Raymond James Financial Services Inc. v. Armijos

SOUTHERN DISTRICT OF FLORIDA

CASE NO. 19-CIV-81692-RAR

RAYMOND JAMES FINANCIAL

SERVICES, INC.,

Plaintiff,

vs.

ADA SERENA CORDOVA

ARMIJOS, et al.,

Defendants.

________________________________/

MEMORANDUM OPINION IN SUPPORT OF

ORDER DENYING PLAINTIFF’S MOTION FOR PRELIMINARY

INJUNCTION AND DISSOLVING TEMPORARY RESTRAINING ORDER

This is an action for declaratory relief seeking to enjoin Defendants from pursuing an

arbitration proceeding before the Financial Industry Regulatory Authority (“FINRA”) against

Plaintiff Raymond James Financial Services, Inc. (“RJFS”). Defendants are claimants in the

underlying arbitration, wherein the arbitration panel permitted Defendants to add RJFS as a

respondent. The case is before the Court on RJFS’ Motion for Preliminary Injunction (“Motion”)

[ECF No. 3]. An evidentiary hearing was conducted on April 15, 2020 [ECF No. 13]

(“Hearing”).1 The Court has reviewed the Motion, RJFS’ Verified Complaint for Declaratory

Judgment and Injunctive Relief (“Verified Complaint”) [ECF No. 1], the parties’ supplemental

briefs [ECF Nos. 92-93], and the remainder of the docket. For the reasons stated on the record at

the Hearing, and being otherwise fully advised, it is hereby

ORDERED AND ADJUDGED that Defendants’ Motion for Preliminary Injunction

[ECF No. 3] is DENIED as explained herein.

1 The Court held the hearing telephonically given concerns related to the COVID-19 virus and the

recommendations set forth in Administrative Order No. 2020-21.

BACKGROUND

On August 17, 2018, Defendants initiated a FINRA arbitration proceeding (“Arbitration”)

against Raymond James & Associates, Inc. (“RJA”) and Insight Securities, Inc.2 Compl. ¶ 148.

Therein, Defendants claimed that they were victims of a fraud orchestrated by the developers of

financially-distressed real estate projects in Florida. See Second Amended Statement of Claim

[ECF No. 6-1] at 6. According to Defendants, the developers “formed a complex web of mutual

funds and bond issuers that would raise capital from foreign investors through a series of financial

products and then lend the capital raised back to the developers.” Id. Further, the developers

owned and controlled the borrower, lender, and issuer of the financial products. Id.

To promote these products, the developers formed Biscayne Capital International, LLC, a

U.S. registered investment advisor, and a British Virgin Islands-based broker-dealer called

Biscayne Capital (BVI), Ltd. (collectively, “Biscayne Capital”). See id. at ¶ 151; Response to

Motion to Vacate Temporary Restraining Order [ECF No. 28] at 7. Raymond James &

Associates, Inc. (“RJA”) served as the clearing firm for Biscayne Capital, performing back-office

execution and administrative functions. See VanOosting Decl. [ECF No. 28-1] ¶¶ 4-5.

A. Chatburn solicits Hinojosa and Defendants

One of the developers, a man by the name of Frank Chatburn, was an owner and investment

advisor with Biscayne Capital. Id. at ¶ 153. While in Ecuador in late 2007, Chatburn was

introduced to Edith Hinojosa—a “finder” for Bear Stearns. See Declaration of Edith Hinojosa

[ECF No. 19-2] ¶ 7; Deposition of Edith Hinojosa [ECF No. 76-1] at 55:9-21. At the meeting,

Chatburn told Hinojosa that he worked with Raymond James, which he touted as a well-known

American brokerage firm with lots of resources and employees. Hinojosa Decl. ¶ 7. Chatburn

2 The Arbitration was originally styled Ada Serena Cordova v. Armijos, et al. v. Raymond James &

Associates, Inc. and Insight Securities, Inc., Case No. 18-02934. Compl. ¶ 145.

even asked Hinojosa to join him at Raymond James. Id. Importantly, Chatburn always referred

to “Raymond James” generally and never distinguished between any subsidiary entities or

divisions.3 See, e.g., Hinojosa Decl. ¶¶ 10, 16; Hinojosa Dep. 98:3-100:3; Declaration of Douglas

Ray Good [ECF No. 92-2] ¶ 17.

