A Memphis, Tennessee Chancery court has vacated an award in favor of an investor that was issued by a FINRA arbitration panel in a Morgan Keegan bond fund case. Vacatur of an arbitration award is highly unusual, and should not occur without proof of some corruption in the process, such as evident partiality of an arbitrator. The reason given by the Tennessee court was that two of the arbitrators were “biased” because they had previously ruled against Morgan Keegan in another Morgan Keegan bond fund case.
FINRA had previously denied Morgan Keegan’s motion to disqualify the two arbitrators. In oral argument, the Tennessee Chancellor reportedly compared the two arbitrators to a juror who had found against a party on a couple of occasions.
The Tennessee court reached its decision despite the fact that FINRA arbitrators are more like judges than jurors, despite the fact that FINRA rules, by which Morgan Keegan agreed to abide, allow FINRA to decide whether or not an arbitrator should be disqualified, despite the absence of any new evidence to consider, and despite legal authority stating that even repeated rulings against one party will not establish bias absent some evidence of improper motivation.
This court decision may have far reaching ramifications. It implies that no arbitrator that has ruled for or against Morgan Keegan in a Morgan Keegan bond fund case can sit on any future panels involving those funds. This could result in a flood of motions being filed in countless FINRA arbitrations to remove sitting arbitrators who have previously ruled one way or the other, as well as further post-award motions and vacaturs of awards.
The investor, who won his arbitration case, is expected to appeal the Chancery court ruling that took it away from him.