894 F.3d 894
8th Cir.2018Background
- Trust (Laudine L. Ploetz, 1985 Trust) alleged Morgan Stanley transferred funds without authorization; claim submitted to FINRA arbitration.
- Original three-member FINRA panel included chair Brett Olander; Olander withdrew six days before hearing. Parties used FINRA "short list" replacement process; Barry Goldman became chair.
- Goldman's FINRA disclosure listed multiple arbitrations involving Morgan Stanley affiliates but did not disclose that he had served earlier as a mediator in a FINRA mediation between Strunk and Morgan Stanley (unsuccessful mediation; related arbitration later awarded damages against Morgan Stanley affiliate).
- The arbitration panel (with Goldman as chair) unanimously denied Ploetz's claim after hearings in January 2017. Ploetz later discovered Goldman's undisclosed mediation and moved to vacate under 9 U.S.C. § 10(a)(2) (evident partiality) and § 10(a)(3) (misbehavior).
- District court denied vacatur, finding no evidence the undisclosed mediation affected the outcome and that Ploetz had not been deprived of a fair hearing. Ploetz appealed; the Eighth Circuit affirmed on partly different reasoning.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Goldman's undisclosed past mediation created "evident partiality" under 9 U.S.C. § 10(a)(2) | Goldman’s failure to disclose prior mediation with Morgan Stanley shows evident partiality and warrants vacatur | Disclosure omission was trivial; Goldman disclosed many other Morgan Stanley-related arbitrations; no evidence of bias or effect on outcome | No evident partiality. The nondisclosure did not create an impression of bias under any governing standard, so vacatur denied |
| Whether prejudice must be shown in addition to evident partiality | Ploetz argued nondisclosure alone should suffice because parties expected a neutral arbitrator | Morgan Stanley argued prejudice or effect on outcome must be shown in some circumstances | Court clarified prejudice may be assumed when parties expect neutrality; but here Ploetz failed to show evident partiality, so assuming prejudice was unnecessary |
| Whether violation of FINRA disclosure rules (Rule 12405(a)) alone establishes evident partiality | FINRA rule requiring disclosure of past mediations means nondisclosure implies disqualifying partiality | FINRA rule violation does not control federal vacatur standard; nondisclosure must meet federal "evident partiality" test | FINRA rule breach alone insufficient; federal law governs vacatur and nondisclosure did not prove evident partiality |
| Whether vacatur is warranted under § 10(a)(3) for "misbehavior" prejudicing party rights | Nondisclosure and other procedural FINRA rule violations deprived Ploetz of disclosure rights and justify vacatur | Procedural or FINRA-rule errors absent deprivation of a fair hearing do not satisfy § 10(a)(3) | Denied. Ploetz did not allege or show deprivation of a fair hearing, so § 10(a)(3) relief inappropriate |
Key Cases Cited
- Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968) (established that undisclosed material relationships can constitute evident partiality)
- Delta Mine Holding Co. v. AFC Coal Props., 280 F.3d 815 (8th Cir. 2001) (prejudice may be assumed where parties expected a neutral arbitrator)
- Dow Corning Corp. v. Safety Nat'l Cas. Corp., 335 F.3d 742 (8th Cir. 2003) (evident partiality requires objective demonstration of partiality in some contexts)
- Montez v. Prudential Sec., Inc., 260 F.3d 980 (8th Cir. 2001) (federal law, not FINRA rules, sets vacatur standard)
- Brown v. Brown-Thill, 762 F.3d 814 (8th Cir. 2014) (party seeking vacatur bears burden to prove evident partiality and must show deprivation of a fair hearing for § 10(a)(3) relief)