first line of defense in protecting investors he has c c s said if we cannot rely on firms and their principals to regulate their own employees to protect the investing public from unscrupulous representatives and undue burden is shifted on the regulatory authorities to police the industry raymond james had an associated person in its boston area branch office keogh who sold millions of dollars of illegal securities to the public he leveraged to who from home did they actually purchase where did that where did they make payment for their purchase the issuer was it's not clear in the record and it and the briefs kind ahead i think actually hedge a little bit right  to these investors f l was the person who was recommending the in a fin investment was he not to the investors his tax clients well the fair interpretation of those facts i believe in the presumption to be drawn is that affeldt was working for q that's manifest in the commission schedule to show that you're a customer of of raymond james or an associated person of raymond james and in i think it would be helpful for this presentation if you would walk us through referencing our union it was just released last week in u b s versus trillion clinic taking that definition of customer and telling us how your clients that that definition of custom your honor they are customers in that they did business with an associated person well but under our definition at page fourteen of the of the opinion it says that a customer has to purchase commodities or services from a been run member ok in the course of the members business activities now the course that involved a purchase from a bin remember in the course of raymond james his business activities this was totally a side business of chios it wasn't in the course of the members business activities as we've defined customer in this who does securities business right but we've defined customers in our kirlian case i mean we've we've we've changed the landscape for the poor circuit have we have centrelink and mean for circuit never had a definition of customer until last week need it patched together different relationships in the different cases but it never came out and defined customer and last week we defined it your honor i would i would argue that raymond james is in the business of selling james so how does how do your clients that definition of customer you could walk us through that i think you're going to have to do that in order to make your case today thank you your  raymond james is in the business of selling investment securities through agents through licensed representatives and it authorizes it registered representatives to sell securities and  the the business that a registered representative conducts pursuant to that authority is the business of the broker dealer c r definition in customer isn't talking to the folk the glasses are on what the investor is doing what is the investor doing is it purchasing commodities or services or on the pin remember in the course of the members business activities so and so not what raymond james is doing but what is the investor doing that's what's defining the relationship under our pinioning really planet the the the the touchstone in this analysis judge keenan is the duty to supervise and there is a duty to supervise pursuant to thirty ten that requires that's that's that's really general because that goes to maybe a relationship between the brokerage house and the individual broker but what i want to focus in on is is the customer as it's defined in the context of a brokerage setting ever almost every customer of a brokerage house that i know has an account with a brokerage house they open an account the account has a number generally it's about six to seven digits the number go the account number goes on and on  and the customer or the person dealing with the brokerage house gets monthly statements and bi annual statements and there's there's that kind of relationship between the touchstone of it is that there's some sort of account  that is in a sense a contractual relationship or maybe not fully about what it is so defines the the customer relationship and the the problem is they didn't have any account raymond james never opened an account with them they never opened an account with raymond james now that may not you know all these things tend to be multi factor test you know judges love to have seven or eight or nine factors in these kind of banks totality of circumstances we don't particularly give anybody any god sometimes but isn't the touchstone of the broker customer relationship whether an account is opened with the brokerage house no your honor that's not that's not the case the the the real point of reference i think is the arbitration agreement the arbitration agreement arbitrate i think you have to be a customer but you have to be the customer which is where the where the question is and courts have said including this court and i don't have said that customer does not require   these people didn't even think they were dealing with raymond james c c the difficulty is you know you you just can't i mean i love arbitration as much as the next person i mean i think that the federal arbitration act is a wonderful thing and that arbitration has many many advantages but the downside of it is you just can't jam someone in for someone and when they haven't agreed to it i mean that becomes just naked coersion independent of any basis in law i i agree with that and i believe that's exactly right but i believe your honor you taking an apparent authority type analysis you're putting the focus on the customer and what the customer believed in the customer thought in these ponzi scheme cases evidence in this record that there was a parent of already in this  about the absence of an account relationship and the customer's subjective beliefs as to who they were dealing with and i said it's not an apparent authority and now it's just that we're relying on here what we're relying on here is  ially it's an arbitration clause and it turns on the intention of the parties to it's a breach it's a contract analysis was goes back to we're right in the contract is between raymond james and because that case defines custom and i followed you on your argument quite frankly i thought that washington square perhaps would lead and lend you some support for the proposition that though because in that case there was no knowledge there was no even notification to the actual firm that in fact these were going on