Relying on the Federal Arbitration Act (FAA) and noting that the FAA “enumerates limited grounds on which a federal court may vacate, modify, or correct an arbitral award,” the U.S. District Court for the District of Arizona granted defendants UBS Financial Services Inc. and UBS Credit Corp.’s motion to confirm an arbitration award and denied the plaintiff’s motion to vacate that award.

The plaintiff was employed as a financial adviser for UBS and obtained loans from UBS during his employment through a financial adviser loan program. As part of the loan process, the plaintiff signed promissory notes, which set forth the terms of repayment and included a choice-of-law provision and an arbitration clause or agreement. In addition to the notes, the plaintiff also signed “transition agreements,” which provided UBS would pay the plaintiff “‘on an annual basis in the amount totaling the loan principal and accumulated interest due under the associated note’” while the plaintiff was employed with UBS. All of the arbitration agreements also provided that arbitration of covered claims would be “conducted under the auspices and rules of FINRA in accordance with the FINRA Code of Arbitration for Industry Disputes.” Upon the termination of the plaintiff’s employment, the loans became due and payable and UBS initiated proceedings with FINRA alleging that the plaintiff failed to repay the loans and misappropriated UBS’ confidential customer information. The plaintiff filed various counterclaims against UBS regarding the notes and his employment, including breach of contract, fraud, constructive discharge, and violation of the Fair Labor Standards Act, among other claims. The FINRA arbitration panel issued a final award in part for UBS and in part for the plaintiff. The panel concluded that the plaintiff was liable for repayment of the notes but also found for the plaintiff on his negligent misrepresentation and constructive discharge claims. UBS filed a motion to confirm the award and the plaintiff filed a motion to vacate part of the award.

After rejecting UBS’ arguments that the plaintiff’s motion was procedurally deficient, the district court addressed the substantive issues raised by the parties, including whether the panel’s finding that the plaintiff was liable for the notes constituted “manifest disregard of the law,” whether the panel exceeded its powers in issuing an “irrational award,” and whether one of the arbitrators showed “evident partiality” against the plaintiff. First, the court noted the standard for manifest disregard of the law “affords an extremely limited review authority” and requires a showing that the arbitrators “knew of the relevant legal principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it.” The court concluded that the panel’s findings were not in manifest disregard of the law. Second, the court rejected the plaintiff’s contention that the panel exceeded its powers in issuing an “irrational award,” noting the “completely irrational” standard for setting aside an award under the FAA is satisfied “only where the arbitration decision fails to draw its essence from the agreement.” Finally, the court rejected the plaintiff’s argument that one of the arbitrators showed “evident partiality” against the plaintiff, concluding that the plaintiff did not establish specific facts showing actual bias or partiality. The court also concluded that the plaintiff waived his evident partiality argument by not raising it in a timely manner.

Paynter v. UBS Financial Services Inc., No. 2:21-cv-02024 (D. Ariz. Mar. 2, 2023).