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Freedom Investors Corp. v. Gantan

United States District Court, N.D. California, Oakland Division

April 3, 2018

ZENAIDA P. GANTAN, Respondent.


          SAUNDRA BROWN ARMSTRONG Senior United States District Judge.

         On June 7, 2017, a Financial Industry Regulatory Authority (“FINRA”) arbitration panel rendered an award (“Award”) in favor of Zenaida Gantan (“Gantan”) on her claims against Freedom Investors Corporation (“Freedom”). Thereafter, Freedom commenced the instant action by filing a Petition to Vacate Arbitration Award. Gantan, in turn, filed a Cross-Petition to Confirm FINRA Arbitration Award. Magistrate Judge Sallie Kim (“the Magistrate”) was originally assigned to this case. Because Gantan declined to consent to the Magistrate's jurisdiction, the matter was reassigned to this Court. In conjunction with the reassignment order, the Magistrate issued a Report and Recommendation (“R&R”) in which she recommends denying Freedom's petition.

         This matter is now before the Court on Freedom's Motion for De Novo Determination of Dispositive Matter Referred to Magistrate Judge. In its motion, Freedom objects to certain of the Magistrate's findings and recommendations and requests that the court vacate the Award. Gantan agrees that Freedom's objections are subject to de novo review, but opposes Freedom's objections and seeks to confirm the Award. Having read and considered the papers submitted, and being fully informed, the Court GRANTS Freedom's request for de novo review, OVERRULES Freedom's objections, DENIES Freedom's petition to vacate and GRANTS Gantan's cross-petition to confirm the Award. The Court, in its discretion, finds this matter suitable for resolution without oral argument. See Fed.R.Civ.P. 78(b); N.D. Cal. Civ. L.R. 7-1(b).

         I. BACKGROUND

         A. FINRA Arbitration Proceedings

         On October 29, 2014, Gantan, an elderly widow, filed a Statement of Claim with FINRA against Merrimac Corporate Securities, Inc. (“Merrimac”), the brokerage firm where she maintained a brokerage account. Oakes Decl. ¶ 9, Dkt. 28-1.[1] Gantan alleged that Chad Thompson (“Thompson”), a Merrimac broker and representative, had “churned” her account in violation of FINRA rules as well as various federal and state securities laws. Claimant's Pre-Hearing Br. at 8, Dkt. 28-10. Churning involves initiating excessive transactions for the purpose of generating commissions. Id. at 1, 4-5.

         After commencing the arbitration proceeding, Gantan sought leave to amend her Statement of Claim to join Freedom, among others, as an additional respondent, and to add a cause of action for successor firm liability. Award at 3, Dkt. 28-11. In her motion for leave, Gantan alleged that Freedom was a “continuance” of Merrimac. Claimant's Pre-Hearing Br. at 1-3. Freedom responded, inter alia, that it could not be held liable as Merrimac's successor because it never entered into any merger or other agreement under which Freedom would assume the liabilities of Merrimac. Resp't's Answer at 2-6, Dkt. 28-7. FINRA granted Gantan's request for leave to file an Amended Statement of Claim. Award at 3; Ruling and Order Re: Claimant's Mot. to File First Am. Stmt. of Claim and Add Parties, Dkt. 28-6.

         The arbitration began on May 8, 2017, and concluded on May 10, 2017. Oakes Decl. ¶ 19. After the conclusion of Gantan's case-in-chief, Freedom and Apex, another alleged successor to Merrimac, orally moved to dismiss the claims against them. Award at 4. A three-person arbitration panel denied the motion “based on the credible evidence that Freedom and Apex were successors to Merrimac.” Id.

         On June 7, 2017, a unanimous arbitration panel issued its Award in Gantan's favor. Award at 4-7. The panel held Freedom and Merrimac jointly and severally liable for $210, 487 in compensatory damages and $5, 162 in costs. Award at 5. The panel denied Gantan's request for punitive damages. Id. at 7.

         B. The Instant Proceedings

         On July 11, 2017, Freedom filed a Petition to Vacate Arbitration Award in this Court. Pet., Dkt. 1. As grounds for vacatur, the petition alleges arbitrator misconduct and that the arbitration panel exceeded its authority, pursuant to 9 U.S.C. § 10(a)(3) and (4), respectively. Id. at 7, 9.

         On August 29, 2017, Gantan filed her Answer to the petition and opposition thereto, and cross-petitioned to confirm the Award. Dkt. 18, 19, 20.

         On September 7, 2017, Gantan filed a declination to consent to the jurisdiction of a magistrate judge. Dkt. 23. On the same day, the Magistrate issued an R&R, which recommends the Court deny Freedom's petition to vacate. Dkt. 24. For reasons not articulated in the R&R, the Magistrate made no recommendation on the merits of Gantan's cross-petition to confirm the Award. See Dkt. 24 at 4. The matter was subsequently reassigned to this Court. Dkt. 26.

         Freedom has now filed a motion for de novo review of the R&R in which it objects to the Magistrate's R&R. Dkt. 30.[2] In response, Respondent filed a combined opposition and cross-petition to confirm the arbitration award. Dkt. 32, 34. ...

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