Bass, Berry & Sims attorney Chris Lazarini discussed a case involving an international family dispute over the holdings in a brokerage account. In this instance, the primary owner of the account – a mother living in Columbia – requested a fund transfer that was opposed by one of the other account holders – her daughter living in New Zealand. The arbitration panel’s Award required the parties to agree on monthly withdrawal amounts if the requests exceeded the amount set by the arbitrators. Plaintiff and Defendant cross-petitioned to vacate and confirm the Award under the Inter-American Convention on International Commercial Arbitration (the Convention) and the Federal Arbitration Act (FAA). The Court confirmed the Award, finding the mother failed to establish any of the statutorily authorized defenses to confirmation. The Court also found no federal question and no diversity of citizenship, and declined to exercise supplemental jurisdiction over the question of account ownership, an issue the arbitrators did not address.
Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
Gomez de Hernandez vs. Wells Fargo Advisors, LLC, No. 16 Civ. 9922 (S.D. N.Y., 7/20/17)
A party opposing confirmation of an arbitration Award under the Inter-American Convention of International Commercial Arbitration bears the burden of proving that a statutorily authorized defense applies.
After refusing a client’s request to close an account, Wells Fargo Advisors (“Wells”) finds itself in the middle of an international family dispute. In late 2007, Plaintiff opened a Wells account in which she deposited monies that had passed to her under Colombian law after her husband died. The account application listed Plaintiff as the “primary owner” and her son and daughter as other account holders. Plaintiff and her son live in Bogota, Colombia, while Plaintiff’s daughter lives in New Zealand. The account agreement stated that each account holder had authority to act individually, but also gave Wells sole discretion to require joint or collective action by all account holders.
When Plaintiff requested that the account be moved to UBS, Wells sought confirmation from the children, and refused the transfer request when Plaintiff’s daughter opposed it. In the FINRA arbitration that followed, Plaintiff sought an order declaring that she was the sole owner of the account and directing Wells to make the transfer. The Panel denied Plaintiff’s request for transfer and directed Wells not to disburse more than $7,500 per month unless all three account holders submitted a signed request. The Panel’s Award did not address Plaintiff’s request to be named the sole owner of the account, but the Panel denied “any and all claims for relief not specifically addressed” (FINRA ID #16-00455 (Boca Raton, FL, 10/17/16)).
Plaintiff and Defendant, respectively, cross-petitioned to vacate and confirm the Award under the Inter-American Convention on International Commercial Arbitration (the “Convention”) and the Federal Arbitration Act (“FAA”). Under the Convention, the Court notes, an arbitration Award must be enforced unless the party challenging it satisfies one of seven enumerated defenses, three of which Plaintiff cited. Plaintiff’s first argument was that the Award related to a dispute “not envisaged in the parties’ arbitration agreement.” The Court recognizes the duplicative nature of this argument vis a vis one that the arbitrators exceeded their powers under FAA §10(a)(4). Here, the Award was within the panel’s authority under the client agreement and the relief requested by the parties in their pleadings.
Plaintiff’s second argument was that the arbitration procedures deviated from the terms of the parties’ agreement because the panel did not rule on her request for declaratory relief and instead created a de facto trust. The Court disagrees, finding that the Panel did not create a trust. Instead, the Panel “arguably” applied the provision of the client agreement giving Wells sole discretion to require joint action by all account holders. It also directed the family to seek relief in court if they could not agree on monthly withdrawals of more than $7,500.
Plaintiff’s final challenge to confirmation of the Award under the Convention was that the Award violated public policy because it stripped her of her right to the assets she had inherited. The Court finds that the Award did not address ownership of the account and did not violate public policy. Instead, the Panel recognized the family’s right to resolve that issue in the courts. Finding no federal question and no diversity of citizenship, the Court declines to exercise supplemental jurisdiction over the question of account ownership, and confirms the Award.
*As would be expected, the Court finds no basis for vacatur under the FAA, either.
**A full text of the Convention may be found here.