Morgan Stanley Loses Appeal of $3.3 Million FINRA Arbitration Award
According to InvestmentNews, a federal judge denied Morgan Stanley’s motion last week to appeal a $3.3 million FINRA arbitration award it lost to investors in Puerto Rican bonds. The award included a $3 million sanction against Morgan Stanley for purposefully concealing evidence in a hearing, which Morgan Stanley argued was excessive. The court’s decision denying Morgan Stanley’s request makes clear that even if the sanction was excessive, that’s not a basis for overturning an arbitration award.
So when can arbitration awards be changed or overturned by reviewing courts?
The general rule is that arbitration hearings are a one-shot deal. A reviewing court cannot look into the facts of the case or the merits of the decision – its only job is to determine whether the arbitrator was fair and the final decision is valid. A high standard of deference is given to the arbitrator’s decision, and only in very rare instances will an arbitration award be disturbed by a reviewing court. Any ability to change or vacate an arbitration award is governed by the each state’s arbitration acts and the Federal Arbitration Act.
These statutes were primarily written to allow courts to enforce arbitration agreements. In some cases, it is necessary for one of the parties to take the arbitration award and submit it to a court of law for confirmation, making it a legally enforceable judgment. This is sometimes just part of the process and does not mean that the arbitration award is under review.
The bottom line is that even if it is clear that an arbitrator completely missed the boat, unless a losing party can prove fraud or a conflict of interest, that losing party is typically bound by the arbitration award.