Hsu v. UBS Financial Services, Inc.

Background

Darru K. Hsu brought a putative class action against UBS Financial Services, Inc. under the Investment Advisers Act. He alleged that UBS provided investment-advisory services and that a contractual provision, described as a “hedge clause,” improperly required him to waive rights under that Act. The court dismissed his first amended complaint for failure to state a claim, and judgment was entered for UBS. The court of appeals affirmed the dismissal, and the Supreme Court denied review.

After the case became final, Hsu repeatedly filed motions seeking to set aside the judgment, reconsider earlier rulings, transfer the case, disqualify the judge, certify a class, appoint class counsel, or enter judgment. The court described these filings as repetitive and based on arguments it had already rejected. Hsu proceeded without a lawyer after terminating counsel during the appeal process.

Legal standard

The court explained that federal district courts have inherent authority under 28 U.S.C. § 1651(a) to designate a litigant as vexatious and require prefiling review when the litigant’s filings are numerous and frivolous. A prefiling order is an extreme remedy that must be used rarely because it can interfere with access to the courts. The court applied the requirements that the litigant receive notice and an opportunity to be heard, that the record adequately show numerous or abusive activity, that the court make substantive findings of frivolousness or harassment, and that the order be narrowly tailored.

Analysis

The court found that Hsu received sufficient notice and an opportunity to respond. He had been warned twice that he could be designated a vexatious litigant, was ordered to show cause, attended a hearing, and was allowed to reply to UBS’s written response.

The court also found that Hsu’s activity was sufficiently numerous. Over approximately ten years, he filed multiple motions to reargue the closed case and pursued six unsuccessful appeals—three in the court of appeals and three in the Supreme Court, as described in the opinion.

The court found that Hsu continued to present repetitive arguments even when responding to the order to show cause and speaking at the hearing. The opinion identified arguments concerning alleged document falsification, deceptive contract terms, jurisdiction, fraud, class certification, arbitration, agency interpretation, and an earlier request under the All Writs Act. The court concluded that these meritless filings had consumed significant judicial resources.

Finally, the court narrowly tailored the order to prevent Hsu from reopening litigation based on facts and issues decided in earlier lawsuits involving the same or nearly the same group of defendants. The court stated that any future action, whether Hsu filed it without a lawyer or with one, would have to satisfy the prefiling requirements and clearly explain why the claims were not barred by res judicata, meaning the rule that generally prevents relitigation of matters already finally decided.

Disposition

The court designated Hsu a vexatious litigant and ordered that future lawsuits by Hsu first be screened by the undersigned judge if they are brought against UBS Financial Services, Inc.; its current or former parents, subsidiaries, affiliates, officers, directors, or employees; or attorneys or law firms that presently or formerly represented parties in this or past litigation. The clerk was instructed not to automatically accept further filings covered by the order.