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Securities Law

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Gavel 001 No Credit stockexpert image

NY state court says it can't enforce FINRA arbitration

12/3/2012 COMMENTS (0)

By Jessica Dye

NEW YORK, Dec 3 (Reuters) - A New York state judge has ruled he has no jurisdiction to enforce a nearly $500,000 arbitration award, saying the underlying claims brought by a customer against a brokerage firm appeared to be based on violations of federal securities law.

Nassau County Supreme Court Justice Stephen Bucaria held that William Copperill could only seek to enforce the award against Mitchell Sloane and his former brokerage firm Westrock Advisors Inc through a federal, and not a state, court. The award was handed down in 2011 by an arbitration panel of the Financial Industry Regulatory Authority.

In his ruling, Bucaria cited Section 27 of the Securities Exchange Act, violations of which fall under the exclusive jurisdiction of federal district courts.

The judge said the arbitration award in this case did not "expressly state which of the causes of action were sustained in finding" for Copperill, a customer of Westrock and Sloane. However, he said Copperill's claims, including unsuitable investing and breach of fiduciary duty, were Securities Exchange Act violations.

"Since the arbitration award is based upon liability created by the Securities Exchange Act, the court is without subject-matter jurisdiction to enforce the award," Bucaria wrote.

The ruling overturned a February 2012 order from Bucaria enforcing the award.

The judge gave Copperill leave to recommence the petition in federal court.

ARBITRATION PANEL

The underlying arbitration was initiated by Copperill against Sloane and Westrock in 2009. Copperill, who was one of Sloane's customers, alleged a variety of claims, including fraud, misrepresentation and mismanagement, in connection with a trade involving shares of Agnico-Eagle Mines Ltd, the ruling stated.

The FINRA arbitration panel awarded Copperill nearly $500,000 in compensatory and punitive damages in 2011. FINRA expelled Westrock from the securities industry that same year for not paying fines, according to regulatory filings.

Copperill brought an action in Nassau County Supreme Court to enforce the award.

In October, Copperill moved to restrain a brokerage account held by Sloane's wife. After requesting briefing for both parties on state courts' jurisdiction to enforce FINRA awards, Bucaria on Friday vacated his own February order affirming the award.

In his ruling, Bucaria said the panel's award of more than $211,000 in punitive damages "makes clear that the arbitrators found one or more of the Exchange Act violations, as opposed to mere breach of duty or good faith, or unjust enrichment."

"Where FINRA finds an Exchange Act violation, a FINRA award in favor of the customer is a liability created by the Exchange Act," he wrote. "Thus, a state court has no more jurisdiction to confirm such an award in a special proceeding than it would have to redress the violation in a plenary action."

A lawyer for Sloane, Allan Pullin, declined to comment. A lawyer for Copperill did not immediately return requests for comment.

Steven Caruso, a lawyer at Maddox Hargett & Caruso who represents investors in securities arbitration and litigation proceedings, said that the decision was an unusual one, since FINRA arbitration awards are routinely affirmed in state courts.

"The court is reading into these being Exchange Act violations -- the court says, those have to be Exchange Act violations," Caruso said. "But they are also absolutely state law claims."

The case is Copperill v. Sloane, Nassau County Supreme Court, no. 015723/2011.

For Copperill: Meyer Suozzi English and Klein.

For Sloane: Allan Pullin of Weber & Pullin.

(Additional reporting by Suzanne Barlyn)

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