B. Chatburn touts his relationship with “Raymond James”

Several months later, Hinojosa flew to Florida at Chatburn’s invitation and had meetings

with Chatburn and his partners. Hinojosa Decl. ¶ 8. In these meetings, Chatburn and his partners

detailed their real estate projects and the “viability” of the financial products that would be used

to raise the capital necessary to fund them. Id. at ¶ 9. Essentially, a fund called Sentinel would

issue financial products that would be sold by Biscayne Capital through Raymond James. Id. at

10. Interested by the proposition, Hinojosa flew to Raymond James’ Tampa office in December

2007 where she met with a Raymond James executive at the behest of Biscayne Capital. See

Hinojosa Decl. ¶ 11; Declaration of Robb Combs [ECF No. 94-2] at Exhibit B (“I really feel that

what [sic] a visit to the Raymond James HQ will tip her over to come work with us on a fully

committed basis. She is really enthusiastic about RJ, but we are still trying to ‘reel her in,’ so any

help you could provide, will be greatly appreciated.”).

Hinojosa was given a tour of Raymond James’ offices, where she saw a sign that read

“Biscayne Capital” on the wall. See Hinojosa Decl. ¶ 13; Hinojosa Dep. 116:11-119:1. On the

tour, she was told that Raymond James was committed to the long-term success of Biscayne

Capital and that she could work with Biscayne Capital within the Raymond James platform. See

Hinojosa Decl. ¶ 13. Specifically, her job would be to identify potential investors in Latin

3 Notably, Chatburn’s use of “Raymond James” generally was prohibited. See Declaration of Michelle

Retzer [ECF No. 94-1] ¶¶ 2-6.

America for the financial products sold through Raymond James. Id. at ¶ 14. As an added

incentive, Raymond James would provide Hinojosa’s clients with accounts. Id.

Hinojosa eventually agreed to join Biscayne Capital based on Chatburn’s representations

and the “stellar reputation of Raymond James.” Id. at ¶ 15. Chatburn told Hinojosa that the

financial products she would be promoting were vetted and approved by “Raymond James.” See

Hinojosa Decl. ¶ 11; Hinojosa Dep. 121:18-126:16; see also Email from Chatburn, Hinojosa Decl.

at Exhibit A (“Raymond James owes its success precisely to the transparent manner in which we

work. We do not charge any hidden fees to the detriment of our clients. It would be an honor to

receive you in our home office in St. Petersburg so that you can get to know the human team that

would manage the money of the Andes Petrolean family.”). She was even provided with

Raymond James’ branded marketing materials to solicit clients. See Hinojosa Dep. 60:17-65:23.

In early 2008, Chatburn’s partners traveled to Ecuador to open Raymond James accounts

for Hinojosa’s clients—the Defendants—whose accounts were to be transferred from Bear Stearns

to Raymond James. See Hinojosa Decl. ¶ 19. This included a specific client who initially

demurred, only to be convinced by Chatburn, who personally visited the client and held himself

out as a “Raymond James” employee. Id. at ¶ 22.; Hinojosa Dep. 159:2-161:24. Ultimately,

each of the Defendants signed custodian agreements with RJA. See Hinojosa Decl. ¶¶ 22-24 at

Exhibit D. Notably, the letterhead on these agreements simply read “Raymond James.” Id.

Simultaneously, Hinojosa began to find success promoting Biscayne Capital’s financial products,

which she marketed as being “part of the Raymond James portfolio of products.” Id. at ¶ 20.

C. Chatburn holds himself out as a “Raymond James” advisor

While the parties dispute a large portion of the record, many facts are undisputed. First,

Chatburn was a registered broker with RJFS from March 2008 through August 2008. See

Declaration of Melissa A. Kelly [ECF No. 28-2] at Exhibit A. Moreover, the RJFS Independent

Associate Agreement with Chatburn, signed February 28, 2008 (“Chatburn Agreement”), defines

Chatburn’s title as “Branch Manager or Representative in Charge” of the RJFS Miami office. See

Chatburn Agreement [ECF No. 63]. This aligns with Defendants’ understanding that Chatburn

was Raymond James’ Branch Manager between 2008 and 2012. See Hinojosa Decl. ¶ 23;

Hinojosa Dep. 156:14-163:1; Good Decl. ¶ 21. Chatburn went as far as to distribute business

cards stating as much inside Raymond James-branded folders. See Declaration of Edwin Alberto

Torres Mino [ECF No. 92-1] ¶¶ 6, 8; Hinojosa Decl. at Exhibit E; Hinojosa Dep. 98:3-8.

