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Arbitrators do not abuse their discretion when they refuse to permit amendment of an arbitration claim and proceed to conduct a hearing and issue an award in the absence of a party who has employed delaying tactics and does not appear for a scheduled hearing, according to the California Court of Appeal.
In SWAB Financial v. E*Trade Securities, No. B191166, 2007 WL 1439539 (Cal. Ct. App. May 17, 2007), investment company E*Trade appealed the grant of a petition to vacate an arbitration award in its favor. The award was issued in investor SWAB's absence after SWAB's request to amend their complaint was denied by the arbitrators.
SWAB and E*Trade entered National Association of Securities Dealers (NASD) arbitration to resolve claims of misrepresentation in a stock transaction involving a third party. After numerous delays in the arbitration process, and several attempts to bring judicial action against E*Trade, SWAB sought to amend its arbitration claim to add additional allegations of fraud and misrepresentation.
Upon the denial of the attempt to amend, SWAB failed to appear at a scheduled hearing. In accordance with NASD Code of Arbitration Rules, the arbitrators rendered an award in favor of E*Trade after a full hearing in SWAB's absence, denying all of SWAB's claims.
SWAB subsequently filed a petition to vacate that award, on the grounds that it was substantially prejudiced by the arbitrators' refusal to amend any of the claims in arbitration and their refusal to grant a continuance. SWAB alleged that the arbitration panel was bound by a previous court order requiring the new claims be arbitrated in the same hearing.
The California Court of Appeal denied SWAB's petition for vacatur. The Court analyzed whether "the arbitrator abused his or her discretion by refusing to postpone the hearing upon sufficient cause being shown," and whether "the moving party suffered substantial prejudice as a result." The Court recounted the delays caused by SWAB's previous refusal to appear, its two attempted lawsuits related to the same matter, and its delay in pursuing the amended claims petition and concluded that "the arbitrators could reasonably conclude there was no good cause to further delay the arbitration." With no finding of abuse of discretion, the Court found no grounds on which to grant vacatur.
Furthermore, the Court noted the courts' "very limited authority with respect to pending arbitration." On the issue of whether a previous court order compelled amendment of the complaint, the Court clearly stated that "[t]he trial court had no authority to order the arbitrators to do so."
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