UBS Says It Didn’t Know Judge’s Dad Had Arbitration ‘Cameo’

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Law360, New York (May 9, 2017, 5:07 PM EDT) — UBS Financial Services Inc. on Monday responded to a Puerto Rican judge’s criticism regarding its failure to discover his father’s “cameo” in a hearing related to a financial institution’s unsuccessful $70 million arbitration bid, saying its local counsel did not think it had to report his father’s involvement.

U.S. District Judge Gustavo A. Gelpi on May 4 had blasted both UBS and Asociacion de Empleados del Estado Libre Asociado de Puerto Rico over their failure to inform him about his father’s “cameo participation as local counsel in the arbitration hearing — however slight” at the outset of UBS’ efforts to confirm the arbitration in federal court. In that same order, Judge Gelpi also criticized AEELA’s post-judgment request that he be disqualified.

In its informative motion filed on Monday, UBS noted that Judge Gelpi had referenced his 2006 decision in Oriental Financial Group v. Federal Insurance Co., which also dealt with his father’s connection to a case. UBS said that while its local counsel has taken steps to follow Oriental’s reporting directive, they understood it to only apply if Judge Gelpi’s father was involved in the instant action.

“Since Mr. Gelpi had no role in filing the petition and had not participated in any manner during the pendency of the litigation before Judge Gelpi, local counsel would not have understood that the reporting obligation the court discussed in Oriental would have applied here,” UBS said.

As for UBS’ counsel in the instant action, they told Judge Gelpi they did not recall his father’s involvement in the prior arbitration at the time when the case was assigned to him, noting that the underlying arbitration is one of many to which UBS is a party in Puerto Rico, arising from the 2013 collapse of the Puerto Rico bond market.

At the Financial Industry Regulatory Authority proceedings, UBS said Judge Gelpi’s father appeared as local counsel on two of the 10 final hearing days and did not speak during either day. Apart from those two days, Judge Gelpi’s father did not participate in the underlying arbitration, UBS said.

“Thus, when the petition was assigned to Judge Gelpí (and thereafter, until AEELA filed its recusal motion), the undersigned counsel had not recalled that Mr. Gelpi had appeared for two of the 10 hearing days as local counsel,” UBS said.

Regarding AEELA’s recusal motion, Judge Gelpi earlier this month denied the after the fact motion to disqualify, but referred the matter to the chief district judge for review, and also suggested that sanctions may be warranted.

AEELA, a nonprofit organization that claims to be similar to a credit union, took UBS to arbitration for allegedly misleading it about the health of the Puerto Rican municipal bond market, which allegedly cost AEELA $70 million. An arbitrator denied the claim and awarded UBS fees.

As UBS sought to confirm the arbitration in district court, AEELA complained that the arbitration by FINRA had been so biased that the award should be thrown out. But in a ruling in March, Judge Gelpi said that it “presented no evidence or argument” that would allow the award to be nixed.

Just more than three weeks later, AEELA filed a motion for disqualification of Judge Gelpi, as well as another motion for reconsideration, and a motion to alter or amend judgment, prompting the May 4 order.

In the order, Judge Gelpi said that disqualification claims must be raised immediately on discovery to avoid wasting the court’s time and prevent strategically using them to avoid judgments after the fact. He said that with due diligence by either party, his father’s cameo participation in the arbitration hearing should have been discovered and disclosed to him months ago.

“Instead, my chambers time has been unduly compromised as a result of this delay, and now, the time of another colleague will be unjustifiably consumed as well,” Judge Gelpi said.

He denied the motion to disqualify, but referred the matter to Chief Judge Aida Delgado-Colon “to maintain the court’s appearance of impartiality.” She or someone to whom she delegates the task will “assess AEELA’s arguments, and, in effect, may affirm or vacate my judgment.” He also referred to his colleague the matter of whether to impose sanctions.

Counsel for the parties did not respond Tuesday to a request for comment.

AEELA is represented by Osvaldo Carlo-Linares.

UBS is represented by Maria C. Cartagena-Cancel and Roberto C. Quinones-Rivera of McConnell Valdes LLC and Adriel I. Cepeda-Derieux, Ross E. Firsenbaum and Peter J. Macdonald of WilmerHale.

The case is UBS Financial Services Inc. et al. v. Asociacion de Empleados del Estado Libre Asociado de Puerto Rico, case number 3:16-cv-02017, in the U.S. District Court for the District of Puerto Rico.

–Additional reporting by Kyle Jahner and Michael Macagnone. Editing by Katherine Rautenberg.