Between 2008 and 2015, Chatburn visited Ecuador “progressively” to meet with

Defendants. Hinojosa Decl. ¶ 24; Hinojosa Dep. 167:12-168:17. During these trips, Chatburn

succeeded in selling Defendants more products, always touting the imprimatur of Raymond James.

Hinojosa Decl. at ¶ 24; Hinojosa Dep. at 145:3-156:13; 159:24-162:17. In fact one of the

Defendants, Douglas Ray Good, confirmed that Chatburn solicited various Raymond James

products to him, both individually and in his capacity as a member of the Andes Petroleum savings

plan committee. Good Decl. ¶ 12. Chatburn advised Good that he could order trades for him

and place the trades directly through Good’s RJA account. Chatburn even went so far as to

provide Good with a proprietary Raymond James Equity Research report. Id. at ¶ 29. Again, all

the record evidence indicates that Chatburn always referred to “Raymond James” in the global

sense and never distinguished between the Raymond James entities. Id. at ¶¶ 7, 10-16, 23-29.

Although Chatburn continued to hold himself out as a Raymond James advisor for years,

the truth is that he was terminated on August 15, 2008. See Form U5, Expert Report of Thomas

Franko [ECF No. 97-1] at Exhibit 3. Importantly, neither Chatburn or anyone from Raymond

James (or RJFS or RJA) ever notified Defendants that Chatburn, who was still holding himself out

to be a Raymond James advisor, had left RJFS. Id. at ¶ 31; Hinojosa Dep. 159:24-162:17. Indeed,

on numerous occasions in 2008 and 2009—after Chatburn was no longer a registered broker with

RJFS—Chatburn continued to hold himself out to Good and the Andes Petroleum savings plan

committee as being associated with “Raymond James.” Good Decl. ¶¶ 12-16, 23-29. Trusting

in Chatburn, Good and his wife continued to invest through their RJA accounts. Id. at ¶¶ 17, 20,

30, 32. Unfortunately for Defendants, Chatburn and Biscayne Capital ran into legal trouble

around 2016. See SEC Order [ECF No. 31-4]; Chatburn’s Factual Proffer in Support of Guilty

Plea [ECF No. 31-3].

D. Raymond James

Much of the confusion in this case seems to center around what it means to be “Raymond

James.” RJFS maintains that it and RJA are wholly separate entities under the same parent

company, Raymond James Financial, Inc. See, e.g., Deposition of Melissa Kelly [ECF No. 77-1]

128:23-129:2. RJFS’ corporate representative testified that RJA and RJFS share a campus, share

resources when possible, and ultimately report to the same General Counsel for compliance

matters. See id. at 137:13-140:24. RJA and RJFS also share a database of client records and

information that allows employees of either entity to search the parent company’s records. Id. at

48:1-50:24. As part of Chatburn’s Agreement, RJFS makes clear that it contracts on behalf of

itself and RJA, and Chatburn was authorized to sell RJA products, a process known as “selling

away.” See, e.g., Chatburn Agreement at § 1(e), § 4. Given the interrelatedness of these

similarly-named entities, one can understand how referring to any of them as “Raymond James,”

as Chatburn constantly did, could cause confusion.

E. The Arbitration

Defendants initially brought the Arbitration against RJA and Insight Securities, Inc. On

September 16, 2019, Defendants requested that the three-person Arbitration panel permit them to

add RJFS as a respondent. Compl. ¶ 151. The Arbitration panel granted Defendants’ request

and RJFS became a named respondent in the Arbitration. Id. at ¶ 149. Although Defendants do

not have an arbitration agreement with RJFS, the Arbitrators found that RJFS was a proper party

to the Arbitration under the FINRA Code of Arbitration Procedure (“FINRA Code”). Id. at ¶ 154.

