Motion-Secondary: PFS INVESTMENTS INC VS DESHAZIOR, BERNETTA

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                                IN THE CIRCUIT COURT OF THE 11TH
JUDICIAL CIRCUIT IN AND FOR
MIAMI-DADE COUNTY, FLORIDA

GENERAL JURISDICTION DIVISION

CASE NO.: 13-28368 CA 25
PFS INVESTMENTS, INC. and

LAWRENCE M. COOK,,

Petitioners, , Se

Vv. 22 38 S
ge 2

Gen — CO

BERNETTA DESHAZIOR, “80 wn wm
“Sem

Respondent. n¥,
/

ae

OQ
2D

2 & 3
RESPONDENT’S MEMORANDUM IN OPPOSITION TO MOTION TO VACATE AND
IN SUPPORT OF MOTION TO CONFIRM ARBITRATION AWARD

 

 

When arbitration panel Chairman Alheim retired in 1996, the FRS offered only a
traditional (defined benefit) pension plan (“Pension”), where a guaranteed pension payment is
made to the retired employee for life. The FRS Pension payments are based on a formula that
takes into account the number of years the employee served in FRS employment and the average

final compensation of the employee. The Pension also includes an annual cost of living

allowance (“COLA”). The only choice that employees had to make was whether they would
elect to receive the maximum monthly retirement pension for life, or instead, elect a smaller
payment that would also guarantee certain payments to the employee’s spouse or other qualified
annuitant. According to PFS’s expert, Chairman Alheim privately told him that he (Alheim) had
selected “Option Four” within the Pension Plan. Under that Option, the monthly pension

payment is reduced from the maximum payment. In return, payments are guaranteed to continue

Orfor the life of either the employee or the employee’s spouse, whichever is last to die.
Significantly, however, upon the death of the first spouse to die, the payment for the life of the
survivor is reduced by 1/3 from the earlier payment amount. It appears that Mr. Alheim’s wife
died a few years after his retirement, and he has been receiving reduced payments since her
death. It is undisputed that Mr. Alheim did not receive advice from any PFS or Primerica
representative in 1996 when he made the decision to elect Option Four within the FRS Pension
Plan.

In contrast to Chairman Alheim’s (supposed) experience, Ms. DeShazior’s lawsuit and
arbitration claim against PFS had nothing to do with the options available with the FRS Pension
Plan. Instead, her claim was about the deceptive and misleading advice she alleged she received
from Primerica in 2007, ten years after Chairman Alheim retired. Ms. DeShazior alleged that
she was convinced through deceptive and misleading advice to get out of the FRS Pension Plan
altogether. Instead of a guaranteed lifetime Pension payment, she was convinced to transfer into
the FRS “Investment Plan.” The Investment Plan is a 401k-like savings plan that did not exist
when Chairman Alheim retired in 1996, and hence was never available to Chairman Alheim.
Also in marked contrast to Chairman Alheim’s experience, the only real issue in Ms. DeShazior
was the propriety of the advice she received from Primerica (and whether she received the advice
at all, as Primerica’s agent insisted that Ms. DeShazior had already made up her mind to enter
the Investment Plan when he met her, and he denied that he had given her any advice about
whether she should leave the Pension Plan and enter the Investment Plan). As demonstrated
below, even if the Court assumes that Chairman Alheim actually had the experience that PFS’s

expert now contends that Chairman Alheim relayed to him before the hearing ended, thatexperience was not something Chairman Alheim was required to disclose and his failure to
disclose it (before he allegedly disclosed it in private to Primerica’s expert) cannot support
vacatur of the “Award” against Primerica.
A. Alleged Bias, Even if True, Does Not Support Vacatur of the Award

Primerica argues that Chairperson Alheim and Arbitrator Chemis supposedly violated
FINRA/NASD disclosure rules. In fact, they did not. Even if they had, however, it would not
support vacatur. To the contrary, because of their severely limited authority to review arbitration
proceedings, courts:

cannot vacate an arbitration award based on a failure to disclose merely because

an arbitrator failed to comply with NASD rules. Rather, . . . U.S.C. § 10(a)(2)

establishes the standard for vacatur of an arbitration award by a federal court, not

the NASD rules.
Montez v. Prudential Sec., 260 F.3d 980, 984 (8th Cir. 2001) (citing Commonwealth Coatings
Corp. v. Continental Casualty Co., 393 U.S. 145 (U.S. 1968)); see also Scandinavian
Reinsurance Co., 668 F.3d at 77, n.22) (“even where an arbitrator fails to abide by arbitral or
ethical rules concerning disclosure, such a failure does not, in itself, entitle a losing party to
vacatur”). Further, absent a showing of “‘a concrete, not speculative impression of bias, . . .
non-disclosure . . . does not warrant vacatur.’” Morgan Keegan & Co. v. Sturdivant, 2012 U.S.
Dist. LEXIS 120295, at *7 (S.D. Miss. Aug. 24, 2012) (emphasis added, internal citation
omitted).

Simply put, “not every nondisclosure violates the FAA.” Uhl v. Komatsu Forklift Co.,
512 F.3d 294, 306 (6th Cir. 2008) (internal citations omitted); see Stone v. Bear, Stearns & Co.,
872 F. Supp. 2d 435, 447 (E.D. Pa. 2012) (“failure to disclose, in and of itself, is not a basis for
vacating an arbitration award”) (internal citations omitted). Instead, in order to support vacatur,

3“an arbitrator’s failure to disclose must involve a significant compromising connection to the
parties, not something ‘trivial and insubstantial.’” McVay v. Halliburton Energy Servs., 688 F.
Supp. 2d 556, 560 (N.D. Tex. 2009) (emphasis added, internal citations omitted).'

