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Saturday, July 2, 2011

Wilkerson on Third Party Standing and Arbitration

In Whose Shoes? Third-Party Standing and 'Binding' Arbitration Clauses in Securities Fraud Receiverships, by Jared Aaron Wilkerson, William & Mary Law School, was recently posted on SSRN.  Here is the abstract:

This article exposes a question that has recently opened a circuit split: in whose shoes do federal equity receivers stand when disentangling a Ponzi scheme or other securities fraud through litigation? This question has enormous implications for any investors, employees, and service providers of failed schemes who have arbitration agreements with the entities in receivership and are added as defendants by a receiver: if the supervising court allows the receiver to stand in place of creditors, with whom the defendants have no arbitration agreement, then the defendants will not be able to arbitrate their claims and will instead be subject to summary proceedings as a group—an outcome that ignores arbitration for efficiency’s sake. Notwithstanding efficiency, however, federal courts have generally answered the receiver standing question by holding that receivers stand exclusively in the receivership entities’ shoes. One recent diversion from this rule is the Fifth Circuit’s decision in Janvey v. Alguire, in which the court allowed a receiver to stand in third-party creditors’ shoes to avoid 331 binding arbitration clauses. This article argues, contrary to efficiency, that courts should follow both the Federal Arbitration Act and the Supreme Court’s prohibition against third-party standing by holding that receivers stand only in the place of receivership entities and so must arbitrate according to binding agreements made by those entities. In cases with a large number of arbitration agreement-wielding defendants, such as Alguire, this solution is terribly inefficient, but it is, at least until Congress or the Court says otherwise, the only solution that respects both Article III and the FAA.

http://lawprofessors.typepad.com/securities/2011/07/wilkerson-on-third-party-standing-and-arbitration.html

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