FINRA Arbitration Award Upheld Despite Claims of Partiality

Last month, a United States District Court in Nevada threw out an investor’s appeal of a FINRA arbitration award, upholding the notion that the FINRA panel acted with the utmost integrity as is par for the course with that organization.

In the case, Sanduski v. Charles Schwab & Co, Inc., Case No. 2:19-cv-01340, Sanduski was on the losing end of a $415,000 award which arose out of his failure to pay his unsecured debit balance. He appealed the adverse ruling, claiming that one of the arbitrators was biased towards Charles Schwab. Per the Court’s opinion:

The specter of impropriety surfaced at the hearing's close. After argument ceased and the parties filed out, one of Charles Schwab's experts said "see you next week" to Arbitrator Grinnell. Though Grinnell did not respond to or acknowledge the statement, the parties agree this was likely a reference to Grinnell's empanelment on a second Charles Schwab arbitration, which would involve that same expert witness. After Grinnell made her decision and learned that she would not be involved in writing the order, Grinnell left the arbitration and called a car for the airport. Noticing that a different Charles Schwab expert witness was also going to the airport, Grinnell chose to share a ride. Grinnell warned the expert that she could not discuss the preceding arbitration and they chatted exclusively about living in Phoenix.

Relying upon the Federal Arbitration Act, the Court determined that these interactions were “the type of "attenuated" and "insubstantial connections between a party and an arbitrator" that the Ninth Circuit rejects as grounds for vacatur. … Indeed, the passing communication between Grinnell and Charles Schwab's experts—the majority of which took place after a decision had already been made—evince merely the "trivial" contact any arbitrator might have with a recurring, corporate defendant.”

Sanduski also appealed on the basis that it was improper for one of the arbitrators to attend the second day of hearing via telephone … apparently, forgetting that he consented to it.

Impartiality is a hallmark of FINRA proceedings. Just be an arbitration panel rules against a party is not a reason to appeal.

A copy of the opinion can be found here.