Joinder of Claims - Opposing Severance in FINRA Arbitration

JOINDER OF CLAIMS – OPPOSING SEVERANCE

IN FINRA ARBITRATION

  by Charles M. Thompson

Note:     This paper has a little original thought by the writer.  However, much of the paper is based on accumulated contribution from many PIABA members over the last several years.  Use any of the following as you see fit.

INTRODUCTION

    As more Wallstreet products falter, the need to join multiple Claimants together has grown much stronger for many attorneys and their clients.  When such group claims are filed, Respondents generally argue that severance is necessary because of the need to assess each claim on its own merits, to avoid confusion of the issues and to prevent unfair prejudice.  The unspoken truth is that Respondents seek severance for different reasons.  Respondents seek to sever claims because allowing the claims to proceed together will often reveal to a Panel a hidden, yet strikingly pervasive, pattern of misconduct.  Moreover, Respondents are generally well aware that severance will impose expensive logistical burdens on Claimants which could effectively thwart, and in some cases effectually prevent, their ability to bring their claims individually.[1]  It cannot be overstated the positive effect that joinder has on a case for Claimants.  The “defense” of “he said – she said” is virtually destroyed.

  Respondents seek severance without any regard whatsoever for the delay and utter waste of resources that severance would cause.  To strike fear in arbitrators unwilling to hear a long arbitration case, Respondents oftentime exaggerate the length of any hearing of multiple Claimants in order to justify severance.  To sever a cluster of claims does not minimize hearing length.  Rather, severance increases the combined hearing time.

  Unlike Respondents, Claimants do not generally possess abundant litigation cash reserves.  Severance of claims would literally require that each and every Claimant prepare similar and sometimes identical cases on an unnecessarily wasteful and repetitive manner.  In addition, these severed claims create administrative problems for FINRA.  Excessive arbitration pools would have to be generated.  New arbitrators would have to be selected for each Claimant.  Put simply, an arbitration process whose legitimacy inheres in its “expediency” and “efficiency” could very well end up being wasteful, dilatory, and expensive, in addition to being against prevailing law.  Such a result is clearly prejudicial to Claimants and improper.

SEVERANCE HIGHLY IMPROPER

  In filing a claim involving multiple Claimants, their lawyer would be well-served to repeatedly aver common questions of law and fact amongst the Claimants; i.e. explain in detail how all accounts were composed principally of the same investments, the same firm, the same broker or office, the same causes of action, or the same period of time, etc.       Respondents often argue that the Claimants have not set forth sufficient facts to meet the standard enunciated in the Code of Arbitration Rule 12312(a), which provides for joinder of Claimants “if the claims contain common questions of law or fact and,” if they “assert any right to relief jointly and severally; or arise out of the same transaction, occurrence, or series of transactions or occurrences.”  Thus, Claimants should keep an eye on being sure that the conditions are fully satisfied:  (1) joint and several claims, (2) based upon the same or series of transactions (3) where questions of law or fact will arise in the hearing. 

  Be prepared for Respondents’ primary argument that the “true claim” of Claimants is based on suitability which requires individualized hearings.   It should be argued however that the suitability analysis of each Claimant is part and parcel of all arbitration claims, meaning that suitability is one of many issues in every case and is not to be considered as a primary determinant as to whether joinder is allowed under Rule 12312(a).  In arguing against Respondents’ assertion that “suitability” analyses compel severance, Claimants should take advantage of the opportunity to list and argue the common wrongs committed by the Respondent against all the Claimants.

THE LAW REGARDING PERMISSIVE JOINDER

IS UNEQUIVOCAL

  Rule 12312(a) is substantially identical to Rule 20 of Federal Rules of Civil Procedure. Where federal rules and its court-determined progeny are helpful to decision-making of arbitrators, such should be used in the arbitrators’ evaluation.  Rule 20, FRCP states in detail as follows:

All persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action. . . . A plaintiff or defendant need not be interested in obtaining or defending against all the relief demanded.  Judgment may be given for one or more of the plaintiffs according to their respective rights to relief, and against one or more defendants according to their respective liabilities (emphasis added).