Even “a failure to disclose material facts does not in itself result in vacatur of an award.”
Sun Refining & Marketing Co. v. Statheros Shipping Corp., 761 F. Supp. 293, 300 (S.D.N.Y.
1991). Instead, “the challenging party must show that ‘a reasonable person would have to
conclude that an arbitrator was partial’ to the other party to the arbitration.’” Uhl, 512 F.3d at
306-07 (emphasis added, internal citations omitted); Scandinavian Reinsurance Co., 668 F.3d at
73 (2d Cir. N.Y. 2012) (“A reasonable person would have to conclude that [the] arbitrator who
failed to disclose under such circumstances was partial to one side.”).

Chairman Alheim retired from the FRS in 1996, 17 years before the DeShazior
arbitration. At that time, the only choice before him was the Pension Plan and its internal
options, not the Investment Plan. Mr. Alheim did not have an Investment Plan account like Ms.
DeShazior. Mr. Alheim did not have any of the securities as issue in this case. In fact, whereas
the Investment Plan involves securities, there are no securities in the Pension Plan and Mr.
Alheim did not and indeed could not have, chosen the Investment Plan because it did not exist
until years after his retirement. None of these facts would lead “a reasonable person. . . to

conclude” that Mr. Alheim was partial to DeShazior. More likely, these facts suggest that if Mr.

! See also Woods v. Saturn Distribution Corp., 78 F.3d 424, 429 (9th Cir. 1996) (holding

that the nondisclosure of an attenuated pecuniary relationship “does not automatically mandate
vacatur of the arbitration award”); ANR Coal Co. v. Cogentrix of N.C., Inc., 173 F.3d 493, 502
(4th Cir. 1999) (“A trivial relationship, even if undisclosed, will not justify vacatur of an
arbitration award.”).Alheim felt any partiality toward a party in this case it would be to Primerica and against Ms.
DeShazior.

Further, while parties to arbitration may like to know any manner of facts outside of those
arbitrators are required to disclose, the nondisclosure of facts that do not bear on partiality will
not support vacatur. STMicroelectronics, N.V. v. Credit Suisse Sec. (USA) LLC, 648 F.3d 68, 74
(2d Cir. 2011) (“Decisions under § 10(a)(2)’s ‘evident partiality’ provision have ‘addresse[d]
non-disclosure only of facts bearing on partiality — namely, a relationship with a party, a
lawyer, or another arbitrator.””) (emphasis added, internal citations omitted). The
STMicroelectronics court noted that “[a] party might like to know that information when
shopping for arbitrators, but its absence cannot form a ground for vacating an arbitral award.”
648 F.3d at 77.

Instead, under the FAA, courts look to very specific kinds of facts. When

evaluating the purported bias of an arbitrator, the courts look at: (1) the financial

interest the arbitrator has in the proceeding; (2) the directness of the alleged

relationship between the arbitrator and a party to the arbitration proceeding; (3)

and the timing of the relationship with respect to the arbitration proceeding.

Sanford Home for Adults v. Local 6, IFHP, 665 F. Supp. 312, 320 (S.D.N.Y. 1987); see also
Scandinavian Reinsurance Co. v. St. Paul Fire & Marine Ins. Co., 668 F.3d 60, 72 (2d Cir.
2012) (“among the circumstances under which the evident-partiality standard is likely to be met
are those in which an arbitrator fails to disclose a relationship or interest that is strongly
suggestive of bias in favor of one of the parties. . . . But we have repeatedly cautioned that we
are not ‘quick to set aside the results of an arbitration because of an arbitrator's alleged failure
to disclose information.””) (emphasis added, internal citations omitted). In fact, even the failure
to disclose a prior experience arguably similar to the issues underlying an arbitration does not

5necessarily support vacatur. See Morgan Keegan & Co. v. Sturdivant, 2012 U.S. Dist. LEXIS
120295, at *6 (S.D. Miss. Aug. 24, 2012) (finding that arbitrator’s “experience with securities
similar to the investments at issue in the . . . claims is not the same as a prior relationship with a
party and would not have disqualified him from serving as an arbitrator. . . . [RJequiring vacatur
under circumstances where a potential arbitrator has relevant experience would rob arbitration of
one of its most attractive features apart from speed and finality—expertise. Arbitration would
lose the benefit of specialized knowledge, because the best lawyers and professionals, who
normally have the longest lists of potential connections to disclose, have no need to risk
blemishes on their reputations from post-arbitration lawsuits attacking them as biased”).
Primerica does not dispute the fact that Mr. Alheim has absolutely no financial stake in
the outcome of the arbitration. See Deposition of Dr. Francis, [DeShazior’s Counsel:] “So would
you agree with me, sir, that whether the panel awarded my client no money, $187,500, a dollar,
or a million dollars from Primerica, that would not in any way, shape or form affect Mr.
Alheim's interest in his pension plan payments? ... [Would it affect the amount of his
pension plan payment? [Dr. Francis:] “The payout amount would not be affected.”) (emphasis
added); Deposition of Lori Rivet, [DeShazior’s Counsel:] “So there’s no judgment that can be
entered one way or another that would in any way, shape or form affect the Florida Retirement
System, right?” [Ms. Rivet:] “I don’t know whether it can affect them. They are not a party to the
litigation so directly I guess it couldn’t affect them.” [DeShazior’s Counsel:] “So whether one
dollar or one million dollars had been awarded to Ms. DeShazior that would not affect in any
way the financial standing of the Florida Retirement System, right?” [Ms. Rivet:] “Right.”

(Emphasis added). Primerica has not raised any allegation of relationship between Alheim and aparty to the arbitration either.” Rather Primerica’s sole basis for Mr. Alheim’s alleged bias is his
membership in the FRS, his retirement in 1996 prior to the establishment of the Investment Plan
and his alleged dissatisfaction with his choice among the Pension Plan options. This bare
allegation simply does not support vacatur.

