Broker-Dealer Litigation - Greenberg Traurig LLP

appointed a receiver to marshal the assets of the estate. The receiver subsequently obtained a
preliminary injunction against numerous former financial advisors and employees of the
investment company, freezing the accounts of those individuals pending the outcome of trial. In
an interlocutory appeal, the employee defendants contended that the district court should have
granted their motion to compel arbitration, and that the district court had no power to grant the
preliminary injunction when the motion to compel arbitration was pending. In a 2010 opinion,
the U.S. Court of Appeals for the Fifth Circuit disagreed, holding that the district court acted
within its power when it considered and decided the motion for preliminary injunction before
deciding the outstanding motion to compel arbitration. In addition, the Fifth Circuit held that the
district court did not abuse its discretion in issuing the preliminary injunction. The receiver had
a substantial likelihood of success on the merits on its claim pursuant to the Texas Uniform
Fraudulent Transfer Act (TUFTA), since there was sufficient evidence to support the district
court’s finding that the investment company entities constituted a Ponzi scheme and had paid the
defendant advisors and employees from the alleged Ponzi scheme. The receiver would likely
suffer irreparable harm in the absence of a preliminary injunction against the employee
defendants, because the accounts of those individuals would be frozen pending the outcome of
trial. If the defendants were to dissipate or transfer those assets out of the jurisdiction, the
district court would not be able to grant an effective remedy for the fraudulent transfers or
obligations. Furthermore, the receiver’s claims were not subject to arbitration in any event,
because the receiver was suing on behalf of estate creditors, who are not party to any alleged
arbitration agreements. Thus, the Fifth Circuit affirmed and remanded the matter back to the
district court for further proceedings.
In 2011, the Fifth Circuit withdrew its 2010 opinion and replaced it. The Fifth Circuit
simply adopted and reiterated its 2010 opinion as to all issues except for the motion to compel
arbitration. For that issue, the Fifth Circuit concluded that it did not have jurisdiction to decide
the motion because the district court had not decided the motion in the first instance. Because
the district court had not issued a final and appealable order, the Fifth Circuit lacked jurisdiction
to decide the motion to compel. The Fifth Circuit continued to add that, even if the district court
had ruled on a motion to compel arbitration, such a ruling is not a final judgment ending the
litigation on the merits and is thus not appealable. The Fifth Circuit remanded the matter back to
the district court for a ruling on the motion to compel arbitration.
Wanken v. Wanken, 2011 WL 4495597 (5th Cir. Sept. 29, 2011).
After a sales associate was terminated from an advisory firm owned by his father, he filed
for arbitration with FINRA. The sales associate alleged that he was wrongfully terminated, but
the arbitral panel dismissed all of his claims. Still disgruntled, the associate sued the firm and his
father to vacate or modify the arbitration award. The firm and father cross-moved to confirm the
award. A magistrate judge recommended confirming the arbitration award and the district court
agreed. The associate appealed. The U.S. Court of Appeals for the Fifth Circuit affirmed the
district court’s decision to confirm the award. The Fifth Circuit found the associate’s allegations
of arbitral fraud and bias to be merely conclusory and lacked support in the record. The
associate’s arguments that the arbitrators failed to support his efforts to obtain complete
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