NEW YORK SUPREME COURT COUNTY OF NEW YORK -------------------------------------------------------------x MARK SAM KOLTA, Petitioner, -against- Index No.: KEITH EDWARD CONDEMI, Respondent. --------------------------------------------------------------x MEMORANDUM OF LAW IN SUPPORT OF PETITION AND MOTION TO VACATE ARBITRATION AWARD PURSUANT TO CPLR 7511 Barry M. Bordetsky Law Offices of Barry M. Bordetsky 570 Lexington Avenue, 24 th Floor New York, New York 10022 Tel. No.: (212) 688-0008 Email: barry@bordetskylaw.com 1 of 14
TABLE OF CONTENTS FACTS...1 THE LEGAL STANDARD...5 A. The Award Musts Be Vacated As It Was Procured Through Misconduct By FINRA And The Arbitrator In Manifest Disregarding The Law...6 B. The Arbitrator Exceeded Her Powers...9 CONCLUSION...10 2 of 14
TABLE OF AUTHORITIES CASE PAGE Application of Inyx, Inc. v. Urlich Bartke,...7 2008 WL 8675212 (Sup. Ct., N.Y. Cty. 2008) DM.C. Const. Corp. v. A. Leo Nash Steel Corp.,...7 51 A.D.2d 1040 (2nd Dept. 1976) rev d other grounds 41 N.Y.2d 855, 362 N.E.2d 260 (1977). Goldfinger v. Lisker,...5 68 N.Y.2d 225, 508 N.Y.S.2d 159, 161 (1986) Good Samaritan Hospital v. 1199 National Health & Human Services Employees Union,...9 69 A.D3d 721, 893 N.Y.S.2d 192 (2 nd Dept. 2010) Matter of Kowaleski...9 (N.Y. State Dept. of Corr. Servs.), 16 N.Y.3d 85, 917 N.Y.S.2d 82 (2010) Rockwell Global Capital, LLC v. Rotman,...6,7 2013 Slip Op 30921(U) (Sup. Ct., N.Y.Cty, 2013) Salvano v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,...5 85 N.Y.2d 173, 623 N.Y.S.2d 790 (1995) FINRA RULE PAGE 12800...7 13307(c)...3 13500...3 13505...3 13506...3 13507...3 13508...3 13514...3 13600...3 13800...2, 8 13800(e)...9 CPLR PAGE CPLR 7511(b)(1)...5 3 of 14
Petitioner Mark Kolta ( Petitioner ) hereby submits this Memorandum of Law in support of his motion and petition to vacate a Financial Industry Regulatory Authority, Inc. ( FINRA ) Dispute Resolution arbitration award rendered by arbitrator Krista Gotlieb (the Arbitrator ) on January 7, 2017 (the Award ) in the proceeding Keith Edward Condemi v. Mark Sam Kolta, (FINRA No. 15-01964) ( Arbitration ). The Award was rendered in contravention to FINRA Rules on the bare arbitration pleadings without hearing that would have allowed for an evidentiary submission. The Award must be vacated because: (i) it was procured through misconduct by the Arbitrator and is prejudicial to the rights of the Petitioner; (ii) FINRA and the Arbitrator exceeded their power or so imperfectly executed it that a final and definite award upon the subject matter was not made; and (iii) by ignoring FINRA rules, and also by not allowing opportunity for evidence and legal argument to be submitted, the Arbitrator manifestly disregarded the law. FACTS On or about July 27, 2015, respondent initiated the Arbitration by filing with FINRA a statement of claim ( Arbitration Claim ) relating to alleged acts and omissions of Mr. Kolta occurring in New York, New York. Affidavit of Mark Kolta, March 17, 2017 ( Kolta Aff. ) 6. At the time of the alleged acts and omissions, both parties were employed with Cetera Financial Group ( Cetera ). Id. 7. The Arbitration Claim sought damages as follows: (i) actual damages in the amount of $45,500; (ii) attorneys fees in the amount of $25,000; and (iii) filing fees in the amount of $600. Id. 8, Exhibit 2. 1 4 of 14
When this case was received by FINRA, it was identified as a Simplified Arbitration under FINRA Rule 13800 because the claim sought damages under $50,000. Id. 6, Exhibit 2; Id. 9. The relevant portions of the FINRA Rule 13800 applicable to the petition are: (a) Applicability of Rule This rule applies to arbitrations involving $50,000 or less, exclusive of interest and expenses. Except as otherwise provided in this rule, all provisions of the Code apply to such arbitrations. (e) Increases in Amount in Dispute If any pleading increases the amount in dispute to more than $50,000, the arbitration will no longer be administered under this rule, and the regular provisions of the Code will apply. If an arbitrator has been appointed, that arbitrator will remain on the panel. If a three-arbitrator panel is required or requested under Rule 13401, the remaining arbitrators will be appointed by the Director in accordance with Rule 13406(b). If no arbitrator has been appointed, the entire panel will be appointed