Opinion ID: 867683
Heading Depth: 2
Heading Rank: 2

Heading: Arbitrations

Text: In May 2007, Paul and Marie Wahl, residents of northeastern Ohio, served upon BYA a Statement of Claim filed with the National Association of Securities Dealers, Inc. Department of Arbitration. 2 The Wahls received financial advice from B&G Financial Network, Inc., a corporation which provided financial and estate planning services and sold securities such as variable annuities and variable life insurance policies. BYA acted as the broker-dealer through which B&G sold several of its investment products. The complaint alleged the Wahls were sold unsuitable investment products and B&G financial advisors engaged in the 1 BYA argues Lloyds did not rely on the Prior Notice Exclusion as a basis for denying coverage before the district court, and, therefore, cannot now rely on the clause before this court. Schwartz v. Booker, 702 F.3d 573, 585 (10th Cir. 2012) (noting this court will not consider arguments raised for the first time on appeal). We need not resolve this argument because either the insuring clause or the Prior Notice Exclusion are sufficient to establish noncoverage in the event the claims at issue in this action relate back to claims arising prior to the policy period. See supra Part III.A.2. 2 NASD was succeeded by the Financial Industry Regulatory Authority, Inc., in 2007. NASD and NYSE Member Regulation Combine to Form the Financial Industry Regulatory Authority - FINRA (July 30, 2007), http://www.finra.org/Newsroom/NewsReleases/2007/p036329 (last visited April 11, 2013). -5- frequent replacement of annuities and other investment products to generate commissions for themselves to the detriment of the Wahls, a practice referred to as “flipping” or “churning.” The complaint also named as individual respondents Frederick Brandt, Kevin Farrar, Daniel Gergel, Michael Snyder, Sr., and Michael Snyder, Jr. BYA’s liability was predicated on various theories of agency liability and failure to supervise. The allegations in the complaint spanned the time period from 1999 to 2005. Approximately two months later, in July 2007, the Wahls amended their complaint to add an additional twenty-five claimants, also from northeastern Ohio, who similarly alleged respondents had sold them unsuitable investment products and had engaged in the flipping and churning of annuities. BYA’s liability was again predicated on vicarious liability and failure-to-supervise theories. The Amended Statement of Claim also named two additional respondents: Bruce Baxter and Fred Balser, Jr. It justified the styling of the complaint as a multi-party proceeding by citing NASD Rule 12312(a), which provides: One or more parties may join multiple claims together in the same arbitration if the claims contain common questions of law or fact and: • The claims assert any right to relief jointly and severally; or • The claims arise out of the same transaction or occurrence, or series of transactions or occurrences. -6- The Amended Statement did not assert any right to relief jointly and severally. Rather, it asserted NASD Rule 12312(a) justified the joinder of multiple claimants because, inter alia: all claimants were former customers of B&G Financial, virtually all were targeted because they were at or nearing retirement age, all were sold unsuitable investment products and frequently encouraged to replace those products in order to generate commissions for respondents, all were subject to the same or similar misrepresentations, the majority of the claimants interacted with either Baxter or Balser, and all of the relevant transactions occurred during the same six-year span. Additionally, the Amended Statement asserted, “B&G Financial employed a business model in which all of its representatives worked together as a team with respect to each customer—i.e., all B&G agent/brokers shared equal responsibility for servicing each Claimant’s investment needs and a Claimant might meet with one or all of the individual Respondents.” The Amended Statement also alleged that joinder of multiple claimants and claims was necessary for it to be practicable for each claimant to seek a remedy because of the relatively small size of the individual damage claims. During the course of the proceedings in the Wahl arbitration, BYA filed a motion to sever the claims into separate arbitrations. The motion asserted the claims did not involve common questions of law and fact and the action involved claims from twenty different groups of investors purchasing at least thirty -7- different types of investment products from at least fourteen separate issuers. Claimants responded to the motion, in part, by referring back to the Amended Statement’s allegation that B&G utilized a team approach, in which all representatives shared joint responsibility for each customer and account. The arbitration panel denied the motion to sever without prejudice.
On September 22, 2005, Michael P. Knotts commenced a lawsuit in the Court of Common Pleas for Summit County, Ohio, styled Michael P. Knotts v. B&G Financial Network, Inc., et al. The allegations which formed the basis of Knotts’ state court lawsuit formed the basis for a complaint before the NASD Department of Arbitration approximately fifteen months later. On December 19, 2006, NASD Dispute Resolution notified BYA that it had been named as a respondent in an arbitration proceeding brought by Knotts, styled Michael P. Knotts v. Brecek & Young Advisors, Inc., et al. The Knotts Arbitration named as respondents BYA, B&G Financial Network, Daniel Gergel, and Michael Snyder, Jr. Knotts alleged the respondents fraudulently induced him to retire early to obtain a lump sum settlement from his 401(k) plan, sold him unsuitable investment products, churned his accounts, and failed to properly advise him as to the effect the September 11, 2001 terrorist attacks would have on his financial portfolio. Knotts alleged BYA was vicariously liable for the actions of the other respondents and that it failed to appropriately supervise the other respondents. -8-
On June 13, 2006, attorneys for Pauline and Donald Colaner served notice on BYA of their intent to bring a NASD arbitration proceeding against it. The action named as claimants Pauline Colaner, Donald Colaner, The Donald R. Colaner & Pauline F. Colaner Charitable Remainder Trust, and the Donald R. Colaner Family Trust. Named respondents included BYA, B&G Financial Network, Michael Snyder, Kevin Farrar, Frederick Brandt, and Daniel Gergel. The Colaners alleged the respondents engaged in the churning of variable annuities, provided unsuitable investment advice, and made fraudulent misrepresentations regarding their investments. They further asserted BYA was liable for negligently failing to supervise the other respondents in their dealings with the Colaners.