Fifth Circuit finds Arbitrator did not Exceed Authority

Earlier this week, the Fifth Circuit handed down an opinion reversing a decision from the Eastern District of Louisiana which had vacated an arbitral award (link is to .pdf file). The underlying case was a securities fraud action against a stock broker, which the Plaintiffs arbitrated under protest, having challenged the arbitrability of the case from the outset.

The District Court, however, forced the parties to arbitrate, and the Defendant stoke broker prevailed. Later, however, the Plaintiffs opposed the confirmation of the arbitral award, arguing that since the dispute was not arbitrable in the first place, the arbitrators exceeded their authority under Section 10(a)(4) of the Federal Arbitration Act. This time, the district court agreed with the Plaintiffs and vacated the award, finding that the dispute fell outside the scope of the arbitration clause in question.

After all that, however, the Fifth Circuit reversed and remanded so that the District Court could confirm the award. According to the Court, “A reasonable interpretation of the arbitration clause in the instant case supports a conclusion that the clause covers the dispute.” Given the strong presumption which exists in favor of arbitrability, this is enough; to the extent ambiguity exists in the arbitration clause, that ambiguity must be resolved in favor of arbitration.

The opinion itself is short and does not break any new ground. However, it is important as a reminder that, even if a client’s initial challenge to arbitrability fails, one can always try again at the confirmation phase, providing that the challenge has been maintained and not waived (even though ultimately the challenge to arbitrability, in this case, failed).

Downer v. Siegel, ___ F3d ___ (5th Cir. 2007) (Cause No. 06-30159).

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