As “social distancing” was just beginning to permeate the national discourse, two FINRA member firms were in the throes of a high stakes arbitration involving allegations of fraud, breach of contract and violation of the standards of commercial honor and principles of trade (FINRA Rule 2010), among other things.  By March 10, eight of the nine scheduled hearing sessions had already been held in-person. But on March 11, the day before the final hearing session, the W.H.O. declared the COVID-19 outbreak would be classified pandemic.  Out of “concern with the coronavirus crisis,” all participants in the arbitration agreed to hold the final hearing session via Zoom.

On April 6th, the panel issued an Award in favor of the Claimants and held Respondents liable for $11.4 million in compensatory damages, interest and attorneys’ fees.  A month later, the Respondents filed a petition in to vacate the award in federal court. 

Respondents argue that the Award should be vacated on three grounds. First, they claim that Award is fatally defective because it did not include a ruling on each cause of action, instead holding Respondents “liable” without any additional elaboration. As Respondents concede, however, a FINRA Arbitration Award need not include a rationale for the panel’s decision. Nor does it require a ruling on each cause of action. 

Second, Respondents argue that they were denied a fair hearing due to the panel’s conduct. They claim that the panel’s rulings regarding cross-examination that went beyond the scope of direct testimony was inconsistent in favor of Claimants and they cite several other instances of allegedly biased conduct. And in a possible sign of what is to come in the age of social distancing, Respondents claim that the panel was inattentive during their Zoom hearing.  One panel member was allegedly “looking at other screens, typing, and eating during the course of the presentation.” Another allegedly “blocked her screen during the hearing, preventing the parties from confirming that she was even participating.”  Respondents also claim that closing arguments had to be paused when the Chairman just “walked away from his screen.” It’s not clear if the judge reviewing Respondents’ petition will consider such actions to be sufficient grounds for vacating an arbitration award, but this case should serve as a reminder that the integrity of the process can be undermined if participants sitting in the privacy of their home or office fail to maintain the same level of professionalism and decorum that would be expected at a live hearing.

Finally, Respondents argue that the panel exceeded its authority because one of the Respondents was not a signatory to the agreement in dispute. 

The case is Wunderlich Securities Inc. et al. v. Dominick & Dickerman LLC et al., Case No. 1:20-cv-03507, in the U.S. District Court for the Southern District of New York. 

The attorneys at Chilivis Grubman represent broker-dealers and registered representatives in FINRA Arbitration and in government and regulatory investigations.  If you need assistance with such a matter, please contact us today.