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Mendelka v. Penson Financial Services, Inc.

United States District Court, S.D. New York

March 31, 2017




         Jerzy Mendelka, NDV Investment Company (“NDV”) and J.M. Property SP. Z.O.O. Sp.K. (“JM”) have filed a petition to vacate an arbitration award issued by the Financial Industry Regulatory Authority (“FINRA”). (Docket # 1.) Defendants Penson Financial Services, Inc. and Penson Worldwide, Inc. (collectively, “Penson”) oppose the petition, and move to confirm the Award. (Docket # 11.) None of the three petitioners is represented by counsel, including the two corporate entities.

         For the reasons explained, the petition to vacate the Award is denied and Penson's motion to confirm the Award is granted. The two non-natural persons, NDV and JM, may proceed only by an attorney admitted to practice in this Court. Because these entities have not appeared by an attorney, the Petition is dismissed as to them on the additional ground that they failed to prosecute this action.

         Mailed to Jerzy Mendelka 3-31-2017


         Certain facts relating to the underlying dispute are described only in Penson's memorandum of law without citation to any evidentiary support. Penson describes a dispute over events that took place from 2008 to 2011, during which time NDV's securities broker, Roman Sledziejowski of Trade Wall Street (“TWS”), transferred approximately $15 million from NDV's accounts at Penson without NDV's authorization. (Penson Mem. at 1-2.) The Petition describes NDV and JM as “Jerzy Mendelka's companies . . . .” (Pet. ¶ 1.)[1] Though the description is somewhat vague, it appears to be undisputed that Sledziejowski and TWS transferred the petitioners' funds out of Penson without petitioners' authorization. (See Penson Mem. at 1-2.) Petitioners appear to contend that Penson wrongly permitted Sledziejowski and/or TWS to do so. (Pet. Opp. Mem. ¶¶ 6-8.)

         Penson filed for bankruptcy in January 2011. In re Penson Worldwide, Inc., 13-10061 (LSS) (Del. Bankr.). JM and NDV filed proofs of claim in bankruptcy proceedings, and after unsuccessful mediation sessions, the bankruptcy court released the parties from the automatic bankruptcy stay in order to adjudicate their dispute through a FINRA arbitration. (Penson Mem. at 2.)

         All three petitioners filed a Statement of Claim with FINRA on January 30, 2013, seeking recovery from Penson for the purportedly unauthorized transfers. (Hanchet Dec. ¶ 11.) As summarized in the Award, petitioners brought claims of “respondeat superior, violation of FINRA rules, misrepresentation, fraud, omission of facts, breach of fiduciary duty and negligence.” (Hanchet Dec. Ex. 2 at 2.)

         The Petition is largely directed to the arbitrators' failure to issue a written explanation of the Award's reasoning. Under FINRA Rule 12514(d), “[a]t least 20 days before the first scheduled hearing date, all parties must submit to the panel any joint request for an explained decision under Rule 12904(g).” (Hanchet Dec. Ex. 8.) FINRA Rule 12904(g), in turn, requires that the “[p]arties must make any request for an explained decision no later than the time for the prehearing exchange of documents and witness lists under Rule 12514(d).” (Hanchet Dec. Ex. 9.) The “prehearing exchange” between petitioners and Penson concluded on April 2, 2016, at which time no party requested an explained decision from the arbitrators. (Hanchet Dec. ¶¶ 17-18.)

         The arbitration was conducted before a three-arbitrator panel from April 26 to April 29, 2016. (Hanchet Dec. ¶ 20.) After the record was closed, petitioners requested an explained decision from the panel. (Hanchet Dec. Ex. 1 at 859-60.) The panel's chair stated that “[n]o one has requested a reasoned answer” and that the time to do so was “at the time of the initial pre-hearing conference.” (Id.) The panel's chairperson then stated that it could provide a reasoned decision if the parties wished to pay $400, and petitioner Mendelka stated that “[w]e'll pay” for a decision unilaterally. (Id.)

         On June 20, 2016, the panel issued an Award that denied all of petitioners' claims. (Hanchet Dec. Ex. 2.) The Award did not include a written explanation of its reasoning. (Id.) It was five pages in length, not including signature pages. (Id.) It recounted the procedural history of the dispute, listed the parties' submissions and summarized the claims and relief requested. (Id.) As to the merits, the Award stated as follows:

After considering the pleadings, the testimony and evidence presented at the hearing, Claimant's post-hearing submission, the Panel has decided in full and final resolution of the issues submitted for determination as follows:
1. Claimants' claims against Apex are dismissed in their entirety with prejudice.
2. Claimants' claims against Penson are denied in their entirety.
3. Penson's request for attorneys' fees is denied.
4. Any and all relief not specifically addressed herein, including punitive and treble ...

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