Goldman, Sachs & Co. v. Athena Venture Partners, L.P., 2015 U.S. App. LEXIS 17122

Athena invested $5 million in Goldman’s “Liquidity Partners” fund and lost about $1.4 million, then initiated FINRA arbitration asserting fraud, misrepresentation, and related claims.
A three-member FINRA panel heard evidence in Nov 2011 and Oct 2012; after the first session, FINRA disclosed that panelist Demetrio S. Timban Jr. faced an unauthorized-practice-of-law charge. Neither party objected or further investigated at that time.
The panel issued an award for Goldman; two arbitrators signed, Timban did not. Athena then ran a background check and discovered Timban’s initial disclosure was misleading and that he had multiple prior complaints and subsequent disciplinary actions, including a suspension.
Athena moved in district court to vacate under 9 U.S.C. § 10(a)(3) and (4), arguing Timban’s nondisclosures violated FINRA rules and the arbitration agreement; the district court granted vacatur and ordered rehearing.
On appeal, Goldman argued Athena waived the right to seek vacatur by failing to timely object; the Third Circuit evaluated waiver in the arbitration context and reversed the district court, holding Athena waived its challenge.

Issue	Plaintiff's Argument (Athena)	Defendant's Argument (Goldman)	Held
Whether Athena waived the right to vacate the arbitration award based on an arbitrator’s nondisclosures	Timban’s initial disclosure was grossly misleading and subsequent disciplinary events occurred after the disclosure, so Athena could not reasonably have challenged during the proceedings	Athena knew or should have known of facts showing serious misconduct from Timban’s initial disclosure and therefore had a duty to investigate and object before the award	Held: Athena waived its challenge under a constructive-knowledge standard because the initial disclosure put it on notice and it unreasonably delayed investigation until after losing
Whether vacatur was otherwise warranted because FINRA failed to provide three qualified arbitrators	FINRA’s nondisclosures and Timban’s misconduct deprived Athena of a fair panel, supporting vacatur	Even if FINRA’s processes were inadequate, waiver prevents relief; court need not reach qualification argument	Held: Court did not address merits of FINRA qualification claim after finding waiver; reversed vacatur and remanded to consider confirmation

Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240 (3d Cir.) (adopts constructive-knowledge approach to waiver in arbitration context)
Fid. Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306 (9th Cir. 2004) (supports constructive-knowledge waiver rule)
Lucent Techs. Inc. v. Tatung Co., 379 F.3d 24 (2d Cir. 2004) (party waives challenge if it could have discovered relationship before or during arbitration)
JCI Commc’n, Inc. v. Int’l Bhd. of Elec. Workers, Local 103, 324 F.3d 42 (1st Cir. 2003) (failure to inquire about arbitrator backgrounds can constitute waiver)
Kiernan v. Piper Jaffray Cos., 137 F.3d 588 (8th Cir. 1998) (recognizes waiver where party suspected partiality but did not investigate)