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Commercial Division Holds that Failure to Request Rationale for Arbitration Award Makes It Virtually Unreviewable on Manifest Disregard Ground

Parties to arbitration proceedings at times decide to forego a written decision by the arbitration panel explaining the basis for their arbitration award.  While doing so may reduce the costs of arbitration and can provide other strategic advantages, it also makes it more likely that the Commercial Division will find the award unreviewable.  This point is exemplified by the recent decision by Justice Charles E. Ramos of the Commercial Division in NSB Advisors, LLC v. C.L. King & Associates, Inc.[1]

NSB Advisors stems from a dispute over financial losses incurred in connection with the management by NSB Advisors, LLC (“NSB”) of funds invested by C.L. King & Associates, Inc. (“C.L. King”) in 2011 and 2012.[2]  Related parties each commenced arbitrations before the Financial Industry Regulatory Authority (“FINRA”) against each other.  Thereafter, a three-person panel in a FINRA arbitration brought by C.L. King against NSB’s investment officer issued an award in favor of C.L. King for $13 million, representing the margin balance that was owed after securities were liquidated.  In contrast, a FINRA arbitration panel in a proceeding brought by NSB — which involved some of the same claims as had been made as in the first arbitration — awarded $1.75 million to NSB.  NSB moved in the Commercial Division to confirm the award in its favor and C.L. King cross-moved to vacate that award.[3]

Justice Ramos[4] granted the motion to confirm, applying New York’s highly deferential standard of review for arbitration awards.[5]  In New York, an arbitration award will be upheld unless there is: 1) fraud, corruption, or arbitrator misconduct, 2) manifest disregard of the law under federal law doctrine, or 3) a violation of public policy.  A manifest disregard argument will be rejected so long as there is a “barely colorable justification for the outcome reached.”[6]

C.L. King argued, inter alia, that the arbitration award was unsupported by evidence and that the arbitration panel had manifestly disregarded the law governing the claims it had asserted.  However, Justice Ramos noted that it was difficult to tell just what evidence and legal arguments the arbitration panel had or had not considered, because the arbitration panel did not provide a written explanation for its decision.[7]

Justice Ramos thus rejected C.L. King’s arguments against confirming the award, explaining that “[i]n challenging the Award, CL King has presented mere conjecture as to what the Panel could have been thinking in issuing a decision, and offered a way for that reasoning to have been incorrect. Such speculation is inconclusive and fails to show that the Panel lacked a colorable justification for its decision.”[8]  Justice Ramos noted that arbitrators are not required to explain their decision at all, and in any event, C.L. King and NSB had not requested a written explanation for the award despite the fact that FINRA rules allow arbitrators to issue a reasoned award if both sides request it.[9]  Further, C.L. King failed to provide the Commercial Division with a complete record of the arbitration, which would have facilitated the Court’s review of the award offering, instead providing “a mere snapshot of what occurred.”[10]  The Commercial Division therefore saw no reason not to confirm the arbitration award.

C.L. King also argued that the award in NSB’s favor was inconsistent with the award previously rendered in C.L. King’s favor against NSB’s investment officer.  Justice Ramos disagreed, concluding that not all the claims were identical in the two arbitrations, the parties in the two cases were not the same, and it was therefore possible for the arbitrators to “have arrived at what may appear to be different conclusions in the two” arbitrations.[11]

NSB Advisors provides a vivid illustration of the Commercial Division’s deference to arbitration awards and of the potential pitfalls (or advantages, depending on one’s point of view) of failing to seek a written rationale for an arbitral award.  Without a reasoned award, a party seeking to challenge confirmation of the arbitration award will likely face a steep uphill battle in the Commercial Division.  Practitioners should also note that this decision suggests that parties ought to submit to the Commercial Division a full record of the arbitration hearings should they seek to vacate an arbitration award.

By Benjamin F. Jackson and Stephen P. Younger

[1] No. 657034/2017, 2018 BL 388363 (N.Y. Sup. Ct. Oct. 02, 2018).

[2] Id. at *1.

[3] Id. at *1-2.  Justice Eileen Bransten of the Commercial Division confirmed C.L. King’s award on March 6, 2017.  Id. at *2. 

[4] Justice Ramos is currently the Commercial Division Justice assigned to hear international arbitration matters.  He was the judge who applied the manifest disregard doctrine to vacate an arbitration award, which the First Department recently reversed in Matter of Daesang v. NutraSweet Co., 655019/2016, 2018 NY slip op. 06331 (1st Dep’t Sept. 27, 2018).  See

[5] 2018 BL 388363, at *5.

[6] Id. at *3 (quoting Wien & Makin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 461, 479-80 (2006)).

[7] See id. at * 3-4.

[8] Id. at *4.

[9] Id. (citing FINRA Rules 13904(f) and (g)).

[10] Id.

[11] Id.