Friday, November 30, 2012
On November 12, 2012, Senior Judge Thomas B. Russell of The United States District Court, WesternDistrict of Kentucky, issued a 60-page Opinion denying a Petition to Vacate and a Motion to Vacate filed by Questar Capital Corporation. Questar is a fully owned subsidiary of U.A. Allianz. Questar filed in federal court after a 3-arbitrator FINRA panel sitting in Louisville issued a $3.25 million Award to a client of St. Louis' Cosgrove Law Group, LLC. The client is a former independent contractor, broker-dealer agent, and investment advisor representative of Questar.
The Court spent the first 1/3 of its Opinion addressing the broker's contention that Questar had waived its right to file a Motion to Vacate by failing to comply with the 30-day post-Award deadline set forth in FINRA Rule 13904. The broker had filed a Motion to Dismiss Questar's Petition to Vacate because, while it was filed within 30 days of the Panel's Award, Questar subsequently filed a Motion to Vacate about 75 days after the Award. The Court denied the Motion to Dismiss, concluding that, despite conflicting legal precedent, Rule 13904 “did not establish a 30-day time limit for filing a Motion to Vacate.” (Opinion at 23). Specifically, Judge Russell concluded that it is sufficient if a movant files within the 90-day time limit set forth in Section 12 of the Federal Arbitration Act (FAA).
Approximately half-way through his meticulous Opinion, Judge Russell initiated his analysis of “the heart of this proceeding”--the merits of Questar's application for vacatur. He began by noting the limited grounds upon which an arbitration award may be vacated under the FAA, noting that the Sixth Circuit recognizes an extra non-FAA judicial basis-- “manifest disregard of the law” by the arbitrator. Finally, rather than proceeding to evaluate sequentially each and every specific claim set forth by Questar, the Court divided Questar's allegations and the Court's analysis into the four FAA grounds of vacatur, as well as the Sixth Circuit's manifest disregard basis.
As to FAA Section 10(a)(2)-- “evident partiality” --the Court concluded that Questar's challenge to the sufficiency of pre-hearing disclosures the Panel Chairman made was without merit. (Opinion at 29-39). The Court's detailed analysis in this regard notes, among other things, that “...a party cannot remain silent as to perceived or actual partiality or bias and then later object after the panel reaches an unfavorable decision.” (Opinion at 37).
Judge Russell proceeded on to address Questar's multi-layered contention that the Panel violated FAA Section 10(a)(3) in that it allegedly refused to hear evidence pertinent and material to the controversy. In this regard the Court noted that “the standard for judicial review of arbitration procedures is merely whether a party to arbitration has been denied a fundamentally fair proceeding.” (Opinion at 40). The Court observed that only two of Questar's myriad of claims fell within this category: 1) that despite allowing the broker to introduce evidence through the testimony of his former attorney, the Panel improperly allowed him to assert the attorney-client privilege on Questar's cross-examination, and 2) that the Panel improperly excluded testimony from the broker's former clients. (Opinion at 41-42).
As to the first, the Court concluded that the claim was factually without merit. As to the latter, the Court concluded that the Panel's provision of 10 subpoenas in response to Questar's request for 55 subpoenas in the middle of the five-months of hearing sessions was more than adequate, noting that “arbitrators are not required to hear all of the evidence tendered by the parties; they need only afford each party a fair opportunity to present their arguments and evidence.” (Opinion at 42-49).
As to FAA Section 10(1)(4), the Court evaluated Questar's general challenge to the sufficiency of the evidence to support Claimant’s claims for defamation, negligence or tortious interference. At the outset of this analysis, the Court noted:
“...the award is devoid of any rationale or explanation as to the factual basis for the Panel's decision, the particular theory or cause of action upon which the award is based, and/or how the Panel calculated the award figure. But, Importantly, this is precisely the outcome contracted for between the parties. Cf. United Steelworkers v. Enter. Wheel & Car Co., 363 U.S. 593, 598 (1960) (“Arbitrators have no obligation to the court to give reasons for an award.”); Dawahare v. Spencer, 210 F.3d 666, 669 (6th Cir. 2000) (“Arbitrators are not required to explain their decisions.”). As the Sixth Circuit has stressed, where the arbitral agreement imposes no duty of explanation on the arbitrator, “remand for the purpose of having the arbitrator clarify his reasoning would be inappropriate.” Id. at 977 n.9.
(Opinion at 50-51).
Aptly enough, Judge Russell stated: “The Court will not be lured into reviewing the merits of the Panel's decision.” (Opinion at 51). The Court proceeded to rebuke Questar's sufficiency challenge after a careful review of the appropriate controlling precedent and standard of review for Motions to Vacate. Judge Russell cited a fundamental tenet on this point:
“The Supreme Court and this Circuit have both admonished courts that “as long as the arbitrator is even arguably construing or applying the contract [to arbitrate] and acting within the scope of his authority, that a court is convinced he committed a serious error does not suffice to overturn his decision”; accordingly, “courts must refrain from reversing an arbitrator simply because the court disagrees with the result or believes the arbitrator made a serious legal or factual error.” Misco, 484 U.S. At 38; Salvay, 442 F.3d at 476.
(Opinion at 56).
Finally, the Court evaluated Questar's Motion to Vacate under the Sixth Circuit's “manifest disregard of the law” standard. This analysis bore no fruit for Questar either. Judge Russell cited Coffee Beanery, Ltd. v. WW L.L.C., 300 F.App'x 415 (6th Cir. 2008) for the proposition that vacatur is only appropriate under this standard if “the decision [flies] in the face of clearly established precedent.” Id. at 418. (Opinion at 57). The Court also made the insightful distinction between a manifest disregard of the law, and the manifest disregard of fact that Questar was essentially peddling. (Opinion at 58-59).
The attorneys at Cosgrove Law Group, LLC spent approximately five (5) months briefing the various post-Award issues in this matter. In doing so, they reviewed dozens upon dozens of FAA and vacatur opinions. Judge Russell's Opinion in this matter may be the most thorough and instructive. You would be remiss not to digest it and save it if you practice in this area.