  Applicable case law universally supports Claimants’ position of joinder.  As opposed to the inapplicable “cherry-picking” of citations often advanced by Respondents, the reality is that joinder is to be liberally allowed.  In the case of Gould v. The Cornelius Company, 258 F. Supp. 701 (1966), the court aptly stated the position as pertains to the joinder of plaintiffs:

In support of the joinder, the Plaintiff cites, inter alia, Boysell Co. v. Franco, 26 F.Supp. 421 (D.C.Ga. 1939) and Harman v. Scott, 183 F.Supp. 138 (D.C.Ohio 1960).  These cases support the general proposition that where the acts of defendants are joint and relate to the same article (securities in the instant case), the Court, in the interest of justice, can order the actions tried together.  The court endorses and approves of the liberal joinder provisions of the Federal Rules of Civil Procedure to avoid a waste of judicial effort (emphasis added). 

As referred to by the Gould court, there is a “liberal joinder” of parties plaintiff in order “to avoid a waste of judicial effort.”  Argue repeatedly the “liberal joinder” case law.

Faced with abundant case law dictating joinder, Respondents normally fail to site any convincing, applicable procedural law in support of severance.  Claimants’ counsel should take time to read the cases often espoused by Brokers.  Respondents primarily cite (i) class action law which is totally inapplicable and (ii) an occasional isolated case which is peculiar to its individual facts and esoteric at best.  On the other hand, there is abundant case law calling for the liberal allowance of joinder for efficiency purposes with the further provision that the claims do not have to be identical to one another.  In the securities case of Dougherty vs. Mieczkowski, Prudential-Bache Securities, Inc. et al, 661 F. Supp. 267 (1987), the court, declared as follows as pertains to Rule 20, FRCP, on joinder:

As this Court has noted, the Rule “does not require precise congruence of all factual and legal issues . . . . “  Mesa Computer Utilities, Inc. v. Western Union Computer Utilities, 67 F.R.D. 634, 637 (D.Del. 1975).  By its terms, Rule 20(a) only requires a single basis of commonality, in either law or fact, for the joinder to be acceptable.  See Mosley, 497 F.2d at 1334 (Rule does not establish “qualitative or quantitive test for commonality”). 

  Thus, as the Delaware court in the above mentioned Dougherty case clarified, there does not have to be mirror image claims of one another for Plaintiffs (Claimants) to join in a cause of action.  Dougherty further states that to determine if there is permissive joinder of parties, the substantive claims are to be looked to, to discover the necessary “unifying elements.”

FEDERAL COURTS AND THE U.S. SUPREME COURT

PROMOTE JOINDER OVER SEVERANCE 

  The Claimants’ attorneys should research joinder decisions in his or her own jurisdiction.  Since I am in the 11^th Circuit, as are most of our local arbitrators, I make an argument using principally case law from our Circuit and state.  As opposed to Respondent’s argument based upon unique facts in several isolated cases, Claimants should argue in support of their position their own Federal Circuit’s decisions as well as the U.S. Supreme Court holdings.  In my home jurisdiction, the seminal 11^th Circuit case of Alexander v. Fulton County, 207 F.3d 1303, (11^th Cir. 2000), provides applicable guidance.  In that case, eighteen employees of the Fulton County Sherriff’s Department brought suit alleging racial discrimination in their workplace.  All Claimants had experienced varying acts of discrimination by various means at different times.  The defendant filed a Motion to Sever arguing that permitting joinder would “confuse the jury and unfairly prejudice their defense.”  Id. at 1322.  The motion was denied and the Defendant appealed.  The 11^th Circuit reiterated the general rule that a party seeking joinder under Rule 20 may do so by asserting 1) a right to relief arising out of the same transaction or occurrence, or series of transactions or occurrences, and 2) (based upon) some question of law or fact common to all persons seeking to be joined.”  Id. at 1323.  The court further observed that “the United States Supreme Court has instructed the lower courts to employ a liberal approach to permissive joinder of claims and parties in the interest of judicial economy:  ‘Under the Rules, the impulse is towards entertaining the broadest possible scope of action consistent with fairness to the parties; joinder of claims, parties and remedies is strongly encouraged.”  (emphasis supplied)  Id. at 1323 (citing United Mine Workers v. Gibbs, 383 U.S. 715, 724 (1966).  With respect to the meaning of the terms “transaction or occurrence,” the Court stated that the term “[t]ransaction’ is a word of flexible meaning.  It may comprehend a series of many occurrences depending not so much upon the immediacies of their connection as upon their logical relationship.”  Id. (citations omitted).  Indeed “all ‘logically related’ events entitling a person to institute a legal action against another generally are regarded as comprising the same transaction or occurrence.”  Id.  (citations omitted).  See also oft-quoted Mosley v. General Motors Corporation, 497 F.2d 1330, 1333 (8^th Cir. 1974) (holding that the term “transaction” in Rule 20 includes “all reasonably related claims for relief by or against different parties to be tried in a single proceeding.  Absolute identity of all events is unnecessary.”)  (emphasis supplied).  Even a “pattern or practice” of conduct by a defendant or defendants may satisfy the first prong of the Rule 20 inquiry.”  Id. (emphasis supplied).

