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FBR Capital Markets & Co. v. Hans

United States District Court, District Circuit

October 18, 2013

PETER D. HANS, Respondent.


Royce C. Lamberth, U.S. District Judge.

Now before the Court is the Petitioner FBR Capital Markets & Co.'s Petition to Partially Vacate Arbitration Award [2]. Upon consideration of Petitioner's Memorandum in Support of its Petition to Partially Vacate Arbitration Award [4], Respondent Peter Hans' Memorandum in Opposition To Petitioner's Petition to Partially Vacate Arbitration Award [7], Respondent's Motion to Confirm the Arbitration Award [8], Petitioner's Reply [9], Respondent's Reply [10], and Petitioner's Notice of Supplemental Authority [11], the Court will DENY Petitioner's Petition To Partially Vacate Arbitration Award [2] and GRANT Respondent's Motion to Confirm the Arbitration Award.


During the times relevant to this matter, Peter Hans (hereinafter "Hans" or "Respondent") was employed by FBR Capital Markets & Co. (hereinafter "FBR" or "Petitioner") as a Sales Broker and worked on a commission-only basis. As a broker, Hans' responsibilities included seeking potential investors for FBR's clients, and that entailed developing and maintaining strong relationships with prospective investors. When an FBR client decided that it needed to raise capital or disperse stock, Mr. Hans would attempt to convince his developed contacts in the financial industry to invest in FBR’s clients. FBR was remunerated for its services in various ways, including cash payments and stock payments. It was FBR’s practice to compensate its Sales Brokers at a rate of 14.5% of the value of primary and secondary transactions. Pet.’s Memorandum in Supp. Petition to Partially Vacate Arbitration Award (hereinafter “Pet.’s Mem.”) 3, ECF No. 4.

The transaction at the center of the current dispute involved a significant equity sale of FBR’s client, XL Health, to the private equity firm, MatlinPatterson Global Advisors LLC that was facilitated by Hans and his partner Doyle. For procuring the investment for XL Health, it paid FBR a cash fee of $6.8 million in March 2008. Three months later, XL Health made a sizeable stock payment to FBR, valued at $5 million. FBR sold the XL Health stock for $5.5 million in March 2011. Pet.’s Mem 3.

After the FBR received payments from XL Health, it determined that, due to the unique nature of the transaction, its Sales Brokers would not be compensated at the normal 14.5% rate. Altering its customary formula, it paid Hans and his partner a 10.875% commission on the “selling concession” of the cash fee ($6.8 million).[1] Pet.’s Mem. 4. By paying out the commission in this manner, Hans and his partner each received more than $100, 000 less from the cash fee than they were anticipating based on the 14.5% policy.

Soon after FBR received XL Health’s stock fee in June 2008, Hans and his partner inquired as to the details of their commission as it related to the stock fee. Apparently, Hans and his partner were assured that they would receive their commission on that portion of the fee when the stock was liquidated.[2] Resp.’s Mem. In Opp. (hereinafter “Resp.’s Mem.”) 8, ECF No.7. That liquidation occurred in March 2011, at which point neither Hans nor his partner were still employees of FBR. After they learned of FBR’s $5.5 million gain from the sale of the XL Health stock, Hans and his partner requested that FBR pay them the commission they were owed on the stock sale. FBR refused. Id.

To receive the payments they believed they were due, Hans and his partner initially filed suit in the Eastern District of Virginia. They voluntarily dismissed that suit when FBR objected to litigation, arguing that the dispute should be arbitrated before the Financial Industry Regulatory Authority (“FINRA”). After hearing extensive evidence over two days, the FINRA arbitration panel awarded Hans $267, 960, which was his share of a 14.5% commission on the stock fee FBR received when it liquidated the XL Health stock, plus interest. FBR filed a petition in this court to partially vacate that arbitration award. They argue that the panel manifestly disregarded the law by awarding Hans the commission and accrued interest for the stock fee.


A. Judicially Vacating an Arbitration Award

The Federal Arbitration Act, 9 U.S.C. §§ 10-11 (2013) provides the exclusive grounds by which a court may vacate an arbitration award granted pursuant to the Act. Hall Street Associates, LLC v. Mattel, Inc., 552 U.S.576, 586-88 (2008). Understanding the statutorily provided grounds for arbitral award vacatur to be “exclusive” follows logically from Congress’ clearly expressed and intended “national policy favoring arbitration” as a dispute resolution venue. Id. at 588. Judicial review of the evidentiary and legal findings of an arbitration panel is sharply limited by §§ 10 and 11 to “egregious departures from the parties' agreed-upon arbitration: corruption, fraud, evident partiality, misconduct, misbehavior, exceeding powers, evident material miscalculation, evident material mistake, awards upon a matter not submitted; the only ground with any softer focus is imperfections, and a court may correct those only if they go to a matter of form not affecting the merits.” Id. at 586 (internal quotations omitted). Furthermore, the burden facing petitioners who seek judicial vactur of arbitration awards is exceedingly high. Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671 (2010). “ To obtain that relief, ” petitioners for judicial vacatur “must clear a high hurdle. It is not enough for petitioners to show that the panel committed an error—or even a serious error.” Id.

B. Manifest Disregard

FBR seeks judicial vactur of the arbitration award on the theory that the FINRA panel manifestly disregarded the laws of Virginia. Pet.’s Mem. 7. Notably, this theory of attack on an arbitral award falls clearly beyond any of the explicit, challengeable grounds within §§10 and 11 of the FAA. In Hall Street, the Supreme Court declared the statutory grounds for vacatur exclusive, thus rendering the “manifest disregard” challenge’s forth-going vitality a dubious proposition. Hall Street, 552 U.S. at 586. Subsequent cases have not resolved the question of its continued existence. In Stolt-Nielsen, the Supreme Court acknowledged that manifest disregard may not have survived its Hall Street decision, resolving the issue on one of the FAA’s statutory grounds. Stolt-Nielsen, 559 U.S. n. 3. In Affinity Fin. Corp. v. AARP Financial, Inc., the D.C. Circuit “assumed without deciding” that “manifest disregard” still existed post-Hall Street, but found that the party requesting vacatur had not even argued the point. 468 Fed.Appx. 4, 5 (D.C. Cir. 2012). Because the case law controlling this Court’s reasoning has refused to revive “manifest disregard” since its apparent death knell in Hall Street, this Court evaluates FBR’s contention with considerable suspicion.

At any rate, FBR can only establish manifest disregard if it demonstrates that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether and (2) the law ignored by the arbitrators was well defined, explicit, and ...

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