985 F. Supp. 2d 33
D.D.C.2013Background
- Hans was a commission-only sales broker for FBR; FBR customarily paid brokers 14.5% of primary/secondary transaction value (via allocation from 60% of client fee to sales team).
- FBR procured a cash fee ($6.8M) and a stock payment (valued ~$5M) from client XL Health; FBR sold the XL Health stock in March 2011 for $5.5M.
- For the cash fee, FBR paid Hans a reduced commission (10.875%) and deducted amounts from the cash fee, so Hans received substantially less than the expected 14.5%.
- Hans asserted he was promised a 14.5% commission on the stock payment when liquidated; after the stock was sold in 2011 (after Hans left FBR), FBR refused to pay that commission.
- A FINRA arbitration panel, after two days of hearing, awarded Hans $267,960 (his share of a 14.5% commission on the stock proceeds plus interest).
- FBR filed in federal court to partially vacate the arbitration award, arguing manifest disregard of Virginia law and that Hans’s claim was time-barred under Virginia’s three-year statute of limitations for oral contracts; the district court denied vacatur and confirmed the award.
Issues
| Issue | Petitioner (FBR) Argument | Respondent (Hans) Argument | Held |
|---|---|---|---|
| Whether the arbitrators manifestly disregarded Virginia law in finding a contract obligating FBR to pay 14.5% on the stock proceeds | Panel ignored Virginia contract principles and improperly found a binding 14.5% agreement | Testimony and record support existence of an enforceable promise and performance; arbitrators heard evidence and reached a permissible conclusion | Denied vacatur; arbitrators’ finding of a contract was within permissible bounds and not manifest disregard |
| Whether Hans’s claim was barred by Virginia’s 3-year statute of limitations for oral contracts | Breach accrued in June 2008 (when FBR received the stock), so action is time-barred | Breach accrued at liquidation (March 2011); regardless, arbitrators reasonably found timely accrual | Denied vacatur; statute-of-limitations defense not shown to be clearly controlling and arbitrators’ accrual determination was reasonable |
| Whether manifest-disregard doctrine remains a valid ground for vacatur and applicable here | FBR invokes manifest disregard as basis for vacatur | Hans contends the award is supported by law and facts; even if manifest-disregard is doubtful, panel did not meet its high standard | Court treated manifest-disregard skeptically and found FBR did not satisfy its stringent burden |
| Whether the arbitration award must be confirmed or partially vacated | Arbitral award should be vacated or reduced | Award should be enforced | Court granted confirmation and denied partial vacatur |
Key Cases Cited
- Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576 (Sup. Ct.) (statutory FAA vacatur grounds exclusive; limits judicial review)
- Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (Sup. Ct.) (high barrier to vacatur; parties must show egregious errors to overturn arbitration)
- Kurke v. Oscar Gruss & Son, Inc., 454 F.3d 350 (D.C. Cir.) (courts should confirm arbitration awards if a justifiable ground can be inferred from the record)
- Affinity Fin. Corp. v. AARP Fin., Inc., 468 Fed.Appx. 4 (D.C. Cir.) (discusses post-Hall Street status of manifest-disregard doctrine)
- Nicely v. Bank of Va. Trust Co., 277 S.E.2d 209 (Va.) (unilateral offer made enforceable by employee performance permitted under Virginia law)