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A federal court in Texas rejected several run-of-the mill challenges to an arbitration award, including arguments that the arbitral tribunal was biased, refused to hear material evidence, and issued an award not based on the law. However, the Court refused to grant the prevailing party attorney fees because of inadequate evidence.
In Householder Group v. Caughran, No. 4:07-CV-316, 2008 WL 4254586 (E.D. Tex. Sept. 17, 2008), Caughran executed a promissory note with SunAmerica Securities, who subsequently assigned the note to the Householder Group (HG). Caughran defaulted on the promissory note, so HG submitted a claim to arbitration with the NASD pursuant to an arbitration agreement between the parties. The arbitrators issued an award in favor of HG, who then moved to confirm the award, while Caughran moved to vacate.
Caughran argued that his due process rights were violated during arbitration in several ways: (1) the award was not based exclusively on the evidence; (2) he was not allowed to present certain evidence and was denied discovery; (3) the tribunal did not prepare written findings of fact and conclusions of law; and (4) the arbitral tribunal was biased.
Before addressing Caughran's arguments, the Court noted that in addition to the grounds for vacatur listed in section 10 of the Federal Arbitration Act (FAA), the Fifth Circuit had previously recognized two common law grounds for vacatur of an award: manifest disregard of the law, and contrary to public policy. However, in light of the Supreme Court's holding that the FAA provides the exclusive grounds for vacatur in Hall Street Assocs., LLC v. Mattel, Inc., 128 S.Ct. 1396 (2008), the Court held that it would limit its analysis to the statutory grounds for vacatur enumerated in the FAA.
The Court promptly rejected Caughran's argument that the award should be vacated because it was not based exclusively on the evidence, holding that it was beyond the Court's power to review the merits of the case. Caughran also argued that the arbitrators denied him a fair hearing by refusing to admit into evidence certain tape-recorded conversations. The Court rejected this argument as well, holding that the arbitrators correctly excluded the recordings because they were not properly authenticated.
The Court also rejected Caughran's complaint that he was only permitted to use one of his five witnesses, holding that Caughran failed to explain how the witnesses were material to the outcome of his case. Regarding all of Caughran's evidentiary complaints, the Court found that "Caughran's conclusory allegations . . . do not demonstrate how the arbitrators' evidentiary rulings rendered the arbitration fundamentally unfair."
Furthermore, the Court held that the arbitrators were not required to provide findings of fact or conclusions of law, and thus were not biased against Caughran. However, the Court did not award HG attorney fees because HG's counsel failed to provide his hourly billable rate and the prevailing hourly rate in the community for similar work. Accordingly, the Court confirmed the award but denied HG's motion for attorney fees.
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