Dunn v. Intellivest Securities, Inc.

Background

Brian Dunn was the chief executive officer and sole shareholder of Growth Capital Services, Inc., which was not a party to this case. Intellivest Securities, Inc. had previously arbitrated claims against Growth Capital before the Financial Industry Regulatory Authority (FINRA). In January 2022, the arbitration panel awarded Intellivest $908,929.50 against Growth Capital. Growth Capital did not pay the award and later filed for Chapter 7 bankruptcy, listing Intellivest as an unsecured creditor for the award.

In July 2022, Intellivest started a second, substantially similar FINRA arbitration against Dunn. Dunn appeared in that arbitration and asked the panel to dismiss the claims, including on jurisdictional grounds. The panel denied his motion. Dunn then asked the federal court to stop the arbitration.

Court’s analysis

To obtain temporary relief, Dunn had to show a likely chance of success on the merits, likely irreparable harm without an injunction, a favorable balance of hardships, and that an injunction would serve the public interest. The court ended its analysis with the first factor, finding that Dunn could not show a likely chance of success.

The court gave two reasons. First, FINRA Rule 13413 gave the arbitration panel authority to interpret and apply FINRA’s rules, including questions about whether a dispute was subject to arbitration. Because the panel had already determined that it had jurisdiction, the court held that the panel’s decision was within its authority.

Second, Dunn’s counsel acknowledged that Dunn was personally registered with FINRA during the events underlying Intellivest’s claims and that Dunn was an associated person of Growth Capital, which was also a FINRA member. The court concluded that Dunn therefore agreed to follow FINRA’s rules, including its arbitration provisions. FINRA Rule 13200 requires arbitration of disputes arising from the business activities of a member or associated person when the dispute is between members, between a member and an associated person, or between associated persons. The court found those conditions satisfied because Intellivest was a FINRA member and Dunn was a member and associated person during the relevant business activities.

The court also relied on FINRA Rule 1300(q), which defines a member as a broker or dealer admitted to FINRA membership even if the membership has ended, been suspended, canceled, or revoked. It noted that a person formerly associated with a member remains a person associated with a member under FINRA Rule 1300(u). The court therefore rejected Dunn’s argument that ending his FINRA membership prevented arbitration.

The court further rejected Dunn’s argument that Intellivest’s claims arose only after the first arbitration award went unpaid. It stated that at least one claim, described as a claim for “raiding,” did not depend on Dunn’s later failure to pay the award. The court also said that, even if the claims depended entirely on that failure, the failure arose from the same business activities involved in the first arbitration. Finally, the court rejected the argument that the earlier award against Growth Capital prevented a proceeding against Dunn, explaining that a claimant may sue a different defendant over the same transaction or occurrence, subject to deducting any recovery from the first proceeding from any recovery in the second.

Disposition

The court denied Dunn’s application for provisional relief. It ordered Dunn to show cause why the action should not be dismissed without leave to amend, with a response due 14 days after the order at noon. The order did not itself state that the action was dismissed. The court stated that prompt entry of judgment would facilitate correction of any error by the court of appeals.

Judge

The order is signed by Liam Alsup, United States District Judge.