Confirmation / Vacation of Arbitration Awards

CUSTOMER FAILS TO SATISFY BURDEN TO VACATE FINRA ARBITRATION AWARD IN FAVOR OF ITS BROKER

November 29, 2017 by Rob DiUbaldo

A federal district court in California confirmed a FINRA arbitration award last month in a lawsuit by Global eBusiness against its broker for alleged mishandling of Global’s margin account. Overall, the court found that Global failed to live up to its burden to justify vacating the award on either of the two grounds asserted. First, the court observed that Global provided no evidence that the panel failed to evaluate evidence pertinent and material to its claims and concluded the procedural decisions complained of were well within the arbitrators’ broad discretion. Second, Global neglected to identify any governing law that the panel allegedly misapplied or disregarded. As an aside, the court likewise dismissed Global’s arguments for vacatur based on the California Code of Civil Procedure because it likely did not apply to the dispute, nor did Global provide sufficient support for their arguments thereunder.

Global eBusiness Servs., Inc. v. Interactive Brokers LLC, Case No. 16-1264 (N.D. Cal. Oct. 30, 2017).

This post written by Thaddeus Ewald .

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DISTRICT OF COLORADO AFFIRMS FINRA ARBITRATION AWARD

November 16, 2017 by John Pitblado

A Colorado federal court affirmed a FINRA arbitration award, despite a cross-motion to vacate the award on the bases of alleged panel misconduct; exceeding its powers; manifest disregard of the law; and that the award did not contain a showing as to how the evidence justifies the award.

First, the Court rejected defendant’s argument that the Panel’s refusal to grant a second continuance did not amount to misconduct. Following the first continuance, defendant was given ample time – three months – to obtain new counsel and have them prepare for the hearing.

Second, the Court also rejected defendant’s argument that the panel exceeded its powers by hearing and ruling on claims that were beyond the Panel’s jurisdiction under FINRA rules. The Court reasoned that, “because it was for the Panel and not this Court to decide whether Plaintiff’s claims fell within Rule 12206(a)’s six-year time frame, the Court reject[ed] Defendant’s invitation to second-guess the Panel’s interpretation of FINRA Rule 12206(a).”

Third, the Court rejected defendant’s argument that the Panel acted in manifest disregard of the law by hearing, and ruling on, claims which were barred by state law under the relevant statutes of limitations. The Court reasoned that, even if the Panel had erroneously applied the applicable statutes of limitations, “incorrect application of a state’s statute of limitations does not rise to the level of manifest disregard of the law.”

Lastly, the Court rejected defendant’s argument that the award did not contain a showing as to how the evidence justifies the award, findings of fact or conclusions of law. Despite this argument being improperly raised in defendant’s reply, the arbitration provision specifically stated the arbitrators do not have to explain the reasons for their award, and the “Panel could have reasonably concluded that this provision allowed the Panel to dispense with written findings of fact and conclusions of law”.

Huitt v. Wilbanks Securities, Inc., 1:17-cv-00919 (USDC D. Col. Oct. 19, 2017)

This post written by Nora A. Valenza-Frost.

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SECOND CIRCUIT AFFIRMS ARBITRATION AWARD FINDING NO DISREGARD OF MERGER AGREEMENT OR MANIFEST DISREGARD OF DELAWARE LAW

November 2, 2017 by Michael Wolgin

In a summary order, the Second Circuit affirmed a judgment confirming an arbitral award of damages for breach of a merger agreement between respondents Sirona Dental Systems, Inc. and Arges Imaging Inc. (“Sirona”) and petitioners, former shareholders of Arges Imaging Inc. On appeal, Sirona argued that the lower court should have vacated the award because the arbitrator (1) disregarded the plain terms of the agreement when it concluded that petitioners were entitled to recover a $3 million bonus based on the proven accuracy of their dental-imaging product and (2) manifestly disregarded Delaware’s prohibition on speculative damages in awarding petitioners approximately $4 million under a provision tied to the dental-imaging product’s expected revenues.

The Second Circuit found that the arbitrator did not disregard the plain terms of the agreement and similarly did not manifestly disregard Delaware law in its damages calculation. On the first issue, the Second Circuit found that “[w]hether or not we would ourselves construe the Agreement” as the arbitrator did was inapposite; “the arbitrator’s interpretation was supported by at least a ‘barely colorable justification,’ which suffices to confirm the award.” On the second issue, the Second Circuit rejected Sirona’s argument that the arbitrator ignored Delaware law, instead finding that the arbitrator cited Delaware precedent proscribing awards of “speculative” damages and concluding that petitioners’ damages calculations met Delaware’s requirement that “damages be shown with reasonable certainty.” Moreover, the Second Circuit found that the arbitrator did not disregard the general rule in Delaware prohibiting damages based on evidence of expected profits from a new business or technology. Bergheim v. Sirona Dental Systems Inc., Case No. 17-548-cv (2d Cir. Oct. 11, 2017).

