Cristo v. The Charles Schwab Corporation

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 CONSTANTINE GUS CRISTO, Case No.: 17-cv-1843-GPC-MDD 12 Plaintiff, ORDER DENYING PLAINTIFF’S EX 13 v. PARTE MOTION FOR A TEMPORARY RESTRAINING 14 THE CHARLES SCHWAB ORDER AND PRELIMINARY CORPORATION; SCHWAB 15 INJUNCTION HOLDINGS, INC.; CHARLES 16 SCHWAB & CO., INC.; CHARLES [Dkt. No. 40.] SCHWAB BANK; and CHARLES [17] SCHWAB INVESTMENT 18 MANAGEMENT, INC., 19 Defendants. [20] 21 On June 21, 2021, Plaintiff filed an ex parte application for a temporary restraining 22 order (“TRO”) enjoining the FINRA1 Panel in FINRA Case No. 19-02822 from convening 23 a three-day evidentiary hearing via Zoom starting on June 28, 2021 and lasting three days 24 until June 30, 2021. (Dkt. No. 40.) Schwab Defendants2 filed a response on June 23, 2021. 25 (Dkt. No. 4.) A telephonic hearing was held on June 25, 2021. (Dkt. No. 46.) Plaintiff [26] 27 1 Financial Industry Regulatory Authority 2 Schwab Defendants include The Charles Schwab Corporation, Schwab Holdings, Inc., Charles Schwab [28] 1 appeared pro se, and Stacey Garrett, Esq. appeared on behalf of Schwab Defendants. (Id.) 2 Based on the briefs, the applicable law, the supporting documentation, and hearing oral 3 argument, the Court DENIES Plaintiff’s ex parte application for a temporary restraining 4 order and preliminary injunction. 5 Background 6 On November 6, 2017, Plaintiff, proceeding pro se, filed a First Amended Complaint 7 (“FAC”) alleging grievances stemming from Schwab Defendants’ production of Plaintiff’s 8 financial records to the Internal Revenue Service (“IRS”) without his knowledge or 9 consent. (Dkt. No. 8, FAC.) The FAC alleges violations of the Right to Privacy Act, 12 10 U.S.C. §§ 3403 , 3404(c), 3405(2), 3407(2), 3410, 3412(b); violations of 18 U.S.C. § 1519 ; 11 violations of 18 U.S.C. § 241 & § 245(b)(l)(B); violations of 18 U.S.C. § 872 ; violations 12 of 18 U.S.C. § 1001 (a); and violations of 18 U.S.C. § 1341 . (Id.) On April 11, 2018, the 13 Court granted Defendants’ motion to compel arbitration and stayed the case. (Dkt. No. 14 31.) The order directed the parties to submit a joint status report within five days of the 15 arbitrator’s decision. (Id. at 15.) Because no joint status report was ever filed, on August 16 21, 2019, the Court directed the parties to file a status report on the arbitration proceedings. 17 (Dkt. No. 32.) Both parties’ status reports indicated that arbitration had not yet 18 commenced, (Dkt. Nos. 33, 34), therefore, on September 12, 2019, the Court directed 19 Plaintiff to initiate arbitration within 30 days. (Dkt. No. 35.) On September 17, 2019, 20 Plaintiff informed that Court that he filed an arbitration claim with FINRA and filed it 21 “under protest.” (Dkt. No. 36.) 22 Shortly after filing the arbitration claim, on October 2, 2019, Plaintiff filed a 23 complaint against the U.S. Securities and Exchange Commission (“SEC”), Financial 24 Industry Regulatory Authority (“FINRA”), Jay Clayton, in his official capacity as 25 Chairman of the SEC, William Barr, in his official capacity as the United States Attorney 26 General, and Robert W. Cook, in his official capacity as President and Chief Executive 27 Officer of FINRA. (Case No. 18cv1910-GPC(MDD), Dkt. No. 1.) In the complaint, 28 Plaintiff alleged improper FINRA investigation of his Investor Complaint, improper SEC 1 review of FINRA’s investigation as well as inconsistent statements/advisements by FINRA 2 and the SEC concerning his attempts to obtain a ruling of ineligibility for arbitration and 3 seeking to return the arbitrable issues back to this Court. (Id.) On May 26, 2020, and June 4 17, 2020, the Court granted all Defendants’ motion to dismiss for lack of subject matter 5 jurisdiction. (Id., Dkt. Nos. 29, 35.) In the May 26, 2020 order, the Court noted that 6 Plaintiff