The U.S. District Court for the Northern District of Illinois issued an implicit warning to arbitration practitioners in the Urquhart v. Kurlan decision issued two weeks ago: choose your words carefully at the close of hearings, or risk waiving arguments premised on deprivation of a fundamentally fair hearing in later proceedings. In its February 28, 2017 decision, the Court rejected the Respondents’ claims — that the tribunal in a Chicago Board Options Exchange, Inc. (“CBOE”) arbitration failed to provide them with a fair hearing — based on statements made by their counsel at the close of the hearing, including an affirmation that the Respondents had “presented the best and fullest case [they] could.” The Court’s decision is a useful reminder that arbitration practitioners must be careful when answering questions routinely posed at the clode of domestic hearings — did the party have the right to be heard and was it given a fair opportunity to present its case?
The CBOE arbitration was instituted by Jason and Doug Urquhart, who alleged that Mr. Kurlan and VTrader Pro, LLC (“VTrader”) engaged in actions that caused the Urquharts to lose over US$4 million from their trading accounts. Kurlan and VTrader’s attorneys withdrew shortly before the hearing commenced, and Kurlan represented himself and VTrader pro se for the first week of the hearing. Kurlan was, however, able to obtain representation for the final session of the hearing. Although Kurlan and his counsel repeatedly requested additional time to prepare and present a defense, the tribunal denied those requests. The tribunal also denied Kurlan’s request that it subpoena an individual that Kurlan considered to be a key witness.
At the end of the hearing, the tribunal asked each party if it had the chance to present a full and fair presentation of its respective case. Kurlan’s counsel responded “I think to the best of our ability we tried to do that. Obviously, as I mentioned before, we would have liked to have spoken with a few more people and had a little more time to come to grips. As best we could, I believe we presented the best and fullest case we could.” Although previous objections had been raised, Kurlan’s counsel made no further objections on the record at that time.
The tribunal issued a final award in favor of the Urquharts, and the Urquharts subsequently sought confirmation of the award (pursuant to the Federal Arbitration Act) in district court.
District Court Proceedings
In the District Court proceedings, Kurlan and VTrader argued (in part) that the hearing had been fundamentally unfair to them because the arbitral panel refused to postpone the hearing to allow Kurlan and VTrader time to present additional evidence and refused to subpoena an individual whom Kurlan believed possessed evidence material to his defense.
The Court found Kurlan and VTrader’s reasoning unpersuasive and rejected their arguments. One of the “more important” reasons for rejecting their claims was that they “had the opportunity to make [their objections] on the record at the end of the proceedings, but instead they declined to do so.” The Court viewed Kurlan’s counsel’s statement at the end of the hearing — namely that counsel “believe[d] [it] presented the best and fullest case [it] could” — as a concession that effectively operated “as a waiver of Kurlan and VTrader’s argument that the arbitrators deprived Kurlan and VTrader of a fundamentally fair proceeding.” The Court reasoned that Kurlan and VTrader could have made objections on the record at the end of the hearing, had they believed additional testimony was necessary or found the proceedings to be unfair. However, as they failed to do so, the Court interpreted this failure as a waiver of any further claims of deprivation of a fair hearing.
At the close of hearings, arbitrators in U.S. arbitrations will often ask both parties whether they were afforded a fair opportunity to be heard and present their respective cases. Some arbitrators have criticized the practice, arguing that it puts parties in an unfair position; others have supported it, claiming that it allows arbitrators to either take steps to rectify issues during the proceedings or address the issues directly in awards.
But whatever your views, the Urquhart v. Kurlan decision is a useful reminder of the consequences of responding to common tribunal questions without making a general reservation of rights. Even though Kurlan’s counsel made several objections during the proceedings, the Court found that its failure to refer to those objections or make a general reservation of rights at the close of the hearing defeated its future efforts to vacate the award.