Michael H. Ohlfs v. Charles Schwab & Co., Inc., 2012 WL 202776 (D. Colo. Jan. 24, 2012)
In a case before the Colorado federal district court, Michael Ohlfs (“Ohlfs”), an investment professional employed by Charles Schwab & Co., Inc., (“Charles Schwab”), filed a motion to vacate a Financial Industry Regulatory Authority (“FINRA”) arbitration award decided in favor of Charles Schwab in August 2011. Charles Schwab petitioned the court to confirm the arbitration award and enter judgment pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9. The court dismissed Ohlfs claims with prejudice and entered judgment for Charles Schwab.
The underlying dispute in this case arose when Ohlfs returned from post 9/11 active duty military service to a Grade 56 Investment Representative position with Charles Schwab, which was lower than the Grade 57 Senior Investment Specialist he held prior to his military service. The Uniformed Services Employment and Reemployment Rights Act, 38 U.S.C. § 4301, et seq., (“USERRA”) prohibits employment discrimination against military personnel deployed for active duty. Ohlfs initially filed his USERRA claims in federal district court; however, the court ordered the parties to FINRA arbitration pursuant to the agreement that Ohlfs executed when he registered as a securities broker.
FINRA appointed an arbitration panel of three arbitrators to hear the matter after Ohlfs executed a FINRA Arbitration Submission Agreement, which included an agreement to be bound by the award. Ohlfs’s claims against Charles Schwab included allegations that his re-employment in 2003 and 2004 were both in violation of USERRA § 4312, that he was discriminated against by failure to promote in violation of USERRA § 4311, and that he was discriminated against for filing a Department of Labor complaint. After ten days of hearings, the FINRA arbitration panel denied all Ohlfs’s statutory claims and all relief requested with prejudice.
Ohlfs filed a motion in federal court to vacate the FINRA arbitration award on several grounds, including unfair treatment by the FINRA arbitration panel, violation of the well-established USERRA public policy, and manifest disregard of the law.
To support his allegation of evident partiality by the arbitration panel, Ohlfs cited nine deficiencies in the arbitration process. The court determined that these allegations, viewed both separately and cumulatively, were insufficient to satisfy Ohlfs’s burden of demonstrating that the panel was unfair to him or partial to Charles Schwab.
One of the key allegations was that two arbitrators were biased toward Charles Schwab because of their connections to the company. Two members of the arbitration disclosed their connections to Charles Schwab prior to hearing and deciding Ohlfs’s claims. Because he had knowledge of facts suggesting arbitrator bias or partiality but failed to object to their participation until after the entry of the award, the court determined that Ohlfs waived his right to claim arbitrator bias on these grounds.
Another key allegation was that the arbitration panel refused to consider, or otherwise disregarded evidence, that Ohlfs presented regarding having gone from a Grade 57 Senior Investment Specialist to a Grade 56 Investment Representative following his post–9/11 military service. Without supporting transcripts from the arbitration hearing, the court determined it had no basis on which to find unfairness or partiality.
Vacating an Arbitration Award on Statutory Grounds
Federal courts may vacate an arbitration award under four narrowly defined statutory grounds, 9 U.S.C. § 10(a), including “evident partiality” on the part of the arbitrators. An arbitration award may also be vacated for a limited number of judicially created reasons, such as violations of public policy, manifest disregard of the law, and denial of a fundamentally fair hearing. Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir. 2001). Errors in the arbitration panel’s findings of fact, interpretation of the law, or application of the law do not justify vacating an award unless such errors correlate to a manifest disregard for the law. See Hollern v. Wachovia Sec., Inc., 458 F.3d 1169, 1172 (10th Cir. 2006).
Vacating an Arbitration Award on Non-Statutory Grounds
Courts have limited authority to vacate an arbitration award for non-statutory reasons. An arbitration award may be set aside on public policy grounds if: (1) the award creates an explicit conflict with other laws and legal precedents as opposed to general considerations of supposed public interests; and (2) the violation of such public policy is clearly shown. United Paperworkers Int’l Union, AFL–CIO v. Misco, Inc., 484 U.S. 29, 43 (1987).
Ohlfs argued that the FINRA arbitration award in favor of his employer clearly violated USERRA’s well-defined public policy of protecting members of the armed forces from employment discrimination because the award absolved the employer of any wrongdoing without determining the merits of Ohlfs’s claims. The court determined that this argument was an attempt to attack the arbitration award on the basis of the arbitration panel’s failure to issue a reasoned decision. FINRA Rule 1304(g) provides for an “explained decision” that sets forth the general reasons for the arbitration award.
However, such a decision is provided only in the event that the parties jointly request such a decision twenty days prior to the first scheduled hearing. FINRA Rule 13514(d). An explained decision was not required in this case under FINRA’s rules because the parties did not jointly request such a decision. Therefore, Ohlfs failed to carry his burden of proof on the matter.
Vacating an Arbitration Award Based on Disregard of the Law
In order to vacate an arbitration award based on the arbitrators’ manifest disregard of the law, “the record [must] show the arbitrator[s] knew the law and explicitly disregarded it.” Dominion Video Satellite, Inc. v. Echostar Satellite, L.L.C., 430 F.3d 1269, 1275 (10th Cir. 2005). The court determined that, in the absence of an explanation for the award, Ohlfs cannot demonstrate that the panel manifestly disregarded the law under USERRA based on the fact that it found for Charles Schwab on his claims. The award itself provided no basis to find an “explicit” disregard of the law. Charles Schwab presented substantial evidence in its defense during the arbitration, and the court cannot second guess the panel’s factual findings.
The court denied Ohlfs’s motion for vacatur and entered judgment in favor of Charles Schwab as set forth in the FINRA arbitration award dated August 9, 2011.
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.