United States District Court, E.D. Louisiana
ORDER AND REASONS
M. AFRICK UNITED STATES DISTRICT JUDGE
consolidated action, Pershing LLC seeks to confirm an
arbitration panel's decision in its favor. The
defendants, Thomas Kiebach, the “Louisiana Retirees,
” seek to vacate the arbitration panel's decision.
Before the Court are cross motions for summary judgment filed
by each side. For the following reasons, the Court grants the
motion filed by Pershing LLC and denies the motion filed by
the Louisiana Retirees. The Court therefore confirms the
Louisiana Retirees are investors who suffered financial
losses as a result of R. Allen Stanford's Ponzi scheme.
Pershing is a limited liability company that provides
financial services to brokerage firms. Pershing was a
clearing broker for Stanford Group Company, a broker-dealer
controlled by Allen Stanford which sold worthless securities
to the Louisiana Retirees. The Louisiana Retirees believe
that Pershing is liable to them for the $80 million in
damages they allegedly sustained due to the Ponzi scheme.
They claim that Pershing, as Stanford Group Company's
clearing broker, failed to exercise due diligence in its
business relationship with Stanford Group Company and failed
to disclose adverse financial information which would have
resulted in the Ponzi scheme being uncovered sooner than it
the contracts between Pershing and each of the Louisiana
Retirees required disagreements to be arbitrated before the
Financial Industry Regulatory Authority
(“FINRA”), the Louisiana Retirees submitted their
claims against Pershing to a FINRA panel. After a two week
hearing at which the panel heard over 1, 600 pages of
testimony from fifteen witnesses and considered over 900
separate exhibits, the panel ruled in Pershing's favor.
After the ruling, the Louisiana Retirees and Pershing each
filed actions to vacate and confirm the arbitration
panel's decision, respectively. Those lawsuits were
ultimately consolidated before this Court.
the Louisiana Retirees advance several arguments for vacating
the panel's decision, their primary argument centers on
whether the panel arbitrarily and improperly denied the
Louisiana Retirees documents to which they were entitled.
explained in the next section, an arbitration panel's
decision cannot be overturned simply because it was
incorrect. Cooper v. WestEnd Capital Mgmt., L.L.C.,
832 F.3d 534, 546 (5th Cir. 2016). But under the Federal
Arbitration Act (FAA), an arbitration panel's refusal to
hear evidence material and pertinent to the controversy can
result in vacatur of the arbitration award when the refusal
deprived a party of a fundamentally fair hearing. Karaha
Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi
Negara, 364 F.3d 274, 300-01 (5th Cir. 2004).
discovery in the context of a motion to confirm or vacate an
arbitration award is extremely limited, see Legion Ins.
Co. v. Ins. Gen. Agency, Inc., 822 F.2d 541, 542-544
(5th Cir. 1987), the district court may allow limited
discovery at its discretion, see Karaha Bodas Co.,
364 F.3d at 304-05. This Court allowed the Louisiana Retirees
to engage in limited discovery in order to determine whether
the documents denied the Louisiana Retirees during the
arbitration proceeding fell within the scope of the
privileges claimed by Pershing. After an in camera
review of the documents by the U.S. Magistrate Judge, the
Court ultimately ordered that Pershing produce to the
Louisiana Retirees some of the documents which the Louisiana
Retirees were denied by the arbitration panel. See
R. Doc. No. 137. The Court found-under the specific facts of
this case-that a review of those documents not produced in
arbitration would best allow this Court to measure whether
and, if so, the extent to which the Louisiana Retirees were
prejudiced by the omission of such documents.
covers the proceedings thus far. Now the question is simply
whether, considering the produced documents in conjunction
with the record of the arbitration proceeding, the Louisiana
Retirees have satisfied one of the recognized grounds for
vacating an arbitration award. The Court sets forth the
standard which governs that inquiry below.
light of the strong federal policy favoring arbitration,
judicial review of an arbitration award is extraordinarily
narrow.” McKool Smith, P.C. v. Curtis Int'l,
Ltd., 650 F. App'x 208, 211 (5th Cir. 2016)
(internal quotation marks omitted). “Under this review,
an award may not be set aside for a mere mistake of fact or
law.” Id. (internal quotation marks omitted).
“Instead, Section 10 of the FAA provides the only
grounds upon which a reviewing court may vacate an
arbitrative award.” Id. (internal quotation
marks omitted). Section 10 of the FAA provides the following
grounds for vacating an award:
1) where the award was procured by corruption, fraud, or
2) where there was evident partiality or corruption in the
arbitrators, or either of them;
3) where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient cause
shown, or in refusing to hear evidence pertinent and material
to the controversy; or of any other misbehavior by which the
rights of any party have been prejudiced; or
4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
award upon the ...