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07 November 2012 An agreement setting out the terms for the development of a research plan in the area of Alternative Dispute Resolution (ADR) has been signed by the Chartered Institute of Arbitrators (CIArb) and the University CEU of San Pablo in Madrid. The agreement, which outlines a number of major initiatives, was signed by Anthony Abrahams, Director General of CIArb, and Juan Carlos Dominguez Nafria, Chancellor of the university. Mr Abrahams said: “We are delighted to be working with the University CEU of San Pablo to promote the use of ADR mechanisms in Spanish-speaking countries.” Two of the main initiatives are the design and delivery of a series of courses in the area of ADR, and the development of a joint publication entitled Introducción a los Mecanismos no jurisdiccionales de Prevención, Manejo, Resolución y Solución de Conflictos (ADR). Both projects are expected to be carried out in 2013. The courses, aimed at judges, practising lawyers, legal academics and law students primarily based in Europe and Latin America, will be delivered in collaboration with the International Centre for Arbitration, Mediation and Negotiation (CIAMEN), and the book will be written by the most prominent authors in the field of ADR. Dr Mª Inmaculada Rodríguez Roblero, Coordinator of CIAMEN said: “This agreement is part of a professional alliance guaranteeing our students high-quality teaching on alternative dispute resolution methods both in Spain and Latin America. This gives us a considerable advantage over other institutions”. Julio Cesar Betancourt, Head of Research and Academic Affairs at CIArb said: “The Chartered Institute of Arbitrators is committed to the promotion of ADR mechanisms worldwide, and this agreement is absolutely crucial to achieve our objectives within the Spanish-speaking community”. For further information, please contact: Lucy Chakaodza Communications and PR Executive E: LChakaodza@ciarb.org T: 020 7421 7488 www.ciarb.org   The Chartered Institute of Arbitrators (CIArb) CIArb is the world’s leading professional membership body for arbitration and alternative dispute resolution. A not-for-profit organisation, CIArb promotes the use of alternative dispute resolution internationally through a membership of 12,500 professionally qualified members in more than 110 countries. In addition to providing education and training for arbitrators, mediators and adjudicators, CIArb acts as an international resource centre for practitioners, policy makers, academics and those in business concerned with the cost-effective and early settlement of disputes. CIArb was originally granted a Royal Charter in 1979. Significant changes to the Institute’s governing structure have resulted from the new Charter and Bye-laws granted in 2005, which reflect the need to represent the Institute’s worldwide membership. www.ciarb.org University CEU of San Pablo A private, Catholic university located in Madrid, Spain. The university ranks 2nd in Spain’s best schools of law. It is involved in a number of academic exchange programmes, work practice schemes and international projects with over 200 higher education institutions in Europe, Latin America, North America and Asia. It is run by the CEU Foundation. International Centre for Arbitration, Mediation and Negotiation The International Centre for Arbitration, Mediation and Negotiation (CIAMEN) of the Institute for European Studies is an academic centre for research, teaching and dissemination of all matters relating to arbitration and alternative dispute resolution. The CIAMEN is part of the Centres of the University Institute of European Studies of the University CEU San Pablo, which has been recognised by the European Union as a Jean Monnet European Centre of Excellence, and works closely with other universities and research centres, Chambers of Trade, International Tribunals as well as agencies and organisations specialising in these matters. Its working languages are Spanish and English.

