Confirmation / Vacation of Arbitration Awards

SOUTHERN DISTRICT OF OHIO CONFIRMS FINRA ARBITRATION AWARD

April 6, 2010 by Carlton Fields

Following a FINRA arbitration award in favor of defendant Carlos Reisen, plaintiff J.J.B. Hilliard, W.L. Lyons, LLC (“Hilliard Lyons”) filed a complaint (treated by the court as a motion to vacate) before the US District Court for the Southern District of Ohio seeking to vacate the award. Reisen filed a cross motion to confirm the award and to enter judgment in his favor. The Court, applying the Sixth Circuit’s “manifest disregard of the law” test, confirmed the arbitration panel’s determination that Hilliard Lyons had made defamatory statements in its Form U5/Uniform Termination Notice. The Court concluded that it could not vacate the award on the basis that the panel had acted recklessly, as claimed by Hilliard Lyons. Likewise, the Court confirmed the award of attorneys fees and the post-award interest, finding that the panel did not act in manifest disregard of the law because there were statutory bases for the decisions. Hilliard Lyons has since filed a notice of appeal to the Sixth Circuit. Hilliard v. Reisen, Case No. 09-cv-535 (S.D. Ohio Mar. 2, 2010, Mar. 5, 2010).

This post written by John Black.

THIRD CIRCUIT SIDE-STEPS SPLIT ON MANIFEST DISREGARD OF LAW

March 31, 2010 by Carlton Fields

The Third Circuit Court of Appeals heard the appeal of Bapu Corporation from a district court’s denial of its motion to vacate an arbitration award. The dispute centered on Choice Hotels International Inc.’s decision to terminate a Quality Inn license agreement with Bapu on the basis that Bapu had failed to make required renovations to the hotel. Bapu asserted that Choice’s claim for damages was barred by the applicable three year statute of limitations, and raised that issue and others in the parties’ arbitration. Ultimately, both the district court and the Third Circuit Court agreed that the arbitrator’s decision against Bapu, based partly on the fact that Bapu had waived its statute of limitations claim by failing to pursue it after initially raising it, did not provide a basis for vacatur. The Court side-stepped the question, however, of whether manifest disregard of law constituted an independent basis for vacatur of arbitration awards, after the Supreme Court’s ruling in Hall Street Associates, L.L.C. v. Mattel Inc., but noted a split of authority in the sister circuits on that question. The Court also rejected Bapu’s claim of arbitrator bias or corruption. Bapu Corp. v. Choice Hotels Int’l, Inc., No. 09-1011 (3d Cir. March 16, 2010).

This post written by John Pitblado.

ARBITRATION AWARD CONFIRMED WHERE ARBITRATOR RELIED ON THE SAME CONTRACTUAL PROVISIONS TO DENY DAMAGES FOR ONE CLAIM AND AWARD DAMAGES FOR ANOTHER CLAIM

March 16, 2010 by Carlton Fields

This dispute concerns sales commissions allegedly owed to three employees of Umpqua Bank (“Umpqua”) pursuant to a third-party brokerage agreement (the “Agreement”) between Umpqua and Woodbury Financial Services. Employment agreements between Umpqua and the employees required the matter to be submitted to arbitration. After the arbitrator issued an award granting damages for breach of fiduciary duty and attorneys’ fees and costs for two of the employees, Umpqua moved to vacate this award, arguing that this award exhibited manifest disregard of the law or was completely irrational because the arbitrator relied on the same provisions in the Agreement to deny damages for the third-party beneficiary claim and to award damages for the breach of fiduciary duty claim. The employees consequently moved to confirm the award and for attorneys’ fees and costs. The court disagreed with Umpqua’s argument, ruling that the arbitrator could rationally find a breach of fiduciary duty but not third-party beneficiary rights under the Agreement because the two claims have separate legal standards. The third-party beneficiary claim requires a showing of intent, and the breach of fiduciary duty claim does not require a showing of intent. The court thus granted the employees’ motion to confirm the award. Then, looking to the language of the employment agreements, the court confirmed the award of attorneys’ fees and costs and granted the employees’ motion for attorneys’ fees and costs incurred to enforce this award. Swarbick v. Umpqua Bank, Case No. 08-00532 (USDC E.D. Cal. Feb. 26, 2010).

This post written by Dan Crisp.

DISTRICT COURT VACATES ARBITRATION AWARD DUE TO ARBITRATORS’ “EVIDENT PARTIALITY”

March 8, 2010 by Carlton Fields

Scandinavian Reinsurance Company petitioned a federal district court to vacate a final award in an arbitration between it and St. Paul Fire and Marine. Scandinavian argued that two of the arbitrators exhibited evident partiality by failing to disclose their simultaneous involvement in another arbitration that involved a common witness, similar disputed issues and contract terms, and a company that succeeded to the business of St. Paul.

During the selection process, the arbitrators were asked about their current and previous service as arbitrators and experience with affiliates and subsidiaries of the parties, but neither disclosed that they were involved in an arbitration that involved a common key witness and issues. Scandinavian claimed that had it known about the arbitrators’ involvement in the other case, it would have objected to their service.

Under the Second Circuit’s test of evident partiality, “an arbitrator who knows of a material relationship with a party and fails to disclose it meets Morelite’s ‘evident partiality’ standard: A reasonable person would have to conclude that an arbitrator who failed to disclose under such circumstances was partial to one side.” Applying this test, the district court concluded that the undisclosed relationship to the other arbitration constituted a “material conflict of interest,” since the arbitrators could receive ex parte information on key issues relevant to this arbitration. As such, the court found the arbitrators exhibited evident partiality, and vacated the award. Scandinavian Reinsurance Co. Ltd. v. St. Paul Fire & Marine Insurance Co., 09-9531 (U.S.D.C. S.D.N.Y. Feb. 23, 2010).

This post written by Lynn Hawkins.

FOURTH CIRCUIT AFFIRMS VACATUR OF ARBITRATION AWARD AGAINST FINANCIAL SERVICES COMPANY

March 4, 2010 by Carlton Fields

In 2005, three financial advisors filed a consolidated arbitration demand against Raymond James Financial Services, Inc. (“Raymond James”) seeking damages related to the alleged wrongful termination of the advisors’ affiliations with Raymond James. The arbitration panel granted substantial compensatory damages to the advisors, citing Raymond James’ unauthorized practice of law by permitting in-house counsel to represent the advisors in third-party arbitration proceedings against both Raymond James and the advisors. Raymond James then filed a motion in federal district court to vacate the award. After a remand to the panel for clarification, the district court vacated the award, concluding, among other things, that the panel exceeded its powers. The advisors appealed. The Fourth Circuit first concluded that the district court did not abuse its discretion in remanding the award to the panel for clarification of the award’s bases. The Fourth Circuit then affirmed the district court’s vacatur of the award, holding that the panel exceeded its power by granting an award whose basis exceeded the framework of arbitrable employment-related claims under NASD Rule 10101. Raymond James Fin. Servs., Inc. v. Bishop, No. 09-1038 (4th Cir. Feb. 22, 2010).

This post written by Dan Crisp.