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Alvarez-Mauras v. Banco Popular of Puerto Rico

United States Court of Appeals, First Circuit

March 25, 2019

VICTOR ÁLVAREZ-MAURÁS, Plaintiff, Appellant,


          Paul Vilaŕo Nelms, with whom Vilaŕo Law Offices was on brief, for appellant.

          Sara Vélez-Santiago and Néstor M. Méndez-Gómez, with whom José A. Alvarado-Vázquez and Pietrantoni Mendez & Alvarez LLC were on brief, for appellees.

          Before Howard, Chief Judge, Thompson and Kayatta, Circuit Judges.


         Appellant Víctor Álvarez-Maurás ("Álvarez"), a building contractor from Carolina, Puerto Rico, claims that his securities broker, in collusion with the investment firm and affiliated bank, pilfered over $400, 000 from his investment account, and then covered up the theft. His claims are brought under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962, 1964. The case reaches us on appeal after the district court dismissed all of Álvarez's claims against all defendants, on their Fed.R.Civ.P. 12 motion.

         Álvarez's story begins way back in 1989 when Hurricane Hugo ravaged the island of Puerto Rico.[1] Responding to the destruction, the Federal Emergency Management Agency hired Álvarez to help in the rebuilding effort. Within a year, he had earned over $1 million, which he used to purchase a certificate of deposit from appellee Banco Popular of Puerto Rico, Inc. ("Banco Popular"). Several years later, thinking ahead to his retirement, [2] Álvarez approached appellee Alexander Garcia, a securities broker at Banco Popular's affiliate Popular Securities, Inc. ("Popular Securities"). Álvarez had two investment objectives: he wanted to get a modest monthly income stream; and he wanted to retire in ten years' time, when he turned 65, and begin to draw down on the balance. Sadly things did not go as Álvarez planned -- a third of his money disappeared without a trace, allegedly embezzled by his broker, Garcia.


         When Álvarez[3] discovered that a chunk of his money was gone, he began a series of inquiries, of which more will be detailed hereafter. Today, with the investigations complete and the benefit of hindsight, a devious and deceitful scheme seems to have emerged. Given that this is a motion to dismiss, unless otherwise noted, we present the facts as set forth in Álvarez's verified complaint.

         Back in 1998, on December 17, Álvarez met with Garcia at Popular Securities and opened two investment accounts, with an initial investment of $875, 000. Álvarez discussed his retirement plans with Garcia, instructing Garcia to select conservative securities which would safeguard his nest egg and allow for a modest monthly income stream. On February 11, 1999, Álvarez met with Garcia again and deposited an additional $125, 000, bringing his total investment to $1 million.[4]

         At this second meeting, Garcia instructed Álvarez to close his bank account at the Rio Piedras branch of Banco Popular, and to open a new account at the Barbosa branch. Suspecting nothing nefarious, Álvarez complied. Over the next several months, between April 1999 and January 2000, Garcia made four fraudulent transfers from Álvarez's investment accounts to the closed bank account at the Rio Piedras branch, without Álvarez's knowledge or consent. These four transfers totaled $419, 632.43.[5]

         With an eighth-grade education, no investment background, and no English language skills, Álvarez had trouble making heads or tails of his monthly brokerage account statements; however, he was concerned in the first year after investing when he noticed that the total value had gone down. When questioned about the reason for the dip, Garcia reassured him, explaining that market fluctuations would cause some ups and downs in the total value, but that the full $1 million would be there when Álvarez retired in 2009. Álvarez trusted Garcia and believed his explanation. And, in spite of the account statement irregularities, Álvarez was in fact receiving a monthly income, as he had requested.

         In early 2009, when Álvarez was ready to retire, he met with Garcia and learned that there was only $600, 000 in his investment accounts. Confronted once again about the fund balance, Garcia shifted his explanation for the shortfall, telling Álvarez that his initial investment had always been only $600, 000. Concerned, Álvarez requested an internal investigation. On January 28, 2009, Popular Securities backed up Garcia's story that Álvarez's initial investment was only $600, 000. Alarmed by this explanation, Álvarez requested a second investigation. This one took two years to wrap up; concluding, on February 11, 2011, as before, that Álvarez had only invested $600, 000. After that, Álvarez wrote a letter of complaint to Banco Popular's CEO but received no response.


