Bad Arbitration Award Makes Bad Law

Stuart Fromm was employed by ING as a wholesaler of mutual funds.  ING fired Fromm; Fromm believes the discharge resulted from his blowing the whistle on ING's business practices that violated securities laws and NASD rules.  Fromm brought seven claims to an NASD arbitration panel, alleging, among other things, a violation of the Sarbanes-Oxley whistleblowing provision, defamation, failure to pay wages as a violation of state law, and breach of contract.  Here's the arbitration award:

After considering the pleadings, the testimony and the evidence presented at the hearing, the Panel has decided in full and final resolution of the issues submitted for determination [that ING is liable to Fromm for] compensatory damages in the amount of $42,000.00 [and that a]ny and all relief not specifically addressed herein, including punitive damages, is denied.

Pitiful.  I provide more of an explanation to my children when I "arbitrate" their squabbles.  A labor arbitrator issuing such an award would quickly find him- or herself clientless. 

Fromm filed a petition to modify in federal court, arguing that the $42,000 award was inconsistent with his entitlement, under Sarbanes-Oxley, to make-whole relief.  The court denied the petition, finding that because the arbitrators had not specified which of Fromm's claims he had prevailed on, he might have prevailed on a claim other than Sarbanes-Oxley, in which case he wouldn't be entitled to make-whole relief.  For that reason, the court ruled, Fromm could not show that the arbitration panel had acted in manifest disregard of the law.

Phooey.

The problem goes back to a mistake the Supreme Court made in Gilmer.  The plaintiff in that case had challenged NYSE's arbitral procedures because, among other things, the absence of written arbitral oponions would make judicial review meaningless.  The Supreme Court rejected the argument, asserting that NYSE procedures required arbitrators to issue written, detailed opinions.  The Court was wrong -- NYSE rules  required only the issuance of a written award. An award merely states, as the award did in Fromm's case, who wins and how much.  It doesn't explain what the arbitration panel found, or why the panel ruled as did.  It certainly doesn't provide sufficient information for a meaningful appeal. 

Robert Gilmer was right all along.

The case is Fromm v. ING Funds Distributor, LLC, ___ F.Supp.2d ___, 2007 WL 1540968 (S.D. N.Y. May 24, 2007) (Westlaw subscription required).

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