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The Florida Supreme Court has made it easier for disgruntled stock investors to sidestep mandatory arbitration and take securities disputes to court. The ruling in Raymond James Financial Services Inc. and Richard VandenBerg v. Steven W. Saldukas and Stesal Investments LLC may prompt securities firms to tread more carefully when approaching such disputes, experts say. However, they caution, those who seek to litigate rather than arbitrate will continue to face the significant hurdle of demonstrating that the brokerage took actions that, whether it intended to or not, legally waived its contractual right to arbitrate. Brokerages and other businesses generally prefer arbitration to litigation because it’s considered faster and less costly, while consumers often prefer going to court. Last month, the justices unanimously upheld a 2003 ruling by the 2nd District Court of Appeal that Raymond James had waived its right to arbitrate. That clears the way for Naples, Fla., psychologist Steven W. Saldukas to proceed with a lawsuit against the brokerage firm in Collier Circuit Court. The case hinged on the issue of whether Saldukas had to show that his case was harmed or prejudiced by Raymond James’ actions after he filed for arbitration of his improper trading complaint by the New York Stock Exchange. The high court said it was seeking to resolve the conflict among district courts “in respect to the requirement for proof of prejudice in order for there to be a waiver of the right to arbitrate sufficient to deny a motion to compel arbitration.” A majority of the federal appellate courts have required a showing that one party suffered prejudice to its case before waiving a contractual arbitration requirement. But the 2nd DCA ruled in August 2003 in the Saldukas case that a showing of prejudice was not required. The justices, in an opinion written by Chief Justice Barbara J. Pariente, accepted the 2nd DCA’s August 2003 finding that Raymond James, “by its inconsistent actions, waived the right to arbitrate.” “We have long held that a party’s contract rights may be waived by actually participating in a lawsuit or taking action inconsistent with that right,” and that the court has not held that there is a requirement of proof of prejudice, the high court said. “I think this is a step in the right direction,” said Christopher Vernon, a partner at Treiser Collins & Vernon in Naples who argued the case for Saldukas and who is a strong critic of the mandatory arbitration system for securities disputes. “The Florida Supreme Court made clear that an arbitration agreement has no more value or strength than any other contract.” Raymond James and its attorney, Hala Sandridge, a partner at Fowler White Boggs Banker in Tampa, Fla., did not return calls for comment. Mark Raymond, who heads the litigation department at Broad and Cassel and focuses on securities litigation, characterizes the ruling as “a terrific win for customers.” Raymond represents both investors and brokerages in securities disputes. He acknowledged that the ruling is not a green light for unhappy investors to abandon arbitration in favor of litigation. But in situations where “it’s not that cut and dried � it will cause brokerage firms to be cautious about running to court if ultimately they want to arbitrate.” BROKER THREATENED TO SUE The case dates back to February 2002, when Saldukas and his investment company, Stesal Investments LLC, filed an arbitration claim with the New York Stock Exchange. Saldukas alleged improper trading in his accounts by Richard VandenBerg, a Raymond James broker. Saldukas allegedly suffered losses in his accounts, the amount of which Vernon declined to quantify. When investors open an account with most major financial service providers in the United States, they must sign an arbitration agreement. Under these agreements, arbitration claims must be filed through the NASD, formerly known as the National Association of Securities Dealers, or the New York Stock Exchange. The complaints are heard by three-person arbitration panels picked by the NASD or NYSE. One member of every panel must be a securities industry member. In response to Saldukas’ original arbitration request, Raymond James filed a motion with the stock exchange to dismiss on the grounds that it did not have an arbitration agreement with Stesal Investments. Raymond James also sent Saldukas’ lawyer a letter in which it threatened to file a lawsuit to enjoin arbitration should the stock exchange rule to proceed with the arbitration. In July 2002, Saldukas sued the broker and brokerage in Collier Circuit Court. In response, Raymond James filed a motion to dismiss. In November 2002, the court denied the brokerage’s motion. The broker and Raymond James filed a motion to stay litigation and compel arbitration. According to the 2nd DCA’s subsequent opinion, Raymond James argued for the first time in that motion that the arbitrator ought to determine whether Stesal Investments was the proper party to the arbitration agreement. Saldukas countered that the brokerage’s initial refusal to arbitrate and its letter threatening to sue constituted a waiver of its right to arbitrate the complaint. In January 2003, a Collier Circuit judge denied the defendants’ motion to stay the lawsuit and compel arbitration. VandenBerg and Raymond James appealed to the 2nd DCA on the grounds that they had not waived their right to arbitration and that Saldukas and his investment company had not proved that they were prejudiced by any of the defendants’ actions. In August 2003, a 2nd DCA panel unanimously upheld the lower court’s decision, allowing Saldukas to pursue his claim in court. It cited Raymond James’ “repeated pre-suit assertions that Saldukas and Stesal LLC had no right to arbitration and its threat to file a lawsuit to enjoin the NYSE arbitration proceedings” as constituting waiver. The 2nd DCA panel said that it applied state law in holding that no showing of prejudice was required before the right to arbitration could be waived. It noted that the U.S. Supreme Court had not resolved the split among the federal circuit courts on this issue. On the state level, the 4th DCA and 5th DCA both have ruled that no showing of prejudice is necessary in order to establish a waiver of the right to arbitrate. VandenBerg and Raymond James then appealed to the state Supreme Court, which heard arguments last June. UP TO STATE COURTS In their appellate brief, Hala Sandridge and Fowler White partner Burton Wiand argued that the 2nd DCA should have followed the majority of the federal appellate courts on the issue of prejudice. Last month, the state Supreme Court recognized the conflict among the federal appellate courts. But it said that the district courts agree that since the U.S. Supreme Court has not decided this issue in relation to the Federal Arbitration Act, Florida courts are free to interpret the federal statute as being consistent with state case law interpreting the Florida Arbitration Code. The state high court said, “An arbitration right must be safeguarded by a party that seeks to rely upon that right and the party must not act inconsistently with the right.” Vernon, who argued the case with partner Benjamin C. Iseman and with F. Paul Bland Jr., of Washington, D.C.-based Trial Lawyers for Public Justice, said the Supreme Court ruling suggests that arbitration agreements are not “super-agreements” but rather are like ordinary contracts. “The Supreme Court has ruled that it is like any other contract,” Vernon said. “It can be waived.” Vernon contends that the financial services industry’s system for resolving disputes is biased in favor of the industry and needs reform. Melanie Cherdack, an attorney at Genovese Joblove & Battista in Miami who has represented both investors and brokerages and has served as a securities arbitrator, noted that the state Supreme Court found that determining waiver will be based on a totality of actions — without spelling out what those actions might be. “It’s not clear whether it would be something small, like a letter, or something large, like taking a deposition or starting court proceedings,” she said. “[The justices] left that door open.

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