Posts tagged with "#ArbitrationAward"

Federal Court Enforces FINRA Arbitration Award Based Solely on the Plain Language of the Award Because the Award was not “Patently Ambiguous”

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Luby’s Restaurants Limited Partnership v. Credit Suisse Securities (USA) LLC, 2011 WL 1740196 (S.D. Tex. May 5, 2011)

In a case before the United States District Court for the Southern District of Texas, Luby’s Restaurants Limited Partnership (“Luby’s”) sought to confirm a Financial Industry Regulatory Authority (“FINRA”) arbitration award pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  In its petition, Luby’s also sought a court ruling to interpret the arbitration award as requiring Credit Suisse Securities (USA) LLC (“Credit Suisse”) to recompense an additional $186,000 in damages.  Luby’s originally filed the petition in state court, but Credit Suisse removed to federal court.  The federal district court confirmed the arbitration award in Luby’s favor and denied Luby’s petition to order Credit Suisse to pay the additional sum.

The Dispute

The underlying dispute in this case is based on Luby’s purchase of over $30 million in auction rate securities from Credit Suisse.  Credit Suisse had falsely represented that these securities were suitable to Luby’s investment goals because they were equivalent to money market funds, highly liquid, and safe investments for short term investing.

In October 2008, when Luby’s filed arbitration proceedings, the company had redeemed all but $8.9 million worth of the securities, which could not be sold at par value.  In September 2009, after proceedings had been initiated but before the arbitration hearings had begun, Luby’s redeemed one of the remaining securities for less than par value, sustaining a $186,000 loss.  During May in 2010, the FINRA arbitration panel ruled that Credit Suisse was liable to Luby’s for the re-purchase of the disputed auction rate securities at par value, and that Credit Suisse was also liable to Luby’s for interest on the par purchase price of these securities from a specific date after the arbitration award through the date the award was paid in full.

The Arbitration Award

Pursuant to the terms of the arbitration award, Credit Suisse purchased all of Luby’s remaining securities at par value and paid the required interest.  Neither party contested the award and both parties sought its confirmation.

However, Luby’s and Credit Suisse disputed whether the award included the $186,000 loss that Luby’s sustained when it sold securities for less than par value after filing for arbitration. Luby’s did not request the court to modify or correct the award, but to confirm the award as written and interpret the writing as including the additional loss.   In raising this issue, neither Luby’s nor Credit Suisse argued that FINRA arbitration did not fully resolve their dispute, nor did they assert that the language of the arbitration award created a collateral dispute.

Interpretations of an Ambiguous Arbitration Award

Courts are required to enforce arbitration awards only as written by the arbitrator; therefore, if an arbitration award is ambiguous, it is unenforceable and must be remanded to the arbitrator with instructions to clarify the particular ambiguities.  Brown v. Witco Corp., 340 F.3d 209, 216 (5th Cir. 2003) (citing Oil, Chem. & Atomic Workers Int’l Union Local 4–367 v. Rohm & Haas, Tex., Inc., 677 F.2d 492, 495 (5th Cir. 1982).  Remand is only appropriate where: (1) an arbitration award is patently ambiguous; (2) the issues submitted to arbitration were not fully resolved; or (3) the language of the arbitration award created a collateral dispute.  Oil, Chem. & Atomic Workers, 677 F.2d at 495.

Although both Luby’s and Credit Suisse argued different interpretations of the FINRA arbitration award, the district court did not find that the award itself was patently ambiguous.  The plain language of the award makes no mention of additional damages sustained by Luby’s during the pendency of the arbitration hearings.  Credit Suisse could clearly not purchase back the securities that were sold because they were no longer in Luby’s possession.

The Decision

The award clearly denied any relief other than that which was expressly granted in its plain language.  Additionally, during the arbitration hearings, Luby’s presented this loss as a claim distinct from the claim to buy back the auction rate securities at par.  The arbitrators did not include this relief in the arbitration award, thereby effectively denying such relief.  Therefore, because the federal district court found the arbitration award to be unambiguous, it confirmed and enforced the award as written.

