Ninth Circuit Allows Equitable Tolling For Claim To Vacate Award Brought More Than Four Years After Entry Of Award.
Fraud against Truth. Currier & Ives. 1872. Library of Congress.
Yikes! In 2009, Move, Inc. lost a multi-million dollar securities claim before a three-member FINRA (Financial Industry Regulatory Authority) arbitration panel. In 2014, Move learned that the panel chairperson, one James H. Frank, had lied about being licensed to practice law in California, New York, and Florida. “It is now undisputed that Mr. Frank, who is ‘James Hamilton Hardy Frank,’ was impersonating retired California attorney ‘James Hamilton Frank.’ FINRA later confirmed that Mr. Frank lied about his qualifications in his ADR and subsequently removed him from all cases and from its roster.” Move v. Citigroup Global Markets, No. 14-56650, slip op. *4 (9th Cir. 11/4/16) (J. Nelson, author).
Under the Federal Arbitration Act, a motion to vacate must be served within three months after the award is filed or delivered. Here, the district court held that equitable tolling applied, but then concluded that Mr. Frank’s misbehavior did not prejudice Move’s right to a fundamentally fair hearing.
The Ninth Circuit held “that the FAA is subject to the established doctrine of equitable tolling.” However, the panel rejected Citigroup’s argument that there was “no evidence that Mr. Frank influenced other members of the panel or that the outcome of the arbitration was affected by his participation.” Explained Judge Nelson, “[T]here is simply no way to determine that this was the case.” Arbitrators contribute by their qualifications, by their participation, and by their vote. In other words, being judged by an impostor is not a harmless error.
Move wanted a qualified arbitrator and had made that clear from the start. Here, however, the arbitrator was an impostor “who should have been disqualified from arbitrating the dispute in the first place.”
Equitable tolling is about fairness. So too is the provision in the FAA addressing arbitrator misconduct, section 10(a)(3), the basis for vacatur here. “[U]nder the unique set of facts of this case, we hold that Move was deprived of a fundamentally fair hearing and therefore was prejudiced by the fraudulent conduct of the panel’s chairperson, Mr. Frank.” Slip op., *13-14.
Of course, it is possible that a fair hearing would have resulted in an award against Move. But in a fair hearing, one’s legal fate would not be decided by an impostor.