was attempting to undermine the Court’s prior order compelling arbitration and 7 explained that “[o]nce the arbitration panel issues its decision, Plaintiff may seek to vacate 8 or confirm the arbitration award.” (Id., Dkt. No. 29 at 19.3) 9 Despite the Court’s direction to complete the arbitration, on June 21, 2021, Plaintiff 10 filed the instant ex parte application for a temporary restraining order enjoining the FINRA 11 Zoom evidentiary hearing set for June 28-30, 2021. (Dkt. No. 40.) First, he argues that he 12 did not agree to participate in any virtual Zoom hearing and due to his lack of experience 13 and unfamiliarity in using the Zoom platform, he will be at an extreme disadvantage against 14 an attorney who has experience in the Zoom medium. (Id. at 9.) Second, he seeks to enjoin 15 FINRA’s evidentiary hearing because of numerous rulings that favor Schwab Defendants 16 demonstrating collusion and bias against him. (See id. at 16-79 .) In the conclusion, he 17 also asks, “[i]f permitted, Plaintiff moves [the] Court to reverse the FINRA Panel’s denial 18 of Plaintiff’s Motion to Dismiss, and remand this case back to this Court.” (Id. at 81.) 19 Schwab Defendants oppose arguing that, under Ninth Circuit precedent, courts should not 20 intervene in pending arbitration. 21 Discussion 22 A. Enjoining a Pending Arbitration 23 The Ninth Circuit has held that “judicial review prior to the rendition of a final 24 arbitration award should be indulged, if at all, only in the most extreme cases.” Aerojet– 25 General Corp. v. Am. Arb. Ass'n, 478 F.2d 248 , 251 (9th Cir. 1973). The court explained 26 “[t]he basic purpose of arbitration is the speedy disposition of disputes without the [3] 1 expense and delay of extended court proceedings,” and “[t]o permit what is in effect an 2 appeal of an interlocutory ruling of the arbitrator would frustrate this purpose.” Id. 3 Therefore, “a district court's authority is generally limited to decisions that bookend the 4 arbitration itself. Before arbitration begins, the district court has the authority to 5 determine whether there is a valid arbitration agreement between the parties, and if so, 6 whether the current dispute is within its scope. . . [a]fter a final arbitration award, the 7 parties may petition the district court to affirm the award, [ ], or to vacate, modify, or 8 correct it, [ ].” In re Sussex, 781 F.3d 1065, 1071 (9th Cir. 2015); Blue Cross Blue Shield 9 of Mass. v. BCS Ins. Co., 671 F.3d 635, 638 (7th Cir. 2011) (“[J]udges must not intervene 10 in pending arbitration to direct arbitrators to resolve an issue one way rather than another. 11 . . Review comes at the beginning or the end, but not in the middle.”) (citation omitted). 12 This rule barring any intervention in pending arbitration “applies with equal force to 13 claims of arbitrator partiality.” In re Sussex, 781 F.3d at 1073 (citing Smith v. American 14 Arbitration Ass'n, Inc., 233 F.3d 502, 506 (7th Cir. 2000) (“The time to challenge an 15 arbitration, on whatever grounds, including bias, is when the arbitration is completed and 16 an award rendered.”)). 17 In In re Sussex, the Ninth Circuit granted the extraordinary relief of a writ of 18 mandamus when the district court clearly erred in granting a motion to disqualify the 19 arbitrator during a pending arbitration for “evident partiality.” Id. at 1073. The district 20 court held that disqualification of the arbitrator was warranted because the arbitration was 21 in its early stages, the consolidated arbitrations involved 385 plaintiffs, and the court 22 surmised that at the end of the arbitration, the moving party would likely prevail on a 23 motion to vacate the arbitration award based on “evident partiality,” a basis for vacating 24 an arbitration award under the FAA. Id. at 1070. The court explained that the 25 undisclosed business ventures