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Anxious Arbitration Claimants Fail to Flay FINRA in Court: Habliston v. FINRA Regulation, Inc.
Posted on Categories Court Decisions, Securities ArbitrationTags , ,

By David C. Franceski, Jr.

*Absent a demonstration of actual injury, or imminent and impending harm, a challenge to an ongoing arbitration fails for lack of ripeness under Article III of the U.S. Constitution. **Under the doctrine of arbitral immunity, both arbitrators and the arbitration forum, itself, are immune from suit.

Habliston vs. FINRA Regulation, Inc., No. 15-2225 (D. D.C., 1/27/17).

A Rush to Court...

Plaintiffs, claimants in an ongoing FINRA arbitration alleging theft of monies from their deceased parents’ brokerage accounts, sued the FINRA arbitration forum. In the suit, they complained that the arbitrators were biased, that their procedural rulings had been unfair, that FINRA had failed to carry out its regulatory duties, and that the binding arbitration provisions of their brokerage agreements were void and unenforceable.

In response, FINRA moved to dismiss on multiple grounds, including lack of ripeness because the arbitration was ongoing, failure to join indispensable parties, arbitral and regulatory immunity from suit, absence of a private right of action for alleged 1934 Act violations, mootness, and that FINRA was not a state actor for purposes of plaintiffs’ §1983 claim. The Court grants the motion and dismisses the claims, finding that plaintiff failed to oppose and, therefore, conceded, most of FINRA’s arguments for failure to brief or respond to them, that the remaining claims are not ripe and that the FINRA arbitration forum is protected from suit by the doctrine of arbitral immunity.

... Goes Nowhere Against FINRA

The Court characterizes the ripeness claim as presenting the same Article III injury-in-fact issues as standing, but with a prudential aspect requiring the Court to balance “fitness for disposition” with the hardship to the parties of withholding decision. Here, because plaintiffs cannot demonstrate actual injury or imminent and impending harm, adverse consequences from withholding decisions, or a developed record of a constitutional violation, the claims are not ripe for review.

The Court further finds that the absolute immunity protecting judges, advocates and witnesses from harassment and intimidation, which has also been extended to administrative agencies and mediators, includes arbitral immunity and extends not only to individual arbitrators, whom the Court notes are the functional equivalent of judges, but to the arbitration forum as well. In so holding, the Court also rejects plaintiffs’ “unclean hands” argument, noting that such an exception “would swallow the rule.”

(D. Franceski: Though it disposes of plaintiffs’ §1983 claim on ripeness and immunity grounds, in a lengthy footnote, the Court, joining a number of other courts on the issue, also emphasizes that the claim fails because FINRA is not a “state actor” for purposes of §1983.)

(SLC Ref. No. 2017-08-02)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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