Second Circuit: Arbitrators Have Discretion Ruling on Collateral Estoppel of Awards (Web)
May 31, 2005
Bear, Stearns & Co., Inc., Bear, Stearns Securities Corp., and Richard Harriton, v. 1109580 Ontario, Inc., (Second Circuit, May 25, 2005). The Court affirmed the trial court’s decision to grant a motion to confirm an arbitration award and reject a claim that the arbitrator acted in manifest disregard of the law by denying the application of collateral estoppel of another arbitral award, holding that the arbitrator has discretion to apply or not apply collateral estoppel when there are several conflicting results by different arbitral panels on similar issues.
Ontario initiated arbitration with Bear Stearns concerning Bear Stearns’ role as broker for A.R. Baron & Co. during a securities fraud scandal. Ontario claimed Bear Stearns aided and abetted Baron and is therefore liable. While this arbitration was taking place, another panel ruled that Bear Stearns had aided and abetted Baron’s fraud and breached its duty of good faith to its client. McDaniel v. Bear Stearns &Co., Inc., 196 F.Supp. 2d 343, 346 (S.D.N.Y. 2002). Shortly after, two other arbitral decisions, Holubowich and Meere, both found in favor of Bear Stearns concerning the aiding and abetting charges.
After seeing the result of McDaniel, Ontario asserted offensive collateral estoppel and requested that the McDaniel findings be adopted. The arbitrator denied this request and ruled in favor of Bear Stearns. No reasoning was given. The district court confirmed the award. Ontario appealed.
While arbitration awards may be reviewed for manifest disregard for the law, this standard of review is severely limited. A “court must find both that 1) the arbitrator knew of a governing legal principle yet refused to apply it or ignored it all together and 2) the law ignored by the arbitrator was well defined, explicit, and clearly applicable to the case.” Error is not enough to reverse; decisions must be upheld if there is any justification at all.
Arbitrators are given “broad discretion in determining whether or not collateral estoppel should apply in a given case.” The court stated, “[i]n view of differing results reached by different panels, the arbitrators had discretion to apply collateral estoppel or not.” The Court also reasoned that more recent cases are generally given more weight, which favored Bear Stearns. The arbitrator did not manifestly disregard the law and the decision was affirmed.
See this decision at: http://caselaw.lp.findlaw.com/data2/circs/2nd/043632p.pdf