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A Tennessee federal court concluded that an arbitration award was not procured by fraud because the alleged fraud did not materially relate to an issue that was arbitrated.
In Caldwell v. Wachovia Securities, LLC, No. 3:06-01006, 2007 WL 3036466 (D. Tenn. Oct. 15, 2007), Caldwell worked for Wachovia’s securities business. After Caldwell joined, a promissory note in favor of Wachovia was executed.
Pursuant to the terms of the note, if Caldwell left Wachovia during the term of the note, the remaining balance on the note was immediately due and payable. This provision became ripe when Caldwell left Wachovia thereafter.
When Caldwell failed to pay his obligation, Wachovia initiated NASD Arbitration, which issued its award in favor of Wachovia. Caldwell moved to vacate the arbitration award alleging that the award was procured by fraud. In return, Wachovia moved to confirm the arbitrator’s award.
Caldwell claimed that Wachovia’s charge-off of Caldwell’s debt constituted fraud. In rejecting Caldwell’s argument, the Court noted that judicial review of an arbitration award is very limited. Under the Federal Arbitration Act, fraud is one of the four statutory grounds to vacate an arbitration award. A finding of fraud requires clear and convincing evidence that the fraud relates materially to an issue arbitrated.
The Court concluded that Caldwell’s allegations of fraud may have been legitimate, but Caldwell failed to demonstrate that these violations were materially related to issues in arbitration.
Because Caldwell did not present clear and convincing evidence to set aside the arbitration award, the Court granted Wachovia’s motion to confirm.
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