562 F. App'x 421
6th Cir.2014Background
- Investors PRA and Cupp invested $2 million in Praesidium after receiving a PPM with alleged misrepresentations.
- Praesidium allegedly used investor capital to fund an unapproved medical-malpractice insurance program; program failed to gain regulator approval.
- Arbitration under AAA rules held, with some discovery enforcement and an escrow/asset-preservation order during proceedings.
- Arbitrators found material misrepresentations in the PPM and awarded investors $2 million plus interest.
- Praesidium challenged in district court to vacate the award on manifest disregard and evident partiality grounds; district court denied.
- Appellate panel affirms, noting Praesidium failed to preserve a complete arbitration record and thus cannot meet the high vacatur standard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| PSLRA stay applicability in arbitration | Praesidium argues PSLRA stay should have governed discovery. | Investors contend PSLRA stay may not apply or was not violated; no complete record. | No clear PSLRA violation; record insufficient to show manifest disregard. |
| Asset attachment/garnishment under state law | Arbitrators improperly modeled asset preservation as an attachment/garnishment. | Order merely preserved capital; not a true attachment or wage garnishment. | Record unclear; no showing of knowingly disregarding state attachment law. |
| Reasonable reliance element | Arbitrators failed to prove reliance with respect to all investors; Cupp did not testify. | Reliance presumed via investor testimony and presumption from omission; evidence supports damages. | Arbitrators did not manifestly disregard the law; reliance supported by record. |
| Arbitrators' apparent partiality | Decisions and handling reflected improper bias against Praesidium. | Rationale and procedural posture provide non-biased explanations; waiver issues possible. | No evident partiality; plausible, non-biased reasons support arbitrators' decisions. |
Key Cases Cited
- United Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960) (manifest disregard standard is narrow and limited review)
- Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576 (2008) (limittempered review to avoid turning arbitration into full court review)
- Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 418 (6th Cir. 1995) (manifest disregard of the law is a very narrow standard)
- Dawahare v. Spencer, 210 F.3d 666 (6th Cir. 2000) (limits of reviewing arbitrators' reasoning when no transcript)
- Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7 (U.S. 2008) (preliminary relief requires likelihood of success on merits)