Securities

Law Alerts

SECURITIES & INVESTMENTS PROFESSIONAL LIABILITY

By Samuel E. Cohen, Esq. (secohen@mdwcg.com or 215-575-2587)

Arbitration Award Vacated For Manifest Disregard of the Law.
Kashner Davidson Securities Corp., et al. v. Mscisz, 531 F.3d 68 (1st Cir. 2008)

The appellant securities buyers filed a motion to vacate an arbitration award and claimed that the arbitration panel deprived them of a fundamentally fair hearing and acted in manifest disregard of the law by dismissing their counterclaims and third-party claims as a sanction. The district court denied the appellant's motion to vacate; however, the First Circuit reversed and remanded the case for entry of an order vacating the arbitration award. In so doing, the First Circuit agreed that the panel dismissed the claims primarily as a sanction. The arbitration panel stated that its decision to dismiss the counterclaims and third-party claims with prejudice was based on NASD Rule 10305(b), which permitted dismissal as a sanction for a willful material failure to comply with an order of the arbitrators if lesser sanctions had proven ineffective. The First Circuit found that the panel had not previously imposed lesser sanctions on the buyers and, therefore, had not demonstrated that sanctions short of a dismissal were ineffective. The First Circuit held that the dismissal sanction reflected the panel's intentional and willful disregard of the clear and unequivocal language of NASD Rule 10305(b).

State Securities Regulator Permitted to Intervene In Petition to Confirm Arbitration Award.
Karsner v. Lothian and NASD, 2008 U.S. App. LEXIS 14910 (D.C. Cir. 2008)

The Maryland Securities Commissioner appealed the district court's denial of her motion to intervene as of right in an arbitration affirmation proceeding. In the underlying arbitration, the panel had recommended-pursuant to a settlement agreement-that a customer complaint and the ensuing arbitration be expunged from the disciplinary record of a securities broker who was licensed in Maryland. The Maryland Securities Commissioner contended that the district court erred in denying intervention because she has a substantial interest in ensuring the integrity of her records. The Court of Appeals for the D.C. Circuit agreed and reversed the district court's denial of the Commissioner's petition for intervention.

California Court Voids Non-Compete Contract.
Edwards v. Arthur Andersen, LP, 44 Cal. 4th 937 (Ca. August 7, 2008)

The California Supreme Court concluded that the firm's non-competition agreement was invalid under California law because it restrained the employee's ability to practice his profession. The non-competition agreement prohibited the employee, for an 18-month period, from performing professional services of the type he had provided while at the firm for any client on whose account he had worked during the 18 months prior to his termination. The agreement also prohibited the employee, for a year after termination, from soliciting any client of the firm's Los Angeles office. The kind of restriction in the contract at issue is similar to those used in the securities industry, and this opinion may be used by lawyers in other states in litigation over broker-dealer non-compete agreements according to legal analysts.