Commercial Division Blog

Posted: August 24, 2018 / Categories Commercial, Arbitation, Mediation and Other ADR

Court Refuses to Vacate Arbitral Award Despite Respondent's Claim That She Did Not Receive Notice of Arbitration

On August 13, 2018, Justice Emerson of the Suffolk County Commercial Division issued a decision in Matter of New Brunswick Theological Seminary v. Van Dyke, 2018 NY Slip Op. 51204(U), refusing to vacate an arbitral award despite the respondent's claim that she did not receive notice of the arbitration, explaining:

An arbitration award will be vacated if the arbitration violated due process. Due process does not require actual receipt of notice before a person's liberty or property interests may be adjudicated. It is sufficient that the means selected for providing notice was reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and to afford them an opportunity to present their objections. The means employed must be such that one desirous of actually informing the absentee might reasonably adopt. The notice procedure chosen need not eliminate all risk that notice might not actually reach the affected party. The Court of Appeals has specifically held that due process is satisfied when notices sent by certified mail were returned "unclaimed", but the ordinary mailings were not, and the sender took no steps to obtain an alternative address.

Pursuant to FINRA's rules, FINRA maintained jurisdiction over the respondent for at least two years after she was barred from the securities industry, and she was required to maintain and update her address with FINRA for service of process. The record reflects that the address FINRA had for service of process on the respondent was her New York City address. FINRA served the respondent by certified mail, in accordance with its rules, at that address and at an alternate address in Sag Harbor. After the initial notices were returned as "unclaimed," FINRA sent multiple documents and correspondence to one or both addresses that were not returned. In addition to the August 24, 2017, memo; the September 18, 2017, memo; and the Overdue Notice and List of Potential Arbitrators, FINRA sent three mailings to the respondent after she returned to New York. Copies of the petitioner's Supplemental Submission in Further Support of the Statement of Claim were sent to the respondent's New York City address by certified mail and to her Sag Harbor address by regular mail on December 5, 2017. Another copy was sent to her New York City address on December 20, 2017, and an updated copy of the Arbitrator Disclosure Report was sent to her New York City address on January 2, 2018. The record does not reflect that any of those mailings were returned. Moreover, all of the documents and correspondence related to the arbitration were available to the respondent on FINRA's DR Portal. Pursuant to FINRA's rules, the respondent was required to register for the DR Portal. The respondent proffers no excuse for her failure to register for the DR Portal or for her failure to update her address with FINRA while she was in California.

The respondent knew, or should have known, that the petitioner might proceed to arbitration while she was in California. The record reflects that the respondent was a seasoned investment banker and broker who presumably was aware that FINRA retained jurisdiction over her for at least two years following her termination from the securities industry. Moreover, she was definitely aware that FINRA had opened an investigation concerning her alleged mishandling of the petitioner's account, among others. That investigation concluded with her being permanently barred from the securities industry. It is reasonable to assume that, under those circumstances, the respondent should have expected that the petitioner, or one of the other complainants, would pursue its arbitral remedies against her. Yet, the respondent left the state for approximately five months without advising FINRA of her address in California and without [*5]even forwarding her mail. The respondent's explanation that she did not expect any correspondence of importance to arrive by mail while she was out of state strains credulity.

After the respondent returned to New York on December 2, 2017, she received three mailings from FINRA between that date and January 12, 2018, when the arbitrator issued the award. FINRA's rules allowed the respondent to open up her default and file an answer to the petitioner's claim any time before the award was issued. She, therefore, had approximately 40 days to contact FINRA and file an answer after returning to New York. Yet, she did nothing. Her explanation that she did not prioritize going through the months of held mail and that she was still going through it more than 40 days later when she was served with the petition on January 19, 2018, also strains credulity. The mailings that were sent by FINRA after she returned to New York would not have been included in the mail that was held at the Post Office.

In view of the foregoing, the court finds that the respondent was not deprived of due process. The initial notices were sent to the respondent at the New York City address that she provided to FINRA for service of process and to her alternate address in Sag Harbor. The court finds that they were reasonable calculated to apprise the respondent of the pendency of the arbitration and to afford her an opportunity to present her objections (Matter of Beckman v Greentree Sec., supra). Although they were returned as "unclaimed," additional mailings were sent to the same two addresses. Only the notice of default was returned. The respondent, for her part, made no effort to ensure that she received mail from FINRA while in California, although she knew or should have known that the petitioner might proceed to arbitration. She failed to provide FINRA with her address in California, as required, and she failed to have her mail forwarded. There was correspondence from FINRA waiting for her when she eventually came back to New York, and more mail was sent by FINRA after she came back that was not returned. The court finds that, under these circumstances, a strong inference may be drawn that the respondent was attempting to avoid receiving any mail from FINRA and that she ignored the mail that was received. Accordingly, the petition is granted, and the cross motion is denied.

(Internal citations omitted).

Commercial litigation involves more than courts. Disputes often are--by agreement--decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have a question regarding a dispute that is subject to an arbitration agreement.