A federal court recently decided a host of different motions related to an arbitration dissolving the now-defunct Beltway Law Group ("BLG"), a firm that operated websites and other marketing efforts to attract clients on behalf of unaffiliated trial law firms. The arbitrator had previously resolved the primary dispute between the parties—non-lawyer partners who provided marketing services and the lawyer-partner—by ordering the dissolution of the firm. The opinion discussed herein arose from the parties' various motions challenging or supporting an arbitrator's resolution of the secondary disputes between the parties: attorneys' fees and costs (awarded to the lawyer-partner), motions to vacate and to confirm, and supervision of the winding down process.
The non-lawyer partners sought to vacate the arbitration award under each of the four statutory bases recognized by the Federal Arbitration Act, as well as for manifest disregard of the law. In turn, the court rejected each of these challenges and upheld the arbitral award. First, the court rejected vacatur based on "undue means" because the challenging partners did not present clear and convincing evidence of fraudulent conduct or undue means that denied them a "fundamentally fair hearing." Second, the court rejected vacatur based on "evident partiality" because the challenging party failed to meet the "heavy burden" of showing that the circumstances indicated any improper motives on behalf of the arbitrator. Third, the court rejected vacatur based on ""misconduct" by the arbitrator because the arbitrator's refusal to stay the proceedings and allow one of the non-lawyer partners more discovery was not unreasonable nor an abuse of discretion. Fourth, the court addressed the challenging parties' contention that the arbitrator acted with "manifest disregard" of the law—the legal viability of which as a basis to vacate an arbitration award remains uncertain. The court declined to resolve that issue by finding that the challenging parties' failed to meet the manifest disregard standard (even assuming it is viable) – that the arbitrator knowingly refused to apply a governing legal principle that was well defined and clearly applicable.
Proceeding to the other pending motions before it, the court next granted the lawyer-partner's motion to confirm the arbitral award because there was no valid basis to vacate it. It further denied the non-lawyer partners' motion to appoint a receiver to facilitate the winding down of BLG because appointment of a receiver must be ancillary to primary relief—not primary relief itself—and because the issue of receivership was already adjudicated in the underlying arbitration. Finally, the court rejected the lawyer-partner's motion seeking sanctions against the non-lawyer partners because their positions were not frivolous or deceptive.
Ray v. Chafetz, Case No. 16-428 (USDC D.D.C. Feb. 17, 2017)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