Even if the Court takes all of Primerica’s allegations as true, therefore, Primerica simply
cannot meet the high standard required to support a finding of evident partiality under the FAA.
As evidenced by the vast body of case law denying vacatur, the standard is exceedingly difficult
to meet, even when egregious nondisclosures are evident. In Fornell v. Morgan Keegan & Co.,
the arbitrator failed to disclose that he had filed a lawsuit, as an attorney representing himself,
which allegedly “bore substantial similarities to a central dispute” in the arbitration and similarly
involved “decisions allegedly made in reliance upon oral representations.” 2012 U.S. Dist.
LEXIS 108677, at *6-7 (M.D. Fla. Aug. 3, 2012). Further, the petitioner in that case argued that
“if it had known of the . . . case [it] could have peremptorily struck [the arbitrator] or sought his
removal or recusal from the arbitration panel.” Jd. at 7. Despite those allegations, the court did
not vacate the award because it found that the party seeking vacatur had not demonstrated
“information which would lead a reasonable person to believe that a potential conflict exists.”
Id. at 14 (emphasis added); see also Andros Compania Maritima, S.A. v. Marc Rich & Co., A.G.,
579 F.2d 691, 700 (2d Cir. 1978) (finding no evident partiality where umpire failed to disclose

2 In fact, Primerica pointed out repeatedly that it is not the FRS and that it does not

administer the retirement plans within the FRS. See Primerica’s Pre-Hearing Memorandum, at 19
(“If Claimant now objects to the amount of the lump sum benefit provided by the FRS back in
December 2007, that objection lies against the FRS — not against these Respondents.”)
(emphasis added); Primerica’s Memorandum in Support of Application and Motion to Vacate
Arbitration Award, at 3 (“Primerica has no role in creating, managing or administering either
of the FRS plans.”) (emphasis added).

7his past joint service on nineteen arbitral panels with the president of a firm that acted as one
party’s agent); Uhl v. Komatsu Forklift Co., 466 F. Supp. 2d 899, 906-907 ( E.D. Mich. 2006)
(relationship between arbitrator and party which involved appearing in lawsuits together on
several occasions representing different parties, and on two occasions jointly, did not support
vacatur because “no reasonable person could view . . . prior professional dealings as creating a
conflict of interest” and because there was no evidence that arbitrator had prior knowledge of the
plaintiff or “an interest in the outcome of the arbitration, or a business relationship with attorney.
. . from which he would derive a financial benefit”).>

Moreover, courts distinguish between the “evident partiality’ required under the FAA to
support vacatur and allegations which show only the possibility of a general “predisposition.”
See Nationwide Mut. Ins. Co. v. Home Ins. Co., 429 F.3d 640, 645 (6th Cir. 2005). A party
seeking vacatur “must demonstrate more than an amorphous institutional predisposition toward
the other side.” Nationwide Mut. Ins. Co., 429 F.3d at 645 (6th Cir. 2005) (emphasis added,
internal citations omitted), see also Uhl, 512 F.3d at 306-07 (“It is not enough to demonstrate ‘an
amorphous institutional predisposition toward the other side.’”); Dealer Computer Servs. v. Dale
Spradley Motors, Inc., 2012 U.S. Dist. LEXIS 2614, at *12 (E.D. Mich. Jan. 10, 2012) (noting
that “{i]t is not enough to demonstrate an amorphous institutional predisposition toward the other
side”), Rather, “the party asserting evident partiality must establish specific facts that indicate

3 See also Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d 278,

285 (5th Cir. 2007) (citing Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S.
145 (U.S. 1968)) (“[W)hile it is true that disclosure of prior significant contacts and business
dealings between a prospective arbitrator and the parties furthers informed selection, it is not
true, as Justice White’s opinion perceptively explains, that ‘the best informed and most capable
potential arbitrators’ should be automatically disqualified (and their awards nullified) by failure
to inform the parties of trivial relationships.”).

8improper motives on the part of the arbitrators. Dealer Computer Servs., 2012 U.S. Dist. LEXIS
at *12. Again, Primerica fails to meet the standard for vacatur in this regard. In this case, the
evidence of supposed bias identified by Primerica, even if true, is nothing more than “amorphous
institutional predisposition,” repeatedly rejected as a basis for vacatur. Primerica certainly has
not shown, or even argued, that there is any basis to indicate improper motives on the part of
Chairman Alheim or Arbitrator Chernis.

Finally, Primerica cites to Crow Construction Co. v. Jeffrey M. Brown Associates, for the
proposition that this Court must consider the combined effect of undisclosed facts. 264 F. Supp.
2d 217, 225-226 (E.D. Pa. 2003). In that case, two of the arbitrators made egregious
nondisclosures, including failing to disclose the fact that one party to the arbitration had,
concurrently with the arbitration at issue, privately hired one of the arbitrators to mediate a
separate matter for him. /d. at 225. Crow Construction, however, does not stand for that
proposition. Instead, the court in Crow merely pointed out that “[v]iewed together as a whole,
[the facts in that case] constitute[d] not only the appearance of bias but, perhaps, a suggestion of
bias.” The court noted that “[]here is no question that under AAA rules the arbitrators were
required to disclose . . . dealings” and moreover, that “{w]hen considered individually, any one
of the .. . failed disclosures constitute[d] an appearance of bias.” Id, at 225-226 (emphasis
added). The same cannot be said for the allegations made by Primerica, which, unlike the
egregious nondisclosures discussed in Crow Construction, cannot support vacatur jointly any

more successfully than individually.

IL There was No Bias or Partiality

Primerica has not and cannot demonstrate that there was bias on the part of any arbitrator.