This post written by Gail Jankowski.

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COURT CONFIRMS ARBITRATOR’S ENTRY OF INTERIM PRELIMINARY INJUNCTION, HOLDING THAT THE AWARD WAS SUFFICIENTLY “FINAL”

October 31, 2017 by Michael Wolgin

This case concerns a 10-year agreement by which plaintiff, an endodontist, contracted to perform consulting services for defendant Dentsply, a business that manufactured and sold endodontic products for the dental industry. The agreement prohibited plaintiff from disclosing any confidential information about Dentsply’s business affairs or from competing with Dentsply for three years after the termination of the agreement. But immediately prior to the end of the 10-year term of the agreement, plaintiff brought suit contending that the confidentially and non-compete provisions of the agreement were unenforceable, and seeking declaratory and injunctive relief. The case proceeded to arbitration during which the arbitrator sided with Dentsply and enjoined plaintiff from breaching the confidentiality and non-compete provisions. Dentsply then filed a motion to confirm the arbitrator’s preliminary injunction award.

Plaintiff opposed Dentsply’s motion, asserting a number of arguments based on the notion that the preliminary injunction was not sufficiently final to be confirmed by the court. The court rejected each of plaintiff’s arguments and then considered “whether, in the absence of binding Supreme Court or Tenth Circuit precedent, the Court should join the district and circuit courts that have considered interim arbitral awards final for the purposes of judicial review and confirm the Ruling.” The court decided to join those courts and confirmed the arbitrator’s preliminary injunction. The court reasoned that the interim arbitration ruling “finally and definitively enjoin[ed] plaintiff from breaching the 2007 agreement’s confidentiality and non-compete provisions during the pendency of the arbitration, and if the Ruling [was] not enforced, a subsequent award of injunctive relief to defendant may be rendered meaningless.” Moreover, the Court reasoned that the Ruling was “not a preliminary or procedural trifle, and expending the judicial resources to confirm it does not frustrate our arbitration system’s goal of expediency.” Instead, the Court found, “confirming the Ruling [gave] teeth to the arbitrator’s interim award of equitable relief, thereby promoting arbitration as an efficacious and reliable alternative to the litigation process.” Johnson v. Dentsply Sirona Inc., Case No. 16-CV-0520-CVE-PJC (USDC N.D. Okla. Sept. 27, 2017).

This post written by Gail Jankowski.

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NINTH CIRCUIT AFFIRMS ARIZONA FEDERAL COURT’S ORDER DENYING PETITION TO VACATE ARBITRATION AWARD AS UNTIMELY

October 2, 2017 by Michael Wolgin

A. Miner Contracting, Inc. (“Miner”) appealed an Arizona federal court’s order denying Miner’s petition to vacate an arbitration award entered against it and in favor of Appellee Dana Kepner Company, Inc.

The Ninth Circuit found that the district court did not err in finding that Miner’s petition to vacate the award was untimely because under Section 12 of the Federal Arbitration Act, the petition had to have been served within three months after the award was filed or delivered, and Miner’s petition was filed more than three years after the award was final. On appeal, Miner argued that the district court should have applied the doctrine of equitable tolling to find the petition was timely filed. Noting that “equitable tolling” would be applied “in situations where, despite all due diligence, the party invoking equitable tolling is unable to obtain vital information bearing on the existence of the claim”, the court held that the facts of the case at hand did not merit application of the doctrine. The information Miner claimed it could not discover was the “evident partiality” of the arbitrator, namely that two of the partners in the arbitrator’s law firm represented the attorney for Miner’s adversary in the arbitration, in an unrelated divorce matter. The Ninth Circuit ruled that Miner had not acted with due diligence because it admitted that it discovered that information by searching the internet, which was readily available to it during the limitations period. The Ninth Circuit also found that even if the petition to vacate was not time-barred, Miner had not shown that there was “evident partiality” on the part of the arbitrator, as the connection alleged “is too attenuated and too insubstantial to create the necessary ‘impression of partiality.’” Thus, the Ninth Circuit affirmed the district court’s order. A. Miner Contracting, Inc. v. Dana Kepner Co., Inc., Case No. 16-15209 (9th Cir. Aug. 17, 2017).

This post written by Jeanne Kohler.

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