in accordance with the Neutral List Selection System. As to 13800(e), FINRA makes it clear in its Arbitrator s Guide (the forums interpretation of the FINRA Code) that arbitrators, when faced with multiple pleadings that bring the dispute above $50,000: If any pleading increases the amount in dispute to more than $50,000, the arbitration will no longer be administered under the simplified rules, and the regular provisions of the Code will apply. Id. 23, Exhibit 8. The Arbitrator s Guide clarifies that the amount of the counterclaim is to be added to the amount of the originating claim to determine if the case is to remain in the Simplified Arbitration track. Id. On October 16, 2015, Mr. Kolta filed an Answer and Counterclaims. Of critical importance to this motion is the fact that the counterclaim sought an award of $35,000. Id. 11, Exhibit 4. With the additional pleading, FINRA had before it a dispute based upon the multiple pleadings that sought compensatory damages in a cumulative amount of $87,500. Id., Exhibits 2 and 4. Pursuant to the FINRA Code, with the addition of Mr. Kolta s counterclaims, the case was no longer permitted to continue as a Simplified Arbitration. Id. 9, Exhibit 3. Rather, pursuant 2 5 of 14
to the very arbitration code that serves as the basis for the arbitration agreement, FINRA should have, but did not, remove the case from the Simplified Arbitration track and administer this case under the regular provisions of the FINRA Code. Id., Exhibit 2. To be clear, this is not an instance where the FINRA received the Answer and Counterclaims of Mr. Kolta and indicated there were certain deficiencies, such as the failure to plead damages that was then not cured. Id. 14, Exhibit 5. Indeed, FINRA Rule 13307(c) provides for such an instance: The Director will notify the party making the counterclaim, cross claim or third party claim of any deficiencies in writing. If all deficiencies are not corrected within 30 days from the time the party making the counterclaim, cross claim or third party claim receives notice of the deficiency, the panel will proceed with the arbitration as though the deficient counterclaim, cross claim or third party claim had not been made. FINRA did not issue a deficiency notice to Mr. Kolta, and did not convert the arbitration into a regular arbitration despite the clear mandate of the Code. Id. Pursuant to the FINRA Code, what was required to take place was the following once the counterclaim for $37,000 was filed: (i) a pre-hearing conference call (FINRA Rule 13500) to set hearing dates; (ii) parties have the opportunity to conduct discovery (FINRA Rules 13505-13508); (iii) a prehearing exchange of documents and witness lists (FINRA Rule 13415); and finally (iv) a hearing on the merits must be held (FINRA Rule 13600). Id. 16, Exhibit 6. None of the required procedures set forth under FINRA Code was followed by FINRA, precluding Mr. Kolta from a fair hearing. Id. 17. There was no pre-hearing conference call. Id. There was no setting of discovery or hearing dates. Id. There was no discovery. Id. There was no pre-hearing exchange of witness and exhibit lists. Id. Nor was there a hearing on the merits. Id. 3 6 of 14
Instead, after failing to comply with its mandated procedures, this case sat with FINRA for approximately fourteen months. On January 7, 2017, the Arbitrator issued the Award solely upon the pleadings in contravention to FINRA Code 13800(e). Id. 19. As set forth in the Award, the arbitrator rendered her decision not just on the claims ( Respondent is liable and shall pay to the Claimant... ) but also on the counterclaims ( Respondent s counterclaim is denied in its entirety ). Id., Exhibit 1. After the Award was issued, Mr. Kolta informed FINRA the Award was issued in contravention to FINRA s own rules. Id. 21, Exhibit 7. FINRA s response should be troubling to this Court, as it defines a situation where the proverbial watchdog is not following the very rules it sets as the basis for the arbitration process that the parties are required to follow. The FINRA response, in relevant part, reads: Id. (emphasis added) Please note that the amount of the counterclaim was not added to the total amount of the customer s claim. Therefore, Respondent s counterclaim in the amount of $35,700.00 did not preclude the Claimant from continuing to proceed