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Defectiveness of Defeated Party’s Attorney in Arbitration Does Not Overturn Award: Kelly v. Morgan Stanley Smith Barney, LLC
Posted on Categories Court Decisions, Securities ArbitrationTags ,

By Christopher G. Lazarini

The recognized grounds for vacating an arbitration Award are limited, and the losing party may not rely on ineffective assistance from counsel, incompetent counsel, or attorney malpractice in support of his efforts to overturn an adverse Award.

Kelly vs. Morgan Stanley Smith Barney, LLC, No. 3:15-cv-1110 (M.D. Tenn., 2/25/16).

The Attorney Explains

This case concerns Plaintiff’s efforts to vacate an arbitration Award issued against him in a promissory note case (FINRA ID #14-00415 (Nashville, 6/9/15)). On the day of the arbitration hearing, Plaintiff was not in attendance. The arbitration Panel gave his attorney, who was present, time to contact Plaintiff and offered to allow Plaintiff to testify telephonically or appear in person later in the day or on the following day. Ultimately, Plaintiff’s attorney told the Panel that Plaintiff was not available and had declined to attend the hearing. Plaintiff’s attorney requested a postponement, which was denied, after Morgan Stanley asserted that the hearing had been postponed once before, and the adverse Award subsequently issued.

His Client Objects

Plaintiff argues that the Award was procured by “fraud and undue means,” because his lawyer did not inform him of the arbitration hearing date, did not inform him of Morgan Stanley’s discovery requests (to which no responses were provided), and did not inform him of the adverse Award. Plaintiff supported his motion with emails from his lawyer’s law firm advising Plaintiff that his lawyer was incapacitated from practicing law because of a mental health issue, acknowledging that the lawyer failed to inform him of the Award, and advising him to take immediate action in light of the limited time allowed to seek vacatur and the potential consequences of failing to timely pay the Award. Plaintiff also provided the Court with an order from the Tennessee Supreme Court temporarily suspending his lawyer’s law license.

The Court Rules

Morgan Stanley requested confirmation of the arbitration Award and moved for judgment on the pleadings, arguing that misconduct by Plaintiff’s lawyer is not grounds for vacatur. The Court agrees with Morgan Stanley, and confirms the Award. Rather than punishing Morgan Stanley, which had no role in the alleged “fraud or undue means,” the Court notes the limited circumstances set out in the Federal Arbitration Act (“FAA”) for vacatur and concludes that allowing Plaintiff to proceed would invent an entirely new ground for vacatur not present in the FAA.

(C. Lazarini)

(SLC Ref. No. 2016-12-02)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA)from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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