Instead, it relies solely on what it contends was the failure of two arbitrators to disclose matters
9that, Primerica argues, should have been disclosed. Significantly, although Primerica has not

and cannot meet even a lower standard, the legal standard for vacatur of an arbitration award
requires more than mere appearance of bias. To the contrary, “mere appearance of bias or
partiality is not enough to set aside an arbitration award.” Lifecare International, Inc. v. CD
Medical, Inc., 68 F.3d 429, 432 (11th Cir. 1995). In RDC Golf of Florida I Inc. v. Apostolicas,
925 So. 2d 1082 (Fla. 5th DCA 2005), the court surveyed the cases discussing the standard for
evident partiality and concluded that a party moving for vacatur must make:

a showing through credible evidence, giving rise to a ‘reasonable impression of

partiality’ that was ‘direct, definite, and capable of demonstration,’ as distinct

JSrom a ‘mere appearance’ of bias that was remote, uncertain, and speculative.
RDC Golf, 925 So. 2d at 1095 (emphasis added). See Brandon Jones Sandall Zeide Kohn Chalal
& Musso, P.A. v. Beasley & Hauser, P.A., 925 So.2d 1142, 1145 (Fla. 4th DCA 2006) (under
Florida law, vacatur of an arbitration award requires: “the complaining party to prove evident
partiality prejudicing the rights of the party. In other words, the partiality of the neutral must be
obvious and plain and must be shown to have unfairly affected the rights of the complaining
party.”) (emphasis in original, citation and footnote omitted); see also Freeman v. Pittsburgh
Glass Works, LLC., 709 F.3d 240, 253 (3d Cir. 2013) (“An arbitrator is evidently partial only if a
reasonable person would have to conclude that she was partial to one side. Jd. The conclusion of
bias must be ineluctable, the favorable treatment unilateral. See Andersons{, Inc. v. Horton
Farms, Inc ., 166 F.3d 308 (6th Cir. 1998)], 166 F.3d at 329 (‘The alleged partiality must be

direct, definite, and capable of demonstration.’).”)

10Primerica Chose to Severely Limit Discovery

In a very recent decision, the Eleventh Circuit confirmed that: “mere appearance of bias
or partiality is not enough to set aside an arbitration award.” FDIC v. IIG Capital LLC, 2013
US. App. LEXIS 16268, *2 [Lexis] (11th Cir. Aug. 7, 2103) (emphasis added) (citing University
Commons-Urbana v. Universal Constructors, Inc., 304 F.3d 1331, 1340 (11th Cir. 2002)). The
UG Capital LLC court noted that an appearance of bias or partiality: “is enough to require the
district court to grant an evidentiary hearing.” IIG Capital LLC, 2013 U.S. App. LEXIS 16268,
*2 [Lexis] (emphasis added). Significantly, however, Primerica has eschewed efforts to obtain
actual evidence of any bias. To the contrary, as this Court is well-aware, although Arbitrator
Chernis was prepared to appear for deposition in response to a subpoena served by DeShazior’s
attorneys, and even though neither Chernis nor FINRA objected to the subpoena, Primerica
successfully moved to quash the subpoena. Rather than an attempt to present actual evidence of
partiality or bias, Primerica has relied primarily on the hearsay testimony of its expert witness’s
alleged observation of Chairman Alheim’s “body language,” and on attorney argument regarding
alleged deficiencies in certain disclosures by Messrs. Alheim and Chernis. Primerica, therefore,
cannot demonstrate grounds for vacatur. See Dadeland Square, Ltd. v. Gould, 763 So. 2d 524
(Fla. 3d DCA 2000) (quashing order to vacate, after lower court allowed discovery regarding
alleged arbitrator disclosure, including deposition of the arbitrator, because the petitioner had
“waived the opportunity to question the arbitrator about his disclosed relationships and waived
any objection to the arbitrator until after [petitioner] had suffered an adverse arbitration award”).
Primerica’s showing is woefully deficient.

A, Primerica’s Arguments as to Chairman Alheim

11Primerica has not and cannot make any effort to demonstrate that Chairman Alheim was
biased. Indeed, as demonstrated in DeShazior’s Memorandum in Opposition to Motion to
Vacate (“DeShazior’s Memorandum”), it is undisputed that Mr. Alheim had no financial or other
relationship with Ms. DeShazior or any attorney representing her. Instead, Primerica argued that
Alheim should have disclosed that he was a member of the FRS. Again, DeShazior’s
Memorandum demonstrated that Primerica produced a multitude of documents confirming that,
as a retired college professor, Alheim was necessarily a member of FRS. Primerica’s trial expert,
Dr. Francis, admitted that in 1996 when Alheim retired, a Florida college professor would
necessarily have been a member of FRS. Finally, as demonstrated at last week’s hearing before
this Court, while the arbitration was pending DeShazior’s attorney , Frank Rodriguez stated in
front of all parties that: “Mr. Alheim, . . . 1 assume you were in the Florida Retirement System.”
April 26, 2013, at 1684-85.

Primerica, therefore, is left to attempt to latch onto what it alleges came out in a private 5
minute communication between Alheim and Primerica’s expert, James Francis (significantly,
there is no allegation of any private communication with any expert for Ms. DeShazior).
According to public records that Primerica obtained, Mr. Alheim retired in February, 1996, i.e.,
over 17 years before the DeShazior Award was rendered in May, 2013. Mr. Francis
acknowledges that in 1996, the FRS Investment Plan which was the subject of the DeShazior
arbitration did not exist in 1996. Therefore, unlike Ms. DeShazior, Mr. Alheim did not make a
“choice” between the FRS Pension and No Pension, i.e., the FRS Investment Plan, a 401k-like

investment account subject to market risk.

