Fifth Circuit Affirms Confirmation of NASD Arbitration Award


In The Householder Group v. Caughran, No. 09-40111 (5th. Cir. Nov. 11, 2009), the court summarizes the facts as follows:

[A] panel of arbitrators with the National Association of Securities Dealers, Inc. (“NASD”) awarded Householder Group $39,500 in compensatory damages for breach of a promissory note, $50,000 in compensatory damages for breach of a Branch Office Agreement, and $70,000 in attorneys fees. Thereafter, Householder Group filed a motion in the district court to confirm the award, and Caughran filed a motion for vacatur.

On September 17, 2008, the district court granted Householder Group’s motion, denied Caughran’s motion, and confirmed the arbitration award. Subsequently, Caughran filed this pro se appeal contending that the district court erred by denying his motion to vacate and by confirming the award.

The Fifth Circuit noted that judicial review of arbitral awards is “exceedingly deferential, and vacatur is available only for the limited reasons outlined in Section 10(a) of the FAA.” The court also said that it has no authority to review the merits of the award. Since Caughran did not allege the FAA grounds, the court construed his claims under Sections 10(a)(2) and (3). First, Caughran argues that he did not receive a fair hearing because the panel did not allow him to introduce certain evidence. But the Fifth Circuit agreed with the reasoning of the district court:

The arbitrator is not bound to hear all of the evidence tendered by the parties; however, he must give each of the parties to the dispute an adequate opportunity to present its evidence and argument. An evidentiary error must be one that is not simply an error of law, but which so affects the rights of a party that it may be said that he was deprived of a fair hearing.

The court then addressed Caughran’s second argument that the panel was biased. Specifically, Caughran claims that: (1) the panel refused to force Householder Group to comply with the panel’s discovery orders; (2) the panel’s rulings were one-sided and against Caughran; (3) the panel wanted him to lose despite overwhelming evidence favoring Caughran; and (4) the panel awarded $50,000 for the breach of the Branch Office Agreement in order to punish Caughran for filing forty motions for evidence.

The Fifth Circuit stated that “evident partiality based on actual bias is an onerous burden” because the party must show that “the alleged arbitrator partiality was direct, definite, and capable of demonstration.” The court concluded that Caughran failed to meet his burden because he did not produce specific facts to support these allegations.

Lastly, the Fifth Circuit discussed Caughran’s claim that his Seventh Amendment rights had been violated. The court stated that “[I]f claims are properly before an arbitral forum pursuant to an arbitration agreement, then the Seventh Amendment right to a jury trial vanishes.” Accordingly, the Fifth Circuit affirmed the lower court’s decision to confirm the arbitral award.

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