The Ninth Circuit has found that it had jurisdiction to hear an appeal of a district court decision vacating an arbitration award and remanding the case for a new arbitration.
The appeal arose out of a FINRA arbitration involving claims that a securities broker had mismanaged a client's investment portfolio. The petitioner claimed damages of $100,000 in his complaint. Because FINRA rules only provide for three arbitrator panels for claims over $100,000, the case was assigned to a single arbitrator.
Shortly before the arbitration hearing, the petitioner filed a brief in which he claimed his damages were $125,500, but he did not amend his complaint. The respondent objected to proceeding with a single arbitrator, but the arbitrator considered and rejected this objection, proceeded to hear the case alone, and awarded petitioner $75,000. The respondent asked a district court to vacate this award on several grounds, which the court did on the basis that the arbitrator exceeded his powers by proceeding as a single arbitrator despite the increased damages claim. The district court then remanded the case for a new arbitration before a three arbitrator panel.
On appeal, the court considered two issues: (1) whether the district court's decision remanding the case for a new arbitration meant that the appellate court lacked jurisdiction over the case; and (2) if jurisdiction was present, whether the arbitrator had exceeded his authority.
In answer to the first question, the court found that while the FAA does not directly address the circumstance of a case that has been remanded for a new arbitration, the fact that the district court had vacated an award was enough under the statute to create appellate jurisdiction. In doing so, the court followed the lead of every circuit to have considered this issue, including the First, Second, Third, Fifth, and Seventh Circuits.
Having found that it had jurisdiction, the court found that the arbitrator had not exceeded his authority. The court emphasized that in order to overturn an arbitral award on the basis that the arbitrator exceeded his powers, the objecting party must show not simply that the arbitrator erred in his interpretation of the law or the agreement to arbitrate, but also that the arbitrator's decision was "completely irrational" or showed a "manifest disregard of the law." Finding that the arbitrator's interpretation of FINRA's rules on when to use a three arbitrator panel, while arguably incorrect, was neither irrational nor showed a manifest disregard for the law, the court remanded the case so that the district court could consider the respondent's other arguments in favor of vacating the arbitrator's award.
Sanchez v. Elizondo, No. 16-17345 (9th Cir. Dec. 4, 2017).
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