A former UBS client plans to appeal and pursue his proposed class action lawsuit against the wirehouse, despite a federal trial judge tossing the claims and issuing him a penultimate warning. If the former client, Darru Hsu, files any additional “duplicative” pleadings against UBS, the judge pledged to stick him with “a vexatious litigant” label. That label could restrict his ability to sue the wirehouse and would require him to obtain a court’s pre-approval before filing any other claims against UBS or its employees.
“Although Hsu’s latest filing is certainly duplicative and repetitive, this order cannot conclude that Hsu’s conduct has been sufficiently abusive to warrant a pre-filing order. This, however, will be Hsu’s final warning. Should he file any new filings that are duplicative of those that have already been definitively resolved in this case, he will be declared a vexatious litigant and will be required to submit for pre-filing review any pro se papers filed in this district against or having to do with [UBS] or any of its current or former employees,” U.S. District Judge William Alsup of the Northern District of California wrote in a March-issued order.
Undeterred, in mid-April Hsu filed a notice of appeal of the ruling and a motion seeking the appointment of a pro-bono counsel for that appeal. The courts owe him — as the victim of a “drive-by jurisdictional ruling” — an appellate hearing, Hsu argues.
About Judge Alsup’s warning, Hsu says: “He was very friendly when he said that.”
In his lawsuit filed in 2011, Hsu alleged he entered into a Managed Account Consulting Wrap Fee Service Agreement with UBS, through which the wirehouse provided bundles of services for clients, including access to an approved roster of third-party investment advisors.
But the “hedge clauses” in his and its other clients’ similar agreements with UBS unlawfully limited the wirehouse’s liability and waived its fiduciary duties under the Investment Advisors Act of 1940, Hsu alleged.
In a 2011 order dismissing Hsu’s lawsuit, however, Alsup concluded that the “‘hedge clause’ was not incongruous with other terms in the contract. The contract never disclaimed liability for UBS’s own role as an investment advisor.” Instead, the clause disclaimed liability for any misconduct of a separate investment manager used by Hsu, the judge wrote.
Hsu’s claim “rests upon the juxtaposition of supposedly contradictory terms in the contract and brochure,” Alsup wrote. But because no contradiction exists, Hsu’s lawsuit lacks factual allegations that support his claims of fraudulent or deceptive contract terms, the judge concluded.
Not surprisingly, Hsu disagrees. The problem with Alsup’s ruling is that he overlooked UBS’s contract terms violation of an SEC regulatory ruling, Hsu says.
UBS put its “interest ahead of its clients by shifting the regulatory obligation to the third-party manager, waiving UBS’s fiduciary [duty] and disclaiming its liability from its employees’ selling of the contract,” Hsu wrote in a follow-up email after a telephone interview with FA-IQ. “The public interest far outweighs this specific case proceeding. It was very hard on me but I pushed myself to learn,” he added.
Previously, a Finra panel had ruled against Hsu’s claims against UBS.
A UBS spokesperson did not respond to a request for comment for this story.
In prior pleadings, UBS denied that its contract was false or misleading and argued that it “clearly outlined its statutory duties, distinguishing between two types of relationships with clients: advisory and brokerage,” according to Alsup’s 2011 ruling. A UBS client brochure explained “that the investment advisory and brokerage services were ‘separate and distinct and each was governed by different laws and separate contracts,’” Alsup wrote. “In its ‘hedge clause,’ UBS disclaimed any responsibility” for the conduct of Hsu’s independent investment manager. “Nowhere in the contract or brochure did UBS say that it disclaimed liability for its own fraudulent conduct,” Alsup added.