The Expert's Examiner


TENTH CIRCUIT UPHOLDS FINRA AWARD: NO SECOND-GUESSING PANELíS DISMISSAL AS A SANCTION UNDER RULE 13212.
September 8, 2020

So long as a panel arguably considers an arbitration provider’s rule, a court cannot vacate an award on the ground of exceeding powers, even if reasonable people can argue that the panel’s interpretation of the rule was incorrect. 

Zane Piston filed an arbitration claim at FINRA against Transamerica Capital, Inc. (“TCI”), his former employer, alleging that TCI incorrectly described the reason for his termination, making it difficult for him to find comparable employment. Hearings were set for June 4-8, 2018. On April 2, TCI moved to compel Piston to provide legible copies of documents. Piston did not respond by the May 9 deadline. On May 10, TCI moved to sanction Piston by precluding him from presenting evidence at the hearing and requiring him to pay TCI’s attorney fees. On May 15, while its Motion was pending, TCI complied with the panel’s scheduling order by serving its witness list, pretrial brief, and supplemental documents. Piston filed nothing. 

Demands for Sanctions

On May 16, TCI filed another sanctions Motion requesting dismissal of the case. On May 17, the panel ordered Piston to file a response to this Motion by May 22. Piston did not do so. On May 25, the panel postponed the June 4-8 hearings and set a telephone hearing for June 4. It assigned Piston the burden to show good cause why TCI’s sanction of dismissal should not be granted. Between May 31 and June 4, Piston’s counsel filed a response to the sanction Motions, a witness list, and “documents exchange,” along with a statement of good cause. In the latter, counsel explained that he had dental surgery on May 10, that he traveled to Europe from May 17 through May 24 to visit his son, and that his wife was hospitalized with a serious medical condition upon his return, which required his presence at her bedside. The Arbitrators found that Piston did not show good cause for failing to comply with the discovery orders and it dismissed his claim as a sanction. 

Dismissal was Proper …

Piston’s Motion to vacate was denied by the District Court and he appeals. His arguments hinge largely on FINRA Rule 13212(c), which allows a panel to dismiss a claim as a sanction, “if prior warnings or sanctions have proven ineffective.” Piston asserted that he received neither a warning nor a sanction before his claim was dismissed and thus the panel exceeded its powers and manifestly disregarded the law. The Tenth Circuit in Piston v. Transamerica Capital, Inc., No. 19-1123 (10th Cir. July 21, 2020), rejects unanimously Piston’s arguments and affirms. It holds that: 1) TCI’s May 16 sanctions Motion cited Rule 13212; 2) the panel employed Rule 13212(c)’s language when it found that Piston’s failure to comply with its orders were material and intentional; 3) these failures occurred despite its efforts to advise Piston’s counsel of the need to comply with FINRA’s rules and deadlines; and 4) the panel’s Award expressly purported to dismiss Piston’s claim “pursuant to Code Rule 13212.” For these reasons, it concludes that the panel arguably applied Rule 13212(c), which was part of the parties’ contract.

… Even if Others Might Disagree

The Court notes that reasonable people perhaps could disagree whether sufficient warning occurred under Rule 13212(c), but adds whether the panel correctly interpreted Rule 13212(c) is beyond the scope of its review. As long as the panel arguably applied the Rule -- and it did -- the Award could not be disturbed. The Court also rejects Piston’s “manifest disregard” claim. His argument that the panel misapplied the good cause standard, even if true, cannot result in reversal because an appellant must do more than show that a panel committed an error -- or even a serious error. The record refutes Piston’s assertion that the panel recognized that he established good cause and then required him to meet a more demanding excusable neglect standard. In the Award, the panel expressly found that Piston failed to “demonstrate good cause for failing to comply with discovery orders.” Nothing about that finding conflicts with the panel’s additional findings that Piston’s attorney failed to show “any justification for his conduct or that it constituted excusable neglect.”

(ed: *The Alert agrees with this outcome; the FAA doesn’t contemplate second-guessing arbitrators. **This Squib was authored by Editorial Advisory Board member Paul J. Dubow, Esq.)