Two brokers who claim Morgan Stanley misled them win back $5M arb award

Appeals court reinstates arbitration panel's ruling that had been vacated by lower court

Jul 2, 2014 @ 12:14 pm

By Mason Braswell

An appeals court has upheld an arbitration award of nearly $5 million for two brokers who claimed Morgan Stanley misled them during the firm's recruiting process.

A panel of appellate court judges in California unanimously overturned an earlier ruling in the Superior Court of San Diego County that had vacated the award. In the third decision rendered in the case, the Court of Appeal reinstated the award, denying Morgan Stanley's claims that a potentially biased arbitrator had interfered with the case.

“Although we conclude the arbitrator failed to make certain disclosures, these undisclosed facts could not cause an objective observer to doubt the arbitrator's impartiality,” wrote Judge Richard Huffman, in the opinion.

A spokeswoman for Morgan Stanley, Christine Jockle, said the firm disagrees and is still considering how to proceed after the ruling, which was issued Monday.

A lower court had originally vacated the award after Morgan Stanley argued that the industry arbitrator on the panel, who was a broker at a regional firm, failed to disclose his in-laws' ties to Morgan Stanley and the fact that his daughter allegedly had a brokerage account with Morgan Stanley.

But the appeals court disregarded the notion that any account she had at Morgan Stanley would have had an impact either way on her father's decision in the matter.

Mr. Huffman also denied the claims that the same arbitrator was biased against Morgan Stanley because the wirehouse recruited a son-in-law who worked at the same firm as the arbitrator. It tried to recruit a second son-in-law but was unsuccessful. Mr. Huffman wrote that Morgan Stanley was aware of those instances before the arbitration began.

“Morgan Stanley was aware of all the allegedly undisclosed facts prior to the subject arbitration,” he wrote. “These undisclosed facts could not cause an objective observer to doubt the arbitrator's impartiality.”

Mr. Huffman called the firm's argument “counterintuitive and speculative,” and noted that Morgan Stanley had asked the same allegedly biased arbitrator to sit on a panel in three other arbitration cases in which the firm was a party. Morgan Stanley, which won a substantial portion of at least one of those awards, did not contest the decisions in the other matters.

The underlying case stemmed from Todd Vitale and John Paladino's decision to leave UBS Wealth Management in 2008 and join Morgan Stanley. Prior to the move, Morgan Stanley promised that Mr. Vitale would be promoted to branch manager within a year and Mr. Paladino would take over his book of business, according to the opinion.

The promotion never happened, however, and the duo decided to file a claim for “breach of oral and written contract” with the Financial Industry Regulatory Authority Inc., according to the complaint.

Mr. Vitale still works at Morgan Stanley. George Miller, an attorney who helped represent the two brokers in arbitration, said Mr. Vitale decided to stay in part because he had been given an upfront loan that he would have had to pay back before it was forgiven.

Mr. Paladino is currently an adviser with Comprehensive Asset Management and Servicing Inc.

Neither responded to requests for comment. Their attorney during the appeals process, Jon Williams of Bordreau Williams, also did not respond to a message seeking comment.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Children of AI, and when they are coming to financial advice

Technology reporter Ryan Neal talks about the tremendous progress in artificial intelligence in other industries, and how its applications are slowly making headway in the advice sector.

Latest news & opinion

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

Cadaret Grant acquired by private-equity-backed Atria

75-year-old owner Arthur Grant positions the IBD for the 'next 33 years.'

SEC advice rule seeks to tighten reins on brokers

The proposed rule puts new restrictions on brokers, but it is still unclear how strongly the SEC is clamping down.

SEC advice rule hearing updates

Commission says a lot of work ahead, public will have 90 days to comment.

SEC advice proposal unveiling: Here's what to expect

Chairman Jay Clayton will initiate momentous action Wednesday, as the commission meets to debate a rule on broker and adviser standards.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print