with an associated person they were men humans there and the issue here is negligent supervision we're talking about a forearm and so there is only a question of where will you go it doesn't mean ultimately you will win but that case last week define custom and when you go back to your seat if you can find someone to get that case for you you can help us out a little bit because there's no way we can decide this case in my view without consideration of that definition it has changed the game in my opinion but maybe you can help us and then go in another direction well i thank you judge when and i would ask leave to file a supplemental brief with the court's indulgence to address that case that certainly should have been brought to my attention and i didn't i did not see it i did not see it come out but brittonic to the point i was making regarding up the contract  s the parties understand since since two thousand and one courts have required federal members to arbitrate disputes with individuals with who had no account relationship with whom they had no dealings no transactional involvement of any kind simply on the basis that those individuals were doing business with registered representatives who ought to have been that raymond james and keogh would have deniability or will be was i felt a straw man know what was going on i think those are all the questions that one would ask and i think that every presumption has to be bent in i think that it arguably on did not make it as clear and so he took great plains to clarify that the country the contract has to stand on its own contract principles in only when you have that contract established do you have the presumption of arbor to ability that is the scope of the the subjects of the parties have agreed to arbitrate so that doesn't really help your analysis here that's i re with what you're saying but courts have found that the agreement entered into by raymond james voluntarily to become a finn remember contains an arbitration clause which non signatories can enforce it's a us supreme court case  in a t n t tech versus communicate the communication workers of america so there is a written arbitration agreement that requires raymond james to arbitrate disputes it is ambiguous because it says essentially only excludes from status as customer brokers and dealers but nevertheless courts have held that that is a binding in foresightful by have our definition of customer they weren't applying for your honor that i think the u b s case certainly clarifies on and consistent with the definition recently been published but then roy in the revenue regulatory noticed well fifty five  twelve fifty five which the court may have not seen it just came out a couple of weeks ago basically says exactly why do you just tell us working from the u b s case why in your view not in the course of raymond james his activities well i think the stipulation in the affidavit is established precisely that this dippy elations in there were seven i think there are two that are fairly critical to the court's analysis the six one says the defendants the dot understand that they were purchasing into thin or any other security from raymond james and it goes on to say the defendants did not understand they were purchasing in a thin from an agent whom they believed to be authorized to act on  of raymond james and there is you throughout the cases the analysis has been is there some nexus is there some connection between the customer and the member of the customer and an associated person you have to have that connection i think in u b s you've defined that connection in a very precise way it has to be commissions that arose from the transactions that in fact the associated person receipt actually i think the evidence is his wife received it he set it up because he knew that he couldn't be involved in this is a broker he set it up so i think his wife perceiv if you look at the the affidavits and the inference there is by his wife receiving it he didn't receive i wouldn't be so foolish as to say he didn't but it was set up that way he got a percentage of the conditions as  brokers your individual brokers that's part of the whole self regulatory emphasis that the new thang these days so what is suggested you're putting the cart before the horse you have to be a customer before you're entitled to the unilateral offer of buy securities company two to arbitrate if you're not a customer you don't has to be investment or brokerage advice given and compensation you pay you don't have to have an account there were a number of these claimants but that's one of the factors it certainly is if you've got in the count and to give you a very good example there were a couple of other claimants that mr chapman represented they had raymond james brokerage accounts raymond james had nothing to do with enough then but these people just by coincidence had raymond james broke e account that alone required raymond james to submit the if the if you have and if you if you have an account that automatically would make you a customer we think that's correct but if you don't have a car and don't have an account that doesn't automatically make you not a cost it does not and the court's reasoning in washington square you know i think is apropos says nothing in the language of the code excludes from the class of customers a member who believed they were dealing or a customer who believed they were dealing with a member or an associated person if these claimants in this case i believe that they were dealing with raymond james think i think and i've read the case so many times my brain is dizzy and but i think that there is something there because the court and its concluding comments but you are looking for something what we have here is we have a non broker tax lawyer i guess the judge will opt on not fact i guess he was trying to go with the lawyer fees as opposed to the commission fees on award it goes but you got someone here who is not a  who has clients from the states he's a tax type guy he has big money that class we need to invest some money and here you have this hero guy who's with raymond james and he so shakes with this  question is does the relationship lend itself to one who in fact is doing that that that even though it's not a direct purchase the fact he receives commissions i don't know how you say his wife get it but  typically they've got a common share those things but let's assume that fact that he's getting commissions that one million dollars