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Gavaldon v. Stanchart Securities International, Inc.

United States District Court, S.D. California

March 28, 2014

SERGIO GAVALDON, et al., Plaintiffs,


LARRY ALAN BURNS, District Judge.

This case concerns a dispute over investments. Plaintiffs allege Defendants gave them bad counsel by recommending that they sell their conservative investments and buy risky and unsuitable investments, including a fund connected with the now-infamous Bernard Madoff. This, they allege, caused them to lose millions of dollars. Relying on an arbitration clause in the brokerage agreement, the Gavaldons filed a claim with the Financial Industry Regulatory Authority (FINRA), and the matter went to arbitration.

Initially, the respondents StanChart Securities International, Inc. ("SCSI"), Standard Chartered International (Americas) Ltd. ("SCBI"), and Standard Chartered International (USA) Ltd. ("SCI") (collectively, "Respondents"), moved to dismiss the claim, but the panel denied the motion without prejudice, reasoning that sworn testimony was needed. (Mot., Ex. A (Award) at 2.)

Late in the arbitration, the Respondents filed a complaint in this Court, in 12cv2522-LAB (MDD) StanChart Securities Int'l., et al. v. Gavaldon, et al. (filed October 16, 2012), seeking to enjoin the ongoing arbitration. After the Court denied the motion for preliminary injunction, they voluntarily dismissed that action.

After the arbitration continued, the Respondents renewed their motion to dismiss, arguing the FINRA panel lacked jurisdiction over the dispute. The panel granted this motion on November 28, 2012, finding a lack of jurisdiction and improper venue. Plaintiffs have asked the Court to vacate that decision, pursuant to the Federal Arbitration Act (FAA). They argue the panel failed to meet its obligations to decide the merits of their claims. In the alternative, they ask for a declaratory judgment regarding the proper forum for arbitration. Their FAA claims are that the panel either manifestly disregarded applicable law, or exceeded its authority by refusing to make a decision on the merits when required to do so. The Defendants in this action are SCSI and SCBI only.

The Court has federal question jurisdiction over the primary claim. Plaintiffs argue that the Court can also exercise diversity jurisdiction over this action, which presumably would include the declaratory relief claim. But the complaint doesn't plead facts showing that diversity jurisdiction exists, because it doesn't allege which state(s) the Gavaldons are citizens of, or which state or nation SCBI is incorporated in.[1] The Court might also be able to exercise supplemental jurisdiction over the declaratory relief claim.

Legal Standards

Although the parties may obtain review of some arbitration awards under state statutory or common law, the FAA provides the exclusive basis and standards in federal law for modifying or vacating an arbitration award. See Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 590 (2008). The briefing on both motions invokes only the FAA's standards, and neither party has asked the Court to apply some other law or any legal standard other than those set forth in the FAA.

The burden of establishing grounds for vacating an arbitration award is on the party seeking it. U.S. Life Ins. Co. v. Superior Nat'l Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010). The "manifest disregard" standard is difficult to satisfy. As the Ninth Circuit has explained,

"Manifest disregard of the law means something more than just an error in the law or a failure on the part of the arbitrators to understand or apply the law." Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634, 641 (9th Cir. 2010) (citing Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995)). "To vacate an arbitration award on this ground, [i]t must be clear from the record that the arbitrators recognized the applicable law and then ignored it.'" Id.

Biller v. Toyota Motor Corp., 668 F.3d 655, 665 (9th Cir. 2012). An error of law or a failure to understand the law is insufficient. Carter v. Health Net of California, Inc., 374 F.3d 830, 838 (9th Cir. 2004); Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 997 (9th Cir. 2003) (citation omitted) ("[C]onfirmation is required even in the face of erroneous findings of fact or misinterpretations of law.")

Arbitrators are not required to state reasons for their findings, but are presumed to have made their award on permissible grounds. A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9 th Cir.1992). "[T]here must be some evidence in the record, other than the result, that the arbitrators were aware of the law and intentionally disregarded it." Bosack v. Soward, 586 F.3d 1096, 1104 (9th Cir.2009) (citation omitted). It follows from these authorities that an incomplete explanation of the panel's award, or even a lack of explanation, will not support vacatur.

The Court can also vacate an award "where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. ยง 10(a)(4). Arbitrators can exceed their powers by failing to arbitrate all matters submitted to them by agreement. Valve Corp. v. Activision Blizzard, Inc., 390 Fed.Appx. 679, 681 (9th Cir. 2010) (citing W. Employers Ins. Co. v. Jefferies & Co., Inc., 958 F.2d 258, 262 (9th Cir. 1992)). But arbitrators' construction interpretation of their contractual duties is entitled to the same deference as their determinations on the merits. Schoenduve Corp. v. Lucent Techs., Inc., 442 F.3d 727, 733 (9th Cir. 2006). Therefore, if the arbitrators' interpretation of the arbitration agreement (as well as applicable rules ...

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