The Failure To Include A Complete Record Of An Arbitration On Appeal Will Prevent Court From Vacating An Arbitral Award

• Posted on: Dec 12 2016

Previously, this Blog wrote about the importance of having a complete record when challenging an arbitration award.  Recently, two claimants in arbitration learned the hard way that an incomplete record will not support vacatur of an award.  See Abbott vs. RBC Dain Rauscher Inc., No. 1-15-1612, 2016 IL App. (1st) 151612-U (Ill. App., 1Dist., 9/29/16).

The Arbitration Proceeding:

David James and Michael Abbott (“Plaintiffs”) filed a claim in arbitration against RBC Dain Rauscher Incorporated, now known as RBC Capital Markets Corporation, and Charles Lane, a broker at RBC Capital (“Defendants”), for violating various financial regulations.

The Plaintiffs retained RBC Capital and Lane as their financial consultants. Around 2005, the Plaintiffs discovered unsuitable trades in their accounts. In September 2008, the Plaintiffs filed a five-count statement of claim before the Financial Industry Regulatory Authority (“FINRA”). The Plaintiffs asserted violations of the federal securities laws and Illinois consumer laws, and various claims under the common law.

The matter went to arbitration for over two years with hearings spanning approximately 57 days. In February 2014, a three-member panel awarded the Plaintiffs almost $200,000 in compensatory damages and $3,000 in sanctions against the Defendants.

During the hearing, the Plaintiffs orally moved to submit two FINRA news releases (from 2009 and 2010) and also a “financial industry regulatory letter of acceptance, waiver, and consent,” which is the equivalent of a FINRA settlement, involving RBC Capital. The hearing transcript revealed that counsel for the Plaintiffs briefly described the documents, outlined their contents, and argued they would buttress his expert’s testimony that the Defendants had violated various industry standards and that RBC failed to properly supervise its employees, including Lane. The presiding arbitrator held that the documents did not relate directly to the claims and denied their admission as exhibits. The presiding arbitrator nonetheless reserved the matter for the close of evidence.

At the close of evidence, counsel for the Plaintiffs again moved to submit the documents as exhibits. The presiding arbitrator stated that the Plaintiffs could attach the documents to their closing brief and that essentially the arbitrators may or may not review them. The Plaintiffs, however, did not attach the documents.

The Motion Court Proceedings:

The Plaintiffs moved to vacate the arbitration award, arguing that the arbitrators refused to hear evidence material to the matter, thereby rendering their damages award insufficient. The court denied their motion, holding the matter was within the arbitrators’ discretion. The Plaintiffs filed a motion to reconsider, which was denied. The court thereafter granted the Defendants’ motion to confirm the arbitration award. The Plaintiffs appealed the judgment affirming the arbitration award, contending that the arbitrators did not properly consider the evidence described above.

The Appellate Court Ruling:

On appeal, the Plaintiffs challenged the motion court’s ruling denying their motion to vacate the arbitration award, arguing the arbitrators erred in declining to admit the news releases and settlement documents. The Plaintiffs maintained that had these documents been admitted, they would have been able to establish liability against RBC for the failure to monitor employee activities, and then been able to obtain punitive damages.

The Plaintiffs contended that their expert should have been allowed to testify about the news releases and settlement documents, but inexplicably failed to provide the court with the full transcripts of their expert’s testimony, the Defendants’ expert’s testimony, or that of any other witness. Instead, they only provided the court with snippets of arbitration testimony and transcripts of their interchange with the court and opposing counsel, whereby they argued the evidence at issue should have been admitted. Incredibly, as the Court noted, “[s]ome of the snippets [did] not even identify by name which witness is testifying.” Slip op. at n.2. The Court held that, even assuming the Plaintiffs had properly sought to admit the documents, “without a record bearing the full hearing testimony, especially that of the competing experts,” it could not say that those documents “were so material to the matter at hand that without them the course of the case would have changed vis a vis RBC.” Id. at 6. Consequently, the Court affirmed the judgment.

Takeaway:

The teaching of Abbott is simple: a party challenging an arbitral award must file as complete a record as possible to support the motion, taking care to highlight all evidence, not merely snippets and argument among counsel. The importance of this teaching cannot be underscored enough because the party seeking to vacate an arbitral award has the burden of establishing the basis upon which the award should be vacated. Unfortunately for the Plaintiffs in Abbott, they did not learn the lesson. They failed to meet their burden because they “submit[ted] a record … [that was] woefully insufficient to find prejudice or that [the] plaintiffs were deprived of a fair arbitration hearing.” Slip op. at 7.

Tagged with: Securities Arbitration