In an appeal of an arbitration award rendered pursuant to the rules of the National Association of Securities Dealers (“NASD”), the First Circuit has reversed the confirmation of an arbitration award on the basis that the award was in manifest disregard of law. The arbitrators had dismissed certain claims, with prejudice. The Panel initially justified its decision as being based upon its consideration of the merits of the claims, but when the losing party reminded the Panel that the merits of the claims had not been briefed, nor had the Panel received any evidence pertaining to the claims, the Panel announced that the dismissal was a discovery sanction pursuant to NASD Code Rule 10305, based upon the failure to produce documents in accordance with an Order to do so. The First Circuit found that the NASD rules required the imposition of lesser sanctions in an attempt to achieve compliance “before the ultimate sanction of dismissal is imposed. The Panel ignored this unmistakable directive.” The Court clearly was troubled by the severity of the sanction.
This opinion does not mention the Supreme Court’s decision in Hall Street Associates v. Mattel, which another panel of the First Circuit has read as eliminating the doctrine of manifest disregard of law as a basis for vacating an arbitration award. See the June 30, 2008 post discussing Ramos-Santiago v. UPS, No. 07-1024 (1st Cir. April 24, 2008), which stated in dicta that “manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the [FAA]”. This is developing into an interesting area of the law of arbitration. Kashner Davidson Securities Corp. v. Mscisz, No. 07-1231 (1st Cir. June 27, 2008).
This post written by Rollie Goss.