In the Arbitration, Defendants allege that both RJA and RJFS are liable for “aiding and abetting in

the fraud perpetuated by the Biscayne Individuals [(which includes Chatburn and others)], and the

entities they controlled, gross negligence, negligence, breach of fiduciary duty, and for failure to

supervise its agents.” Defendants’ Supplement [ECF No. 92] at 10.

F. The Litigation

RJFS filed its Verified Complaint on December 19, 2019. Count I seeks a declaration that

Defendants’ claims against RJFS are not arbitrable under Rule 12200 of the FINRA Code.

Specifically, RJFS seeks a declaration that Defendants “are not and never were ‘customers’ of

RJFS within the meaning of FINRA Rule 12200 or otherwise.” Compl. ¶¶ 57-160. Rule 12200

“requires a FINRA member and its associated persons to arbitrate certain disputes with customers

before FINRA upon the customer’s demand.” Pictet Overseas, Inc. v. Helvetia Trust, 905 F.3d

1183, 1187 (11th Cir. 2018). Defendants argue that they fall under the definition of “customer”

pursuant to Rule 12200 and thus, should be permitted to proceed against RJFS as the arbitrators

have ordered.

Count II asks the Court to enjoin Defendants from proceeding with the Arbitration against

RJFS. Id. at ¶ 168. However, “[t]he Court readily dispenses with Count II, as that count does

not state a claim for relief. Injunctive relief is a remedy, not a separate cause of action.” Viyella

v. Nicor, No. 19-25094-CIV, 2020 WL 977481, at *1 (S.D. Fla. Feb. 28, 2020) (citing Blaszkowski

v. Mars Inc., No. 07-21221-CIV, 2008 WL 11408620, at *3 (S.D. Fla. Apr. 8, 2008) (“An

injunction is a remedy potentially available only after a plaintiff can make a showing that some

independent legal right is being infringed—if the plaintiff’s rights have not been violated, he is not

entitled to any relief, injunctive or otherwise.”) (internal quotation marks omitted); Alabama v.

U.S. Army Corps of Eng’rs, 424 F.3d 1117, 1127 (11th Cir. 2005)).

The Court entered a Temporary Restraining Order (“TRO”), restraining Defendants from

proceeding against RJFS in the Arbitration until such time as it had the opportunity to hold an

evidentiary hearing on the Motion [ECF No. 14]. As further explained herein, after carefully

considering the record and evidence presented at the Hearing, the Court found that RJFS failed to

show that it had a substantial likelihood of success on the merits of its claim, thereby warranting

denial of the Motion and dissolution of the TRO.

LEGAL STANDARD

To obtain a preliminary injunction, a party must demonstrate “(1) a substantial likelihood

of success on the merits; (2) that irreparable injury will be suffered if the relief is not granted; (3)

that the threatened injury outweighs the harm the relief would inflict on the non-movant; and (4)

that entry of the relief would serve the public interest.” Schiavo ex. rel Schindler v. Schiavo, 403

F.3d 1223, 1225–26 (11th Cir. 2005) (per curiam) (citation omitted). “[A] preliminary injunction

is an extraordinary and drastic remedy not to be granted unless the movant clearly establishe[s]

the burden of persuasion as to the four requisites.” McDonald’s Corp. v. Robertson, 147 F.3d

1301, 1306 (11th Cir. 1998) (alteration added; internal quotation marks, citation, and footnote call

number omitted).

Both the Supreme Court and Eleventh Circuit specifically hold that courts must interpret

the FINRA Code “as it would a contract under the applicable state law.” MONY Securities Corp.

v. Bornstein, 390 F.3d 1340, 1342 (11th Cir. 2004) (citing Multi-Financial Sec. Corp. v. King, 386

F.3d 1364, 1367 (11th Cir. 2004); Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987)). “Because the

FINRA Arbitration Code is unambiguous, the parties’ intent must be gleaned from the four corners

of the document.”4 Pictet, 905 F.3d at 1188 (quoting Crawford v. Barker, 64 So. 3d 1246, 1255

(Fla. 2011) (internal quotations omitted)). “[T]he language of the Code itself is the best evidence

of the parties’ intent, and its plain meaning controls.” Id. (internal quotation marks omitted).

