Arbitrators Labeling Your Securities “Crap” Does Not Entitle You To Vacate The Award

[author: Liz Kramer]

In the last post, the Fifth Circuit affirmed an arbitration award against Morgan Keegan.  The Ninth Circuit just oh-crapaffirmed an arbitration award against Morgan Keegan in a sister case.  In less than two pages, the Ninth Circuit rejected Morgan Keegan’s arguments that the arbitrators were partial or exceeded their power.  Morgan Keegan & Co. v. Grant, 2012 WL 5350949 (9th Cir. October 25, 2012).

The arbitrators had awarded $1.45 million to a single investor.  Morgan Keegan, the broker, argued that the arbitrators showed “evident partiality” within the meaning of Section 10 of the FAA for two reasons.  First, it argued that one arbitrator was biased because he is a lawyer who sometimes represents investors against brokers.  However, the arbitrator had disclosed that accurately, so the argument failed.  Second, MK argued that an “inadvertently recorded” conversation among the arbitration panel, in which they called the securities “crap” and a “sucker play,” showed they were partial.  The court disagreed, noting it was not bias to react “negatively to evidence of wrongdoing.” 

Finally, MK argued the arbitrators exceeded their power by not offsetting the award by the income the investor had received.  The court noted that the law supported the award.

Interestingly, the investor started a second arbitration against Morgan Keegan, alleging malicious prosecution and abuse of process, based on the broker’s attempts to vacate the arbitration award.  Those claims will be heard in arbitration (see 2012 WL 5351254), but given Morgan Keegan’s track record of appeals, will likely end up in court.

Published In: Alternative Dispute Resolution (ADR) Updates, Business Torts Updates, Civil Procedure Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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