12According to Mr. Francis, Mr. Alheim did not say he was biased against Primerica (or
Cook) or even the FRS. Further, Alheim never even said that he was mad at Primerica (or Cook)
or even the FRS. Significantly, it is undisputed that no Primerica agent advised Alheim about the
choice he made with respect to his Pension Plan. Instead, Francis now says that Alheim’s “body
language . . . indicated to [Francis] that he remained regretful and he remained . . . of the mind
that he made a wrong choice.” Francis Dep. Tr. at 84. Mr. Francis added that Chairman Alheim
was “upset with his circumstance.” Mr. Alheim’s failure to disclose any feelings he may
allegedly have had about a choice he made with respect to his Pension plan simply has nothing to
with the DeShazior arbitration, which centered on whether Primerica and its agent mislead
DeShazior into giving up her Pension altogether in favor of the FRS Investment Plan. Finally,
documents introduced into evidence at the arbitration demonstrate Primerica’s agents argued,
and told Ms. DeShazior, that the state was taking advantage of FRS employees. If Alheim truly
believed that he made a bad choice and lost out on his Pension, if anything, he would have been
inclined to favor Primerica.

Finally, we know that Mr. Francis himself could not have believed that Alheim was
biased, because he supposedly said nothing to any Primerica attorney until after the Award was
rendered, over a month after his communication with Alheim. Even if, over objection, the Court
was inclined to credit Mr. Francis’s hearsay observations, as a matter of law, this cannot meet the
standard for bias or evident partiality.

B. Primerica’s Arguments as to Chairman Alheim

Primerica also argues that Arbitrator Chernis supposedly failed to properly disclose
certain matters. Once again, Primerica does not and cannot argue that Mr. Chernis was actually

biased against Primerica or its agent Cook (against whom no award was entered). Instead,
13Primerica argues that Mr. Chernis, a retired attorney who served as an SEC enforcement
attorney for 10 years, supposedly failed to “properly” disclose certain matters. Primerica
complains, in a footnote, that Chernis incorrectly answered a question on his Arbitrator
Disclosure Checklist when he stated that “J have represented investors in securities
arbitrations. I recall three such occasions; none in the last ten years.” See Petitioners’
Memorandum in Support of Motion to Vacate (“Petitioners’ Memorandum”), footnote 3
(emphasis added). Primerica disputes this representation because, it argues: “one arbitration,
(‘Furman”), in which he represented customers adverse to FINRA members and a FINRA
associated person, concluded in 2006, only six years prior to his disclosures in the Arbitration,
not ten years as he claimed.” Significantly, however, Primerica has not submitted any evidence
of any such representation, only its attorneys (footnoted) argument. The Court cannot take
Primerica’s lawyer’s unsupported representation into account.’ Primerica also complains, in that
same footnote, that Chernis misrepresented himself when he said on his Arbitrator Disclosure
Checklist that “I have represented a registered rep in two securities arbitration, perhaps 15 years
ago...” Primerica argues that this answer is wrong because “another arbitration (‘Spilkevitz’), in
which Arbitrator Chernis’s law firm represented an associated person in claims against
customers and a FINRA member, concluded in 2011, only one year prior to his disclosures in

the Arbitration.” Petitioners’ Memorandum, footnote 3 (emphasis added). Again, Primerica has

‘ State v. Bauman, 425 So. 2d 32, 34-35 n.4 (Fla. 4th DCA 1982) (“{FJacts are not
established for consideration by the trial court or by appellate review when attorneys make
representations in their arguments before the trial court. Facts are established by testimony,
affidavits and stipulations.”) (emphasis added); Daughtrey v. Daughtrey, 944 So. 2d 1145, 1148
(Fla. 24d DCA 2006) (“As this court has previously observed, unsworn representations by
counsel about factual matters do not have any evidentiary weight in the absence of a
stipulation.”) (emphasis added).

14provided this Court with no evidence of this alleged representation, and so the Court cannot take

it into account as a basis for concluding there was any material non-disclosure.

What Primerica does not tell this Court, however, is that the question Mr. Chernis was
answering, 24A of the Arbitrator Disclosure Checklist, asked: “Have you, your spouse, or an
immediate family member ever represented a broker-dealer or registered representative?” Even
if Mr. Chernis’s law firm represented a registered representative in that case, Mr. Chernis is not
Mr. Chernis’s law firm, and the question asks about Mr. Chernis, not Mr. Chernis’s law firm.
Moreover, Primerica presents no argument about what that alleged case was about, so it would
be impossible for this Court to conclude that anything about that alleged case demonstrated
“partiality” that was “direct, definite and capable of demonstration rather than remote, uncertain
and speculative.”

In truth, there is nothing that Mr. Chernis failed to disclose, and Primerica knows this to
be the case. In terms of whether he represented claimants, and when he may have done that. Mr.
Chernis’s Arbitrator Disclosure Report states that, following the end of his employment with the
SEC in 1972, he “spent the next 38 years in private practice, the last 16 of which as a member of
the law firm now called Silverman, Sclar, Shin & Byrne. I spent a great deal of time in securities
litigation and also represented many individuals before federal and state regulatory
agencies as well as the NASD (now FINRA).” (Emphasis added). In other words, he is
disclosing the representation of “many individuals” before “FINRA” in the “38 years” after
“1972,” meaning through 2010. How would one know that he may have represented claimants?
One need only look at the top portion of the same page in his Arbitrator Disclosure Report, under

“Disclosure/Conflict Information,” wherein he lists a number of broker-dealers or financial

15institutions who he has been “[a]dverse to in legal action.” These include three well-known
broker-dealers: “A.G. Edwards & Sons, Inc., E.F. Hutton & Company, Inc., and First Montauk
Securities.” There is no valid reason why, if Mr. Chernis’s purported representation of claimants
was a problem for Primerica, it could not have asked him questions about these cases.