And “unlike other contracts, any doubts concerning the scope of arbitrable issues should be

resolved in favor of arbitration.” King, 386 F.3d at 1367 (quoting Moses H. Cone Mem’l Hosp.

v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983) (internal quotations omitted)). Further, it is

well settled that the FINRA Code constitutes a written agreement to arbitrate. Deutsche Bank

Sec. Inc. v. Simon, No. 19-20053-CIV, 2019 WL 4864465, at *3 (S.D. Fla. Aug. 20, 2019), report

and recommendation adopted, No. 19-20053-CIV, 2019 WL 4685876 (S.D. Fla. Sept. 26, 2019)

(internal citations omitted).

In short, if the Court finds that RJFS has failed to show a substantial likelihood of success

in establishing that Rule 12200 bars the Arbitration, the Motion must be denied.

ANALYSIS

RJFS maintains that Defendants’ claims are not arbitrable under Rule 12200 of the FINRA

Code. Compl. ¶ 157. Where no written agreement to arbitrate exists, as is the case here, Rule

12200 states that “[p]arties must arbitrate a dispute under the Code” if (1) “[r]equested by a

customer;” (2) “[t]he dispute is between a customer and a member or associated person of a

member;” and (3) “[t]he dispute arises in connection with the business activities of the member or

associated person . . . .” (emphasis added). Simon, 2019 WL 4864465, at *3 (citing FINRA, RULE

12200). At the Hearing, the parties agreed that the third factor is largely not in dispute—namely,

that the dispute arises in connection with RJFS’ or Chatburn’s business activities. See, e.g.,

Deutsche Bank Sec., Inc. v. Ades, No. 18-25142-CIV, 2019 WL 1077905, at *3 (S.D. Fla. Mar. 7,

4 RJFS filed the Expert Report of Thomas A. Franko [ECF No. 97-1], which presented Mr. Franko’s expert

opinion on several legal matters in this case. As discussed at the Hearing, although the Court has no reason

to doubt Mr. Franko’s expertise, it need not consider his report to the extent it opines on questions of law.

2019) (citing Bornstein, 390 F.3d at 1344-45; King, 386 F.3d at 1370) (“The Eleventh Circuit has

made clear that a customer’s claim that a FINRA member failed to supervise its associated person

in connection with the dispute satisfies the second requirement of a connection between the

customer and the member’s conduct.”). Thus, in order to forestall being hailed into arbitration,

RJFS must show (1) that Defendants were not “customers” of RJFS or (2) that Chatburn was not

an “associated person” of RJFS under Rule 12200. The Court will address each point in turn.

1. RJFS failed to show that it has a substantial likelihood of proving that Defendants

are not “customers” of Chatburn for purposes of Rule 12200.

As discussed at the Hearing, the FINRA Code does not define “customer,” except to state

that a “customer shall not include a broker or dealer.” Sagepoint Fin., Inc. v. Small, No. 15-CV-

0571 DLI RML, 2015 WL 2354330, at *4 (E.D.N.Y. May 15, 2015) (citing FINRA, RULE

12100(k)). “[T]he Rule provides no further guidance as to the definition of a customer[.]”

Viyella, 2020 WL 977481, at *5. This exceedingly broad definition was slightly clarified by the

Second Circuit in Citigroup Global Markets, Inc. v. Abbar, 761 F.3d 268, 275 (2d Cir. 2014).

There, the Second Circuit held that a “customer” for purposes of Rule 12200 is one who, while not

a broker or dealer, either “(1) purchases a good or service from a FINRA member, or (2) has an

account with a FINRA member.” Id.

Here, the undisputed facts easily satisfy even the Second Circuit’s definition of “customer.”