a year what i mean what does that mean i mean not i don't understand if he is actually receiving commissions from these sales and he is working with raymond james right now jane doesn't know about it as a trial judge went to great lengths to say that no i think about as you say then what's the problem with trying this case on just the issue of negligent supervision in an arbitration form which when most part you guys kind of like that you really push for an arbitration forum but in this instance you gave some reasons below as to why you didn't think that was such a good idea but that but but quite why is that not getting into the ramp of at least a determination that there is something he or she used to work to do to reiterate my phrase you're putting the cart before the horse if these claimants are not customers then they can't go that route and when i want to make sure this this car is not too much before the horse because how are you going to determine they are customers if you don't look at the relationship and the relationship is determine well yes they are in a way as if you just got out and not just because they don't know what's going on knowing about else as the end of the inquiry or do you say let's look at what's going on here and in fact they may not be what we call someone who goes down to a local retailer that's a customer directly they have but in this world with cases like wash and square and others that are out there you don't have to have that kind of you don't have to actually go in and buy from this door except under this case that came out to see if some indication in order to be a customer but let me you know identify another area of concern for the cases frequently talk about the reasonable expectations of the broker the members and whether or not forcing arbitration would be contrary to those reasonable our expectations frustrate those i look at it from from two sides you know if you are my customer i have to arbitrate you if the customer is over here and doesn't have some reasonable expectation that they're dealing with my client the member that it certainly is but frustrating the expectations of then remembers that they are making some commitment to arbitrate those things that they don't have to arbitrate and there's no reliance here but that's the interesting point is if you if you're in a situation where the brokerage house is obligated to arbitrate with people that the brokerage house really doesn't even know exists and that you have to go through a number of links fro if we define the duty to arbitrate that broadly that you're going to get brokerage houses that are really reluctant to sign on to betray ssion agreements because they don't know what kind of exposure that's going to mean to unknown persons aft there so the the system depends upon two things number one protection of investors and that's critical but it also for the system to work you've got to to get brokerage houses to buy and of the system you know every business whether it's a car every business when it sounds a contract wants to have some forseeable limit to its exposion liability and otherwise it's that we're not going to get brokerage houses to protest a pay is not a danger it is a danger your honor and a supervision and negligent supervision as all torts require the existence of the duty and i haven't heard anything yet that suggests to me what raymond james is duty under negligent supervision theory is to to these investors well i don't and isn't that part of the problem that any part of how can you how can you create a basis for arbitration is crucial isn't it because there's such a tendency to make tort lawyers out of every contract to make breaches of contracts in the torts and to make all sorts of contractual relationships to to kind of planning process within within a business because the contract has a certain framework in the parties get to negotiate limits on liability and anything else they want to go share it with tort law  wide open you don't know what's going to hit you and you just you start transferring toward concepts or you started pouring toward concepts into this whole business and the you you  lose the structure of it don't you when you lose the structure you do a disservice to the reasonable expectations of the businesses and the birth of facial case out of the new eighth circuit it was interesting because you had a managing broker they were who was sued you would not buy a client but by some of the not you to use your words put in the heart of the cart before the horse again isn't that issue if we were to decide this case that would be decided in arbitration or it will be decided if we decide against you in a court of law question of duty and all of that of negligent supervision comes then the question here is is this a matter that must go to a nexus business has to do with terminating the definition of custom if there is a customer it doesn't matter what they sue for you have to operate is that correct and that's correct so the whole business of what the cause of action whether it's negligent supervision or whatever is really irrelevant because the only question here is from your perspective is was this a positive i do have a question on that the affleck person he received a it's not raymond james so they relied upon that they could have hired mr keogh they were introduced to him to have a met face to face with them they didn't hire him had they hired him even though this was an binoche to raymond james  a company farm such as raymond james prudent in this matter if this goes in the way you want to go they would know absolutely nothing about what their clients what their agents are doing it would make  don't you tell me you know that stuff because because otherwise it will be possible negligent supervision claim and then you have to create these customers will have to go to arbitration so the best way to do it is to not supervised  and it was you don't want to know you do want to know your honor because you're going to have rogue situations like this you are the exception and not the rule brokers make all kinds of reports to the  raymond james and another broker dealers and raymond james has a duty to look at that carefully as as the court did in the walnut securities case even though i think it came up with the wrong wrong result that it was not cases an interesting case it seems to cut the other way or some way it but i mean it seems to indicate in that case the course is you ought to look at the tax returns so you should