Ex-NBA star scores federal court win against brokerage
(Reuters) - An U.S. appeals court has upheld a $1.45 million arbitration award in favor of retired NBA basketball player Horace Grant, who sought reimbursement for losses from risky bond funds that were marketed as safe.
The U.S. Court of Appeals for the Ninth Circuit, according to an unpublished decision, rejected claims by Grant's former brokerage, Morgan Keegan, that arbitrators in the case might have been biased, prejudged the outcome or exceeded their power.
Grant, informed of the outcome by a Reuters reporter, was elated. "I was hoping and praying that this day would come," Grant said. "I've always believed in the system, and this is just a step beyond approval for a good legal system."
It was the second big loss in less than a week for Morgan Keegan, a unit of Raymond James Financial Inc. Earlier this week, another appeals court ruled in favor of investors in a $9.2 million award. In each case, investors lost money after investing in a group of risky bond funds.
The losses may lead Morgan Keegan to rethink its strategy of going to great lengths to overturn some arbitration rulings in favor of investors, lawyers say. What's more, the federal appeals court rulings could give investors in other bond fund cases an upper hand in their efforts to settle their claims, say lawyers.
Morgan Keegan has faced more than 1,000 customer arbitration cases over the bond funds, which invested in risky mortgage-backed securities and were marketed as being safe. The funds later lost as much as 80 percent as the subprime market imploded. The brokerage has paid a $200 million civil regulatory fine over the funds and a star manager at the firm was banned from the securities industry.
Spokespersons for Raymond James and Morgan Keegan declined to comment about the outcome of the Grant case. A spokesman for Regions Financial - which sold Morgan Keegan to Raymond James in April and retains financial responsibility for the bond fund cases - also declined comment.
For Grant, the win is the end of four years trying to collect on losses stemming from the funds.
The former Chicago Bulls forward filed a claim against Morgan Keegan over his losses in 2008. A Financial Industry Regulatory Authority (FINRA) arbitration panel sided with Grant and awarded him $1.46 million in 2009 - $1.45 million in compensatory damages and $10,000 for costs.
Morgan Keegan quickly went to the U.S. District Court for the Central District of California to try to have Grant's award thrown out. The brokerage lost and appealed that decision, leading to a hearing on October 11 before the federal appeals judges.
Arbitration decisions are typically binding, but courts can overturn them in certain cases, such as arbitrator bias.
Grant, 47, played in the NBA for 17 years and won three titles with Chicago Bulls teams featuring Michael Jordan and one with the Los Angeles Lakers. He bought most of the troubled funds through his Morgan Keegan brokerage account in 2004. At the time, the brokerage owned the sports agency that represented Grant.
Morgan Keegan now also owes the ex-basketball star about $462,000 in interest on the unpaid arbitration award, according to his lawyer, Andrew Stoltmann, in Chicago. "We're pleased that the 9th circuit saw Morgan Keegan's frivolous attempt to delay payment to Horace Grant," said Stoltmann. "This has been a long odyssey."
The Ninth Circuit appeals panel also issued a second opinion on Thursday allowing another arbitration that Grant filed against Morgan Keegan in 2010 to proceed.
In that case, Grant is seeking $3 million in compensation for an NBA pension he said he had to cash in prematurely while he fought to get the original award Morgan Keegan was supposed to pay him. Morgan Keegan had tried to persuade the courts that Grant's second case should be heard in court and not by arbitrators.
In the other case Morgan Keegan lost this week, the U.S. Court of Appeals for the Fifth Circuit reinstated a $9.2 million securities arbitration ruling in favor of a group of investors in the troubled bond funds, finding that a district judge had thrown out the award in error.
The unrelenting litigation to try to reverse arbitration awards is a "systemic" strategy aimed at pressuring investors to settle, even after they win, said Constantine Katsoris, a professor at Fordham University School of Law in New York. "They try to make it expensive and painful so you get a better settlement with the outstanding cases," Katsoris said. But in light of the losses, "they may need to rethink their policy."
Not everyone is certain the two high-profile losses this week will affect Morgan Keegan's future legal strategy.
"In a rational world, Morgan Keegan would be deterred from its scorched earth post-arbitration litigation policy," said William Jacobson, a professor at Cornell Law School's Securities Law Clinic in Ithaca New York. "But I don't believe anyone expects they will learn that lesson."
Spokesmen for Raymond James and Regions Financial declined comment. A Morgan Keegan spokeswoman declined comment.
(Reporting by Suzanne Barlyn; Additional reporting by Jonathan Stempel; Editing by Jennifer Merritt, Alden Bentley and Steve Orlofsky)
- Canada's parliament attacked, soldier fatally shot nearby |
- NOAA employee charged with stealing U.S. dam information
- Sweden gets two new sightings, as hunt for undersea intruder goes on
- Special Report: Traffickers use abductions, prison ships to feed Asian slave trade
- Canada probes Michael Zehaf-Bibeau as possible suspect in Ottawa shooting: source