Bass, Berry & Sims attorney Chris Lazarini provided insight on a case in which the court rejected plaintiff’s efforts to vacate an adverse FINRA arbitration Award, and instead confirmed the Award. Plaintiff argued that the arbitrators misinterpreted his compensation agreement with his former firm, misconstrued his arguments, and incorrectly calculated damages. Rejecting these arguments, the court stated since the parties agreed to arbitrate the dispute, they opted out of the court system, including the traditional appellate review process and factual and legal errors by the arbitrators, no matter how gross they may be, cannot support vacating the Award.
Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
Boldischar vs. Reliastar Life Insurance Co., No. 14-C-6844 (N.D. Ill., 7/26/16)
When parties agree to arbitrate their disputes, they opt out of the court system, including the traditional appellate review process, and factual and legal errors by the arbitrators, no matter how gross they may be, cannot support vacating the Award.
Plaintiff is a former commission-based employee of Reliastar. His commissions were paid under annual Sales Incentive Plans (“SIPs”) that included charge-back provisions if policies sold were cancelled prior to their first anniversary date. Faced with $210,000 in charge-backs in 2013, Plaintiff and Reliastar agreed that Plaintiff’s future monthly draws would be reduced until the charge-backs were paid. A few months later, however, Plaintiff resigned, and Reliastar demanded immediate payment of the charge-backs. Plaintiff filed this action, seeking a declaratory judgment that the SIPs did not require him to pay the charge-backs after he resigned and that he had no other obligation to do so. On Reliastar’s motion, the Court stayed the action and directed the parties to FINRA arbitration based on the arbitration provisions of Plaintiff’s U4. After the arbitration panel issued its Award for Reliastar (FINRA #14-03384 (Chicago, 8/12/15), the parties returned to the Court – Plaintiff seeking vacatur of the Award, and Reliastar seeking confirmation.
Plaintiff framed his vacatur arguments around 9 U.S.C. §10(a)(4), arguing that the arbitrators exceeded their powers by ignoring the plain meaning of the SIPs, failing to allow Plaintiff to present alternative defenses, misconstruing Plaintiff’s arguments, incorrectly calculating damages and improperly including interest in the Award. The Court finds each challenge insufficient to warrant vacatur. First, in a contract dispute submitted to arbitration, the question for a court is not whether the arbitrators erred in interpreting the contract, clearly erred in interpreting the contract or even grossly erred in interpreting the contract; it is whether they interpreted the contract at all. Because Plaintiff conceded that the arbitrators interpreted the SIPs, the Court rejects this argument. Second, the Court finds, contrary to Plaintiff’s argument, that the arbitrators considered Plaintiff’s alternative defense theories and rejected them. Third, the Court finds Plaintiff’s claims that the arbitrators misconstrued his arguments and incorrectly calculated damages to be nothing more than arguments that the arbitrators made errors of law in dealing with Reliastar’s unjust enrichment claim. The Court refuses to second-guess the arbitrators’ judgment. Finally, the Court finds that the absence of an explanation from the arbitrators of their reasons for assessing interest does not mean that they failed to consider whether a contractual or statutory basis existed for doing so. Again, the Court declines to second-guess the arbitrators’ judgment. Having rejected each of Plaintiff’s vacatur arguments, the Court denies his motion and grants Reliastar’s motion to confirm the Award.
EIC: Reliastar is a subsidiary of broker-dealer Voya America Equities, Inc., which was a defendant in this case and a claimant in the arbitration, along with Reliastar.