of the arbitrator would create a reasonable impression of 26 bias sufficient to meet the FAA standard and if the award were vacated, the parties would 27 have to repeat the arbitration process, which would result in a waste of time and 28 resources. Id. 1 The Ninth Circuit rejected the district court’s ruling as clearly erroneous on a 2 showing of “evident partiality” because the district court predicted that an arbitration 3 award would likely be vacated due to “evident partiality” but Ninth Circuit law requires 4 evidence of a direct financial connection between a party and the arbitrator or a concrete 5 possibility of such connections. Id. at 1074. Further, even if there was a reasonable 6 impression of partiality, the “district court's equitable concern that delays and expenses 7 would result if an arbitration award were vacated is manifestly inadequate to justify a 8 mid-arbitration intervention, regardless of the size and early stage of the arbitration.” Id. 9 at 1075. Interestingly, the Ninth Circuit noted that since its ruling in Aerojet-General, in 10 1973, it has never approved a court’s intervention in a pending arbitration. Id. at 1073. 11 Here, Plaintiff seeks an extraordinary relief of a temporary restraining order 12 enjoining a pending arbitration. However, Plaintiff does not present evidence, arguments 13 or legal authority demonstrating an extreme case that warrants the Court’s intervention in 14 a pending arbitration. At most, Plaintiff disagrees with a number of procedural decisions 15 concerning the arbitration which is not subject to judicial scrutiny during the arbitration. 16 See Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634, 643 (9th Cir. 17 2010) (“In the absence of an express agreement to the contrary, procedural questions are 18 submitted to the arbitrator, either explicitly or implicitly, along with the merits of the 19 dispute.”) 20 For example, Plaintiff argues that he never agreed to a Zoom hearing and it would 21 be prejudicial since he is not familiar with the platform. Yet, the transcript of the pre22 hearing conference recording of March 26, 2021 shows Plaintiff was aware and agreed to 23 the evidentiary hearing on June 28-30, 2021, presumably by Zoom. (Dkt. No. 42-4, 24 Garrett Decl., Ex. H.) Plaintiff had sought a postponement of the evidentiary hearing 25 with the Director of FINRA Dispute Resolution but his request for postponement was 26 denied on June 22, 2021 with the right to re-raise the issue with the arbitration panel for 27 final decision. (Id., Ex. J.) Further, Plaintiff agreed to be bound by FINRA’s rules and 28 procedures relating to the arbitration. (Dkt. No. 42-2, Garrett Decl., Ex. A.) FINRA 1 Rule 12213(a) gives FINRA the authority to determine the hearing location. See 2 Legaspy v. Fin. Indus. Regulatory Auth., Inc., Case No. 20 C 4700, 2020 WL 4696818 , 3 at *2 (N.D. Ill. Aug. 13, 2020) (denying TRO to enjoin a scheduled remote Zoom 4 hearing). 5 In addition, Plaintiff disagrees with a number of procedural rulings concerning 6 scheduling, discovery and eligibility without demonstrating a legal or factual basis of an 7 “extreme case[]” for the Court to intervene in a pending arbitration. (See Dkt. No. 40 at 8 16-63.) Further, Plaintiff’s general claim without specific facts of bias by the arbitrator 9 or collusion between the arbitrator and Schwab Defendants, (see id. at 63-77 ), are also 10 insufficient reasons for the Court to intervene. See In re Sussex, 781 F.3d at 1073 . 