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Affirming that "(a)rbitrators have the ability to fashion equitable remedies," a federal district court in New York confirmed an arbitration panel's interim order directing a party to place in escrow an amount of money which would cover the pending resolution of a dispute.
The case, Great Eastern Securities., Inc. v. Goldendale Investments., Ltd., No. 06 Civ.6667 DAB, 2006 WL 3851159 (S.D.N.Y. Dec. 20, 2006), involved a dispute over nearly $480,000 in allegedly fraudulent commissions charged to Goldendale by Great Eastern. Because of concerns about Great Eastern's solvency, a three-person National Association of Securities Dealers (NASD) Arbitration Panel ordered the company to place this amount in escrow pending final resolution of the dispute.
Great Eastern refused to comply, and instead asked the Court to vacate the order. Goldendale sought confirmation of the escrow order.
Central to the Court's analysis was whether the arbitrators had exceeded their authority in issuing the interim order, or had otherwise shown a manifest disregard of the law. Noting that arbitrators can fashion equitable remedies, the court found that the interim escrow order was reasonable, given concerns over Great Eastern's solvency.
In addition, because an order to vacate for manifest disregard of the law requires a court to find both that the arbitrators were aware of a "clearly governing legal principle" and that they "consciously decided to ignore it," the Court held that the NASD panel had not shown such manifest disregard of a disputed state statute. Indeed, the court notes that both sides were given "ample opportunity to advance their arguments," both in writing and on the phone. Given that neither statutory nor common law bases had been established, the Court refused to grant Great Eastern's petition to vacate.
Before granting Goldendale's motion to confirm, the Court had to determine whether the interim escrow order was "final," since Section 10 of the Federal Arbitration Act permits a court to make such a ruling only on final awards. The Court noted that "an interim arbitration award is sufficiently final if it 'finally and definitively disposes of a separate independent claim,' even though 'it does not dispose of all the claims that were submitted to arbitration.'"Interim arbitration awards have generally been held to meet these standards, and the Court found it had done so in this case.
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