The court ordered that the final FINRA arbitration award in Luby’s favor be confirmed and adopted as the judgment of the court.  Luby’s petition to order Credit Suisse to make additional payment of $186,000 was denied as not having been ordered in the final award of the arbitration panel.

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 JMaya@Mayalaw.com.

California Appellate Court Upholds Vacatur of FINRA Arbitration Award Based on Denial of Due Process

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Roland  Hansalik v. Wells Fargo Advisors, LLC, 2012 WL 1423014 (Cal. Ct. App.  April 25, 2012)

In a case before the California Court of Appeals, Wells Fargo Advisors, LLC (“Wells Fargo”) appealed the trial court order to vacate the Financial Industry Regulatory Authority (FINRA) arbitration award in its favor against Ronald Hansalik (“Hansalik”).  The appellate court found no error in the trial court ruling and affirmed the decision.

Case Overview

The underlying dispute in this case arose from Wells Fargo’s action to collect from Hansalik the unpaid balance of $1,239,044.16 due on a promissory note that contained a clause agreeing to arbitrate before FINRA.  Prior to the initiation of arbitration proceedings, Hansalik moved from California to Switzerland, and failed to notify FINRA of his change of address as required by a notice sent to all members of FINRA’s predecessor, the National Association of Securities Dealers (“NASD”).

FINRA mailed Wells Fargo’s Statement of Claim and other notices to Hansalik’s prior residential address in California.  The post office notified FINRA that Hansalik’s forwarding address was an incomplete address in Zurich, Switzerland.  Wells Fargo provided FINRA with the street address of the private bank where Hansalik worked in Switzerland.  FINRA continued to mail arbitration notices to Hansalik’s former residential address in California. In April 2010, FINRA issued a default award against Hansalik for the principal sum of $1,297,694.14, plus interest, costs and attorney fees.  The award also stated that the arbitrator determined that Hansalik had been properly served notice of the Statement of Claim and Notification of the Arbitrator.

Effort to Vacate the Arbitration Award

After the award, Wells Fargo hired a Swiss attorney who demanded payment from Hansalik.  Hansalik immediately filed a petition to vacate the FINRA arbitration award under the relevant provisions of California law, claiming that he never received notice and challenging the fundamental fairness of the entire arbitration proceeding.

The trial court granted the petition on the grounds that Hansalik was not properly served under FINRA rules and that he was denied due process.  Wells Fargo appealed contending that the arbitrator found that service complied with FINRA rules, that Hansalik was not denied due process, and that there was substantial evidence that Hansalik received actual notice of the arbitration.

Under California law, the limited grounds for vacating an arbitration award include instances when an arbitrator exceeds his authority by denying the litigant a fair hearing.  Code Civ. Proc. § 1286.2, subd. (a)(4). This is substantially similar to the statutory grounds for vacatur in the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a).  California case law provides precedent for reversal of an arbitration award when the arbitrator “did not give appellant notice of any hearing, nor did he give it any opportunity to be heard.” Smith v. Campbell & Facciolla, Inc. 202 Cal.App.2d 134, 135 (1962).

The Decision

FINRA Rule 13301(a) requires that the initial Statement of Claim be served on the individual at his residential address or “usual place of abode.”  The rule further provides that if service cannot be completed at this address, the initial Statement of Claim will be served at the person’s business address.

The appellate court concurred with the trial court determination that FINRA did not give Hansalik notice and an opportunity to be heard because it knowingly sent notices to his previous residential address instead of sending them to the current business address provided by Wells Fargo.  Furthermore, the appellate court concurred that even if Hansalik had actual notice of the initial Statement of Claim from Wells Fargo via Federal Express and e-mail, he was entitled to such notice from FINRA.

FINRA Rule 13413 provides that the arbitration panel has the authority to interpret and determine the applicability of all provisions under the FINRA rules.  The appellate court held that proper notice is so intrinsic to the fundamental fairness of a hearing that it denied Wells Fargo’s argument that this rule gave the arbitrator the power to interpret the FINRA notice rule and determine if service was proper under FINRA rules.

In light of FINRA’s unfair procedure and Hansalik’s lack of actual notice, the appellate court determined that the trial court properly vacated the FINRA arbitration award.

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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 JMaya@Mayalaw.com.