In her August 4th Wall Street Journal column called Compliance Watch, Suzanne Barlyn reports that Morgan Keegan is engaging in a rarely used hardball tactics in three arbitrations arising out of sales of its proprietary bond mutual funds in which arbitration panels have awards. So far, Morgan Keegan has moved to vacate awards issued in three cases involving more than $1 million in damages, attorneys’ fees and costs.
As a condition to opening their accounts, Morgan Keegan required its customers to sign an agreement to arbitrate all disputes and waive their rights to go to court. These customers have prevailed in the mandatory arbitration process. Their attorneys point out that Morgan Keegan’s tactics have the effect of prolonging their clients’ trouble and expense as well as delaying payment of the awards.
Morgan Keegan has faced a flood of claims by investors who were hit by large losses in 2007 and 2008 in seven Morgan Keegan bond funds that made bets in mortgage-related holdings. The claimants allege that Morgan Keegan misrepresented and failed to disclose material facts and risks about the funds, and that they would not have bought or held the funds if Morgan Keegan had told the truth about the funds and their risks.
As the article explains, arbitration awards are binding, and the loser may ask a court to vacate or overturn an arbitration award only in very limited and rare circumstances that essentially amount to a corruption of the process. Courts can vacate arbitral awards only if one or more of the following are true:
- The award was procured by corruption, fraud or undue means.
- There was evident partiality or corruption in an arbitrator.
- An arbitrator was guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or was guilty of any other misbehavior by which a party’s rights have been prejudiced.
- An arbitrator exceeds his or her powers, or so imperfectly executes them that a mutual, final and definite award upon the subject matter submitted was not made.
Appeals are very difficult to win, and thus rarely made, says Peter Henning, a securities law professor at Wayne State University Law School. “The presumption is that arbitration is the end. You don’t have judges second-guessing it,” he says.
Kathy Ridley, a Morgan Keegan spokesperson, acknowledged that the motions to vacate were unusual, but stated “we believe the arbitrators exceeded their authority or improperly applied the law.”
These tactics and delays may come with a price tag, however. “Who pays for it? The shareholders of Regions Financial,” says one of the attorneys.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and corporate investors in securities cases. For further information, please contact us.