NY State Judge Holds He Lacks Jurisdiction to Enforce FINRA Arbitration

On Friday, Nassau County Supreme Court Justice Stephen Bucaria vacated his own order given in February affirming a FINRA award, holding that in case of Exchange Act violations resulting in FINRA awards, the state court does not have jurisdiction to enforce it in a special proceeding.

In summing up his decision to vacate his earlier order, Bucaria wrote, “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.”

In the instant matter, a customer of Sloane and Westrock, a brokerage firm, had taken the firm before a FINR arbitration panel in 2009. The customer, Copperill, made a number of claims and allegations, including mismanagement, misrepresentation, fraud, and et cetera over a trade involving shares of the Agnico-Eagle Mines Ltd.

  

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Ultimately, the FINR arbitration panel awarded the customer, Copperill, a sum of about $500,000 in punitive and compensatory damages. FINRA also subsequently expelled Westrock from the securities industry.

Copperill brought an action in Nassau County Supreme Court to enforce the award. Primarily, the judge affirmed the award, but on Friday he claimed the state court did not possess jurisdiction in the matter. The judge said that the amount of punitive damages in the matter, “makes clear that the arbitrators found one of more of the Exchange Act violations, as opposed to mere breach of duty or good faith, or unjust enrichment.”

Bucaria reasoned, “Where FINRA finds an Exchange Act violation, a FINRA award in favor of the customer is a liability created by the Exchange Act … 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.”