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Freedom Investors Corporation v. Kahal Shomrei Hadath and Sydney v. Pinter

February 7, 2012

FREEDOM INVESTORS CORPORATION, PLAINTIFF,
v.
KAHAL SHOMREI HADATH AND SYDNEY V. PINTER, DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge:

OPINION AND ORDER

Freedom Investors Corp. ("Freedom") has filed this petition for confirmation of an arbitration award pursuant to § 9 of the Federal Arbitration Act, 9 U.S.C. § 9. The award was entered in favor of Freedom and against Kahal Shomrei Hadath ("Kahal") and Sydney V. Pinter ("Pinter") on March 22, 2011. For the following reasons, the petition is granted.

BACKGROUND

Freedom is a securities broker-dealer and a member firm of the Financial Industry Regulatory Authority ("FINRA"). Kahal is a not-for-profit religious entity controlled by Pinter.

According to Freedom, Kahal opened a brokerage account ("the Kahal account"), directed and controlled by Pinter, with Leonard Dunn ("Dunn") of EZ Stock, Inc., in December 2003. Dunn subsequently joined Freedom, transferring his client accounts including the Kahal account. Southwest Securities, Inc. ("Southwest"), was Freedom's clearing firm, and Freedom extended margin credit from Southwest to the Kahal account.

In July 2008, Kahal and Pinter used margin credit to purchase 4,000 shares of preferred stock in Washington Mutual ("WaMu"). On September 29, 2008, however, the price of WaMu preferred stock plunged to one dollar per share, prompting a margin call by Southwest. When Kahal and Pinter failed to deposit additional funds in the Kahal account, Southwest liquidated the account's remaining holdings. Pursuant to its clearing agreement with Southwest, Freedom paid the remaining margin debt of $149,222.85. Freedom then sought recovery of this amount from Kahal and Pinter.

The parties submitted the dispute to FINRA Dispute Resolution ("FINRA DR") arbitration.*fn1 In accordance with FINRA rules, Freedom, Kahal, and Pinter each signed a "Submission Agreement" agreeing to be bound by the outcome of the arbitration. The FINRA arbitration proceeded with an in-person hearing on March 2, 2011. All parties attended.

The decision of the three-arbitrator panel issued on March 22, 2011 ("the Award"). The Award found Kahal and Pinter jointly and severally to Freedom for $149,223.00 in damages, plus interest at 8% from October 1, 2008 until March 22, 2011. It additionally ordered Kahal and Pinter jointly and severally to pay Freedom $5,000.00 as a sanction for failure to produce documents during the arbitration's discovery phase.*fn2 Finally, it denied in full counterclaims that Kahal and Pinter had asserted against Freedom. FINRA delivered copies of the Award to the parties on March 22. Kahal and Pinter have thus far failed to comply with the Award.

On August 25, 2011, Freedom filed this petition to confirm the arbitration award entered in its favor on March 22. The summons and complaint were served on Kahal and Pinter on September 26. By Order of October 12, Freedom was instructed to serve any additional materials in support of its petition by October 25, and Kahal and Pinter were instructed to serve any opposition to the petition by November 15. No opposition was received by the Court on or before November 15.

On November 22, Freedom filed reply papers, and included in its reply was a copy of a faxed letter Freedom stated it received from Pinter on November 22. While the letter was faxed to Freedom's counsel, it is addressed to the Court. Pinter states that he "would like to have the opportunity to articulate in person why the final judgment should not be entered against [Pinter] personally." The Court did not receive a copy of this letter directly from Pinter or from any party acting as Pinter's counsel.

By Order of December 21, the defendants were given a final opportunity to oppose Freedom's petition. On January 4, 2012, the Court received an undated letter from Pinter ("the January 4 Letter"), styled a "Motion for Oral Arguments to Set Aside Arbitration Award". Construing the letter as an opposition to Freedom's petition and a cross-motion to vacate the Award, the Court instructed the defendants to make any further submissions by January 13. No further submissions have been received. On January 27, Freedom opposed the motion to vacate.

DISCUSSION

In the January 4 Letter, Pinter lists several arguments for why Freedom's motion to confirm the Award should be denied and Pinter's motion to vacate the Award should be granted: (1) Dunn represented to the defendants "that the preferred stock is bankruptcy shock proof and that [Dunn] did the research and due diligence on this investment," and the defendants relied upon Dunn's representations; (2) Dunn "stressed any [sic] times that the preferred stock had no connection to the commons [sic] stock and [the defendants] had no reason to be apprehensive"; (3) Dunn "forged items on the initial application"; (4) the defendants lost more than $922,000 "based on the sole negligence" of Dunn; and (5) Dunn testified at the arbitration hearing that he had been "sanctioned by the SEC and suspended for misrepresenting [sic] other clients," information previously unbeknownst to the defendants. Additionally, Pinter seeks to vacate the Award on the grounds that during the arbitration hearing, Freedom's chief executive officer Joel Blumenschein ("Blumenschein") testified that he is a member of the FINRA Board of Governors. According to Pinter, he then requested that the three arbitrators on the FINRA panel recuse themselves. That request was presumably denied.

The FAA provides a "streamlined" process for a party seeking "a judicial decree confirming an award, an order vacating it, or an order modifying or correcting it." Hall Street Assocs. L.L.C. v. Mattel, Inc., 552 U.S. 576, 582 (2008). "Normally, confirmation of an arbitration award is a summary proceeding that merely makes what is already a final arbitration award a judgment of ...


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