Finally, Primerica complains that: “Arbitrator Chernis also failed to adequately disclose
the nature of the lawsuit filed against him and his law firm [and that] [h]is disclosure
misinformed Petitioners to suggest that (1) his behavior was not at issue in the civil suit; and (2)
the civil suit was not related to securities.” (Petitioners’ Memorandum, at 14). In truth,
Petitioners were not in the least, “misinformed.” Mr. Chernis’s disclosure states that he was
“Named, along w/firm in 2001 neg. suit, settled in 2006.” Primerica does not, because it cannot,
dispute that this was a malpractice action, and therefore the description of the matter in the
Arbitrator Disclosure Report as “neg. suit,” is clearly accurate. Under the heading, “Firm Name”
in that same section, he lists the name of the plaintiff, “The Plymouth Organization.” As
discussed in DeShazior’s Memorandum, if Primerica was truly interested in finding out more
about the “Plymouth” lawsuit, it could have done a simple Internet search, in which case it would
pulled up the case, Plymouth Org., Inc. v. Silverman, Collura & Chernis, P.C. , 21 A.D.3d 464
(N.Y. App. Div. 2d Dep’t 2005). Courts impose this minimal duty of investigation on litigants in
FINRA proceedings and are rightfully quick to reject claims of non-disclosure when such a
minimal amount of investigation would have cleared up any possible question. See Antietam
Indus. v. Morgan Keegan & Co., 2013 U.S. Dist. LEXIS 41327, 27 (M.D. Fla. Mar. 25, 2013)

(denying vacatur on the basis of waiver and noting that parties “could have simply accessed

16oe

 

FINRA’s Arbitration Awards Online database, as the Court [did], typed in the case number, and
monitored whether an award”).

Moreover, there can be no question that besides the case itself revealing what it was
about, Mr. Chernis himself revealed it to FINRA when he submitted his explanation about the
case in his Arbitrator Disclosure Checklist, wherein he wrote: “My law firm was sued in 2001,
by a former client which claimed to have received bad advice in connection with a 1999 private
placement. I was named as a defendant as well. The case was settled in 2006 by my firm for a
relative nominal amount of money. I contributed nothing to the settlement and there were no
findings of misconduct relative to me or any defendant.” Primerica does not dispute the
accuracy of that disclosure that Chernis made to FINRA. Primerica’s sole complaint is that it
was labeled “Non-investment related lawsuit/charge.” But that is clearly a FINRA generated
classification, which is clearly designed to distinguish between what the claims in the lawsuit
against Chernis and his firm - - legal malpractice (negligence) claims - - and an “Investment-
related lawsuit/charge,” which would be a claim for sales practice violations most likely against
an industry arbitrator. Thus, the classification of the matter as “Non-investment related
lawsuit/charge” is not subject to serious dispute. More importantly, Primerica had more than
sufficient information about the Plymouth lawsuit to ask any question it may now contend was
(somehow) relevant (recall that in the Plymouth lawsuit, Mr. Chernis, like Primerica, was a
defendant) long before the Award was entered.

As discussed below, Primerica’s attempt to rely on the Citigroup case as support for its
attack on the arbitrator disclosures by arbitrators Alheim and Chernis fails miserably. Indeed, its

attack on Mr. Chernis is directly contrary to settled law. In Lozano v. Maryland Cas. Co., 850

17F.2d 1470 (11th Cir. 1988), the eleventh circuit rejected a claim of “evident partiality” where an
arbitrator failed to disclose his law firm’s representation of adversaries of the arbitral defendant
in two state court cases, in part because: “there [was] no evidence that [the arbitrator] was even
aware that these cases existed or that the two cases were . .. active at the time the arbitration
proceedings took place.” (emphasis added). As in Lozano, Primerica has provided no evidence
at all, not even lawyer argument, that Mr. Chernis was aware of the existence of a case
supposedly filed by his law firm. Nor did Primerica provide evidence that either of the matters

mentioned in its footnote were in active arbitration at the time of the DeShazior arbitration.

Citigroup Global Mkts. Is Inapposite to the Alleged Non-Disclosures of Alheim and
Chernis

(A) The egregious nature of the non-disclosures in Citigroup

In Citigroup, the offending industry arbitrator, Sidell, who was at the time of his
appointment employed as a broker by Wells Fargo, lied in his answers to questions on his
Arbittrator Disclosure Checklist. Specifically, Question 11 asked - “Have you ever, as a party to
an arbitration or litigation, named a brokerage firm, or been named in any civil lawsuit were [sic]
arbitration proceeding?” P. 3. Additionally, Question 19 asked - “Has your conduct and issued
[sic] an arbitration or litigation proceeding (other than a proceeding in which he served as an
arbitrator?)” Although the decision does not say it, he apparently answered “no” to both
questions.

Subsequently, he initiated his own arbitration against Wells Fargo relating to a $60,000
trading loss in his individual retirement account but failed to update his answer to question 11, as
he was required to do. After he started that lawsuit, Wells Fargo fired him and terminated his
securities regulatory organization registrations. He then requested leave to amend his arbitration

18claim to up the ante from $60,000 to $5 Million in compensatory damages and $15 Million in
punitive damages on his new claims. Although Sidell made other selective updates to his profile
in FINRA’s database, he did not disclose any of the foregoing.

Additionally, in the “Disclosure/Conflict Information” portion of his Arbitrator
Disclosure Report, he made what the Court deemed a “cryptic reference” of “Affiliated Firm
Conflict” and “Wachovia Securities, Inc.” What he did not reveal, however, was that Wachovia
had brought a foreclosure action against him in February of 2010 because he had stopped making
payments on his home mortgage as of July 1, 2009. As with his failure to update his response to
Question 11 to disclose his arbitration against Wells Fargo, he did not update his response to
Question 19 to disclose this foreclosure action.

All of this happened before the Citigroup arbitration started in September of 2010, but
Sidell revealed none of it. The arbitration continued for 14 days, during which he again said
nothing.