Chatburn solicited Defendants to sign custodial agreements with RJA while he was a registered

financial advisor for RJFS. See Hinojosa Decl. ¶¶ 22-24. Moreover, Defendant Edwin Alberto

Torres Mino, as well as Good, confirmed that Chatburn directly solicited and promoted Raymond

James products and services to them. See Mino Decl. ¶¶ 4-8; Good Decl. ¶¶ 4-32. Both had

various communications with Chatburn, during which time Chatburn held himself out to be a

representative of “Raymond James” in the global sense. Id. In fact, on numerous occasions in

2008 and 2009—after Chatburn was allegedly no longer a registered broker with RJFS—Chatburn

continued to hold himself out to Good and the Andes Petroleum savings plan committee as being

associated with “Raymond James.” Good Decl. ¶¶ 12-16, 23-29. Through it all, Good continued

to purchase through his RJA account. Id. at ¶¶ 17, 20, 30, 32. Moreover, Courts have found that

a “selling away” relationship where the associated person of a FINRA member sells the financial

products of an affiliated company to an investor is sufficient to establish a customer relationship.

See Viyella, 2020 WL 977481 at *5; King, 386 F.3d at 1370; Bornstein, 390 F.3d at 1344.

Consequently, the Court finds that Defendants were Chatburn’s “customers” for purposes of Rule

12200.

Nevertheless, RJFS urges the Court to abandon the plain language of the Code and define

“customer” more narrowly—as one who has a direct relationship with a FINRA member either

through a) a written customer agreement or b) a direct purchase from the FINRA member. First,

the absence of a direct, written agreement is not fatal to Defendants’ claim. As the Court deftly

explained in Pictet, when a member joins FINRA, it agrees, like all other FINRA members, to

comply with FINRA’s rules. Pictet, 905 F.3d at 1187. Those rules include Rule 12200, which

requires a FINRA member and its associated persons to arbitrate certain disputes with customers

before FINRA upon the customer’s demand. Id.; see also King, 386 F.3d at 1367 (“Although

there is no direct written agreement to arbitrate between IFG and King, the Code serves as a

sufficient written agreement to arbitrate, binding its members to arbitrate a variety of claims with

third party claimants.”) (citation omitted). Importantly, “all that matters is the relationship

between the investor and the advisor, and the advisor’s status as an associated person.” Triad

Advisors, Inc. v. Siev, 60 F. Supp. 3d 395, 398 (E.D.N.Y. 2014). Thus, RJFS’ argument that

Defendants were not customers of RJFS because they lacked signed agreements is unavailing.

Moreover, the absence of a direct customer relationship between RJFS and the Defendants

is of no moment. Again, the Court must look to the unambiguous language of the Code, which

makes clear that the definition of “customer” is broad. In King, the Eleventh Circuit reaffirmed

this broad definition, finding that King was a “customer as long as she is not a broker or dealer;

nothing in the Code directs otherwise or requires more.” 386 F.3d at 1364. Faced with a similar

argument, the King Court found that the plaintiff’s interpretation would read “a limitation into the

Code that is absent from its language.” Id. As explained in Viyella, when faced with the

unambiguous language of the Code and the aforementioned Eleventh Circuit case law, there is no

need to refer to extrinsic evidence.5 See Viyella at *7. Analyzing King, the Viyella Court noted

that “[t]he court found King was a customer for purposes of arbitration because she was a customer

of IFG’s associated person, even though she did not have a direct transactional relationship with

IFG.” Id. (citing King, 368 F.3d at 1368–70); see also Bornstein, 390 F.3d at 1344 (relying on

King and concluding that the claimants were customers of the member because they were

customers of the member’s registered representative). In sum, there is no requirement that a party

directly transact with a FINRA member to qualify as a “customer” for purposes of Rule 12200.

Thus, the Court finds that RJFS has failed to show it has a substantial likelihood of success

in proving that Defendants were not Chatburn’s “customers.” This bring the Court to its second

point—whether RJFS can establish that Chatburn was not an “associated person” of RJFS.

2. RJFS failed to show that it has a substantial likelihood of proving that Chatburn

was not an “associated person” of RJFS for purposes of Rule 12200.

It is undisputed that Chatburn was a registered financial advisor for RJFS from March 18,

2008 through August 15, 2008. See Form U5, Expert Report of Thomas Franko at Exhibit 3.

