953 F.3d 159
1st Cir.2020Background
- Giovanni and Mariantonia Lanza (retired professors) alleged Ameriprise broker mismanaged their brokerage accounts and submitted disputes to FINRA arbitration after agreeing to an arbitration clause.
- The Lanzas signed an arbitration submission acknowledging they were bound by FINRA bylaws, rules, and Code of Arbitration Procedure.
- They settled claims against the individual broker (Ewing) but requested an "explained decision" for remaining claims against Ameriprise; Ameriprise did not join that request.
- A three-arbitrator panel held a three-day hearing and issued a summary dismissal stating the Lanzas failed to prove their claims or damages; no reasoning was provided. FINRA Rule 12904(g)(1) requires an explained decision only upon joint request of all parties; Rule 12904(f) states an award "may" contain a rationale.
- The Lanzas sued FINRA in federal court alleging breach of the implied covenant of good faith and fair dealing; the district court dismissed under Rule 12(b)(6) (also noting arbitral immunity). The Lanzas appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FINRA is shielded by arbitral immunity | Lanza: FINRA should not be immune for failing to provide an explained decision | FINRA: Sponsor of arbitration is entitled to quasi-judicial (arbitral) immunity for acts integral to arbitration | Court did not resolve immunity question because alternative ground disposed of case; noted arbitral immunity typically protects sponsoring entities |
| Whether failure to issue an explained decision breached the implied covenant of good faith and fair dealing under Massachusetts law | Lanza: Rule 12904(f) (an award "may" contain a rationale) created a reasonable expectation that arbitrators would provide an explained decision even on unilateral request | FINRA: The FINRA Code (esp. Rule 12904(g)(1)) expressly requires an explained decision only upon joint request; parties agreed to be bound by the Code; implied covenant cannot create obligations contradictory to express contract terms | Held for FINRA: Complaint fails to state a plausible breach-of-implied-covenant claim because any unilateral expectation was unreasonable and would rewrite the FINRA rules the parties adopted |
Key Cases Cited
- New Eng. Cleaning Servs., Inc. v. Am. Arbitration Ass'n, 199 F.3d 542 (1st Cir. 1999) (extending arbitral immunity to sponsoring organizations for acts integrally related to arbitration)
- Pfannenstiel v. Merrill Lynch, Pierce, Fenner & Smith, 477 F.3d 1155 (10th Cir. 2007) (arbitral immunity protects arbitrators and sponsors to preserve impartial decisionmaking)
- Int'l Med. Grp., Inc. v. Am. Arbitration Ass'n, 312 F.3d 833 (7th Cir. 2002) (discussing scope of arbitral immunity)
- Ayash v. Dana-Farber Cancer Inst., 822 N.E.2d 667 (Mass. 2005) (Massachusetts recognizes implied covenant of good faith and fair dealing in contracts)
- Bos. Med. Ctr. Corp. v. Sec'y of Exec. Office of Health & Human Servs., 974 N.E.2d 1114 (Mass. 2012) (implied covenant cannot create duties beyond parties' agreed terms)
- United Steelworkers v. Enter. Wheel & Car Corp., 363 U.S. 593 (1960) (arbitrators generally need not supply reasons for awards)