By Lauraann Wood

Law360 (August 14, 2020, 4:22 PM EDT) -- An Illinois federal judge has blocked a securities broker's bid to prevent his upcoming arbitration hearing from proceeding through Zoom, saying he's unlikely to succeed on claims that the Financial Industry Regulatory Authority violated any contracts or subjected him to irreparable harm.

U.S. District Judge Joan Lefkow on Thursday said broker Carlos Legaspy can't temporarily restrain FINRA from allowing an arbitration panel on Monday to proceed with his evidentiary hearing remotely because he's unlikely to prove that the regulator violated either the FINRA Code of Arbitration or the uniform submission agreement that set out the contours of the underlying proceeding.

Judge Lefkow also rejected Legaspy's argument that he faces irreparable harm by proceeding with the hearing, particularly if he loses. Legaspy argued that he and his brokerage, Insight Securities Inc., are defending themselves with an eroding insurance policy and that Insight could face business-ending economic consequences if they lose, "but the harms of Legaspy's losing the arbitration are not at issue," Judge Lefkow said.

"Legaspy might lose no matter when the arbitration starts and how it is conducted," she said. "His risk of going out of business if the claimants prove that he caused them $2.6 million in damages is no reason to stop them from pursuing their case."

Nicholas Iavarone of The Iavarone Law Firm, who represents Legaspy, told Law360 on Friday that he and his client have asked the Seventh Circuit to review Judge Lefkow's order because they believe she misconstrued their pleadings. He said his client's case isn't about any FINRA regulations and doesn't really involve the Federal Arbitration Act, but that the case is about "whether or not the contract between us has been exceeded."

Iavarone also said he disagreed with Judge Lefkow's findings regarding irreparable harm. He said irreparable harm wouldn't be an issue "if we were Merrill Lynch," which would have the financial ability to proceed as necessary under similar circumstances.

"Our problem is that we are not Merrill Lynch," he told Law360. "We are wholly dependent on the insurance policy, and it's an eroding policy. If we have to go through a useless exercise, that policy is going to be gone."

A representative for FINRA declined to comment Friday.

Legaspy's lawsuit claimed that the upcoming virtual hearing, which FINRA says is necessitated by the COVID-19 pandemic, is unfair and would damage his defense. He claimed the remote proceeding would be "unworkable" because of the underlying claimants' need for an interpreter and the complexity of the issues.

But the broker won't likely succeed on his claim that FINRA violated the uniform submission agreement he'd signed because that agreement is between him and the claimants, not him and the regulator, Judge Lefkow said.

Reading FINRA as a party to that agreement would also "make little sense" because then the regulator "would have to agree, among other things, to submit a controversy to itself, read its own procedures and agree to be bound by them, and agree to abide by its own award and consent to judgement thereon," she said.

Several considerations also weigh into Legaspy's similar unlikelihood of succeeding under the FINRA Code of Arbitration, the judge said. "Most importantly, whether or not there is a contract, courts do not police the procedures of arbitration," she held, saying the Federal Arbitration Act leaves it to arbitrators to resolve procedural questions stemming from a dispute.

"Whether FINRA can or should conduct a hearing remotely is a question of procedure that FINRA, not this court, must decide," she said.

Even if the court could review the procedural decision, the broker still wouldn't likely succeed, Judge Lefkow said. FINRA's rules allow its director to determine which of the regulator's hearing locations will host the arbitration, and the director decided to make virtual hearings available to parties in all cases either by joint agreement or panel order. "The panel then ordered the case to proceed remotely," Judge Lefkow said.

"Thus, even without the Federal Arbitration Act's significant deference to arbitral procedures and Rule 12409's further deference, the procedure in this case complied with the FINRA rules," she held.

Legaspy's brief on appeal is due by Sept. 23, according to court records.

Argentine natives Alberto Jose Nieves and Gladys Veronica Anton, who were customers of Insight, launched the underlying claim seeking at least $2.765 million from Legaspy, his brokerage and its clearing house, Pershing LLC, for losses they allegedly suffered in their brokerage account with Insight. Their arbitration's evidentiary hearing was originally scheduled to occur in person in Boca Raton, Florida.

Legaspy is represented by Nicholas Iavarone of The Iavarone Law Firm and Sean Rohan and Elizabeth Bartolucci of O'Hagan Meyer LLC.

FINRA is represented by associate general counsel Terri Reicher.

The district court case is Legaspy v. FINRA, case number 1:20-cv-04700, in the U.S. District Court for the Northern District of Illinois. The appeal is Carlos Legaspy v. Financial Industry Regulatory Authority, case number 20-2535, in the U.S. Circuit Court of Appeals for the Seventh Circuit.

--Additional reporting by Reenat Sinay. Editing by Orlando Lorenzo.

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