N.D. of Texas Issues Temporary Restraining Order Enjoining FINRA Arbitrations

From the Disputing Blog of Karl Bayer, Victoria VanBuren, and Holly Hayes.

The Northern District of Texas has issued a Temporary Restraining Order enjoining multiple arbitration proceedings before the Financial Industry Regulatory Authority (FINRA). In Billitteri v. Securities America Inc., et al., No. 3:09-CV-01568-F and related cases, (N.D. Tex., February 18, 2011), a group of representative plaintiffs in a class action lawsuit jointly filed a Motion for Preliminary Approval of a partial class action settlement with settling defendants from the financial services industry. The representative plaintiffs also filed a Motion for a Temporary Restraining Order to enjoin three scheduled FINRA arbitration proceedings because the plaintiffs in the arbitration proceedings were also members of the proposed class. The representative plaintiffs cited the All Writs Act, 28 U.S.C. § 1651(a), and claimed that allowing the scheduled FINRA arbitrations to proceed would require the settling defendants to expend monies needed for the proposed settlement on defending the arbitrations. The settling defendants did not oppose the plaintiffs’ Motion.

According to Judge Royal Furgeson,
In a complex class action such as this one, district courts have been ruled to have the authority to stay proceedings taking place elsewhere “in aid of their respective jurisdictions” to assist the courts in the complex task of ensuring resolutions to the claims before it. See In re Baldwin-United Corp., 770 F.2d 328, 338 (2d Cir. 1985) (“An important feature of the All-Writs Act is its grant of authority to enjoin and bind non-parties to an action when needed to preserve the court’s ability to reach or enforce its decision in a case over which it has proper jurisdiction.”); see also United States v. New York Tel. Co., 434 U.S. 159, 174 (1977) (“The power conferred by the Act extends, under appropriate circumstances, to persons who, though not parties to the original action or engaged in wrongdoing, are in a position to frustrate the implementation of a court order or the proper administration of justice . . . , and encompasses even those who have not taken any affirmative action to hinder justice.”) (citations omitted).

The Northern District of Texas issued a Temporary Restraining Order to preserve the status quo while the court considered whether to approve the proposed settlement. The court also noted that it would consider the appropriateness of using the All Writs Act to enjoin arbitration proceedings when it decided the parties’ Motion for Preliminary Approval.

The next hearing is scheduled for March 18, 2011.

Although the FINRA forum does not provide for class action claims, customers of brokerage firms generally may opt out of a class action lawsuit in favor of FINRA arbitral proceedings. Because the Northern District of Texas has temporarily enjoined FINRA arbitration proceedings under the All Writs Act, this case could potentially have a substantial limiting effect on the availability of the FINRA arbitral forum in the future.
You may read New York Times coverage of the case here.


Victoria VanBuren

Victoria VanBuren holds a B.B.A. in Finance from Southern Methodist University and a J.D. from the University of Texas School of Law.  She focuses on intellectual property law and arbitration. Known as a "worker bee," she is an active legal blogger and is currently pursuing a degree in computer science.… MORE >

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