  With respect to the second prong of the Rule 20 inquiry, the 11^th Circuit further observed that the Rule “does not require that all questions of law and fact raised by the dispute be common, but only some question of law or fact be common to all parties.”  Id. at 1324.  The Court concluded that

[g]iven the common core of allegations, the substantial overlap of particular claims, and the logical interconnection of several of the different forms  that the alleged discrimination took, we are satisfied that the district court did not abuse its discretion in finding that the efficiency of a consolidated trial outweighed the potential for unfair prejudice or jury confusion.

  The above described cases are highly illustrative in at least two respects.  Firstly, they naturally help to clarify FINRA’s joinder rule.  Secondly, a comparison between the facts of the above cases and the facts of the Claimants lawyer’s instant case should be argued, including argument that for the panel to find severance it would be more than a “stretch” and an obvious break from the Supreme Court’s and the Federal Circuit’s mandate that joinder is “strongly encouraged.”

  At its most basic level, the purpose of the joinder rule is undoubtedly to promote judicial economy by permitting the joinder of plaintiffs (and Claimants) with the same grievances.  To the extent that multiple grievances are based on a similar set of facts, involve a common defendant (Respondent) and/or are simply smaller components of a larger pattern of deception or malfeasance, presupposed that such grievances are obviously proper candidates for joinder under Rule 12312(a) and its judicial counterparts.  It is clear that the claims of parties seeking joinder need not be mirror images of one another.  As long as the claims derive from a similar “pattern or practice” and involve “some question of law or fact,” joinder is proper.  Alexander, 207 F.3d at 1323.  To reiterate, the U.S. Supreme Court has stated in no uncertain terms that permissive joinder should be granted “liberal[ly]” and is “strongly suggested.”  Gibbs at 724.

  Despite this reality, Respondents continue to argue that joinder is inappropriate.  Respondents craftily write briefs.   Remember to read their cases.  They often do not stand for what the Respondent claims.  When analyzed, their arguments are weak, poorly supported and patently incorrect.  Respondents will continue to assert that Claimants possess highly-individualized claims based on separate purchases and sales transactions, the defense and resolution of which will require detailed and fact intensive inquiries into the transactions to be completed by each individual Claimant.  At best, these allegations demonstrate that Respondents are attempting to ignore the facts and applicable law of this case. 

  You must hammer away that the similarities among Claimants’ claims greatly overshadow the differences, realizing that Respondent will seek to paint a starkly different picture.  In essence, Respondents will draw the attention to vague distinctions between the histories and investment profiles of Claimants as illustration[s] of why joinder is improper for the whole group.  Respondents concentrating on the Claimants however is misdirected.  It is not the Claimants’ circumstance that is controlling under FRCP Rule 20 and R. 12312(a).  It is instead that the wrongful activity of Respondent requires (i) joint and several rights to relief, based upon (ii) the same series of transactions, (iii) involving common questions of law or fact. 

  Respondents often, though mistakenly argue, that a panel will be unable to keep the issues and facts straight in a hearing of multiple Claimants.  In short, Claimants’ counsel should use this argument as an opportunity to “deify” the panel that the reverse is true…pee on their leg about how little trouble they will have.  Claimants should contend that the Panel is most capable of hearing each of the Claimants’ stories - especially since all Claimants’ stories will be remarkably similar.

