Mann v. Morgan Stanley Smith Barney, LLC
2:15-cv-00217
D. Nev.Aug 10, 2015Background
- Mann was an employee of Morgan Stanley who received two employer-funded loans (Notes totaling roughly $224,382) that became due upon his resignation in February 2012.
- Morgan Stanley filed a FINRA arbitration (June 2012) seeking repayment; a hearing ran from March–December 2014.
- FINRA issued an award requiring Mann to pay $179,199 (principal and interest), $30,000 in attorney’s fees, and $5,000 in costs.
- During the arbitration, arbitrator William Huggins filed an unrelated breach-of-contract suit but did not disclose it to the arbitration parties.
- Mann petitioned the district court to vacate the arbitration award under FAA § 10(a)(2) (evident partiality) and § 10(a)(4) (arbitrators exceeded their powers/manifest disregard of law).
- The district court denied vacatur, finding the undisclosed lawsuit did not create a reasonable impression of bias and that Mann failed to show the panel manifested disregard of law or acted irrationally.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Evident partiality under 9 U.S.C. § 10(a)(2) | Huggins failed to disclose his contemporaneous lawsuit, creating an impression of bias | The lawsuit was unrelated in parties and subject matter and did not create a reasonable impression of partiality | Denied — nondisclosure was not a real, non-trivial conflict supporting vacatur |
| Arbitrators exceeded powers / manifest disregard under 9 U.S.C. § 10(a)(4) | Fees and costs awarded ($30,000 and $5,000) lacked evidentiary support and were awarded over objection, showing manifest disregard of law | Panel's factual/evidentiary findings are not reviewable unless irrational or a clear manifest disregard of law occurred | Denied — Mann did not show complete irrationality or evidence that arbitrators knew the law and intentionally disregarded it |
Key Cases Cited
- Kyocera Corp. v. Prudential–Bache Trade Servs., Inc., 341 F.3d 987 (9th Cir.) (arbitral-award review is narrowly circumscribed; vacatur only for limited statutory grounds)
- Fidelity Federal Bank, FSB v. Durga Ma Corp., 386 F.3d 1306 (9th Cir.) (failure to disclose dealings that create a reasonable impression of partiality can support vacatur)
- New Regency Productions, Inc. v. Nippon Herald Films, Inc., 501 F.3d 1101 (9th Cir.) (vacatur requires a real, non-trivial conflict; attenuated connections insufficient)
- Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (U.S.) (arbitrator nondisclosure that creates an impression of possible bias supports vacatur)
- Bosack v. Soward, 586 F.3d 1096 (9th Cir.) (to show manifest disregard, movant must show arbitrators were aware of the law and intentionally disregarded it)
- Collins v. D.R. Horton, Inc., 505 F.3d 874 (9th Cir.) (clarifies the requirement that an arbitrator must understand and correctly state the law before a finding of manifest disregard can be made)