Meyers Assocs., L.P. vs. Goodman, No. 3:14-cv-1174 (M.D. Tenn., 10/29/14)
A party seeking to vacate an arbitration Award on grounds that the panel manifestly disregarded the law must establish that the panel was presented with and understood the controlling legal principles and consciously chose to disregard them. This task is all but impossible where the arbitrators do not explain their decision.
Following a full hearing on the merits of the Goodmans' churning and suitability claims, a unanimous FINRA arbitration panel ordered Meyers to pay $222,000 in compensatory damages, $100,000 in punitive damages, $104,000 in attorneys' fees and interest at the Tennessee statutory rate from the date the Statement of Claim was filed to the date the award was paid (FINRA ID #10-05361 (Nashville, 3/21/14)). As is typically the case, the panel did not provide its reasoning for the Award. Unhappy with the result, Meyers filed a petition to vacate the Award, claiming that the panel manifestly disregarded the law.
The Court begins its analysis by examining the parties' FINRA pleadings and the arbitration process. The Court notes that in their Statement of Claim and their pre-hearing brief, the Goodmans supported their claims, including their claims for attorneys' fees, pre- and post-judgment interest and punitive damages, with citations to the Tennessee Securities Act and other case law. In contrast, the Court notes, Meyers' Statement of Answer contained few legal citations, no citations to Tennessee law and no statutes of limitations defense. The Court also notes that, "remarkably," Meyers did not file a pre-hearing brief and did not call expert witnesses to counter the Goodmans' liability and damages experts.
Against this backdrop, the Court states that Meyers faces an extremely difficult task establishing that the Panel appreciated a controlling legal principle and consciously (i.e., manifestly) chose to disregard it. The Court determines that many of Meyers' arguments are, in reality, challenges to the sufficiency of the evidence presented to the arbitration panel and the manner in which the panel interpreted the evidence. The Court declines to second guess the panel's thought processes, concluding that there were legally plausible grounds on which the panel could have made its award and that Meyers has not demonstrated that the panel acknowledged a legally controlling principle and manifestly disregarded it. Rejecting Meyers' statute of limitations argument, the Court faults Meyers for not asserting the defense in its arbitration Answer or addressing it at any point in the arbitration proceedings beyond a passing comment during closing argument. The Court finds that the panel could not have manifestly disregarded case law, legal authorities and a construction of the facts relevant to the timeliness of the claims that was not presented to it during the course of the arbitration hearings.
The Court similarly rejects Meyers' challenges to the award of compensatory damages, pre-judgment interest and punitive damages, finding legally plausible bases for each component of the award and that Meyers has not established that the panel manifestly disregarded allegedly controlling precedent regarding damages, in large measure because Meyers had not argued most of the issues now being raised to the panel in the first place. The Court confirms the Award, but only after clarifying that prejudgment interest is to be calculated only on the compensatory damages.
The Court highlights multiple 6th Circuit opinions addressing manifest disregard of the law, each of which demonstrate the increasingly narrowing scope of the manifest disregard doctrine. While several circuits have abolished the doctrine altogether in light of the Supreme Court's decision in Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576, 588 (2008), the 6th Circuit has thus far elected not to weigh in on that issue.