NY Trial Court to Parties (and Arbitrators): Settled Means Settled

I don’t often write about lower court decisions, but it’s not every day a court vacates a nearly $11 million arbitration award, and throws in some strong words to boot.  The case, Citigroup Global Markets, Inc. v. Fiorilla, No. 653017/2013 (Sup. Ct., N.Y. Cty., Jan. 9, 2014), arose out of a FINRA arbitration involving the same parties, case no. 10-03616.[1] On its face, the FINRA award is pretty straight-forward:  the arbitration panel unanimously awarded over $10 million to be paid by Citigroup to Fiorilla, after holding many hearings from October 2012 to July 2013 (the individual broker was ordered to pay $250,000 to the claimant).

The story becomes more complicated when Citigroup and the individual broker sought to challenge the award in state court on the grounds of manifest disregard of law, and bias because two of the arbitrators failed to make required disclosures.  It turns out the parties appeared to have settled their dispute before the arbitration was commenced.  This the court seizes on without addressing the arbitrator disclosure issue.

“In light of the fact that this matter was in fact settled and that all parties so advised the panel and FINRA in writing …there is no need to delve into the troubling allegations of misconduct by the arbitrators.  This award must be vacated.”  Although the FINRA award does not reference the settlement issue as one raised before the arbitrators, the court thinks it was and has some harsh words for the participants.  First, he counsels the panel, stating “Had the panel abided by the FINRA Rules, as FINRA did, and acknowledged that this matter had been settled, the parties could have avoided needless litigation.”  Then he addresses the respondents, stating  “The respondents’ refusal to abide by the settlement…has resulted in a frivolous waste of counsel’s time and efforts, as well as a waste of the scarce resources available to New York’s Unified Court System.”

My take.  Although it’s not clear whether the court applied the Federal Arbitration Act or New York’s Civil Practice Law and Rules, Art 75, I’m not sure it was correctly decided either way.  Deciding whether there has been a settlement in my view a factual determination to be made by the arbitrators and, as per U.S. Supreme Court holdings, is to be given great deference by the courts. Also, readers should bear in mind the court system structure in New York State.  The Supreme Court is a trial court.  There are two more levels of appeal beyond that (the Appellate Division and the Court of Appeals).  Given the stakes, it would be surprising if an appeal is not taken here.

[1] Both the court decision and the underlying arbitration award are available at http://finraawardsonline.finra.org/ (search by the FINRA case number).