under the simplified rule. This statement from FINRA proves FINRA and the Arbitrator ignored Rule 13800(e) and FINRA s instructions in its Arbitrator s Guide regarding the rule that specifically delineates the fact that the amount sought in a counterclaim is to be added to the amount sought in the moving claim to determine whether cumulative damages figure removes the case from a Simplified Arbitration to one governed by the regular FINRA Code. Id. 23. By its response FINRA conceded it did not comply with its own rule and instruction. FINRA refused to comply with the very rules that it is tasked by the SEC to enforce, and in doing so, manifestly disregarded its own rules and permitted the Arbitrator to exceed her 4 7 of 14
authority and render the Award on the pleadings in contravention to the clear and unambiguous FINRA Code. As a result, Mr. Kolta has been prejudiced by FINRA s preclusion of his agreed upon rights afforded under the FINRA Code. FINRA and the Arbitrator removed from Mr. Kolta the opportunity to have a fair hearing to defend the claims and prosecute the counterclaims. The result necessitates the granting of the instant motion and petition. THE LEGAL STANDARD Under New York law a court shall vacate an arbitration award if it finds the rights of the moving party was prejudiced by: (i) corruption, fraud or misconduct in procuring the award; (ii) partiality of the arbitrator; or (iii) where the arbitrator exceeded her power so imperfectly executed it that a final and definite award was not made. N.Y. CPLR 75ll(b)(l). Petitioner recognizes courts normally defer to the decisions of arbitrators. Courts emphasize the goal of preserving the process of arbitration as opposed to second-guessing factual determinations by the arbitrators. Precisely because arbitration awards are subject to such judicial deference, it is imperative that the integrity of the process, as opposed to the correctness of the individual decision, be zealously safeguarded. Goldfinger v. Lisker, 68 N.Y.2d 225, 230, 508 N.Y.S.2d 159, 161 (1986). However, abrogation of an arbitration party s procedural and substantive rights under the agreed upon arbitration rules may be characterized as exceeding the scope of the arbitrator s powers. In such case, the award can be vacated even in the absence of prejudice. See Salvano v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 85 N.Y.2d 173, 183, 623 N.Y.S.2d 790, 795 (1995). The failure of FINRA and the Arbitrator to apply FINRA s procedural rules is evidence that FINRA and the Arbitrator exceeded their authority and exercised that authority imperfectly. In addition, the Arbitrator failed to allow for a hearing, discovery or the 5 8 of 14
submission of other materials and/or briefs, which demonstrates that the Arbitrator manifestly disregarded the law. Such violations of the FINRA Code - - by FINRA and the Arbitrator - - must be corrected by vacatur of the Award. As set forth herein in greater detail, the Award should be vacated because: (i) it was procured through misconduct by the FINRA and the Arbitrator and is prejudicial to the rights of the Petitioner; (ii) FINRA and the Arbitrator exceeded their authority by rendering a decision in contravention to clear rules they are required to follow; and (iii) FINRA and the Arbitrator manifestly disregarded the law. As a result of FINRA s and the Arbitrator s failures, Petitioner due process rights were prejudiced. A. The Award Must Be Vacated As It Was Procured Through Misconduct By FINRA And The Arbitrator In Manifest Disregarding The Law FINRA s and the Arbitrator s inexplicable failure to follow and enforce the FINRA Code forced the Arbitration to be improperly administered in contradiction to the clear and unambiguous arbitration rules agreed upon by the parties. This failure denied Mr. Kolta due process, including by withholding the prehearing procedures required, discovery, and a hearing, all to his substantial prejudice. These failures necessitate vacatur of the Award. This is not a case of first impression for this Court. This Court has previously vacated a FINRA arbitration award on almost identical grounds as presented here, ruling as to FINRA s failure to follow the FINRA Code regarding removing a case from the Simplified Arbitration track, that an Arbitrator s disregard of the fundamental right to be heard as recognized by FINRA s own rules leads this court to conclude that vacatur is warranted. Rockwell Global Capital, LLC v. Rotman, 2013 Slip Op 30921(U) (Sup. Ct., N.Y.Cty, 2013)(Bransten, J) citing Application of Inyx, Inc. v. Urlich Bartke, 2008 WL 8675212 (Sup. Ct., N.Y. Cty. 2008). 6 9 of 14
