In the category of “did we really need to litigate this all the way to an appellate court,” last Friday the Ninth Circuit vacated a FINRA arbitration award where the parties learned four years after the hearing that the Chairperson of the panel was impersonating a lawyer.   In Move Inc. v. Citigroup Global Markets, Inc., investor Move Inc. alleged Citigroup mismanaged its $131 million dollar portfolio by investing in risky auction-rate securities.  Four years after a FINRA arbitration panel denied the investor’s claims in their entirety, the investor read a media report that the Chair of the panel, who claimed to be “James H. Frank” and an attorney, lied to FINRA and the parties about his name and falsely claimed that he was a licensed attorney.  He was not an attorney at all.

The district court denied the investor’s motion to vacate the award.  The Ninth Circuit reversed.  After finding that the motion was not too late because of equitable tolling, the Court of Appeals ruled that “Move was deprived of a fundamentally fair hearing and therefore was prejudiced by the fraudulent conduct of the panel’s chairperson, Mr. Frank.”  Thus, the court vacated the award under FAA § 10(a)(3), which permits vacatur if “the arbitrators were guilty of … any … misbehavior by which the rights of any party have been prejudiced.”

Of course this is the right result.  It should not have taken all of these resources to get there, however.  Perhaps the forum should have done something?  Or perhaps the forum had no authority to vacate its own panel’s award.

Yet, if parties are not entitled to neutral, non-imposter arbitrators, I don’t know what they are entitled to in arbitration!

Jill Gross is a Professor of Law and the Director of the Investor Rights Clinic at Pace Law. She teaches the Investor Rights Clinic and Seminar, Mediation and Arbitration, Professional Responsibility, and Securities Litigation and Enforcement. She has published numerous law review articles in the area of dispute resolution and investor justice, and has been quoted in the national media on issues relating to securities arbitration. She is also a contributor to ADR Prof Blog.