United States District Court, D. Arizona
DAVID G. CAMPBELL, District Judge.
Petitioner Michael DiPietro has filed a petition to vacate or modify an arbitration award. Docs. 1, 35. Respondent First Allied Securities, Inc. has filed a response and DiPietro has filed a reply. Docs. 24, 43. The Court heard oral argument on September 26, 2014. For the reasons that follow, the Court will deny DiPietro's petition and confirm the arbitration award.
DiPietro is a resident of California and a member of the Financial Industry Regulatory Authority ("FINRA"). Doc. 35 at 1. First Allied is an independent broker-dealer registered with the Securities and Exchange Commission ("SEC"), FINRA, and state securities commissions. Doc. 24 at 2. On October 8, 2004, DiPietro and First Allied entered into an Independent Contractor Agreement ("ICA") which provided that DiPietro would act as a registered representative of First Allied in selling securities, insurance, and advisory services. The parties agreed to terminate the relationship in December 2008. Doc. 35 at 1.
A. The DiPietro Arbitration.
In February 2010, DiPietro initiated a FINRA arbitration against First Allied. Among other claims, he alleged that First Allied breached the ICA. After a nine day hearing, the arbitration panel ruled in favor of DiPietro and awarded him $180, 000 plus interest. Doc 35-3.
B. The Hutchinson Arbitration.
Martina Hutchinson and her husband were clients of First Allied during 2008. DiPietro served as their financial advisor. The Hutchinsons purchased three investments from First Allied: ARI-International Business Park, LLC Tenant in Common; DRG Cason Estates, LLC Tenant in Common; and Texas Energy Holdings, Inc. Tenant in Common. DiPietro claims that none of these products was registered with the SEC, in violation of Section 5 of the Securities Act of 1933, that First Allied withheld negative due diligence regarding one of the investments, and that he advised the Hutchinsons against purchasing them. Doc. 1 at 3.
On September 19, 2012, Martina Hutchinson filed a FINRA arbitration claim against First Allied regarding the investments. Doc.1-5. First Allied responded with an answer and a third-party claim against DiPietro. The claim against DiPietro sought indemnity or contribution under the ICA for any damages awarded to Hutchinson, and reimbursement of fees and costs incurred by First Allied in defending the action.
DiPietro responded to the third-party claim, denied the allegations, asserted affirmative defenses, and brought a counterclaim against First Allied for malicious prosecution and abuse of process. Doc. 1-7. DiPietro asserted that First Allied had unclean hands and was solely responsible for wrongdoing in the sale of the securities to the Hutchinsons. He also argued that the first FINRA arbitration had found that First Allied materially breached the ICA, discharging him as a matter of law from any indemnity obligation under the ICA. Id.
Over the next several months, the parties exchanged discovery. In December 2013, First Allied and Hutchinson participated in a mediation and settled Hutchinson's claim. Doc. 1-8. DiPietro and his counsel participated by phone, but the third-party claim against him was not settled.
C. Notice of the Arbitration Hearing.
On January 29, 2013, and before First Allied filed the third-party claim against DiPietro, counsel for First Allied and Hutchinson participated in a pre-hearing conference with the FINRA arbitrators. The arbitrators set an arbitration date of January 6, 2014, in Phoenix, Arizona. A scheduling order was issued after the conference, apparently on February 4, 2013. Doc. 1-10.
First Allied sought to file the third-party claim against DiPietro on January 29, 2013, the same day as the scheduling conference, but fee payment issues resulted in FINRA not accepting the claim until February 14, 2013. DiPietro was not served with the third-party claim until several days after the scheduling conference. A copy of the scheduling order was not included in the papers served on DiPietro. Doc. 35 at 15.
DiPietro claims that he did not receive notice of the January 6, 2014 arbitration hearing until December 16, 2013, when counsel for First Allied contacted his lawyer and requested an extension of the deadline for filing witness and exhibit lists. When contacted about this extension, DiPietro's lawyer, Marie Mirch, states that she telephoned the FINRA office in Los Angeles and was informed about the pre-hearing conference held on January 29, 2013, and the arbitration hearing scheduled for January 6, 2014. Doc. 35-11. Mirch did not agree to the deadline extension sought by First Allied. She instead stated that she would be sending her list of witnesses and exhibits to First Allied by the deadline, which was the next day.
First Allied claims DiPietro was given notice of the hearing date by other means. On November 7, 2013, Hutchinson's counsel filed a motion seeking a subpoena of DiPietro to appear at the January 6, 2014 hearing. The requested subpoena stated that the hearing would be held "in Phoenix, Arizona, ... at 9:30 a.m. on January 6, 2014..." ...