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The Tenth Circuit Court of Appeals became the tenth circuit court to formally recognize the doctrine of arbitral immunity. Accordingly, the Court held that the NASD was immune from liability for allegedly mishandling evidence presented at an arbitration hearing.
In Pfannenstiel v. Merrill Lynch, Pierce, Fenner & Smith, 477 F.3d 1155 (10th Cir. 2007), Pfannenstiel submitted a claim against Merrill Lynch to a panel of NASD arbitrators. Specifically, Pfannenstiel claimed that Merrill Lynch owed him $217,785.00 for deficiencies in his account.
The arbitration panel denied the claim. Two month later, when attempting to retrieve a document that he presented at the hearing, Pfannenstiel discovered that the evidence presented at the hearing had gone missing when someone claiming to be an NASD representative took boxes of evidence from the front desk of the hotel where the hearing was held.
Pfannenstiel subsequently commenced this action against Merrill Lynch and the NASD, seeking vacatur of the arbitration award and an award of damages against NASD based on the lost evidence. The district court confirmed the award because the motion to vacate was untimely. The claim against NASD was dismissed based on the doctrine of arbitral immunity.
The principal issue on appeal was whether the doctrine of arbitral immunity was an available defense because, as the Court noted, the Tenth Circuit "ha[d] not yet ruled on the doctrine of arbitral immunity." The Court concluded that it should recognize the doctrine because "[e]very other circuit that has considered the issue of arbitral immunity recognizes the doctrine" and because Supreme Court precedent supports it.
As the Court explained, the doctrine of arbitral immunity applies not only to arbitrators but also to arbitration administrators. This aspect of the rule was relevant because Pfannenstiel was suing the NASD rather than the individual arbitrators.
There remained the issue of whether the doctrine of arbitral immunity shielded NASD from liability for allegedly mishandling the evidence. Pfannenstiel argued that the doctrine was inapplicable because the alleged misconduct was separate from NASD's judicial function.
The applicability of the doctrine of arbitral immunity turned on whether "the claim, regardless of its nominal title, effectively sought to challenge the decisional act of an arbitrator or arbitration panel." In addressing this issue, the Court held that Pfannenstiel's claim against NASD was a "veiled attack on the decision rendered against him" because the claim against NASD and his motion to vacate were both premised on the lost evidence. Accordingly, the Court affirmed the judgment of dismissal.
As this case illustrates, there is arbitral immunity under federal law. Moreover, courts have applied the federal law of arbitral immunity even where the underlying agreement called for the application of state law. See, e.g., Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579, 1582 (9th Cir. 1987) ("Because federal policy encourages arbitration and arbitrators are essential in furthering that policy, it is appropriate that immunity be extended to arbitrators for acts within the scope of their duties and within their jurisdiction.").
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