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.
