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Federal Appellate Court Affirms Lower Court Ruling Not to Vacate FINRA Award

Federal Appellate Court Affirms Lower Court Ruling Not to Vacate FINRA Award

Javier Aviles v. Charles Schwab & Co., Inc., 435 Fed.Appx. 824 (11th Cir. 2011) (per curiam)

In a case before the United States Court of Appeals, Eleventh Circuit, Javier Aviles (“Aviles”) appealed a decision by the United States District Court for the Southern District of Florida that confirmed a Financial Industry Regulatory Authority (“FINRA”) arbitration award of $1.4 million in favor of Charles Schwab & Co., Inc. (“Charles Schwab”). The appellate court affirmed the district court ruling.

In 2007, Aviles left his employment with Charles Schwab to join Banc of America Investment Services, Inc. (“BAI”). Later that year, Charles Schwab came to believe that Aviles was improperly soliciting its clients. Schwab filed a Statement of Claims with FINRA against both Aviles and BAI, alleging multiple claims arising from Aviles’s resignation from Charles Schwab and his subsequent employment with BAI: breach of contract, misappropriation and misuse of trade secrets, breach of duty of loyalty, breach of fiduciary duty, tortious interference with contractual and business relations and unfair competition. BAI was later dismissed from the arbitration proceedings. In April 2009, the arbitration panel entered an award finding Aviles liable to Charles Schwab for $1.4 million.

Aviles filed a timely motion to vacate the arbitration award in state court, and Charles Schwab removed to federal court. After removal, Aviles filed a motion to amend in order to add a new claim of arbitrator bias. The district court found that the grounds for vacating the award set out in the original motion were without merit. Additionally, the district court found that the amended motion was not filed in a timely manner and did not relate back to the original motion. Finally, the district court found that the claim of arbitrator bias contained in the proposed amended motion also failed to warrant vacatur of the arbitration award.

Appellate courts do not use a different legal standard to review arbitration related judicial decisions: district court findings of fact are reviewed for clear error and district court legal conclusions are reviewed de novo. The Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a), provides limited statutory grounds for vacating an arbitration award, including where arbitrators refused to hear evidence pertinent and material to the controversy, or where there was “evident partiality” or corruption in the arbitrator.

When a party seeks vacatur by challenging an evidentiary decision of the arbitration panel, he must show that the arbitrator’s refusal to hear pertinent and material evidence prejudiced the rights of the parties to the arbitration’s proceedings. Rosensweig v. Morgan Stanley & Co., 494 F.3d 1328, 1333 (11th Cir. 2007). Aviles argued that the arbitrators refused to hear evidence material to the controversy because the arbitration panel excluded unsworn declarations completed by former Charles Schwab clients who had followed Aviles to BAI. Aviles asserted that these were material to the controversy because they demonstrated that the clients decided to transfer their accounts to BAI because it was in their personal best interest to maintain the relationship with Aviles. The chair of the arbitration panel stated that he would not allow documents that were not sworn or authenticated; however, he would sign subpoenas to allow Aviles to present this evidence in an acceptable manner and would also permit telephonic testimony if someone was out-of-town or otherwise unable to attend the hearings. The appellate court determined that the exclusion of the unsworn declarations did not prejudice Aviles’s right to present all evidence pertinent and material to the controversy. The chair of the arbitration panel offered Aviles alternate avenues to submit this evidence, and Aviles decided not to avail himself of those options. Therefore, the district court did not err in its ruling that the arbitration award could not be vacated on the grounds that arbitrators refused to hear evidence.

When a party seeks vacatur by challenging the impartiality of the arbitration panel, he must show that the alleged partiality is “direct, definite and capable of demonstration rather than remote, uncertain and speculative.” Gianelli Money Purchase Plan & Trust v. ADM Investor Servs., 146 F.3d 1309, 1312 (11th Cir. 1998). Aviles presented an affidavit from a FINRA arbitrator not serving on his panel indicating that the chair of the arbitration panel made statements illustrating a clear bias against him. Specifically, the affidavit alleges that the chair stated that when a court enters a preliminary injunction or a temporary restraining order against a financial advisor prior to arbitration, the arbitrator’s only remaining task is to quantify and award damages. Aviles had been served with a preliminary injunction prior to the arbitration proceedings. The court found that the statements in the affidavit did not indicate that the chair of the arbitration panel was biased against Aviles. According to the court, the affidavit at most illustrated that the chair of the arbitration panel had an incorrect understanding of a legal issue, which is not enough to demonstrate bias or hostility toward a party. Therefore, the district court did not err in its ruling that the arbitration award could not be vacated on grounds of arbitrator bias.

Because the district court did not err in ruling that there were insufficient grounds to vacate the arbitration award on the basis of refusal to hear evidence and arbitrator bias, the appellate court affirmed the district court ruling denying Aviles’s motion to vacate the arbitration award.

Should you have any questions relating to FINRA, arbitration or employment 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.

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