Court: District Court, D. Massachusetts; March 8, 2016; Federal District Court
Cindy-Marie Rogers filed a motion to confirm an arbitration award against Joan Norton and Ausdal Financial Partners, who sought to vacate the award under 9 U.S.C. 10(a)(2, 4). They argued that the arbitration panel improperly awarded damages that were not claimed or supported by evidence, awarded an amount contrary to law, and denied them a fair opportunity for discovery. The court emphasized that the standard for vacating an arbitration award is stringent, focusing on whether the award falls within narrow statutory grounds, rather than on the reasonableness of the decision itself. The court found that the respondents did not meet this high standard and confirmed the arbitration award.
In early 2010, Rogers, after consulting with Norton, accepted an early retirement buyout from Verizon and purchased a Prudential variable annuity. Dissatisfied with the annuity's performance, she initiated arbitration in 2014, claiming Norton misled her about its suitability and tax implications. The customer agreement included an arbitration clause governed by FINRA rules, with a disclosure stating that discovery rights in arbitration are more limited than in court. Rogers sought various damages, while Norton and Ausdal denied the allegations and claimed Rogers relied on Verizon's documents rather than their advice.
Rogers's retirement decision was partially influenced by the relocation of her office from Boston to Lowell, which would have required a long commute without public transportation. Following her claim, the pre-hearing process continued normally, with one significant issue arising: on December 31, 2014, respondents requested subpoenas for documents and testimony from fifteen non-parties, including Rogers’s former employer, Verizon Communications. They argued that Verizon held relevant information regarding Rogers's early retirement decisions, benefits, and working conditions. However, on February 19, 2015, the panel chair denied the request without a hearing, citing the simplicity and informality of FINRA arbitration. The motion was described as extensive, overbroad, and burdensome, seeking irrelevant and protected information, except for a limited order to Prudential Financial, Inc. The chair assigned the costs of reviewing the motion to the respondents.
Subsequently, respondents filed a motion to compel document production from Rogers and sought reconsideration of the denial. Both motions were denied, with the chair noting that respondents continued to request the same documents previously denied. Full costs were again assessed against respondents, and they were warned against making further requests for the documents, with potential penalties for non-compliance. The arbitration panel held a hearing on the substantive claims from May 4 to May 8, 2015. During the hearing, the chair inquired about the absence of Rogers’s Verizon early retirement package documents, expressing interest in reviewing the pension offer.
Rogers' attorney, Mr. Kuhl, inquired about pension documents from Verizon that would detail the monthly pension amount had Rogers accepted it, but neither side could locate these documents. Mr. Casilio suggested that Rogers may have lost them over time and was not anticipating legal action when she accepted her pension. The chair acknowledged the importance of this information to both parties. Although Rogers eventually provided some related documents, she failed to produce a complete set or any regarding her working conditions had she not retired. On June 8, 2015, the arbitration panel awarded Rogers $1,240,000 in compensatory damages, denied her claims for punitive damages and attorney’s fees, and ordered the respondents to pay additional costs and fees. The panel did not provide detailed reasoning for the award. Following this, Rogers filed a "Petition to Confirm Arbitrators’ Award," which was removed to federal court by the respondents, who sought to vacate or modify the award. Rogers opposed this motion and moved to confirm the award. The standard of judicial review for arbitration decisions is highly deferential, allowing for overturning only under unusual circumstances, even if a serious factual mistake is present, as long as there is some plausible basis for the arbitrator’s decision.
The Federal Arbitration Act (FAA) outlines the grounds under which an arbitration award can be vacated, specifically in 9 U.S.C. 10. The relevant provisions include: (2) evident partiality or corruption in the arbitrators; (3) misconduct by the arbitrators that prejudices a party's rights; and (4) exceeding their powers or failing to make a mutual, final, and definite award. The burden lies with the challenging party to prove more than mere errors in law or fact. The FAA's primary purpose is to uphold private arbitration agreements, ensuring that arbitrators respect the contractual rights and expectations of the parties involved.
In this case, the respondents argue for vacating the award of $1,240,000 in damages under 9 U.S.C. 10(a)(4), claiming the arbitrators exceeded their powers. The standard for vacating an award under this provision is that arbitrators must not act outside the authority granted by the parties' agreement, and showing mere error is insufficient. The respondents present two main arguments: first, that the damages awarded were for a claim not presented to the arbitrators, and second, that the damages calculation contradicted controlling law, referencing the case of Totem Marine Tug & Barge, Inc. v. North Am. Towing, Inc.
The Fifth Circuit vacated an arbitration award in Totem because the awarded damages were based on a theory that the prevailing party had explicitly conceded was not at issue. In contrast, the current case involves a brief arbitration award made at the parties' request, lacking detailed explanation, making it challenging to discern the rationale for the $1,240,000 awarded to Rogers. However, the respondents acknowledged that this amount could align with a scenario where Rogers works until age 65, earning $80,000 annually.
