The First Circuit has affirmed the confirmation of a FINRA award over an appellant’s claim that the arbitrators erred by, among other things, not holding an investment firm liable under the doctrine of respondeat superior. The court held that the evidence supported the arbitrators’ finding and that the appellant had not come close to satisfying the “manifest disregard” standard.
Kenneth Ebbe invested his pension and 401(k) with Richard Cody. Cody told Ebbe that the distributions Ebbe was receiving were interest only and that his account’s balance remained around $500,000. The distributions were actually significantly reducing Ebbe’s principal.
FINRA’s appeals panel suspended Cody. Cody therefore transferred Ebbe’s account to his wife, who worked as an investment adviser at Concorde Investment Services LLC. Cody nevertheless continued to meet with Ebbe regarding his account. Ebbe received monthly statements that accurately reflected that his account balance was declining, but Cody told Ebbe that those statements did not include all of Ebbe’s investments. After his suspension ended, Cody joined Concorde as an investor. Both he and his wife were eventually terminated after Concorde discovered that Cody had contacted customers during his suspension.
Ebbe eventually discovered that his account had no value and filed for arbitration with FINRA against the Codys, Concorde, and others. The Codys did not appear. During the four-day hearing, Ebbe’s expert testified that Cody committed defalcations and that Concorde had a duty to reasonably supervise the Codys, but did not opine that Concorde had violated that duty and admitted there was no evidence that Cody’s wife had made any misrepresentation to Ebbe.
Concorde presented evidence that it had hired Cody’s wife after a diligent background check, that it supervised her, and that it had complied with all industry rules.
The arbitration panel found that the Codys were jointly and severally liable for $286,000 in damages but denied Ebbe’s remaining claims, including the claims against Concorde.
Ebbe moved to confirm in part and vacate in part the award. Concorde and another defendant moved to confirm it. The district court confirmed the award and Ebbe appealed.
The First Circuit rejected Ebbe’s claims, including his principal claim that the panel had committed manifest disregard for the law and that Concorde should be liable as well under the doctrine of respondeat superior. The court noted that arbitrators are not required to explain their awards and that a party is hard pressed to satisfy the demanding standard for manifest disregard. The court also noted that the evidence supported the arbitrator’s finding in favor of Concorde and that the award against the Codys could have been nothing more than a default judgment.
Ebbe v. Concorde Investment Services, LLC, No. 19-1819 (1st Cir. Mar. 24, 2020).