## Facts

- Federal prisoners (and former prisoners) opened securities accounts through Nations Financial Group, which used RBC Dain Rauscher as clearing broker; a Nations representative serviced the accounts.
- The customers signed brokerage agreements containing arbitration clauses covering disputes.
- After the firms stopped maintaining the inmates’ accounts, plaintiffs asserted securities-law, contract, fiduciary-duty, and civil-rights conspiracy theories.
- The court compelled arbitration of the securities-related claims under the Federal Arbitration Act (FAA), and an arbitration proceeding went forward before a FINRA panel by telephonic hearing.
- During arbitration, plaintiffs sought subpoenas for phone-call recordings and compliance manuals; the panel denied the requests as irrelevant or immaterial.
- Plaintiffs did not subpoena or cross-examine the opposing parties; the panel issued an award denying all claims and finding for RBC, Nations, and the representative.
- Plaintiffs petitioned to vacate the award, arguing the panel wrongly excluded evidence and restricted cross-examination; defendants cross-petitioned to confirm and moved to dismiss remaining claims.
- Two named plaintiffs failed to respond or prosecute and were targeted for dismissal on that basis.

## Issues

1. Whether the arbitration award should be vacated under 9 U.S.C. § 10(a)(3) because the panel refused to hear pertinent and material evidence or improperly limited cross-examination.
2. Whether plaintiffs stated viable constitutional or civil-rights claims based on private financial firms’ termination of prisoners’ brokerage accounts.
3. Whether dismissal was warranted for failure to prosecute and whether leave to amend should be denied as futile.

## Decision

- Denied the petition to vacate the arbitration award.
- Granted the cross-petition to confirm the arbitration award.
- Dismissed remaining civil-rights and constitutional claims for failure to state a claim and denied leave to amend as futile.
- Dismissed the claims of non-participating plaintiffs for failure to prosecute.

## Legal Principles

- Judicial review of arbitration awards under the FAA is highly limited; courts confirm awards unless a statutory ground for vacatur is proven.
- Under 9 U.S.C. § 10(a)(3), vacatur requires a showing of arbitrator misconduct (including refusal to hear evidence that is pertinent and material) that results in an unfair hearing; routine relevance and evidentiary rulings are generally within arbitral discretion.
- A due-process claim requires governmental action; private broker-dealers and clearing firms are not state actors absent plausible allegations of government involvement.
- Equal-protection theories require a protected class or a fundamental right to trigger heightened scrutiny; prisoners (as such) are not a protected class in this context, and there is no fundamental constitutional right to maintain a private securities account.
- Leave to amend may be denied where amendments would not cure defects such as lack of state action or absence of a protected class or fundamental right.
- Courts may dismiss parties who fail to prosecute or respond to dispositive motions.

## Conclusion

The court confirmed a FINRA arbitration award because plaintiffs failed to establish FAA vacatur grounds based on excluded evidence or cross-examination limits, and it dismissed the remaining constitutional and civil-rights claims because the defendants were private actors and the alleged account termination implicated neither a protected class nor a fundamental right.


Lunsford v. RBC Dain Rauscher, Inc., 590 F. Supp. 2d 1153 (D. Minn. 2008)