Stone v. Bear, Stearns & Co.
872 F. Supp. 2d 435
E.D. Pa.2012Background
- Laurence Stone filed an Amended Petition to Vacate arbitration award and Respondents moved to confirm the award (FINRA arbitration).
- FINRA appointed a three-member panel including arbitrator Jerrilyn Marston, alleged to have undisclosed ties to the securities industry through her husband.
- Stone alleged Marston failed to disclose conflicts, proposing vacatur under 9 U.S.C. § 10(a)(2), (a)(3), and (a)(4).
- Stone conducted post‑award background research, uncovering Marston’s husband’s ties to the securities sector and J.P. Morgan-related matters.
- The court adhered to strong FAA finality and deference to arbitration, reviewing whether the grounds for vacatur were met, and considered waiver applicable.
- Court denied Stone’s petition to vacate and granted Respondents’ petition to confirm the award; awarded no attorney’s fees to Stone.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| whether evident partiality warrants vacatur under 10(a)(2) | Stone contends non-disclosure shows evident partiality | Respondents argue standard requires actual bias, not mere disclosure failure | evident partiality not shown; actual bias standard applied |
| whether misbehavior under 10(a)(3) warrants vacatur | Stone claims nondisclosure constitutes misbehavior | Respondents argue misbehavior must be extreme and denial of fair hearing | no extreme misbehavior; no deprivation of fundamental fairness |
| whether exceeding powers under 10(a)(4) warrants vacatur | Marston’s public-arbitrator status violated FINRA method, exceeding powers | Panel complied in good faith; any deviation was harmless | no vacatur; panel acted within authority; harmless deviation |
| whether Stone waived challenges under 10(a)(2)-(a)(4) | Stone was entitled to challenge after obtaining information | Stone waived by delaying discovery and failing to investigate beforehand | Stone waived challenges under should-have-known waiver approach |
Key Cases Cited
- Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576 (Supreme Court 2008) (vacatur grounds are extremely narrow and focused on egregious conduct)
- Dluhos v. Strasberg, 321 F.3d 365 (3d Cir. 2003) (extreme deference to arbitration; narrow vacatur grounds)
- Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503 (3d Cir. 1994) (actual bias standard for evident partiality in disclosure cases)
- Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (Supreme Court 1968) (disclosure and appearance of bias framework for evident partiality)
- Leatherby Ins. Co. v. Leatherby, 714 F.2d 673 (7th Cir. 1983) (finality policy; strong burden to show partiality)