Stone v. Bear, Stearns & Co., Inc. - How Appealing

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Case 2:11-cv-05118-LDD Document 22 Filed 05/29/12 Page 28 of 35 violation of FINRA rules, even unknown by FINRA at the time of the arbitration, into grounds for vacatur. This would run counter to the policy in this country favoring the finality of arbitration awards, as well as the Supreme Court’s recent admonitions in Hall Street that “exceed[ing] . . . powers” in Section 10(a)(4) is a species of “extreme arbitral conduct,” 552 U.S. at 586, and Stolt-Nielsen that Section 10(a)(4) attacks must fail unless the “arbitrator strays from interpretation and application of the agreement and effectively ‘dispense[s] his own brand of industrial justice.’” 130 S. Ct. at 1767 (citation omitted). Finally, Stone does not object to the selection of the two arbitrators other than Marston. Stone has provided no evidence, or even argument, that Marston improperly influenced or prejudiced either other arbitrator against Stone or in favor of Respondents. Because the three-person panel unanimously denied Stone’s claims, Marston’s presence on the panel, even if improper under FINRA’s “public arbitrator” definition, did not prejudice Stone and does not mandate vacatur under Section 10(a)(4). See Winfrey v. Simmons Foods, Inc., 495 F.3d 549, 552-53 (8th Cir. 2007) (affirming district court’s rejection of challenge to arbitration award because petitioner produced “no evidence indicating that [one arbitrator’s] partiality deceived or misled the other two arbitrators,” so alleged partiality of one arbitrator worked no prejudice); Tamari v. Bache Halsey Stuart Inc., 619 F.2d 1196, 1200-01 (7th Cir. 1980) (rejecting evident partiality challenge to unanimous arbitration decision, in part because “[s]imple mathematics indicates that the particular composition of the panel should not have mattered under these circumstances.”); Fort Hill Builders, Inc. v. Nat’l Grange Mut. Ins. Co., 866 F.2d 11, 14 (1st Cir. 1989) (rejecting challenge to arbitration award because “the panel decision was unanimous for plaintiff, and defendants alleged no wrongdoing on the part of the other two members.”); Cont’l Cas. Co. v. Staffing Concepts, Inc., No. 8:09–CV–02036, 2011 WL 28
Case 2:11-cv-05118-LDD Document 22 Filed 05/29/12 Page 29 of 35 7459781, at *6 n.5 (M.D. Fla. Dec. 20, 2011) (listing district court cases in which courts refused to vacate unanimous arbitration awards). F. Stone Has Waived His Section 10(a)(2), (a)(3), and (a)(4) Challenges to the Award As explained in detail above, we see no proper grounds for vacating the panel’s decision under the FAA’s “evident partiality” prong, § 10(a)(2); or “misbehavior” prong, § 10(a)(3), or “exceeding powers” prong, § 10(a)(4). But even assuming the circumstances warranted vacatur, Stone cannot rightfully contest the award based on his newly-discovered evidence because he failed to investigate the arbitrators as diligently before the arbitration as he did after he lost. Since all of Stone’s arguments for vacatur ultimately rest on the Dr. Marston-related information Stone discovered after the panel ruled against him, Stone has waived his §§ 10(a)(2)-, (a)(3)-, and (a)(4)- based challenges to the adverse arbitration award. Arbitration retains its appeal as an alternative to litigation only if the parties involved can rely on the arbitrators’ decision. In other words, a reasonable person would surely hesitate to arbitrate a dispute in the first place knowing that he or she may very well have to litigate or re-arbitrate the same dispute again. Therefore, courts worry about disenchanted arbitration losers improperly seeking a second bite at the apple, which would undermine the finality of arbitration awards (and thus arbitration itself). The Seventh Circuit captured the essence of this concern in its Leatherby opinion: We do not want to encourage the losing party to every arbitration to conduct a background investigation of each of the arbitrators in an effort to uncover evidence of a former relationship with the adversary. This would only increase the cost and undermine the finality of arbitration, contrary to the purpose of the United States Arbitration Act of making arbitration a swift, inexpensive, and effective substitute for judicial dispute resolution. Leatherby, 714 F.2d at 683; see also Commonwealth Coatings, 393 U.S. at 151 (fearing that “a suspicious or disgruntled party [might] seize on [an arbitrator’s non-disclosure] as a pretext for invalidating the award.”) (White, J., concurring). 29
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Stone v. Bear, Stearns & Co., Inc. - How Appealing

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