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Law360 (August 12, 2020, 8:24 PM EDT ) An Illinois federal judge said Wednesday that she would consider an Illinois securities broker's bid to block an upcoming arbitration hearing from proceeding over Zoom, but that he has "a steep hill to climb" as she weighs issues including whether she has jurisdiction over his lawsuit.
U.S. District Judge Joan Lefkow signaled during a remote hearing that she was leaning toward siding with the Financial Industry Regulatory Authority's argument that she has no jurisdiction over broker Carlos Legaspy's claim that the regulator exceeded its authority when it decided to conduct an Aug. 17 evidentiary hearing through Zoom rather than in person.
Legaspy's claim seems like "pretty much a classic case of federal courts deferring to the arbitrators on their own procedures under the Federal Arbitration Act," Judge Lefkow said. "That's what I said at the beginning, and what FINRA is saying is once you agree to arbitrate, then we turn you over to the arbitrators, and the court does not step in until the very end when it's decided, and then under very limited ... guidance," she said.
Nicholas Iavarone of The Iavarone Law Firm, who represents Legaspy, told Judge Lefkow that his client's problem is different because it arises from the arbitration agreement he entered with FINRA, not the FAA itself. Iavarone argued that FINRA should be forced to stick to the "time and place" it has authority to select under their agreement, and that the regulator should not be able to move the proceeding online without Legaspy's consent.
"There's no mention of a virtual hearing anywhere. Everything that my client agreed to and signed talks of a physical location," he told Judge Lefkow. "If it said 'place or manner,' then we would not be here, but it doesn't."
Judge Lefkow heard Legaspy's bid for a temporary restraining order against FINRA the day after he launched a lawsuit claiming the regulator's decision to conduct a Zoom evidentiary hearing is "unworkable." He said this was due to the need for a translator in the hearing for two Argentine natives who are former customers of Legaspy's brokerage and filed the underlying arbitration, and also because of the complexity of the issues.
Terri Reicher, FINRA's associate general counsel, argued during the hearing that Legaspy is not entitled to the temporary restraining order because "absolutely nothing" in the FAA gives a district court authority to overturn "what is essentially an interlocutory scheduling and location decision." A judicial role exists only in the beginning of a case when a court decides whether the matter is arbitrable, and at the end when considering any post-award relief, Reicher argued.
Even if Judge Lefkow found jurisdiction in Legaspy's suit, FINRA has violated no rules because the arbitrators have "the ultimate authority" to decide the time and place of a hearing, Reicher argued.
"If it becomes apparent that the parties cannot get a fair hearing … the parties are free to make that argument to the arbitrator and the arbitrator can consider that when determining whether to schedule further hearings," she said.
Judge Lefkow cited other issues she plans to consider in Legaspy's motion, including whether all necessary parties have joined his lawsuit and why Legaspy waited to sue until a week before the underlying hearing is set to begin if he had known about FINRA's remote plan since late June. She did not rule on Legaspy's motion from the bench, but said she would advise the parties of her decision either later Wednesday or Thursday.
Legaspy, his brokerage Insight Securities Inc., and Insight's clearing house are scheduled for an evidentiary hearing on Aug. 17 in the arbitration brought by two former Insight customers, according to the complaint filed in Illinois federal court. The former clients are Argentine citizens who speak no English and require an interpreter for the proceedings. They are seeking nearly $2.8 million, the suit said.
But Legaspy says a virtual hearing, which FINRA says is necessitated by the COVID-19 pandemic, is unfair and would damage his defense.
Legaspy said that FINRA decided to postpone all in-person hearings in June, but shortly afterward, the agency notified him that it would conduct the hearing in his arbitration over Zoom on its original August date. In a logistics teleconference in July, Legaspy objected to the upcoming Zoom hearing, citing complex issues, large numbers of witnesses, hundreds of exhibits and the need for an interpreter.
He also claimed that there's "no reason, whatsoever" to force Legaspy to go forward with the allegedly unauthorized remote hearing since the arbitrators themselves have recognized that it wouldn't be completed until sometime next year.
Legaspy is represented by Nicholas P. Iavarone of The Iavarone Firm PC and Sean Gifford Rohan of O'Hagan Meyer LLC.
FINRA is represented by associate general counsel Terri Reicher.
The case is Legaspy v. FINRA, case number 1:20-cv-04700, in the U.S. District Court for the Northern District of Illinois.
--Additional reporting by Reenat Sinay. Editing by Peter Rozovsky.
For a reprint of this article, please contact reprints@law360.com.
