Brabham v. A.G. Edwards & Sons, Inc.

376 F.3d 377 (5th Cir. 2004)

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Nature of the Case

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Facts

P opened several investment accounts, including accounts for his two children, through D. The broker was addicted to drugs and alcohol, failed to follow P's instructions, purchased speculative stocks, and made unauthorized trades. P's accounts were still profitable, though not as profitable as P might have hoped given the stock market's meteoric rise during the late 1990s.P filed a federal suit alleging that D had negligently hired and failed to supervise the errant broker. D invoked an arbitration provision in P's investment contract, and the district court compelled arbitration in accordance with the Federal Arbitration Act 9 U.S.C.A. §§ 1-16. P argued to the three-member arbitration panel that he should receive a damage award commensurate with the gains his accounts would have earned had the broker invested them in index funds that track the Dow Jones Industrial Average and the Standard and Poor's 500. That would yield an award between $529,711.34 and $867,009.20. D countered that the panel should award no damages because P's accounts had been profitable and because D had apprised P of the broker's actions through monthly statements. P was awarded $124,809.64 in actual damages. D was also ordered to pay P $14,356.17 for expenses and to bear the costs of arbitration. The panel did not give reasons for its award. P sought to have the district court vacate the award as arbitrary and capricious and in manifest disregard of the law. The court concluded that the arbitration panel did not manifestly disregard the law but found no rational basis for the award and therefore vacated it as arbitrary and capricious. The court then remanded the case to the original arbitration panel for reconsideration of damages. D then requested permission to seek interlocutory review of the vacatur pursuant to 28 U.S.C. § 1292(b). The district court granted this request, and we granted the petition for interlocutory appeal. D contends that a district court may vacate an arbitration award only on grounds explicitly listed in section 10 of the FAA, 9 U.S.C.A. § 10(a): (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were 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 of any other misbehavior by which the rights of any party have been prejudiced; or (4) 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. P contends that the district court properly recognized manifest disregard and arbitrariness and capriciousness as two nonstatutory grounds for vacating an award and that the award can be vacated on either ground.