         Álvarez next sought arbitration, pursuant to the agreement he'd signed when he opened his accounts with Popular Securities. We don't have a copy of the arbitration agreement, but the district court quoted an excerpt, which it, in turn, lifted from the judgment of the Puerto Rico commonwealth court. No party has objected to the content of the text or the district court's reliance on it. It states:

All controversies that may arise between the undersigned [Álvarez] and you, as introducing or clearing broker, your agents, or employees, concerning any transaction or the construction, performance, or breach of this or any other agreement between us, whether such transaction or agreement was entered in prior, on, or subsequent to the date hereof, shall be determined by arbitration . . . .

         Accordingly, on January 19, 2012, Álvarez, through counsel, filed a claim for arbitration with the Financial Industry Regulatory Authority ("FINRA"). The claim covered the conduct of Garcia and Popular Securities only, because claims against Banco Popular "are not allowed to be filed at" FINRA, according to Álvarez; and, at any rate, the parties appear to concur that the arbitration agreement does not cover Banco Popular. Instead, the nineteen-page claim focuses almost exclusively on Garcia's unsuitable investment decisions in choosing vehicles that were too risky for Álvarez, given his age and investment goals. For example, the claim states [verbatim]:

Respondents made an express guaranteed to Claimant of preservation of capital and monthly income return through out the life of the investment. Respondents knew or should have known that by investing Claimant retirement funds in the above mentioned were unsuitable recommendations, this in light of Claimant's age, life stage, risk tolerance and investment objectives which were conservative, preservation of capital and to receive monthly income.

         The claim also alleges that Popular Securities failed to sufficiently supervise Garcia's work. In one paragraph, Álvarez references the prior internal investigation "that erroneously concluded that the initial amount invested was $600, 000, rather than $1, 075, 000, as of today there are $475, 000 that still unaccounted for." [sic]

         During the course of the arbitration proceeding, FINRA requested that Álvarez produce bank statements to demonstrate the amount of his initial investment. He was unable to locate these records. The record is silent as to what documents, if any, FINRA requested from Popular Securities. Popular Securities' initial response to Álvarez's claim attributed his losses to "the impact of the financial crises at the world level in the securities markets." However, during the proceedings, Popular Securities took the opportunity to switch its cover-story yet again. Moving on from its and Garcia's fabrications concerning the fluctuating vagaries of the stock market and its subsequent assertions that Álvarez only deposited $600, 000, at the arbitration hearing, Popular Securities came up with a new version: producing three transfer documents, ostensibly showing that Álvarez had actually authorized three out of four of Garcia's transfers to the (closed) Rio Piedras bank account. There was no paperwork for the final transfer of $49, 632.43, which took place on January 19, 2000; nor were there any bank statements, cancelled checks, microfilm, computer records, or other internal bank or brokerage firm documents reflecting any of the transfers.

         After being shown these putative transfer notices, Álvarez hired a qualified forensic document examiner to peruse the authorizations. The examiner submitted his completed report to FINRA on February 20, 2013, and testified before the panel on March 12, 2013. He concluded that the authorizations were prepared by Garcia in his own handwriting, and that Álvarez's signatures at the bottom were actually forgeries. These conclusions were not contested or contradicted by Garcia or Popular Securities; in fact, Garcia even admitted the handwriting was his.

         Notwithstanding these revelations, FINRA issued its award on April 1, 2013, dismissing Álvarez's claims with prejudice for failing to make out a prima facie case. In its ruling, FINRA provided no explanation for its decision. At the same time, the panel ordered Popular Securities to pay all the arbitration fees ($16, 750), and disallowed its request for $70, 000 in attorneys' fees. Álvarez's filing fee of $1, 425.00 was refunded to him. In addition, FINRA denied Popular Securities' request to expunge the complaint from Garcia's record.

         Commonwealth courts

         As Álvarez explains in his complaint, "[d]ue to the inconsistent and contradictory 'Award' issued by FINRA," he determined to pursue his claims with the Court of First Instance of the Commonwealth of Puerto Rico, filing a complaint on May 15, 2013, which sought to vacate the FINRA award. On May 8, 2014, on Popular Securities' motion to dismiss, the court, in deference to FINRA, confirmed the award. In accordance with Puerto Rico law concerning arbitration awards, [6] the court performed an extremely limited review. Álvarez then appealed the decision to the Commonwealth's Appeals Court on August 11, 2014. Again, FINRA's award was confirmed. The appeal was denied again, on Álvarez's motion for reconsideration, on December 8, 2014. Certiorari was denied by the Supreme Court of Puerto Rico, which also issued denials of two further reconsideration motions. Álvarez received his final rejection from the Commonwealth courts on October 23, 2015, concluding this fruitless avenue of litigation.

         District ...

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