Richard Sacks, d/b/a Investors Recovery Service, v. Dean Dietrich and Teri Coster Boesch, 663 F.3d 1065 (9th Cir. 2011)

In a case before the Ninth Circuit, Richard Sacks (“Sacks”), doing business as Investor Recovery Services, appealed a United States District Court ruling dismissing his claims of intentional and negligent interference with contract and negligent interference with prospective economic advantage against Financial Industry Regulatory Authority (“FINRA”) arbitrators Dean Dietrich and Teri Coster Boesch (“the challenged arbitrators”).  The Ninth Circuit affirmed the United States District Court for the Northern District of California ruling that Sacks’s claims were barred by arbitral immunity.

FINRA Arbitration Agreement

Sacks entered into a written contract with a client to represent him in a FINRA securities arbitration proceeding.  In order to submit his dispute to FINRA, Sacks’s client signed a FINRA submission agreement.  On behalf of his client, Sacks submitted a Statement of Claim, paid filing fees and requested a hearing. FINRA appointed a panel of three arbitrators, including the challenged arbitrators, to hear and decide the claims of Sacks’s client.

After two telephone hearings, the respondents in the arbitration moved to have Sacks disqualified on the grounds that he was ineligible under FINRA Rule 13208, which disallows representation by a person who is not an attorney and who is also “currently suspended or barred from the securities industry in any capacity.”  Sacks was not an attorney and was barred from the securities industry in 1991.

Sacks’ Response

In his response to the motion to disqualify, Sacks objected to the arbitration panel’s consideration of the issue arguing that the panel did not have the authority to make a decision on his client’s representation and that he had not contracted with the panel to make any such decision.  However, Sacks disputed neither the fact that he was not an attorney nor the fact that he had been barred from the securities industry.  The challenged arbitrators signed an order disqualifying Sacks from representing his client. The third arbitrator did not join in the order.

Sacks filed a complaint in state court against the challenged arbitrators alleging that, by preventing him from representing his client, the challenged arbitrators exceeded their authority under his client’s FINRA submission agreement, FINRA rules and state law.  The challenged arbitrators removed the case to federal district court.  The district court ruled that Sacks’s claims were barred by arbitral immunity, granted the challenged arbitrators’ motion to dismiss and entered judgment dismissing all claims with prejudice.  Sacks appealed.

The Doctrine of Arbitral Immunity

The doctrine of arbitral immunity aims to protect decision makers from undue influence and the decision making process from reprisals by dissatisfied litigants. Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579, 1582 (9th Cir.1987).  The doctrine only applies to claims that effectively seek to challenge the decisional act of an arbitrator or an arbitration panel. More specifically, it limits arbitrators’ immunity to “civil liability for acts within their jurisdiction arising out of their arbitral functions in contractually agreed upon arbitration hearings.”  Id. at 1582.

Sacks argued that the doctrine of arbitral immunity was inapplicable to bar his claims because the challenged arbitrators exceeded their jurisdiction.  The first basis for this argument was that FINRA rules and applicable law prevented the challenged arbitrators from deciding a representational issue.  Specifically, Sacks argued that FINRA Rule 13208 itself did not give arbitrators the authority to prohibit him from representing his client.  However, the appellate court determined that, taken as a whole, FINRA rules and applicable law dictate that the challenged arbitrators were acting within their jurisdiction.  FINRA Rule 13413 grants the arbitration panel authority to interpret and determine the applicability of FINRA rules and provides that “[s]uch interpretations are final and binding upon the parties.”

There was no issue regarding Sacks’s lack of qualification under FINRA Rule 13208 because it was undisputed that he was not an attorney and had been barred from the securities industry.  Therefore, the challenged arbitrators did not exceed their authority in issuing the disqualification order.

The Decision

The second basis for Sacks’s argument that the challenged arbitrators exceeded their authority is that he could not be bound by the arbitration panel because he was not a party to the arbitration agreement.  The appellate court determined that Sacks was still bound by the arbitration agreement under ordinary contract and agency principles.  When Sacks’s client submitted his claim to FINRA, the FINRA arbitrators had jurisdiction to issue binding interpretations of FINRA rules.  Therefore, because the challenged arbitrators acted with full authority under the client’s arbitration agreement, they could not be subject to suit by a party representative.

The appellate court determined that the arbitrators were acting within their jurisdiction and Sacks’s claims arose out of a decisional act.  Therefore, the district court properly applied the doctrine of arbitral immunity to bar Sacks’s claims.  The appellate court affirmed the district court rulings.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at