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.

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.

© Stinson Leonard Street - Arbitration Nation | Attorney Advertising

Written by:


Stinson Leonard Street - Arbitration Nation on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.