United States: Fourth Circuit Refuses To Vacate FINRA Arbitration Award, Despite Party's Claim That It Had No Opportunity To Participate In Selection Of Arbitrators And Challenges To Damages Calculation

UBS Financial Services' motion to vacate a FINRA arbitration award was denied, despite its claims that the panel was improperly chosen and that the panels damages award was flawed in that it did not impose an offset.

UBS brought the arbitration against Padussis seeking repayment of a loan, and Padussis counterclaimed. FINRA mailed a list of potential arbitrators to the parties, which then had twenty days to rank and strike the arbitrators. Padussis did so, but UBS did not. After the deadline passed, UBS moved to extend its time to rank and strike, claiming it never received the list. FINRA denied this motion and selected a panel of three arbitrators based on Padussis' preferences. The panel ultimately awarded over $1.6 million to UBS and over $900,000 to Padussis, but did not provide that these amounts would offset. Padussis then claimed that he could not pay the $1.6 million award "due to a statutory lien and the prospect of bankruptcy," such that UBS would receive nothing yet need to pay Padussis more than $900,000.

UBS claimed the award should be vacated because the panel was not selected in accordance with the parties' agreement. The Court disagreed, finding that FINRA had followed its own rules by mailing the list to the parties and selecting arbitrators based on the responses it received. Further, the Court held that whether to grant UBS an extension to respond to the list was a procedural question that was completely within FINRA's discretion.

UBS also asked the Court to impose an offset, but the Court declined to do so, noting that the "arbitration award expressly denied '[a]ny and all relief not specifically addressed' by the award, and the award did not mention an offset." Imposing an offset would thus be a modification of the award and "would not effectuate the intent of the arbitrators," whose intent could not be assumed. Such a presumption of an offset was made part of FINRA's rules for awards issued after October 24, 2016, but this change came too late to assist UBS. UBS Financial Services, Inc. v. Padussis, No. 15-2145 (4th Cir. Nov. 22, 2016)

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