Pershing LLC v. Kiebach, No. 14-cv-2549 (E.D. La. May 22, 2017) [click for opinion]
In Pershing, the defendant, Pershing LLC, sought to confirm an arbitration panel's decision that it was not liable to a consortium of Louisiana Retirees who fell victim to a Ponzi scheme orchestrated by R. Allen Stanford. The Louisiana Retirees sought to vacate the award.
Pershing was a clearing broker for Stanford Group Company, a broker-dealer controlled by Allen Stanford that sold worthless securities to the Louisiana Retirees. The Louisiana Retirees claimed that Pershing failed to exercise due diligence in its relationship with Stanford that would have uncovered the scheme. The arbitration panel ruled in Pershing's favor, and the parties then brought competing actions in the district court to confirm or vacate the decision under the Federal Arbitration Act.
The primary argument advanced by the Louisiana Retirees in support of their motion to vacate the panel's decision was that the panel arbitrarily and improperly denied them discovery of documents to which they were entitled. Specifically, the arbitration panel ruled that Pershing was not required to produce emails that it claimed were protected by the attorney-client privilege and "Incident Reports" that it used to document potentially suspicious activity. As to the privileged documents, the arbitration panel did not conduct an in camera review to determine whether the documents were, in fact, privileged.
Under Fifth Circuit precedent, 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 deprives a party of a fundamentally fair hearing. In Pershing, however, the court ruled that the panel's decisions did not prevent the Louisiana Retirees from receiving a fundamentally fair hearing. First, it rejected the Louisiana Retirees' argument that the panel was required to conduct an in camera review of the privileged documents, because the FINRA arbitration rules do not require such a hearing. Second, it determined that the documents at issue were cumulative of evidence that the Louisiana Retirees did present to the arbitration panel. According to the court, the Louisiana Retirees presented a substantial amount of evidence in support of their position that Pershing knew or should have known that Stanford was conducting a Ponzi scheme, and the documents at issue would have only further supported that particular argument. Thus, the panel's decisions relating to the documents at issue did not deprive the Louisiana Retirees of a fair hearing.
The court thus denied the Louisiana Retirees' motion to vacate and granted Pershing's motion to confirm the award.