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A Louisiana appellate court determined that fundamental fairness required an arbitration panel to allow a party to amend her pleadings and present material evidence, prior to dismissal. Since the panel did not allow this opportunity, the Court reversed the lower court ruling and vacated the arbitration award.
In Pennington v. CUNA Brokerage Services, Inc., No. 2008 CA 0589, 2008 WL 4425965 ( La. Ct. App. Oct. 1, 2008), Pennington entered into a brokerage agreement with CUNA. Pennington invested a lump sum in CUNA's mutual funds. Thereafter, Pennington claimed that she sustained significant losses in the investments made on her behalf.
Six years later, Pennington initiated arbitration against CUNA, alleging that they were liable for her losses. CUNA moved to dismiss Pennington's claims based on the expiration of the statute of limitations.
The arbitration panel convened a pre-hearing conference. The panel dismissed Pennington’s claims in their entirety, finding that the claims were barred by an applicable statute of limitations. The trial court denied Pennington’s motion to vacate.
On appeal, Pennington argued that the trial court committed error in failing to vacate the arbitration award because the arbitration panel did not afford her a fundamentally fair hearing. In support of her argument, Pennington noted that the parties had agreed to arbitrate their dispute in accordance with the National Association of Securities Dealers (NASD) rules. Under NASD rules, an evidentiary hearing is required unless it is waived by the parties. Pennington contended that she did not waive this requirement and that the panel acted improperly by not conducting an evidentiary hearing.
The Court stated that an arbitrator must afford parties basic due process requirements in arbitration proceedings. The first and foremost requirement is the opportunity to present evidence and to be heard. As the Court noted, the NASD rules do not specifically address whether an arbitration panel has the authority to dismiss facially deficient claims with prejudice based solely on pleadings.
The Court stated that a fundamentally fair arbitration hearing requires "at minimum, notice, opportunity to be heard, present relevant evidence, and oral argument before the decision makers." Further, a party should be allowed to amend his claims to state a cognizable claim prior to dismissal.
In reviewing the record, the Court noted that it did not indicate whether Pennington was granted the opportunity to amend her pleadings or present evidence establishing the nature of her claims. Based on these findings, the Court determined that the arbitration panel acted improperly and prejudiced Pennington’s rights. Fundamental fairness requires that parties be given the opportunity to present evidence. Accordingly, the Court vacated the award.
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