Affirmation of Barry M. Bordetsky, March 17, 2017 ( Bordetsky Aff. ), Exhibit 1. Rockwell is dispositive and controlling on the motion. Like the instant case, Rockwell was a respondent in a FINRA arbitration. Rockwell Global Capital, LLC, 2013 Slip Op 30921(U) at 1. That arbitration was filed in 2011 against Rockwell seeking $25,000 in damages. Id. Because of the dollar amount FINRA proceeded under the Simplified Arbitration track. 1 Id. p. 2. The respondent Rockwell filed an answer and counterclaim of $100,000. Id. FINRA failed and refused to remove the case from the Simplified Arbitration track, instead submitting the case to the arbitrator to rule on the pleadings. Id. An award was subsequently rendered against Rockwell. Id. p. 4. Rockwell petitioned to vacate the arbitration award on the grounds FINRA and the arbitrator manifestly disregarded the law and exceeded their authority by ignoring the language in the FINRA Code and failing to reclassify the case under the regular FINRA code. Id. p. 5. This Court in Rockwell held a counterclaim falls into the category of any pleading under FINRA rule 12800 and the failure to reclassify the arbitration pursuant to the regular provisions of FINRA resulted in FINRA and the Arbitrator exceeding their authority. Id. pp. 5-6. The Rockwell Court rightfully vacated the arbitration award, holding, in relevant part: Had the Arbitrator reclassified the Arbitration, as FINRA rules require, Petitioners would have been afforded the opportunity to conduct discovery, present evidence and have a hearing, rather than have the merits of their claims decided unexpectedly on the pleadings alone... the arbitrators disregard of the fundamental right to be heard as recognized by FINRA s own rules leads this court to conclude that vacatur is warranted.. Id. pp. 6, 7. 1 The Rockwell case involved a customer arbitration, with the Simplified Arbitration rule 12800 governing the case. Id. The 12000 series FINRA Code governs customer disputes, while the 13000 series FINRA Code governs industry disputes. FINRA Code 12800 and 13800 mirror each other. Bordetsky Aff. Exhibit 2. This Court may take judicial notice of FINRA s rules. See DM.C. Const. Corp. v. A. Leo Nash Steel Corp., 51 A.D.2d 1040, fn. 1 (2nd Dept. 1976) rev d other grounds 41 N.Y.2d 855, 362 N.E.2d 260 (1977). 7 10 of 14
The same result must take place here. Respondent in the Arbitration initiated the arbitration by and through the filing of the Arbitration Claim seeking damages in the amount of $45,500. FINRA preliminarily determined to categorize the arbitration as a simplified arbitration to be administered pursuant to the FINRA Rule 13800. FINRA Rule 13800 applicable to the petition (emphasis added) are: (a) Applicability of Rule This rule applies to arbitrations involving $50,000 or less, exclusive of interest and expenses. Except as otherwise provided in this rule, all provisions of the Code apply to such arbitrations. (e) Increases in Amount in Dispute If any pleading increases the amount in dispute to more than $50,000, the arbitration will no longer be administered under this rule, and the regular provisions of the Code will apply. If an arbitrator has been appointed, that arbitrator will remain on the panel. If a three-arbitrator panel is required or requested under Rule 13401, the remaining arbitrators will be appointed by the Director in accordance with Rule 13406(b). If no arbitrator has been appointed, the entire panel will be appointed in accordance with the Neutral List Selection System. Petitioner filed an Answer and Counterclaims seeking $37,500 in damages. Kolta Aff. 11. Both the FINRA Code 13800(e) and the Arbitrator s Guide dictates if any of the pleadings raises the amount in controversy in the entire case to over $50,000, the case is to be removed from the Simplified Arbitration track and set in the regular track pursuant to the FINRA Code. Kolta Aff. Exhibit 3. This never took place, because, as conceded by FINRA, the Arbitrator disregarded the amount of the counterclaims in contravention to the FINRA Code. Kolta Aff. Exhibit 7. Mr. Kolta was thus denied a fair hearing based upon the agreed upon terms of the arbitration code. Like Rockwell, here FINRA and the Arbitrator manifestly disregarded and ignored the FINRA Code, the very agreement and rules that govern the Arbitration, prejudicing Mr. Kolta 8 11 of 14
