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Decision by Trial Court to Enforce FINRA Arbitration Panel’s Punitive Damages Award Is Affirmed on Appeal

Gordon v. Lewis
No. 1505 (Court of Special Appeals of Maryland, December 18, 2013)
by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In this appeal, the intermediate appellate court affirmed a trial court judgment enforcing an arbitration award, which included punitive damages. The litigation arose from the relationship between the Lewis Plaintiffs and Gordon, the Defendant, who was the Lewis’ financial advisor. Mrs. Lewis received a substantial asbestos personal injury settlement, and Gordon established a trust funded in large part by the proceeds of the asbestos settlement. The Lewis’ and Gordon served as trustees of the trust. In 2008, the Lewis’ filed a Complaint against Gordon in circuit court, alleging that as a result of Gordon’s fraud and misrepresentations, Plaintiffs invested several hundred thousand dollars in an unsecured, high-risk business venture owned and operated by Gordon’s son. The investment consisted of high risk notes in Pomfret Plantation, LLC, a development property that was then in poor financial condition. Pomfret subsequently filed for bankruptcy, causing appellees to lose their entire investment. The claims asserted by the Lewis parties were: fraudulent misrepresentation, constructive fraud, concealment or non-disclosure, negligent misrepresentation, and negligence. The complaint sought both compensatory and punitive damages.

In response to Plaintiffs’ suit, Gordon moved to dismiss and filed a petition to compel arbitration before the Financial Industry Regulatory Authority (“FINRA”). The circuit court granted the petition to compel arbitration and referred all claims to FINRA for arbitration. Proceedings pending in the circuit court were stayed, pending the completion of arbitration.

Plaintiffs re-filed their statement of claim before FINRA, in which they asserted the same factual allegations as in the Circuit Court Complaint. Both compensatory and punitive damages were sought. The essence of Plaintiffs’ complaint before FINRA was concealment or non-disclosure. Under Maryland law, Plaintiffs are entitled to recover noneconomic damages that result from fraud. FINRA conducted a dispute resolution arbitration hearing and issued an award which included $25,000 in punitive damages against Gordon. The majority of the panel found that Gordon’s actions were “willful and wanton” as she withheld information she knew about the investment.

Plaintiffs filed a petition to confirm the arbitration award and enter judgment against Gordon in the trial court. The Defendant opposed confirmation of the award, arguing primarily, that the FINRA arbitration panel exceeded its authority by awarding punitive damages, since withholding information does not provide a ground for a punitive damages award. The trial court disagreed and denied Gordon’s motion to vacate the punitive damages portion of the award, and entered judgment against Gordon in accordance with the arbitration panel’s decision. The intermediate appellate court agreed with the trial court and determined that since several counts of Plaintiffs’ Complaint could support an award of punitive damages, including fraudulent conduct, and since FINRA was careful to note in the award that Gordon had engaged in “willful and wanton” conduct by withholding relevant information she knew about the investment, there was nothing to indicate that the arbitrators exceeded their powers by awarding punitive damages. After applying the standards in the Maryland Uniform Arbitration Act, the trial court properly confirmed the FINRA award of punitive damages. Accordingly, there was no error and the trial court judgment was affirmed.