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An accomplished attorney who enjoys an enviable track record of success, Michelle Arbitrio litigates, tries and appeals complex professional, commercial, coverage, life insurance, ERISA and employment disputes in state and federal courts and defends securities arbitrations before the Financial Industry Regulatory Authority (FINRA).

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Uncertainty Remains for Financial Institutions’ Client Communications Under the TCPA

There has been an increase in lawsuits against financial institutions under the Telephone Consumer Protection Act (TCPA), and recent multimillion-dollar class action settlements raise significant concerns in the financial services industry regarding the efficacy of existing compliance protocols. One area of murkiness is the Federal Communication Commission’s (FCC’s) requirement that companies obtain “prior express written consent” for cellular telephone communications with customers. Specifically, financial services companies have requested that the FCC clarify issues concerning what constitutes “prior express written consent” and whether customers have the right to revoke consent after it has been provided.

The TCPA restricts telemarketing and limits the use of automatic dialing systems, artificial or prerecorded messages, texts and faxes used by businesses to advertise products and services to customers and collect outstanding debts. Pursuant to a change that took effect in October 2013, the TCPA requires written consent for most automated telemarketing communications. The TCPA specifically prohibits the use of an automated telephone dialing system or an artificial or prerecorded voice to make calls to cell phones without prior written consent of the party receiving the call.

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Court Opinion_ProflLiab_blog479208815The Second Circuit recently issued a single opinion for two cases [Goldman Sachs & Co. v. Golden Empire Sch. Fin. Auth., No. 13-797-cv (2d Cir. Aug. 21, 2014) and Citigroup Global Mkts. Inc. v. N.C.E. Mun. Power Agency, No. 13-2247-cv (2d Cir. Aug 21, 2014)], holding that a forum selection clause in a contract supersedes a broker-dealer’s obligation to arbitrate disputes with a customer under FINRA Rule 12200.

In each case, the agreements between the contracting parties contained similar forum selection clauses that applied to “all actions and proceedings arising out of … any of the transactions contemplated.” The forum selection clauses in the agreements clearly conflict with FINRA Rule 12200, which requires parties to arbitrate a dispute under the Code if (1) arbitration under the Code is requested by the customer, (2) the dispute is between a customer and a member, and (3) the dispute arises in connection with the business activities of the member.

The Second Circuit reasoned that since the agreements contemplated the transactions at issue in the case, the forum selection clauses were applicable to this dispute. The Second Circuit applied a “plain meaning” analysis and held that the phrase “all actions and proceedings” contained in the forum selection clauses includes “arbitrations,” reasoning that “arbitrations are regularly described as ‘proceedings’ by the United States Supreme Court, our Circuit, New York state courts, the C.P.L.R., and the FINRA Rules.”

In reaching its decision, the Second Circuit reconciled its prior conflicting decisions in Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278, 284 (2d Cir. 2005) (holding the forum selection clause did not supersede agreement to arbitrate) and Applied Energetics, Inc. v. NewOak Capital Mkts. LLC, 645 F.3d 522, 526 (2d Cir. 2011) (holding the forum selection clause superseded FINRA Rule 12200). The Second Circuit distinguished Bank Julius because it lacked language that provided that it “constitute[d] the entire understanding and agreement” because it stated that a customer “submits to the jurisdiction of any New York State or Federal Court” and that “any Action may be heard” in such court. The Second Circuit contrasted the Bank Julius language with that in Applied Energetics, which provided that “any dispute arising out of this Agreement shall be adjudicated in” New York.

The Second Circuit decision follows the Ninth Circuit decision in Goldman, Sachs & Co. v. City of Reno, 2014 WL 1272784 (9th Cir. Mar. 31, 2014), wherein Reno initiated a FINRA arbitration alleging common law and statutory claims against Goldman regarding underwriting and advising services that Goldman provided to Reno for auction-rate securities (ARS). The Ninth Circuit held that the forum selection clauses in the parties’ agreements trumped Goldman’s duty to arbitrate.

Customer advocates have criticized the Second and Ninth Circuits and questioned whether the forum selection clauses in broker-dealer contracts with customers also violate FINRA IM-12000, which states that it “may be deemed conduct inconsistent with just and equitable principles of trade and a violation of [FINRA Conduct] Rule 2010 for a member … to … (a) fail to submit a dispute to arbitration under the [FINRA Arbitration] Code.”

111854691In 2008, a few months before the $65 billion Madoff Ponzi scheme fell apart, the $3.65 billion Petters Ponzi scheme made headlines. Tom Petters told investors that they were financing the purchase and sale of consumer electronic goods when no goods existed. Rather, Petters used funds from new investors to pay off old investors. He and ten other individuals tied to the scheme have been convicted. Now, similar to the bankruptcy trustee in the Madoff case, Petters bankruptcy trustee Doug Kelley has formed a new international team of lawyers who specialize in asset recovery and who will attempt to claw back assets that can be linked to the Petters scheme.

Continue Reading Clawback Suit Targets International Investors