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11. Wells Fargo Intuitive Investor

Regulation and Compliance > Litigation

Wells Fargo Appeals Arb Ruling Struck Down in Court

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What You Need to Know

  • A judge threw out an arb decision that favored the bank after finding that Wells Fargo had manipulated the arbitration process.
  • The court didn't have the authority to do so, Wells Fargo is arguing.
  • The findings in the judge's order

A Georgia judge erred in ruling that Wells Fargo manipulated the Financial Industry Regulatory Authority’s arbitration selection process and the decision should be reversed, according to an appeal filed by Wells Fargo Advisors.

Atlanta Superior Court Judge Belinda Edwards’ Jan. 25 order centered on a 2017 FINRA dispute filed by Wells Fargo Advisors’ client Brian Leggett over more than $1.1 million in losses that he said he incurred at the hands of a Wells Fargo broker. In 2019, an arbitration panel denied Leggett’s claim.

In 2021, Leggett asked the Georgia court to vacate the Wells Fargo award while Wells Fargo asked the court to confirm it.

On Jan. 25, Edwards vacated the FINRA arbitration decision, finding that Wells Fargo and its counsel manipulated the arbitration process. The manipulation was accomplished with the help of FINRA Dispute Resolution, according to Edwards.

In its April 4 complaint, filed in the Georgia Court of Appeals, Wells Fargo Advisors argues that the trial court “vacated the Award notwithstanding that the factual findings in its Order are false and wholly unsupported by the record. If this Court does not reverse, the trial court will have effectively deprived WFA of the benefit of the written contractual bargain that it had struck with Leggett.”

Michael Edmiston, an attorney with Jonathan Evans & Associates, told ThinkAdvisor in an email message Monday that “every argument [in the Wells Fargo appeal] is the ‘trial court exceeded its authority in vacating the award.’ This is the only avenue open to Wells Fargo to challenge the decision.”

Wells Fargo’s “argument that Leggett did not challenge the replacement arbitrators for cause is a red herring,” said Edmiston, president of the Public Investors Advocate Bar Association, or PIABA, a group of lawyers who represent investors in disputes with the securities industry.

“Leggett lost arbitrators that he wanted on the strike list and panel,” Edmiston continued. “The fact that the replacement arbitrators did not have conflicts that would support a successful causal challenge is not proof FINRA’s appointment system was properly used by Wells Fargo and FINRA.”

Further Edmiston said, Wells Fargo’s “argument that ‘FINRA scrupulously followed its rules’ regarding its strike list appointment process is an overstatement of the facts. Wells Fargo’s attorney made a voluntary admission of the agreement or ‘understanding’ he had with FINRA that certain arbitrators would not appear on his strike lists. Such agreements or understandings to exclude arbitrators from strike lists do not appear in the FINRA rules as a method.”

Wells Fargo also argues in its appeal that the judge violated the Federal Arbitration Act.

“If trial courts are permitted essentially to apply de novo review to an arbitrator’s discretionary decisions and substitute their own judgment for those closest to the issues, the entire arbitration process will be rendered useless,” Wells Fargo’s complaint states. “Put simply, the trial court’s decision removes all of the benefits of arbitration and has the effect of discouraging arbitration agreements — exactly the opposite of what the FAA was intended to accomplish.”

Wells Fargo continued: “Consistent with the Congressional mandate in the FAA and the case law construing it, the parties freely bargained to resolve their disputes in an arbitration that would not be second guessed in court. The trial court’s legal errors destroyed that bargain — thus undermining the well-established policy in favor of both arbitration and freedom of contract.”

Wells Fargo said on Feb. 25 that it is appealing Edwards’ ruling.

FINRA said on Feb. 18 that it is ordering an independent review of the arbitration decision in favor of Wells Fargo that Edwards had thrown out.

FINRA has hired the Lowenstein Sandler law firm to review how FINRA Dispute Resolution Services complied with its rules, policies and procedures for arbitrator selection in the proceeding, in which a panel denied an investor’s claim against Wells Fargo.