by Jeremy Clare The United States Court of Appeals for the Fifth Circuit reversed the vacatur of a FINRA Award because it disagreed with the district court’s finding that the award was procured by fraud, or in the alternative, that the arbitration panel exceeded its powers. Background In Morgan Keegan & Company, Inc., v. Garrett, et al, No. 11-20736 (5th Cir. Oct. 23, 2012), a group of eighteen investors (“Garrett”) brought a claim of statutory and common-law fraud against Morgan Keegan & Company (“Morgan Keegan”) before an arbitration panel of the Financial Industry Regulatory Authority (“FINRA”). Garrett alleged that Morgan Keegan essentially created a Ponzi scheme by overvaluing assets held by mutual funds that Garrett invested in and used principal from the funds to pay purported dividends to maintain the illusion that the investments were sound. Garrett did not learn of the fraudulent scheme until another company conducted an audit of the funds’ assets. By that time, Garrett had lost most of their capital investments in the funds. Morgan Keegan filed motions during the arbitration proceeding that argued that the claims were derivative claims and thus not subject to FINRA arbitration. Morgan Keegan also argued that two of the appellants, Goodwin and Harris, were not “customers” of Morgan Keegan and it had no binding agreement to arbitrate their claims. The arbitrators disagreed and rejected Morgan Keegan’s arguments. During the arbitration, Dr. Craig McCann (“McCann”), a securities analyst, provided testimony as to how much money Garrett lost due to the fraudulent scheme. McCann later testified in a related arbitration between Morgan Keegan and other investors over the same issue. However, in the second arbitration, McCann testified to different numbers than he had in the Garrett arbitration. McCann claimed that the discrepancy was due to an error in calculations by one of his staff members. He only learned of the errors after his testimony in the Garrett arbitration. The corrected numbers were provided to Morgan Keegan two weeks before the award was issued in the Garrett arbitration. Even with the miscalculations, the arbitration panel issued an award in favor of Garrett. Morgan Keegan filed a motion with the district court to vacate the award. The district court vacated the award after concluding that the arbitration panel exceeded its authority because (1) they heard claims from Goodwin and Harris, with whom there was no agreement to arbitrate, and (2) Garrett’s claims were derivative claims and not subject to FINRA arbitration. In the alternative, the district court concluded that the award was procured by fraud because McCann knowingly testified to incorrect numbers and the arbitration panel based its decision on those numbers. The district court also granted Morgan Keegan attorneys’ fees and expenses according to a provision contained in the client agreements. Fifth Circuit Under § 10 of the Federal Arbitration Act (“FAA”), a court may vacate an award for four reasons. The Fifth Circuit Court recognized that this case involved two of the four grounds: (1) the award was procured by fraud, and (2) the arbitrators exceeded their powers. The Court concluded that the district court erred in both of its findings and that no grounds for vacatur existed. First, the Court addressed the issue of fraud. Citing previous opinions, the Court stated that under § 10(a)(1) of the FAA, a party alleging fraud must demonstrate: (1) that the fraud occurred by clear and convincing evidence; (2) that the fraud was not discoverable by due diligence before or during the arbitration hearing; and (3) the fraud materially related to an issue in the arbitration. The Court concluded that Morgan Keegan did not and could not meet the requirements of the second prong because Morgan Keegan was aware of the miscalculations before the award was written and it could have discovered the miscalculations if it performed its due diligence. Thus, the district court erred in vacating the award based on fraud grounds. Second, the Court concluded that the arbitrators did not exceed their powers. The Court recognized that federal courts may review awards to ensure that arbitrators act within their jurisdiction. However, the Court also recognized that any doubts concerning the scope of arbitrability should be resolved in favor of arbitration. Citing the arbitration agreement between the parties, the Court concluded that the broad arbitration provision within the agreements allowed for such an arbitration. Furthermore, all parties involved agreed to the FINRA Submission Agreement before the arbitration began. By doing so, the parties agreed to arbitrate according to FINRA Rules which gave the authority to determine arbitrability to the arbitration panel. The Court concluded that the panel was within its authority to decide that the claims were not derivative claims and that Goodwin and Harris were “customers.” Thus, the district court erred in vacating the award based on the arbitrators exceeding their authority. The Court reversed and remanded with instructions to enter judgment enforcing the award and reverse the order awarding attorneys’ fees and expenses to Morgan Keegan.   Jeremy Clare is a law clerk at Karl Bayer, Dispute Resolution Expert. Jeremy received his J.D. from the University of Texas School of Law in 2012 and received a B.A. from the University of South Carolina where he studied political science.  

Last week, the U.S. Supreme Court agreed to hear American Express Co. v. Italian Colors Restaurant, Docket No. 12-133. The issue is whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim. Read our previous post about the case below here. Bloomberg’s coverage of the case is here. Stay tuned!