A federal district court in Florida determined that the party challenging an arbitration award for wrongful refusal to hear evidence failed to meet her burden of demonstrating that the exclusion of evidence lacked a rational basis. Accordingly, the Court upheld the award.

In Deitchman v. Bear Stearns Securities Corp., No. 07-60465-CIV, 2007 WL 4592238 (S.D. Fla. Dec. 28, 2007), Deitchman filed an arbitration claim against Bear Stearns, which had a clearing agreement with Deitchman's broker Eastlake Capital (Eastlake). The arbitration panel dismissed the claim against Bear Stearns but found each party liable for their own attorney fees.

Deitchman filed a motion to vacate the award, arguing that the arbitrators refused to hear material evidence. Specifically, Deitchman challenged the arbitrators' decision to exclude two items of evidence: (1) a settlement agreement between Bear Stearns and the SEC; and (2) a report on an NASD investigation involving Eastlake and its principal.

As the Court explained, to succeed on her motion for vacatur, Deitchman had to demonstrate that there was no rational basis for excluding the two items of evidence. The Court found that there was a rational basis and thus denied Deitchman's motion for vacatur.

There was a rational basis for excluding the settlement agreement because of the policy considerations underlying Rule 408 of the Federal Rules of Evidence – namely, the principle that settlement negotiations should be excluded from evidence in order to facilitate settlement. There was a rational basis for excluding the report because there was no indication that the investigation involved Bear Stearns in any way.

Bear Stearns succeeded on its motion to vacate the attorney fees portion of the award, however. Bear Stearns initially submitted the issue of attorney fees to the arbitrators but later withdrew the issue without any objection by Deitchman. As such, the arbitrators exceeded their powers by awarding upon an issue not submitted to them.