  Use your opportunity to point out to the panel the common acts of wrongdoing by the Respondent and the similar harm done to the “widows and orphans” you represent.  Argue that all the Claimants ultimately ended up losing a considerable amount of money through the total fault of the wrongful and ubiquitous practice of Respondent[2]. 

  The Claimant should insist that Respondents cannot possibly suggest with a straight face that your claims are not “reasonably related.”  The landmark case of Mosley v. General Motors Corporation, 497 F.2d 1330, 1333 (8^th Cir. 1974), as well as Alexander v. Fulton County, id, have wonderful language to help attorneys in arguing a pattern and practice.[3]   Also, refer to the most basic of law books -  BLACK’S LAW DICTIONARY  (7^th ed. 1999)(defining a “pattern” as “[a] mode of behavior or series of acts that are recognizably consistent.”).

BEHIND SEEKING SEVERANCE

  Put simply, what Respondents really seek to achieve through severance is to divide and conquer Claimants one by one.  The benefit of this strategy to Respondents is clear:  First, and most obvious, by forcing each Claimant to proceed individually imposes temporal and financial constraints that would not otherwise be present if Claimants were permitted to proceed as a whole.  Given the resources of some Claimants, these temporal and financial constraints could conceivably bar some from filing individual claims at all.  Secondly, forcing Claimants to proceed individually enhances Respondents’ ability to defend these cases.  While each of the joined claims clearly possess intrinsic merit, they remain subject to the traditional imaginary defense that it was the Claimant – not the broker – who was controlling the investment decisions.  This defense weakens significantly, however, if a number of similarly aggrieved investors join together and demonstrate the existence of a common pattern of misconduct by Respondent.

  Respondents rue the day that each of the joined Claimants takes the witness stand and recounts their similar experience before a Panel.  The Claimants’ attorney would do well to read Treece v. Hochstetler, 213 F.3d 360, 363 (7^th Cir. 2000) wherein the Seventh Circuit Court of Appeals recounted the basic test governing the admissibility of “similar fact” allowed into evidence under Federal Rules of Evidence 404(b).  According to the Court, evidence of a pattern of misconduct by a defendant is admissible when:

(1) the evidence is directed toward establishing a matter in issue other than the defendant’s propensity to commit the crime charged; (2) the evidence shows that the other act is similar enough and close enough in time to be relevant to the matter in issue; (3) the evidence is sufficient to support a jury finding that the defendant committed the similar act; and (4) the probative value of the evidence is not outweighed by the danger of unfair prejudice.

Id (internal citation omitted).  See also, U.S. v. Robinson, 161 F.3d 463, 467 (7^th Cir. 1998).

CONCLUSION

  Through severance of claims, Respondents seek to obscure the truth; not further it.  The vast amount of law requiring joinder, enhancing judicial economy and the pursuit of justice all literally shout in favor of joining claims.  Respondents’ severance motions are a transparent attempt to “hide the ball” and impede justice.

  Argue repeatedly that arbitration is supposedly an inexpensive way to settle disputes between the parties, and not a back-breaking division of the same claims into multiple and burdensome proceedings.  Point out that it would be bordering on the ridiculous to have the individual Claimants be required to have separate cases assigned.  It would be a ludicrous exercise for FINRA administrators to divide all of the cases into separate claims, set up separate files on each one of them, resubmit arbitrators’ lists to the parties for selection and then go through the unnecessary procedure of multiple pre-hearing conferences and schedules, duplicative case work and preparation, not to mention the unavoidable risk of inconsistent results.  Point out that there would be multiple conflicts in the parties’ availability, their attorneys’ availability as well as witnesses and experts’ availability, and that the only simple, logical and efficient manner to resolve a group of claims is to deny the Motion to Sever and leave the claims to proceed as one case. 

End your argument against severance by pointing out that precluding joinder would inevitably breed the precise type of waste and duplication that FINRA Rule 12312(a) and its judicial counterparts were enacted to avoid.