Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_15-cv-00611/USCOURTS-azd-2_15-cv-00611-0/pdf.json

Nature of Suit Code: 896
Nature of Suit: Other Statutes - Arbitration
Cause of Action: 9:9 Motion to Confirm Arbitration Loan

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA

Douglas A. Haviland, 

Plaintiff, 

v. 

TD Ameritrade Incorporated, 

Defendant.

No. CV-15-00611-PHX-NVW

ORDER 

 Before the court are Plaintiff Douglas A. Haviland’s Motion to Confirm FINRA 

Arbitration Award (Doc. 1) and Defendant TD Ameritrade Inc.’s Motion to Vacate the 

FINRA Arbitration Award (Doc. 14). For the reasons that follow, Haviland’s Motion 

will be granted in part. 

I. BACKGROUND 

 The following facts are taken from TD Ameritrade’s Motion and the sworn 

Declaration (Doc. 14-2) of its attorney, Miles D. Hart, as well as exhibits attached to that 

Declaration. In his brief Response (Doc. 22), Haviland does not appear to contest the 

accuracy of TD Ameritrade’s factual assertions. Haviland’s Motion levels various 

allegations at TD Ameritrade and disputes several of TD Ameritrade’s facts, but these 

disagreements are largely irrelevant to the pending motions. Given the posture of this 

case, the parties have not had the opportunity to exchange discovery. The court will 

therefore assume that TD Ameritrade’s version of events is accurate. 

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 Haviland opened a brokerage account with a predecessor to TD Ameritrade in 

2001. (Doc. 14 at 4.) On July 13, 2005, TD Ameritrade executed for Haviland the 

purchase of 75,000 shares of Bancorp International Group (“Bancorp”), which sold for 

$0.0026 per share. (Id. at 5.) These shares were part of an issuance assigned No. 

05968X106 (“X106”) by the Committee on Uniform Securities Identification Procedures 

(“CUSIP”). (Id. at 3 & n.2.) TD Ameritrade held the stock in its name for the benefit of 

Haviland. (See id. at 4-5.) Later that summer, on August 16, 2005, the Depository Trust 

Company issued a “Global Lock” on Bancorp shares in its custody. (Id. at 7.) The 

Depository Trust Company is “the central securities depository and clearing agency in the 

United States operating under regulatory oversight of the SEC.” (Id. at 6.) Pursuant to 

its own rules, which are regulated by the Securities and Exchange Commission, the 

Depository Trust Company “determine[s] whether to accept a security as an ‘eligible 

security’ and when an eligible security ceases to be an eligible security.” (See id. at 7.) 

When it imposes a global lock, also known as a “freeze,” the Depository Trust Company 

“discontinue[s] all non-custodial services for a security.” (Id.) “[Depository Trust 

Company] participants such as [TD Ameritrade], issuers such as [Bancorp], and owners 

of issuers’ stock are bound by these restrictions. As a broker-dealer, [TD Ameritrade] is 

required, under FINRA Rule 11310, to use [Depository Trust Company] (and its parent) 

to clear electronic transactions.” (Id. (citation omitted).). 

 The SEC temporarily suspended the trading of Bancorp stock on August 31, 2005. 

(Id. at 8.) The SEC lifted the suspension on September 14, 2005, but on November 3, 

2009, it “revoked the registration of all [Bancorp] securities because of [Bancorp’s] 

repeated failure to satisfy its public reporting requirements.” (Id.) The Global Lock and 

the revocation both remain in effect. (Id. at 7-8.) At some unspecified time “after 

[Depository Trust Company] imposed the Global Lock,” Bancorp issued a second 

category of stock with CUSIP No. 05968X205 (“X205”). (Id. at 3, 8.) “These shares 

were not registered with the SEC and are not publicly traded.” (Id. at 8.) In February 

2012, Bancorp purported to “‘ . . . require the mandatory exchange’ of all existing 

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common stock certificates issued under CUSIP X106 for new certificates bearing CUSIP 

X205.” (Id.) The Financial Industry Regulatory Authority (“FINRA”), however, did not 

approve the exchange because “the stock was delisted in 2006 and the SEC revoked the 

registration of [Bancorp’s] stock in 2009.” (Id.) Accordingly, the Depository Trust 

Company “could not process the exchange.” (Id.) 

 On July 14, 2014, Haviland filed an arbitration claim with FINRA, asserting that 

in September 2011 he had “made a demand to [TD Ameritrade] to transfer [his] 75,000 

[Bancorp] shares into [his] name on the books of [Bancorp] and to deliver a certificate,” 

and that TD Ameritrade had refused in light of the Global Lock. (Doc. 14-2 at 1; Doc. 

