| July 2
July 2 A California appellate court has
reinstated a nearly $5 million ruling against Morgan Stanley in
a case initially filed by two brokers who said the company broke
promises it made when recruiting them.
The three-judge panel of California 4th District Court of
Appeal this week unanimously agreed with lawyers for brokers
John Paladino and Todd Vitale, who argued that a lower court was
wrong to overturn a 2012 securities arbitration decision in the
"We disagree with ruling and are considering our options," a
Morgan Stanley spokeswoman said.
Neither Paladino, Vitale nor their lawyer could be
immediately reached for comment.
Morgan Stanley had argued that one of the three Financial
Industry Regulatory Authority (FINRA) arbitrators who heard the
case did not disclose ties between some of his family members
and the securities industry. Among those details: the
arbitrator's daughter had previously worked in the brokerage
industry and also had an account at Morgan Stanley at the time
of the arbitration, according to court documents.
A judge of the Superior Court of California in San Diego
agreed with Morgan Stanley in 2012, reasoning that FINRA's
arbitration rules required arbitrators to disclose those
details, according to court documents.
The appellate court acknowledged that the arbitrator failed
to disclose those details, but ruled in an opinion on Monday
that the information "could not cause an objective observer to
doubt the arbitrator's impartiality."
Brokers must typically resolve legal disputes with their
employers in FINRA's arbitration forum. Arbitration rulings are
generally binding, but courts can overturn them in some
instances, such as when arbitrators are biased.
"It's very rare that you can ever overturn a FINRA award,"
said Jeffrey Riffer, a securities lawyer in Los Angeles who was
not involved in the case. But brokerages usually try when a
large sum is at stake, Riffer said.
Morgan Stanley recruited Paladino and Vitale from a UBS AG
brokerage unit in 2008, according to the
appeals court opinion. The two alleged that Morgan Stanley
promised that Vitale would become a salaried sales manager
within six months of joining the firm and a branch manager
within a year. Paladino was to take over their combined clients
when Vitale became salaried.
But Morgan Stanley did not make Vitale a salaried manager.
Paladino, as a result, was never able to take over the clients.
Vitale still works for Morgan Stanley in Rancho Santa Fe,
California. Paladino left Morgan Stanley in late 2012, according
to regulatory filings. He is now executive director of wealth
management for Sterling Wealth Management Group in Carlsbad,
(Reporting by Suzanne Barlyn in New York; editing by Matthew