A Massachusetts federal district court determined that even if an arbitral panel acted ‘unfairly’, it was acting within its ‘legal authority when it reviewed and denied respondents’ requests for subpoenas’. Rogers v. Ausdal Financial Partners, Inc. No. 15-12899-FDS, (USDC D. Mass., March 9, 2016). The Court rejected Respondents Norton and Ausdal Financial Partners, Inc.’s argument that the panel’s failure to issue subpoenas to non-parties denied them a fair opportunity to obtain material evidence through discovery.
Petitioner Rogers consulted with Norton, a financial advisor, and Ausdal, before accepting an early retirement buyout package from her employer, Verizon Communications. After becoming dissatisfied with the annuity that she purchased from Respondents, Rogers commenced an arbitration with FINRA pursuant to her customer agreement. Rogers claimed she elected to take early retirement only because Norton advised her that the annuity would support certain monthly withdrawals which the annuity could not sustain. Norton and Ausdal denied the claims asserted, and proffered a variety of defenses including that Rogers relied on information in documents provided to her by Verizon in making her decision.
Pursuant to FINRA rules, Respondents filed a motion with the arbitral panel to issue subpoenas to fifteen non-party witnesses, including Verizon. Respondents argued that Verizon possessed documents with information relevant to Rogers’s decision to accept early retirement. The panel chair denied the motion, without a hearing, and issued a written order finding the motion for the issuance of such subpoenas, which required extensive discovery from non-parties, ‘overbroad and burdensome’. Rogers produced some documents relevant to her offer from Verizon but not documents responsive to what her working conditions would have been had she not retired.
After a five-day hearing, the panel issued an award for Rogers in the amount of $1,240,000. During the hearing, the chair mentioned that, while the Respondents went ‘overboard’ on their motions, the document describing Verizon’s pension offer to Rogers ‘seems to be important to both sides and to the panel.’
After Rogers filed a petition to confirm the award, Respondents removed the petition to federal court and filed a motion to vacate or modify the award. Respondents argued that the arbitrators failed to hear evidence, exceeded their powers, exhibited evident partiality and manifestly disregarded the law.
Respondents’ argument that the arbitrators were guilty of misconduct in refusing to hear pertinent evidence was based on the panel’s denial of Respondents’ motion to issue the numerous requested subpoenas to non-parties, including Verizon. The Court first determined that it did not need to decide the issue of whether a failure to issue a subpoena constitutes a refusal to hear evidence under Section 10(a)(3) of the FAA. The Court found instead that the Respondents had a ‘fair hearing’ on their motion for the issuance of subpoenas as they were able to present relevant arguments and evidence to the arbitral panel. Under the applicable FINRA Rules, the arbitrators had the authority to issue or deny subpoenas. The Court held that while the panel ‘may well have acted unfairly’ in denying Respondents the right to obtain Verizon information while concluding that the same information ‘seems to be important’, they were acting within their legal authority.
The Court rejected Respondents’ argument that the arbitrators exceeded their powers in rendering the damages award as the ‘brief award’ could have been on claims Rogers presented to the panel and the damages award was not beyond the scope of the panel’s authority.
The Court also rejected respondents’ claim of evident partiality because the Respondents were, in effect, asking the Court “to infer partiality not from the existence of undisclosed bias or facts indicating an improper motive on the part of the panel, but from the panel’s award of damages.” Finally, the Court summarily dismissed Respondents’ allegation of manifest disregard, stating that even if the doctrine is still available, it was not applicable to the case at hand.