By George C. Miller, Esq. of Shustak Reynolds & Partners, P.C. posted on Thursday, July 3, 2014.

George C. Miller

Partner

Location: San Diego, California
Phone: (619) 696-9500 (Ext. 105)
Direct: (619) 501-8270
Email: [email protected]

On June 30, 2014, a California appellate court reinstated and confirmed a $5 million arbitration award Shustak Reynolds & Partners had obtained against Morgan Stanley in favor of two brokers Morgan Stanley had recruited from UBS.  The appellate court overturned a lower court’s order vacating the award on the grounds that Barry Kersh, one of three arbitrators who heard the case, failed to disclose certain connections between some of his family members and Morgan Stanley.  Kersh was the “industry” arbitrator in the claim, selected for his experience in the brokerage industry.  He is the long time branch manager of another brokerage firm also located in San Diego, where the arbitration took place and where the two brokers work.

Morgan Stanley argued Kersh should have disclosed that one of his sons-in-law worked for Morgan Stanley and was going through a contentious divorce with Kersh’s daughter.  The firm also argued Kersh should have disclosed that his daughter previously worked for a brokerage firm and may have maintained an investment account with Morgan Stanley.  Judge Lisa Schall of the San Diego Superior Court sided with Morgan Stanley two years ago and vacated the award.  Vitale and Paladino appealed Judge Schall’s ruling.

In reversing the lower court’s ruling, the Court of Appeal reasoned that while Kersh “failed to make certain disclosures, [the] undisclosed facts could not cause an objective observer to doubt the arbitrator’s impartiality.”  The court also noted that “Morgan Stanley was aware of certain key facts, namely its efforts to recruit two of the arbitrator’s coworkers, and thus the arbitrator was not required to disclose those facts.”

Erwin J. Shustak, Esq. and George C. Miller, Esq., of Shustak Reynolds & Partners, P.C. represented Morgan Stanley brokers Todd Vitale and John Paladino in the arbitration.  According to Mr. Shustak, the appellate court’s decision totally vindicated his clients and made it clear that large brokerage firms like Morgan Stanley cannot play fast and loose with the arbitration process.

“Morgan Stanley selected this same arbitrator to sit on this and three other FINRA cases in which the firm was a party.  The firm had successfully recruited one of Kersh’s sons-in-law away from Kersh’s firm and unsuccessfully attempted to recruit his other son-in-law.  As the appeals court found, MS knew these facts all along.  Only after they lost this case and faced a $5 million award, did the firm cry foul,” said Shustak.  “The appellate court held that Morgan Stanley could not sit back, wait to see the outcome of the case and, only when it was hugely unsuccessful, play ‘gotcha’ by trying to vacate the award relying on facts the firm knew all along,” Shustak added.

Shustak Reynolds & Partners, P.C., handles a wide range of securities and FINRA-related cases.  The firm has offices in San Diego, San Francisco and New York and represents select broker-dealers, registered persons, registered investment advisors and financial institutions in a broad spectrum of complex securities litigation, arbitration and regulatory matters.

If you need strong representation for your arbitration or securities dispute, schedule a free initial consultation by calling Shustak Reynolds & Partners, P.C., toll free at 888-748-8748, or contact us online.

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