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No cert for Dane Investments
March 27, 2007 by Ross Runkel at LawMemo
The US Supreme Court denied certiorari Monday in Dane Investments, LLC v. H & R Block Financial Advisors.
Even though the Supreme Court has a pretty lean docket these days, this case was not appealing to enough of the Justices.
And rightly so.
Dane was advancing the theory that a court should overturn an arbitration decision based on "unconscionable results." That would be a new, and non-statutory, ground for vacating an arbitration award under the Federal Arbitration Act.
My view: the Supreme Court is not interested in adding any non-statutory grounds for vacating awards. The lower court didn't rise to the bait, so the easy thing to do is to deny review.
Another Dane argument was that the arbitration panel did not make an audible tape recording or transcript of the arbitration proceedings.
My view: The Supreme Court is not in the business of correcting such errors, if errors they be.
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New Supreme Court case?
March 22, 2007 by Ross Runkel at LawMemo
Will the Supreme Court grant certiorari to review Dane Investments, LLC v. H & R Block Financial Advisors? [Details; court documents]
The case raises issues dealing with the courts' authority to review an arbitration award - especially when the losing party thinks the arbitrators were wrong on the law.
The Federal Arbitration Act lists specific grounds for courts to use when asked to vacate an award. Most courts add at least one more "non-statutory" ground: "manifest disregard of the law."
Dane Investments thought its stock broker - H & R Block - sold it unsuitable stocks, so it went to arbitration. Dane lost. Dane now argues that the arbitrators did not follow the law.
As Dane puts it in a petition to the Supreme Court for a writ of certiorari, the Court should deal with the following questions:
The U.S. District Court for the Eastern District of Louisiana vacated the arbitration award on the ground that the "unconscionable results" in the case demonstrated that the respondent breached a fiduciary duty to petitioner insofar as the margin interest and brokerage fees were concerned (App. 6). Then the District Court reversed its decision and granted respondent's Motion for Reconsideration because the Fifth Circuit Court of Appeals allows only one non-statutory ground for vacating arbitration awards, the ground of "manifest disregard of the law" (App. 4). The Fifth Circuit Court of Appeals affirmed (App. 1). The Fifth Circuit Court of Appeals' decision not only conflicts with decisions of other federal courts of appeals, but the courts are in disarray on what non-statutory grounds can be used. Guidance is needed or the conflict is going to be difficult for the securities industry and public investors to live with.The questions presented are:
1. Whether "manifest disregard of the law" is the only acceptable non-statutory ground for federal courts to use in vacating National Association of Securities Dealers ("NASD") public investor arbitration awards or are other non-statutory grounds, such as "unconscionable results" acceptable as independent grounds for vacatur, and if not, are the other non-statutory grounds used by the various circuit courts different ways of saying that there has been "manifest disregard of the law (and/or rules)."
2. Whether a U.S. Securities and Exchange Commission ("SEC") release of an enforcement proceeding and consent decree that was directed at respondent for actions and transactions and alleged securities violations that took place while the petitioner did business with the respondent and that the petitioner complained of in his NASD arbitration proceeding as having happened to him, and for which the SEC issued cease-and-desist orders, should be admissible in a NASD arbitration hearing and be treated as law and/or have some probative value. 3. Whether the failure of an arbitration panel to make an audible tape recording or other useable recording or transcript of a NASD arbitration proceeding, in contravention of NASD Uniform Code of Arbitration rules, denies the claimant his constitutional rights to due process and trial by jury since no useable record of the arbitration proceeding is created and made available for judicial review.
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Magnuson-Moss Warranty Act arbitration
March 22, 2007 by Ross Runkel at LawMemo
It's a rare case when a court holds that an agreement to arbitrate a statutory claim cannot be enforced - due to a finding that the statute does not allow it.
Koons Ford v. Lobach (Maryland Court of Appeals 03/20/2007) did it.
When Koons Ford sold a car to the Lobachs, one of the papers they signed contained an agreement for binding arbitration. Claiming defects in the car, the Lobachs brought a law suit that was based in part on the federal Magnuson-Moss Warranty Act. Koons Ford wanted the case taken out of court and sent to arbitration, as had been agreed.
The Maryland Court of Appeals held that the Lobachs "may not be forced to resolve their claims through binding arbitration because Congress expressed an intent to preclude binding arbitration when it enacted the Magnuson-Moss Warranty Act."
The court's reasoning: The Magnuson-Moss Warranty Act contains a provision that allows a seller (like Koons Ford) to include an informal dispute-settlement procedure (like arbitration) in a warranty, and a consumer cannot go to court unless he uses that procedure first. The Federal Trade Commission (FTC) adopted a formal rule saying that decisions under such procedures are not legally binding. Therefore, giving proper deference to the FTC's rule, the arbitration provision in this case cannot be enforced.
The Magnuson-Moss Warranty Act was enacted in 1975 - before the Supreme Court had interpreted the Federal Arbitration Act as requiring enforcement of a vast array of arbitration agreements. Therefore, Congress could not have intended for an agreement for binding arbitration of Magnuson-Moss claims to be enforceable.
My view: The case is wrong.
The intent of Congress comes primarily from the text of the statute. Magnuson-Moss permits sellers to include non-binding arbitration as a pre-litigation requirement. There is not a single word that says anything about traditional binding arbitration, let alone anything saying that an agreement for binding arbitration cannot be enforced. The FTC rule should get no deference because it has no roots in the statute.
By the way, most other courts go the other way, enforcing these arbitration agreements in the same way that other arbitration agreements are enforced.
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How Bad Are Mandatory Arbitration Terms?
March 02, 2007 by Ross Runkel at LawMemo
"How Bad Are Mandatory Arbitration Terms?" is the topic for the Association of American Law Schools Section on Contracts panel discussion next January.
The presenters' papers will be published by the Michigan Journal of Law Reform in 2008.
Details for speakers: Contracts Section Call for Papers - AALS Annual Meeting 2008 from ContractsProf Blog.
A quote: "The presentations in the panel are intended to move beyond myth, conjecture, and assumption, and to shed a more concrete and empirical light on these questions. Speakers will present and debate insights and findings regarding the reality of mandatory contract arbitration."
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Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
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