In vacating the award that was ultimately entered in favor of the claimants and against
Citigroup by the arbitration panel in a 2-1 decision wherein Sidell was in the majority, the Court
held that “an arbitrator is obligated to disclose those facts that create a reasonable impression of
partiality,” and that the “partiality alleged must be ‘direct, definite and capable of demonstration
rather than remote, uncertain and speculative.””! The Court found that Sidell’s omissions met

1 Primerica relies on Citigroup for the proposition that arbitrators should avoid “even the

appearance of bias.” Significantly the Citigroup court still required that the partiality be “direct,

definite and capable of demonstration rather than remote, uncertain and speculative.”

Significantly, however, the only courts that cite to the Citigroup decision, just as here, easily

distinguish the egregious behavior at issue in that case. See Antietam Indus. v. Morgan Keegan &

Co., 2013 U.S. Dist. LEXIS 41327, at *22 (M.D. Fla. Mar. 25, 2013) (pointing out that Citigroup

decision “related to an arbitrator’s failure to disclose ‘highly personal...battles [he] was fighting
19that standard specifically because “(t]he Arbitrator Disclosure expressly identified several issues
as presumptively relevant to, or illustrative of, the issue of actual or perceived bias, including
whether the arbitrator had ever been a party to an arbitration involving a brokerage firm, and
whether his conduct had ever been at issue in arbitration or litigation proceedings [, and that]
Sidell’s responses to Questions 11 and 19 on the Arbitrator Disclosure Checklist were rendered
materially incomplete by developments during the course of his service as an arbitrator.” Pp. 9-

10. The Court determined that:

 

{against another broker-dealer] during the very time he was serving as an arbitrator”); Stone v.
Bear, Stearns & Co., 872 F. Supp. 2d 435, 449 (E.D. Pa. 2012) (finding conduct “paled in
comparison” to the conduct at issue in Citigroup).

20An arbitrator currently embroiled in battles with a large national
bank would be perceived by objective observers as likely to be
partial to plaintiffs embroiled in their own dispute with a large
national bank. That is especially true here, given the highly
personal nature of Sidell’s disputes with Wells Fargo and
Wachovia and the fact that both disputes were not ‘remote,
uncertain and speculative.’ They were fresh wounds, battles Sidell
was fighting during the very time he was serving as an arbitrator in
this matter.
(B) — Alheim’s alleged non-disclosure does not meet the standard for vacatur in Citigroup

Mr. Alheim is accused of not disclosing to Primerica his alleged unhappiness with his
pension plan option choice and his inability to change that option. This alleged non-disclosure,
however, does not come close to meeting the standard laid out by the court in Citigroup. This is
so for three obvious reasons.

First, Primerica has not identified any specific answer to Alheim’s Arbitrator Disclosure
Checklist that should have been answered. Although it now argues that Alheim’s regret over his
pension plan option choice qualified as “circumstances which might preclude [him] from
rendering an objective and impartial determination in the proceeding,” the question that has to be
asked is, “why?” If Alheim was truly unhappy with his choice under the FRS pension plan,
which was the only plan in existence when he retired in 1996, that would fit right into the
narrative of Primerica’s strategic plan to get as many FRS participants as possible to switch to
the Investment Plan, which was premised on Primerica’s agents telling those participants that the
FRS was taking advantage of them by keeping their money in the pension plan! See Exhibit 1
(“Are You Being Taken Advantage Of?”) And this is exactly the line Petitioner Cook fed to

DeShazior in order to get her to switch from the Pension Plan to the Investment Plan:

[DeShazior’s Counsel:] “Tell me what Mr. Cook told you about FRS.” DeShazior:] “Okay. He

21compared the FRS to the investment, and he was saying that with the FRS you . . . get crumbs
from it and they eat basically the money, you can't assign a beneficiary, when you die your
money goes back to the State.” DeShazior Arbitration, April 9, 2013.

Thus, if, as Primerica is implying, Alheim was thinking, “hmmm, the FRS is really taking
advantage of me by my being in this lousy option 4 that I can’t switch out of!”, then his
sympathies would most likely lie with Primerica, who used that same approach to get DeShazior
and thousands of other FRS participants to switch. It is therefore more than a stretch to say that
this fact would make him biased against Primerica.

Second, unlike the litigious Arbitrator Sidell in Citigroup who sued his former employer,
a broker-dealer, for $20 Million and who was a defendant in a foreclosure action by another
financial institution, Alheim never sued anyone as a result of his unhappiness with his Pension
Plan option choice, nor is there any evidence in the record that he was sued by anyone. And
unlike Sidell, according to Dr. Francis, Alheim was not angry at the FRS or anyone else as a
result of his choice. He therefore appeared to be the type of person who is predisposed to taking
full responsibility for his own possibly improvident decisions. As pointed out at the hearing, this

was in fact Primerica’s major theme, as admitted by its own counsel at the arbitration hearing:

22And because she made that choice she has the personal responsibility to live with
that choice...We weren’t hired to do that. She has to manage herself. If she
makes choices she must live with them. [Arbitration Transcript, April 26, 2013 at
1659].

So either way it’s personal choice, and that’s what this case is all about.
[Arbitration Transcript, May 3, 2013 at 2426].

This case in large measure is about a complete and total failure of this woman to

accept any personal responsibility for apparently anything that goes on in her

financial life. [Arbitration Transcript, May 3, 2013 at 2457-58].

This would make Alheim partial in favor of Primerica, who championed personal responsibility,
instead of DeShazior, who Primerica argued disclaimed it.