have done something to see what was going on here but i hear what it seems to be indicating what we seem to be educating from your perspective is you don't look at the tax return you don't go and say to that agent have you been doing some outside business here that you should be doing you don't say those things because if you don't know then it will fit within this ram that these people  customers that he has this maybe tenuous relationship with i disagree with the premise but that's not a premise is actually a conclusion that i think is going to arise from the outcome of this case unless you tell me how it does it keep track of the of the of the brokers goings and comings and what the brokers doing remain high from any kind of irrespective of offer tracy there just a whole lot of the sanctions oh a lot of untoward of listening that lies out there with this kind of thing and there certainly are other industries i want to make sure i follow up on that because i think i'm totally in agreement with that totally in agreement with your perspective that they have this duty to supervise this agent knew about to go seems like to me about say and as a pretty high need to do that so if they have that duty then we've got these customers what we really ought to be looking at is all of these customers connected with keil because there's no question that this very strong relationship in which  if he is doing something then in the connection in terms of customer needs to see what is he doing with that is that our analysis as opposed to looking frying to connect to connect the customers directly with raymond james why do you have to connect it he's an associate you know he's not the member so you've got to connect the dots between keogh and the customers here yes but again the stipulations in the affidavits indicate that that connection was broken they chose not to hire to this great duty or whatever obligation to to to oversee correct i agree in part your honor and i thank you for the additional time you've given me but you know i still think under u b s you don't even have to get quite to that analysis but i think if you get to that analysis the evidence is on contradicted that there wasn't that connection between mr keogh and the claimants thank you very much your honor oh mr chapman we'd be happy to hear from you  appellant's need to be unfair arbitration to enforce a remedy under the federal code remedy his failure to supervise the evidence is that a raymond james representative so millions of dollars worth of illicit his e mail his correspondence incoming and outgoing correspondence which would have revealed what he was doing it an employer is required to censor each one of its agents e mails to see whether they're engaging in any transaction that might not be part of the in remembers ordinary business activity yes absolutely in fact it's written into the raymond james code of regulations and handbook that they have to look at every mail they're supposed to find out whether or not they're read their associated persons are engaging in securities law violations so they have to hire oversight people to investigate hundreds of people's daily e mail to question the content of that e mail there's a branch manager with that function there's an office of supervisory jurisdiction with that function and there's a client's office what if this person used this in another e mail account that's not a raymond james account would they work out of their home for this  what's with the duty there again all of those issues are addressed by the branch manager system they have they have that they were good or soft monitor any personal accounts they have as well i mean it seems to me you're imposing an impossible  situation on the employer with respect your honor i'm i'm simply telling you what the raymond james handbook and what the f c c regulations have required and i think that told you determine if the employee has any accounts or ho  using the firm's e mail tracking system that's the regulation and i think you even get to this question of duty in the us we did this we go your way on over to ability that's absolutely right but i wanted to just so just we were coming back once again i mean we can there are a lot of issues that hang around the periphery of the case but the whole question is whether there's a customer relationship and you know to be honest  seems very very attenuated i suppose keo receive the commissions from the sale of security but am i correct because i want to make sure i've been understand the point that the commissions were were paid by the issuer of the security and then some commissions were paid by the not by raymond james he received the commission from end of some commissions were paid by the issuer in a fan and also keogh remitted commissions an additional amount as additional compensation the raven james paid the commission raymond james did not raymond james was not in the loop ok good i mean it to me there's got to be some kind of nexus between the investor and that's what customer implies is that there's some kind of relationship between the brokerage house and the investor some kind of relationship and as i read these facts i basis we're just engaging in a really coercive fact which says we don't care what hell your contract reads we're going to force you to do this and you know when you start taking leave of contracts  statutes in everything then you know then then what authority do we have because we've we've left now a grounding in law i rulings have to be grounded in law and that means contract and statute and those sorts of things in the words in this contract customer presupposes a relationship that under the facts of this case either is not exist or not there or exist and in some h our definition of customer in u b s which has to be in the course of the members business activities of investment banking and securities and this wasn't in the course of raymond james's business activities of investment banking and securities you just haven't said how you fit that definition your honor let me let me just run about first to an earlier comment you made about the arduous nature of the supervision requirement well that's not that's right if i should not just simply to say though that when you have when you balance when you balance the hard i want you to conclude very quickly ok you can make one last statement but just make it concise circa pellets respectfully request that the trial court be reversed and the injunction lifted thank you very much