Rogers had presented claims for various types of damages in her Amended Statement of Claim, specifically requesting consequential damages tied to her Verizon employment until a panel-determined retirement date, which correlates with the respondents' explanation. The standard for vacating an arbitration decision requires the existence of a plausible argument supporting the arbitrator's decision. The respondents argued that FINRA rules dictate that an award must be based on the proof presented at the hearing rather than earlier pleadings. However, they primarily referenced the FINRA Arbitrator’s Guide rather than specific FINRA rules, particularly citing FINRA Rule 12904(3), which requires the award to state the requested and awarded damages, a requirement the panel met.
The respondents also contended that the panel exceeded its powers by not reducing the damages award to present value and by failing to account for Rogers's duty to mitigate damages. While arbitrators are typically not required to provide reasoning for their awards, it is conceivable that the panel used a method that included estimating lost future earnings, accounting for mitigation, discounting to present value, and considering potential increases in Rogers's retirement portfolio and tax liabilities.
Courts do not review arbitrators' decisions for factual or legal errors as an appellate court would; rather, they assess whether arbitrators had the authority to make their decisions. Even if errors were made regarding damages, such errors do not justify overturning an award. The core issue is not the correctness or fairness of the arbitrators' decision, but whether they acted within their authority, which they did according to the respondents' customer agreement that empowered the panel to address any controversy.
Respondents claim a violation of Section 10(a)(3) of the Federal Arbitration Act, which allows vacating an award if arbitrators misconducted by refusing to hear pertinent evidence. Their main argument relates to the panel's denial of a subpoena request for documents from Verizon, which they argue would have supported their defense concerning information available to Rogers regarding her early retirement package. However, arbitration panels have broad discretion in evidence admission and are not bound by formal rules, meaning they are not required to consider every relevant piece of evidence. The standard for vacatur under Section 10(a)(3) hinges on whether the exclusion of evidence deprived a party of a fair hearing, defined as having the opportunity to present relevant arguments and evidence.
Respondents had multiple opportunities to persuade the panel to issue subpoenas, submitting briefs in support of their requests, and the panel provided clear written reasons for its denial. This indicates that respondents were given a fair hearing, as they were allowed to present their arguments but did not receive the outcome they desired.
A panel's decision to restrict a party's ability to present evidence in arbitration is evaluated based on the parties' contract, as established in Nat’l Cas. Co. v. First State Ins. Group. The customer agreement indicated that discovery rights are typically more limited in arbitration than in court. The FINRA Code empowers the arbitration panel to manage discovery, issue subpoenas, and impose sanctions for non-compliance. Although the panel may have acted unfairly by denying access to relevant information, it retained the authority to make such decisions, and the court lacks the power to vacate the award on those grounds under 9 U.S.C. 10(a)(2).
Respondents also alleged evident partiality, defined as a reasonable belief that an arbitrator favors one party. They face a high burden to prove such bias, which they failed to meet since they did not raise partiality claims during the arbitration and did not provide evidence of undisclosed bias or conflicts of interest. Their arguments were based solely on unfavorable discovery rulings and the award itself, which is insufficient to prove bias.
Finally, respondents challenged the damages award for manifest disregard of the law, but it remains uncertain whether this doctrine is still a valid basis for vacating arbitration awards in the First Circuit.
The court references Raymond James and Hall St. Associates to affirm that sections 10 and 11 of the FAA provide the sole grounds for expedited vacatur and modification of arbitration awards. To claim that an arbitration panel acted in manifest disregard of the law, respondents must show that the arbitrators were aware of a controlling legal principle and intentionally disregarded it. Respondents failed to identify any pertinent law affecting the dispute, aside from Massachusetts law regarding the discounting of lost future pay to present value. The panel did not explain its damages calculation, making it impossible to prove willful disregard of the law. Therefore, the court concludes that the manifest disregard doctrine is not applicable. The respondents' motion to vacate the arbitration award is denied, and the petitioner's cross-motion to confirm the award is granted.
Furthermore, the customer agreement stipulates that the rules of the arbitration forum apply. Respondents claimed that the petitioner sought approximately $1.2 million in damages but did not show that the petitioner disavowed this claim during the hearing. Although the FINRA Arbitrator's Guide advises that final damage requests should be submitted before the hearing ends, it also allows for consideration of all requests during deliberations. The court notes that the First Circuit has yet to determine if a failure to issue a subpoena constitutes a refusal to hear evidence, but does not need to resolve this issue as the respondents' arguments are unconvincing. The claim of 'misbehavior' regarding the damages award is also deemed meritless.