Third, it was undisputed in Citigroup that Citigroup did not learn of Sidell’s lawsuits
until after the arbitration award was entered against it. Although Primerica claims to have been
“stunned” when it discovered that Alheim was a member of the FRS, that claim is totally
unworthy of belief in light of Mr. Alheim’s disclosure that he worked at Miami-Dade
Community College for 35 years, and Primerica’s own documents that clearly state that if you
worked at a Florida community college, you were necessarily a member of the FRS.
Additionally, it is undisputed that during the hearing, DeShazior’s lawyer remarked, “Mr.
Alheim, you must know because I assume you were a member of the Florida Retirement
System.” Faced with these undisputed facts, Primerica then argues that although it may have
been aware that Alheim was in fact a member of the FRS, it was unaware of Alheim’s regret
over his plan choice. It is undisputed, however, that Alheim told Primerica’s expert about his
regret. One would have to believe that, in the roughly 30 days that followed Alheim’s
conversation with Dr. Francis, not a single one of the savvy lawyers representing Primerica - -
Mr. Raymond, Mr. Martens, or Primerica’s in-house counsel, Lori Rivet - - all of whom

witnessed the conversation, never asked Dr. Francis, “Hey Jim, what were you talking about

23with Alheim?” And although Mr. Raymond, Primerica’s lawyer, denies it, Mr. Rodriguez,
DeShazior’s lawyer, testified that Mr. Alheim told the lawyers, including Mr. Raymond, and
Chernis, that he had this conversation with Dr. Francis and everything that he told Dr. Francis.”
Finally, unlike in Citigroup where the publicly available BrokerCheck reports failed to reveal the
lawsuits that Sidell was involved in, it is undisputed that the public records regarding Alheim’s
plan choice, how much it was worth, how much more he could have made with another choice,
and his request to switch back to his previous option, were readily available merely by making a
public records request.

The foregoing makes it crystal clear that, even if the Court believes Mr. Raymond that
Alheim did not reveal to him (as well as DeShazior’s lawyers and Mr. Chernis) the nature of his
conversation with Dr. Francis, there was enough information that Primerica could have accessed
on its own had it done any degree of due diligence (which it claims not to have done).

Finally, as demonstrated at the hearing and in DEShazior’s Memorandum, Primerica
waived any allege non-disclosure. See also Morgan Keegan & Co. v. Sturdivant, 2012 U.S. Dist.
LEXIS 120295 (S.D. Miss. Aug. 24, 2012) (“It is worth noting that the Sturdivants’ attorney
during the arbitration proceeding had high praise for the panel and its decisions. At the end of his
closing statement, counsel for the Sturdivants remarked, ?I—I just cannot, again, praise highly
enough the work of this panel, the decisions you’ve made, the way you have controlled both
sides of the table. Moses Aff. [19], Ex. 2, Tr. Excerpts, Vol. 5 at 1367. These statements belie
the post-hearing complaints of misconduct and evident bias.”); See Marino v. Writers Guild of

2

As the Court is aware, Arbitrator Chernis was willing to testify under subpoena about (a)
whether that conversation took place; (b) if so, whether Mr. Raymond was a participant; (c) what
Mr. Alheim told everyone. FINRA, whose lawyers represent the arbitrators if they are called to
testify, did not oppose that deposition. Although Chernis’s testimony could have helped resolve
any question in the Court’s mind as to who was telling the truth, Primerica successfully moved to
prevent this information from ever seeing the light of day.

24Am., 992 F.2d 1480, 1484 (9th Cir. 1993) ("[A] party may not sit idle through an arbitration
procedure and then collaterally attack that procedure on grounds not raised before the arbitrators
when the result turns out to be adverse. . . . This rule even extends to questions, such as arbitrator
bias, that go to the very heart of arbitral fairness.") (internal citation omitted);

The matters set out in the Petitioners’ Motion are not supported by any fair reading of the
record. Moreover, none of the matters raised by PFS come close to meeting the legal standard
imposed on a motion to vacate an arbitration award. Finally, PFS invited much of the conduct
that it now complains of, and waived any possible objection by waiting until the FINRA panel
ruled against it to raise the issues. The Court should deny the Motion, grant the Counter-Motion
and confirm the Award.

Conclusion

For the foregoing reasons, and based upon the cited authorities, Respondent Bernetta

DeShazior respectfully requests that the Court deny Petitioners’ Motion to Vacate and grant her

Counter-Motion to Confirm the Award.

Respectfully submitted,
RODRIGUEZ TRAMONT LEVINE KELLOGG LEHMAN
GUERRA & HONEZ, P, SCHNEIDER + GROSSMAN LLP
FRANK R. RODRIGUEZ, ESQ. LAWRENCE A. KELLOGG, ESQ.
Florida Bar No.: 348988 Florida Bar No.: 328601
Email: frr@rtgn-law.com Email: lak@kisg.com
ANDREW V. TRAMONT, ESQ. JASON KELLOGG, ESQ.
Florida Bar No.: 322830 Florida Bar No.: 578401
Email: avt@rtgn-law.com Email: jk@|kisg.com
PAULINO A. NUNEZ JR., ESQ. 201 South Biscayne Boulevard
Florida Bar No.: 814806 22nd Floor, Miami Center
Email: pan@rtgn-law.com Miami, FL 33131
255 Alhambra Circle, Suite 1150 Telephone: 305-403-8788
Coral Gables, Florida 33134 Facsimile: 305-403-8789

Telephone: 305-350-2300

25Facsimile: 305-350-2525 Attorneys for Respondent/counter-petitioner
Certificate of Service

I HEREBY CERTIFY that a true and correct copy of the above and foregoing was sent

by e-mail on this 26" day of September, 2013 to: Mark F. Raymond, Esq.,

(mraymond@broadandcassel.com and ssmith@broadandcassel.com) and Amy Steele Donner,

Esq., (adonner@broadandcassel.com and Ischwartz@broadandcassel.com), Broad and Cassel,

Attorneys for Petitioners, One Biscayne Tower, 21st Floor, 2 South Biscayne Blvd., Miami, FL

33131.

ANDREW V. TRAMONT

26Are You Really Being Taken Advantage Of By The Florida Retiremen®gstem?

 

  
 
   

 

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