Wechsler arbitration.
Trial Court Opinion, 7/22/2015, at 15–16 (emphasis added). Accordingly,
we reject the Attorney General’s argument that the Award was irregular as
to the Wechsler complaint.
The Attorney General next claims that the Award is irregular as to the
six remaining customer complaints because the arbitrator failed to properly
apply the applicable rules and standards. Specifically, the Attorney General
relies on FINRA Rule 13805(c), which requires arbitrators to indicate in the
arbitration award which of the FINRA Rule 2080 grounds for expungement
apply and to provide a brief written explanation. In turn, FINRA Rule 2080
sets forth the following grounds for expungement:
(A) the claim, allegation or information is factually impossible
or clearly erroneous;
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(B) the registered person was not involved in the alleged
investment-related sales practice violation, forgery, theft,
misappropriation or conversion of funds; or
(C) the claim, allegation or information is false.
FINRA Rule 2080.
Here, the arbitrator’s Award of December 24, 2013, that
recommended expungement of the eight customer complaints, stated, in
relevant part:
Pursuant to Rule 13805 of the Code, the Arbitrator has made the
following Rule 2080 affirmative findings of fact:
The claim, allegation, or information is factually
impossible or clearly erroneous;
The registered person was not involved in the alleged
investment-related sales practice violation, forgery, theft,
misappropriation or conversion of funds; and
The claim, allegation, or information is false.
The Arbitrator has made the above Rule 2080 findings based on
the following reasons:
[Hernandez] left [E*Trade] before the 2008 Auction Rate
Securities (“ARS”) market freeze and had no knowledge of that
event prior thereto. Up until that point, based upon approximately
twenty years of performance, [Hernandez] properly believed and
told clients that ARS were a more conservative, AAA-rated
alternative to Certificates of Deposit, offering higher interest
returns. I further find, based upon this record, that these
statements to clients were not misrepresentations or investment-
related sales practice violations. Further, given the nature of
[E*Trade’s] operation and the fact that many of these eight
clients were first solicited by a Relationship Manager, and spoke
with Call Center Financial Advisors other than [Hernandez] while
trading with [E*Trade], there is no clear evidence that
[Hernandez] was the registered representative involved in many
of the transactions upon which the CRD complaints were based.
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Award, 12/24/2013, at 2–3.13
The Attorney General contends the arbitrator’s findings were
inadequate to discharge the Arbitrator’s obligation under the FINRA Rules.
We are not persuaded by this argument. Rather, our review confirms the
analysis of the trial court that rejected this claim, as follows:
Here, the Attorney General is asking the court to address the
merits of the case and hold that the Arbitrator’s facts do not
support his findings. The Attorney General describes numerous
findings as irrelevant and inadequate. … The Arbitrator made his
decision and explained his reasoning. The court cannot vacate
an award even assuming his logic or reasoning was flawed.
Trial Court Opinion, 7/22/2015, at 16–17.
Nor do we find merit in the Attorney General’s argument that an
irregularity occurred in the arbitration because the parties whose
truthfulness Hernandez put at issue were not notified of or provided an
opportunity to participate in the proceeding. There is no dispute that the
failure to notify or include the complaining customers did not violate the
FINRA Rules in effect at the time. See Trial Court Opinion, 7/22/2015, at
17. Therefore, the Attorney General’s final claim fails.
In sum, we find no merit in the argument of Hernandez that the trial
court abused its discretion in vacating the arbitration award as to the
____________________________________________
13
The arbitrator’s findings specific to expungement of the Horowitz
complaint are stated in succeeding paragraphs. See Award, 12/24/2013, at
3–4.
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Horowitz complaint. We also find no merit in the arguments of the Attorney
General that the court abused its discretion in confirming the other seven
customer complaints. Accordingly, we affirm.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 6/14/2016
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