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A federal district court in Texas upheld an NASD arbitration award, reasoning that the panel's improper joinder of a successor entity did not constitute an action "exceeding the arbitrators' powers."
In Sal Financial Services, Inc. v. Nugent, No. 3:06-CV-2051-D, 2007 WL 719230 (N.D. Tex. Mar. 9, 2007), Nugent initiated arbitration proceedings against his stockbroker and brokerage firm. During the pendency of his claim, the broker-dealer's assets were sold to SAL Financial Services, Inc. (SALF). Thereafter, Nugent filed an amended claim naming SALF as a respondent under theories of successor liability and fraudulent transfer.
SALF argued that it was improper to join them in this preexisting action because NASD rules generally permit respondents to participate in the selection of an arbitration panel. See NASD Code of Arbitration Procedure Rule 10314(d)(1).
The Court rejected SALF's argument that the arbitrators exceeded their powers. Arbitrators "exceed their powers" when they "act outside the limits of the authority granted [them] by the arbitration agreement, such as deciding issues that have not been submitted to [them] or acting contrary to express provisions of that agreement." Prescott v. Northlake Christian Sch., 141 Fed. Appx. 263, 271-72 (5th Cir. 2005). However, a mere legal or procedural error does not justify vacatur. See Teamsters Local No. 5 v. Formosa Plastics Corp., 363 F.3d 368, 371 (5th Cir. 2004).
Moreover, the Supreme Court has held that the application of an NASD procedural rule is "a matter presumptively for the arbitrator, not for the judge." Howsam v. Dean Witter Reynolds, 573 U.S. 79 (2002). Accordingly, the Court denied SALF's motion to vacate the award.
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