14-3 at 4.) Haviland asked the arbitrator for an order compelling TD Ameritrade to 

transfer his Bancorp shares into his name and to deliver “a [Bancorp] stock certificate as 

proof of [his] registered ownership.” (Doc. 14-3 at 3.) The prayer for relief also 

contained the following request: “If [TD Ameritrade] do[es] not have the shares [it] can 

either buy-in the seller, or obtain my [Bancorp] shares from another source, or in the 

alternative, authorize me to buy-in for [TD Ameritrade] with a guarantee I will be 

reimbursed the purchase price and other costs for doing so.” (Id.) 

 TD Ameritrade agreed on July 31, 2014, to submit to arbitration of Haviland’s 

complaint. (Id. at 32-33.) The Submission Agreement provides that if the arbitrator 

issues an award, “a judgment and any interest due thereon, may be entered upon such 

award(s) and, for these purposes, the parties hereby voluntarily consent to submit to the 

jurisdiction of any court of competent jurisdiction which may properly enter such 

judgment.” (Id. at 32.) In its Answer and Affirmative Defenses, filed with FINRA on 

September 4, 2014, TD Ameritrade explained that it had already relayed Haviland’s 

request to the Depository Trust Company, which “could not (and cannot) honor 

[Haviland’s] demand as a result of restrictions it (DTC) placed on the security.” (Id. at 

36.) “Since [TD Ameritrade] has no control or authority over [Depository Trust 

Company],” TD Ameritrade wrote, “it is not able to provide [Haviland] with a 

certificate.” (Id. at 37.) 

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 The single arbitrator in the case read the parties’ paper submissions but did not 

conduct a hearing. (Doc. 14 at 9; Doc. 1-1 at 3.) In a March 12, 2015 Award, the 

arbitrator announced that TD Ameritrade “is liable for and shall pay to [Haviland] 

$205.00 in compensatory damages” and “must deliver to [Haviland] a physical share 

certificate for 75,000 Bancorp International Group, Inc. shares registered in [Haviland’s] 

name.” (Doc. 1-1 at 3.) The Award does not specify which type of shares—X106 or 

X205—TD Ameritrade is required to deliver. TD Ameritrade requested a correction 

from FINRA on March 20, 2015, to clarify the appropriate class of stock. (Doc. 16 at 3-

4.) But the time for a ruling from the arbitrator lapsed without any response, and so TD 

Ameritrade’s request was deemed “considered and denied” under FINRA rules on April 

9, 2015. (Doc. 14-2 at 6.) That same day, TD Ameritrade paid Haviland the monetary 

portion of the Award. (Id.) 

 Haviland, a resident of Scottsdale, Arizona, moved to confirm the arbitrator’s 

award in this court on April 6, 2015. (Doc. 1.) TD Ameritrade filed the present Motion 

on May 15, 2015, asking the court to set aside the arbitrator’s Award on the grounds that 

1) the Global Lock made it impossible to transfer X106 shares to Haviland and 2) transfer 

of unregistered X205 shares would violate the Securities Act of 1933. 

II. LEGAL ANALYSIS 

 If an arbitration agreement does not specify the court in which a party may apply 

to confirm the award, “then such application may be made to the United States court in 

and for the district within which such award was made.” 9 U.S.C. § 9. A motion to 

confirm may also be brought “in any district proper under the general venue statute.” 

Cortez Byrd Chips v. Bill Harbert Constr. Co., 529 U.S. 193, 195 (2000). At “any time 

within one year after the award is made any party to the arbitration may apply to the court 

. . . for an order confirming the award, and thereupon the court must grant such an order 

unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of 

this title.” See § 9. The district court may entertain the application as long as subject 

matter jurisdiction exists, which is not disputed in this case. 

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 Ordinarily, the court’s power to vacate, modify, or correct is narrowly 

circumscribed. Under § 10, “arbitrators ‘exceed their powers’ . . . not when they merely 

interpret or apply the governing law incorrectly, but when the award is ‘completely 

irrational’ or exhibits a ‘manifest disregard of law.’” Kyocera Corp. v. Prudential-Bache 

T Servs., 341 F.3d 987, 997 (9th Cir. 2003) (en banc) (citations omitted). Section 11 

similarly “afford[s] an extremely limited review authority.” See id. at 998. “In sum, the 

Federal Arbitration Act allows a federal court to correct a technical error, to strike all or a 

portion of an award pertaining to an issue not at all subject to arbitration, and to vacate an 

award that evidences affirmative misconduct in the arbitral process or the final result or 

that is completely irrational or exhibits a manifest disregard for the law.” Id. at 997-98.

 “Nevertheless, the purpose of federal arbitration law is ‘to make arbitration 

agreements as enforceable as other contracts, but not more so.’” Am. Postal Workers 

Union v. U.S. Postal Serv., 682 F.2d 1280, 1286 (9th Cir. 1982). “It is a general principle 

of contract law that courts will not enforce contracts requiring the performance of an 

illegal act.” Id. Accordingly, although § 9 makes no mention of illegality as a basis for 

vacatur, modification, or correction, “the courts cannot enforce an arbitrator’s award if it 

requires the performance of an illegal act.” Id. 