by precluding him from conducting discovery and having a hearing on the merits. Like Rockwell, this result necessitates vacatur of the Award. B. The Arbitrator Exceeded Her Powers The Arbitrator exceeded her power and manifestly disregarded the law in issuing the Award. An arbitrator exceeds his power if the award: (i) violates a strong public policy, (ii) is irrational, or (iii) clearly exceeds a specifically enumerated limitation on the arbitrator s power. Matter of Kowaleski (N.Y. State Dept. of Corr. Servs.), 16 N.Y.3d 85, 90, 917 N.Y.S.2d 82, 85 (2010) (award vacated because the arbitrator refused to allow the employee to interpose a defense proscribed by the law); accord Good Samaritan Hospital v. 1199 National Health & Human Services Employees Union, 69 A.D3d 721, 722, 893 N.Y.S.2d 192 (2 nd Dept. 2010)(vacating arbitration award on grounds arbitrator exceeded its authority by failing to following the parties clear an unambiguous arbitration agreement outside the scope of the arbitrator s specifically enumerated limitations). The procedural provisions governing the classification of arbitrations as set forth in the FINRA Code act as limitations on the arbitrator s power. The Arbitrator had an obligation to comply with FINRA Rule 13800(e) and remove the case from the Simplified Arbitration track. The Arbitrator did not comply with her obligation. The procedural rules at issue are clear, well-defined and applicable to the underlying arbitration. More troubling is the fact that FINRA and the Arbitrator appear to have known the rule, but intentionally disregarded it by not taking into consideration the amount of the counterclaim. Kolta Aff. Exhibit 7. The acts and omissions by FINRA and the Arbitrator resulted in them exceeding their authority based upon their manifest disregard of the law. Both FINRA and the Arbitrator failed 9 12 of 14
to comply with the proper procedures agreed upon by the parties, and thereafter, rendered the Award despite such egregious and substantive error necessitating vacatur of the Award. CONCLUSION For the foregoing reasons, the Award against Mr. Kolta must be vacated as it was rendered in clear violation of FINRA rules, constituting misconduct by FINRA and the Arbitrator with prejudice to Mr. Kolta; with FINRA and the Arbitrator exceeding their power and/or so imperfectly executing it that a final and definite award upon the subject matter was not made; and in disregard of the law. Dated: New York, New York March 17, 2017 Respectfully submitted, The Law Offices Of Barry M. Bordetsky By: _/s/ Barry Bordetsky Barry M. Bordetsky Counsel for Petitioner Mark Kolta 570 Lexington Avenue, 24 th Floor New York, NY 10022 Tel. No.: (212) 688-0008 Email: barry@bordetskylaw.com 10 13 of 14
NEW YORK SUPREME COURT COUNTY OF NEW YORK -------------------------------------------------------------x MARK SAM KOLTA, -against- Petitioner, Index No.: KEITH EDWARD CONDEMI., Respondent. --------------------------------------------------------------x NOTICE OF PETITION TO VACATE ARBITRATION AWARD PETITION TO VACATE ARBITRATION AWARD AFFIDAVIT OF MARK KOLTA AFFIRMATION OF BARRY M. BORDETSKY MEMORANDUM OF LAW IN SUPPORT OF MOTION TO VACATE LAW OFFICES OF BARRY M. BORDETSKY 570 Lexington Avenue, 24 th Floor New York, NY 10022 212-688-0008 Pursuant to 22 NYCRR 130-1.1, the undersigned, an attorney admitted to practice in the courts of New York State, certifies that, upon information and belief and reasonable inquiry, the conentions contained in the annexed document are not frivolous. Dated: March 17, 2017 Service of a copy of the within Dated: Signature: /s/ Barry M. Bordetsky Barry M. Bordetsky is hereby admitted. Attorney(s) for: Notice of Entry: that the within is a (certified) true copy of a in the office of the clerk of the within named court on duly entered Notice of Settlement: That an order of which the within is a true copy will be presented for settlement to the Hon. One of the judges of the within named court, on the day of 201 at. Dated: Yours, etc. 14 of 14