11 Accordingly, the Court DENIES Plaintiff’s motion for temporary restraining order and 12 preliminary injunction. Moreover, even if the Court were to consider the TRO, Plaintiff 13 has failed to satisfy the elements to support it. 14 B. TRO 15 To obtain a TRO or preliminary injunction, the moving party must show: (1) a 16 likelihood of success on the merits; (2) a likelihood of irreparable harm to the moving 17 party in the absence of preliminary relief; (3) that the balance of equities tips in the 18 moving party’s favor; and (4) that an injunction is in the public interest. Winter v. 19 Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). Injunctive relief is “an 20 extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is [22] 4 (a) U.S. Hearing Location 23 (1) The Director will decide which of FINRA's hearing locations will be the hearing location for the arbitration. Generally, the Director will select the hearing location closest to the customer's residence at [24] the time of the events giving rise to the dispute, unless the hearing location closest to the customer's 25 residence is in a different state, in which case the customer may request a hearing location in the customer's state of residence at the time of the events giving rise to the dispute. 26 (2) Before arbitrator lists are sent to the parties under Rule 12402(c) or Rule 12403(b), the parties may agree in writing to a hearing location other than the one selected by the Director. 27 (3) The Director may change the hearing location upon motion of a party, as set forth in Rule 12503. (4) After the panel is appointed, the panel may decide a motion relating to changing the hearing location. [28] 1 entitled to such relief,” Winter, 555 U.S. at 22 , and the moving party bears the burden of 2 meeting all four Winter prongs. See DISH Network Corp. v. FCC, 653 F.3d 771 , 776-77 3 (9th Cir. 2011). 4 As a threshold issue, the Court cannot enjoin an entity, FINRA, that is not a party 5 to the litigation. See Fed. R. Civ. P. 65(d)(2)(A)-(C) (an injunction binds only “the 6 parties to the action,” their “officers, agents, servants, employees, and attorneys,” and 7 “other persons who are in active concert or participation.”) Because FINRA is not a 8 party to the litigation, Plaintiff’s TRO fails. 9 Moreover, Plaintiff has not demonstrated a likelihood of success on the merits 10 because the relief he seeks has nothing to do with the claims in his complaint. See Fang 11 v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Case No. 16-cv-06071-JD, 2016 WL 12 927545, at *2 (N.D. Cal. Nov. 10, 2016), aff’d 694 Fed. App’x 561 (9th Cir 2017) 13 (denying plaintiff’s motion for TRO to dismiss the parties’ ongoing FINRA arbitration 14 and order the FINRA panel to comply with its rules because there is no link between the 15 injunctive relief sought and the likelihood of success or serious questions on the merits of 16 the complaint's claims); Monro v. Kelly, Case No. 6:17-cv-01650-SB, 2018 WL 6422465 , 17 at *2 (D. Or. Dec. 6, 2018) (denying preliminary junction because the requested relief 18 does not relate to the allegations in the complaint); Timbisha Shoshone Tribe v. Salazar, [19] 697 F. Supp. 2d 1181, 1187 (E.D. Cal. 2010) (relevant inquiring is whether plaintiffs “are 20 likely to prevail on the causes of action they assert in their complaint.”) 21 Plaintiff failed to establish a likelihood of success on the merits of his claims 22 because his arguments are unrelated to the claims in the complaint. Further, Plaintiff has 23 not articulated any irreparable harm that will result if the arbitration proceedings were to 24 continue, or that the balance of hardships tips in his favor. (Dkt. No. 40 at 77-79.) 25 Accordingly, the Court DENIES Plaintiff’s motion to enjoin the evidentiary hearing set 26 to begin on June 28, 2021 via Zoom before the FINRA arbitration panel. 27 / / / 28 / / / 1 Conclusion 2 Based on the reasoning above, the Court DENIES Plaintiff's ex parte motion for 3 || temporary restraining order and preliminary injunction. The case shall remain stayed 4 || until final resolution of the arbitration. 5 IT IS SO ORDERED. © Dated: June 25, 2021 (73 sats Cd ) 7 Hon. Gonzalo P. Curiel 8 United States District Judge