Trusts and estates law as we know it has been around for centuries, and for much of that time litigators who made their living in this niche usually plied their trade in a probate court. That’s still the norm, but the playing field is changing rapidly … especially on the margins.
For example, there’s the increased trend in favor of “federalized” inheritance litigation. Federal court may not always be the best venue for litigating your inheritance case, but knowing it’s an option and thoughtfully weighing the pros and cons of that forum as applied to the particular facts and circumstances of your case can be a game changer. Another option savvy trusts and estates litigators need to consider is a FINRA arbitration proceeding.
FINRA arbitration as yet another inheritance litigation venue:
If the wrongdoer at the center of your case is an unethical financial advisor, your first impulse might be to sue him or her directly. The problem with that approach is that the wrongdoer might be judgment proof (either because the value of the claim greatly exceeds the wrongdoer’s personal net worth or the wrongdoer’s assets are otherwise shielded, such as homestead property). The better approach might be to pursue claims against the wrongdoer — and his or her deep-pocket employer. In the finance world that usually implies prosecuting some form of FINRA arbitration claim.
The Schottenstein Affair:
In 2018 I reported on a high profile case out of Tampa that resulted in a $34 million FINRA arbitration award against Morgan Stanley in favor of the estate of Roy M. Speer, the co-founder of the Home Shopping Network. We now have another example of that kind of litigation, a case out of South Florida involving claims made by Beverley Schottenstein against JP Morgan and two of her grandsons, who were employed by JP Morgan as her brokers. The case resulted in a $19 million FINRA arbitration award in Ms. Schottenstein’s favor.
The FINRA arbitrators ordered JP Morgan to pay Ms. Schottenstein $4.7 million in compensatory damages, $4.3 million related to the rescission of a private equity fund, $172 thousand in costs, and one-half of her legal fees. The balance of the award was entered against Ms. Schottenstein’s grandsons individually. The point being that no matter how collectible the award against the grandsons may or may not be, a substantial portion of the award is against a deep-pocket corporate defendant that clearly has the wherewithal to pay.
At 93, She Waged War on JPMorgan—and Her Own Grandsons:
For more on the Schottenstein case there’s a website published by Cathy Schottenstein, a granddaughter and central player who’s written a book about the case. You’ll also want to read an excellent story on the case by Bloomberg reporter Tom Schoenberg entitled At 93, She Waged War on JPMorgan—and Her Own Grandsons. Schoenberg’s featured in the Bloomberg video clip above. Here’s an excerpt from his reporting on the case:
Beverley Schottenstein was 93 years old when she decided to go to war with the biggest bank in the U.S.
It was a June day, and the Atlantic shimmered beyond the balcony of her Florida condominium. Beverley studied an independent review of her accounts as family and lawyers gathered around a table and listened in by phone. The document confirmed her worst fears: Her two financial advisers at JPMorgan Chase & Co., who oversaw more than $80 million for her, had run up big commissions putting her money in risky investments they weren’t telling her about. It was the latest red flag about the bankers. There had been missing account statements. Document shredding. Unexplained credit-card charges.
Although some relatives urged Beverley not to make waves, she was resolute. What the money managers did was wrong, she told the group. They needed to pay, she said. Even though they were her own grandsons.
And pay they did. With the help of her lawyers, Beverley dragged her grandsons and JPMorgan in front of arbitrators from the Financial Industry Regulatory Authority, or Finra. She sought as much as $69 million. After testimony that spread over months and ended in January, the panel issued a swift decision in Beverley’s favor.
Finra’s arbitration process is private by design, and even when settlements are announced few of the underlying allegations are made public. In a brief ruling on Feb. 5, the panel found the bank’s J.P. Morgan Securities LLC unit and the brothers who worked there, Evan Schottenstein and Avi Schottenstein, liable for abusing their fiduciary duty and making fraudulent misrepresentations. The arbitrators also found the bank and Evan Schottenstein liable for elder abuse. It ordered JPMorgan and the bankers to pay Beverley about $19 million between them, representing damages, legal fees and the return of money invested in a private equity fund.