RJFS maintains that Chatburn qualifies as its “associated person” only during this particular period

of time. In support of this position, RJFS points to Wheat, First Sec., Inc. v. Green, which held

that a broker-dealer was not obligated to arbitrate any claims arising from trading conducted

5 Consequently, RJFS’ argument based on securities industry guidance regarding the definition of

“customer” similarly misses the mark.

through its predecessor-in-interest. 993 F.2d 814 (11th Cir. 1993). However, RJFS misapplies

Wheat First. Wheat First does not stand for the proposition that there is a temporal bar that

requires a transaction to take place during the broker’s registration period for the broker to be

considered an “associated person.” Rather, “Wheat discussed timing for investors who were

harmed by the firm’s successor in interest. In contrast, in both King and here, the investor was a

customer at the time the events took place.” Bornstein, 390 F.3d at 1345 (citing King, 386 F.3d

at 1370). As in King and Bornstein, Defendants were customers at the time the events took

place—namely, when Chatburn solicited them to open accounts with the allure of financial

products backed by Raymond James. Although not all the transactions were executed during the

few months that Chatburn was registered with RJFS, many were executed while Chatburn had not

yet ceased his affiliation with Raymond James. Additionally, much of the investment activity

occurred while he was holding himself out to be a Raymond James-affiliated person. Thus, it

cannot be said that Defendants lack some sort of temporal nexus.

Moreover, the relevant question at this juncture is whether a person formerly associated

with a FINRA member can still be deemed an “associated person” for purposes of triggering

arbitration under Rule 12200. The Court answers this question in the affirmative, and the plain

language of the FINRA Code, once again, favors Defendants’ interpretation. Notably, FINRA

Rule 12100(u) specifically defines “associated member” as “a person formerly associated with

a member.” FINRA, RULE 12100(u) (emphasis added); see also Metlife Sec., Inc. v. Pizzano,

No. 09-CV-4459 (DMC-MF), 2010 WL 2545170, at *4 (D.N.J. June 18, 2010) (“Undeniably,

Lucchetto, a former registered agent of Plaintiff, terminated two months prior to the alleged

misconduct, is a person formerly associated with a member and, therefore, for purposes of the

Code, Lucchetto qualifies as a person associated with a member.”).

As noted at the Hearing, to read Rule 12100(u) as RJFS desires would require eliminating

the entire last sentence of the Rule in order to absolve RJFS of all liability. It is undisputed that

Chatburn was formerly associated with RJFS and initiated his solicitation of Defendants while

affiliated. Because “formerly associated” means “associated” under the FINRA Code, Chatburn

is an “associated person” with RJFS for purposes of Defendants’ claims.

Finally, at the Hearing, Defendants provided a separate and independent basis as to why

Chatburn should be considered an “associated person” of RJFS: Rule 12100(u)(2) provides that a

“person associated with a member” means: “branch manager of a member.” FINRA, RULE

12100(u)(2). Here, it is undisputed that Chatburn held himself out to be Raymond James’ Miami

Branch Manager for years. The business cards he distributed referred to him as Branch Manager

of RJFS. And although not all the transactions were executed during the few months that

Chatburn was registered with RJFS, many were executed while Chatburn had not yet ceased his

affiliation with Raymond James and continued to hold himself out as such. Ultimately, the Court

finds that RJFS has failed to show that it has a substantial likelihood of proving that Chatburn was

not an “associated person” of RJFS.

CONCLUSION

“The bottom line is that FINRA arbitration was established to deal with disputes between

customers and brokers or persons associated with brokers.” Abraham v. Simpson, No. 11-CV-

0637-RBJ-MJW, 2011 WL 5925522, at *5 (D. Colo. Nov. 28, 2011). RJFS, who seeks injunctive

relief, has not set forth sufficient evidence to meet its burden and cannot establish a substantial

likelihood of success on the merits of its claim in order to avoid FINRA arbitration of this dispute.

Consequently, the Court need not reach the other necessary elements for a preliminary injunction.

Accordingly, it is hereby

ORDERED AND ADJUDGED that the Motion [ECF No. 3] is DENIED. Given the

Court’s analysis and conclusions, the parties are directed, by no later than May 8, 2020, to file a

report advising whether any issues remain for trial. Should the parties intend to proceed with the

case, they must also file a Jomt Scheduling Report pursuant to Local Rule 16.1 by May 8, 2020.

DONE AND ORDERED in Fort Lauderdale, Florida this 27th day of April, 2020.

RODOLFOA.RUIZID

UNITED STATES DISTRICT JUDGE

cc: counsel of record

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