Chapter 14 - § 14.4 • ENFORCEABILITY OF ARBITRATION AWARDS

• Jurisdiction: Colorado

§ 14.4 • ENFORCEABILITY OF ARBITRATION AWARDS

As is the case with civil arbitration generally, the decision of an arbitration panel is subject to limited judicial review as provided in the Federal Arbitration Act. Generally, arbitration for securities cases involves the Federal Arbitration Act. Section 10(a) of that Act²¹ says that a district court may vacate an arbitration award only when:

1) The award was procured by fraud, corruption, or undue means.
2) The arbitrators exhibited "evident partiality" or were corrupt.
3) The arbitrators wrongfully refused to postpone the hearing or to hear pertinent evidence.
4) The arbitrators exceeded their powers so that a "mutual, final, and definitive award" was not made.

In Brabham v. A.G. Edward & Sons Inc.,²² an arbitration panel gave an award to a brokerage firm's customer that the customer felt was inadequate, "capricious and in manifest disregard of the law." The district court concluded that, while the award did not manifestly disregard the law, it nonetheless lacked a "rational basis." The district court then vacated the award as arbitrary and capricious.

In reversing the district court, the Fifth Circuit noted that vacatur of an arbitration award is permitted on only the very narrow grounds set forth in § 10 of the Federal Arbitration Act. These grounds do not include capriciousness or arbitrariness. The Fifth Circuit held that "manifest disregard [of the statute] is an accepted nonstatutory ground for vacatur."²³

In Montes v. Shearson Lehman Bros.,²⁴ the court considered the enforceability of an arbitration award for a broker-dealer in an employee wage dispute. The court found that the arbitrators' finding in favor of the broker-dealer reflected a "manifest disregard of the law" and remanded the case to the district court for referral to a new arbitration panel.

In Miller v. Prudential Bache Securities, Inc.,²⁵ the Fourth Circuit affirmed the district court's refusal to review an arbitrator's dismissal of a $1 million claim on statute of limitations grounds: "[F]ederal courts have consistently held that they will not 'set aside an arbitrator's award for mere errors of law.'"²⁶ In Peebles v. Merrill Lynch, Pierce, Fenner & Smith Inc.,²⁷ an arbitration panel gave the claimant customer a zero dollar award after a four-day hearing. The customer appealed to a Florida state court, and Merrill Lynch removed it to federal court. The district court denied the customer's petition to vacate the award, and the...