 Were TD Ameritrade to deliver to Haviland a certificate for 75,000 Bancorp 

shares, that certificate would have to reflect stock with either CUSIP No. X106 or CUSIP 

No. X205. Section 5 of the Securities Act of 1933 makes it unlawful to “offer to sell or 

offer to buy . . . any security, unless a registration statement has been filed as to such 

security.” 15 U.S.C. § 77e(c). It also prohibits selling, or delivering after sale, any 

unregistered security. Id. § 77e(a). Because the X205 shares are not registered with the 

SEC, and because TD Ameritrade does not have any of those shares in its possession, 

acquiring X205 shares to transfer to Haviland would require TD Ameritrade to “offer to 

buy” and then to deliver a security for which no “registration statement has been filed.” 

That is, delivery of a certificate for X205 shares would require “the performance of an 

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illegal act.” Am. Postal Workers Union, 682 F.2d at 1286. To the extent the arbitrator’s 

Award requires delivery of a certificate for X205 shares, it is unenforceable. 

TD Ameritrade acknowledges in its Reply (Doc. 24) that the ban on offering to 

buy unregistered securities does not apply to “any security which is issued in exchange 

for one or more bona fide outstanding securities, claims or property interests, or partly in 

such exchange and partly for cash, where the terms and conditions of such issuance and 

exchange are approved, after a hearing upon the fairness of such terms and conditions at 

which all persons to whom it is proposed to issue securities in such exchange shall have 

the right to appear, by any court, or by any official or agency of the United States, or by 

any State or Territorial banking or insurance commission or other governmental authority 

expressly authorized by law to grant such approval.” 15 U.S.C. § 77c(a)(10). If this 

court determined after a hearing that the exchange of X205 shares for “bona fide 

outstanding securities, claims or property interests” were “fair,” then TD Ameritrade’s 

acquisition of those shares would not qualify as illegal, and the arbitrator’s Award could 

be confirmed. But Haviland does not mention this provision in his Motion or his 

Response, and he has not moved for a § 77c(a)(10) fairness hearing. Indeed, other than 

his suggestion in the arbitration complaint that TD Ameritrade “buy-in” shares from 

Bancorp—i.e., apparently a cash transfer, which is not permitted by the plain language of 

§ 77c(a)(10)—Haviland has not even proposed an “exchange” on which this court could 

conduct a hearing. Section 77c(a)(10) therefore cannot render an otherwise illegal act 

valid. 

 Given the holding in American Postal Workers Union, the court can confirm the 

Award only if it is construed to require TD Ameritrade to deliver a certificate for X106 

shares. TD Ameritrade has already done everything in its power to grant Haviland this 

portion of the relief awarded by the arbitrator. Namely, TD Ameritrade has directed the 

Depository Trust Company to transfer to Haviland a certificate reflecting 75,000 X106 

shares in Haviland’s name, but the Depository Trust Company has declined to do so. TD 

Ameritrade has no power to force such a transfer, and courts cannot order performance of 

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a condition with which it is impossible to comply. See Taylor-Edwards Warehouse & 

Transfer Co. v. Burlington N., Inc., 715 F.2d 1330, 1336 (9th Cir. 1983) (recognizing 

defense to breach of contract where “the thing cannot by any means be effected”). The 

court will therefore confirm the arbitrator’s Award, but only to the extent that TD 

Ameritrade must continue to make good faith efforts to transfer to Haviland a certificate 

recognizing ownership in his name of the 75,000 Bancorp X106 shares currently held by 

the Depository Trust Company. While the Global Lock remains in place, there is nothing 

more TD Ameritrade can do to effect this transfer. If and when the Global Lock is lifted, 

however, TD Ameritrade will be required by the Award, and by this Order, to request the 

transfer of Haviland’s X106 shares by the Depository Trust Company. TD Ameritrade is 

otherwise excused from attempts to comply with the arbitrator’s Award. 

 IT IS THEREFORE ORDERED that Defendant TD Ameritrade Inc.’s Motion to 

Vacate the FINRA Arbitration Award (Doc. 14) is denied. 

 IT IS FURTHER ORDERED that Plaintiff Douglas A. Haviland’s Motion to 

Confirm FINRA Arbitration Award (Doc. 1) is granted to the extent, and only to the 

extent, that TD Ameritrade must continue to make good faith efforts to transfer to 

Haviland a certificate recognizing ownership in his name of the 75,000 Bancorp X106 

shares currently held by the Depository Trust Company. 

 IT IS FURTHER ORDERED that the Clerk shall enter judgment in favor of 

Haviland and against TD Ameritrade, confirming the Award to the extent, and only to the 

/ / / 

/ / / 

/ / / 

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extent, that TD Ameritrade must continue to make good faith efforts to transfer to 

Haviland a certificate recognizing ownership in his name of the 75,000 Bancorp X106 

shares currently held by the Depository Trust Company. The Clerk shall terminate this 

case. 

 Dated this 25th day of June, 2015. 

Neil V. Wake

United States District Judge

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