A federal court in Illinois rejected a motion to stop a Financial Industry Regulatory Authority (FINRA) arbitration hearing from being held virtually instead of in person. Legaspy v. Financial Industry Regulatory Authority, Inc., 2020 WL 4696818 (N.D. Ill. Filed August 13, 2020; signed August 12, 2020).
In February 2019, two individuals (the claimants) filed a claim with FINRA against Legaspy, Insight Securities, Inc. (Legaspy) and Pershing LLC (the respondents) to recover losses in their brokerage accounts. Due to COVID-19, FINRA canceled the in-person hearing and said it would be rescheduled by Zoom or telephone conference by agreement or by order of the arbitration panel.
The panel ordered the hearing to be held by Zoom on its originally scheduled date, and the respondents objected. Prior to the hearing, Legaspy brought suit against FINRA seeking a temporary restraining order to prevent the hearing from going forward. Legaspy argued that it should not be forced to present its case through a remote means and that a virtual hearing, among other things, would be unduly cumbersome and would deny it due process.
The district court began by observing that FINRA is not a proper defendant, because it is not a party to the FINRA submission agreement that the claimants and respondents signed. The court then noted that, even if FINRA were a proper defendant, Legaspy’s challenge of the decision to hold the hearing remotely was unlikely to succeed, because procedural matters are presumptively for the arbitrators, not the courts, to decide. “A federal court’s limited role is to ‘[r]eview . . . at the beginning or the end, but not in the middle’ of an arbitration.” Moreover, the court noted that the FINRA rules give the panel the authority to interpret and decide all provisions under the FINRA Arbitration Code—including the place and manner of the hearing.
Legaspy argued that, if the hearing were held remotely, FINRA would be denying Legaspy due process, but the court noted that FINRA is not a state actor and thus the due process requirements of the Fifth Amendment do not apply. In any event, the court saw no reason why a fair hearing could not be held by Zoom, and Legaspy’s argument that the hearing would involve many witnesses and an interpreter did not counsel otherwise. The court stated, “Remote hearings are admittedly clunkier than in-person hearings but in no way prevent parties from presenting claims or defenses.” Indeed, the court noted that it had conducted complex hearings remotely itself, including one in which an interpreter was used. The court also stated that Legaspy’s delay in bringing its motion—Legaspy learned that the hearing was going forward by Zoom on June 25 but did not bring its motion until August 11, a few days before the hearing was to begin—meant the equities did not favor it. In short, Legaspy failed to meet every requirement for obtaining a temporary restraining order.
