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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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