Georgia Court of Appeals Addresses Finality of FINRA Arbitration Award

By: Thomas Abrahamson, Spring 2014 Student Intern

The Georgia Court of Appeals recently entered a decision in a case involving the enforceability of arbitration awards in FINRA proceedings. The case, Berger v. Welsh, shows that Georgia courts enforce agreements to arbitrate, leaving arbitration awards alone in most circumstances.

For those who don’t know, arbitration is a form of alternative dispute resolution (ADR) where parties agree to resolve a matter outside of court, and be bound by the decision the third party arbitrator settles on. However, what happens when one party is not happy with the outcome? Generally, they are stuck with it, but on rare occasion they are able to get a court to overturn the judgment.

Arbitration cases are eligible to be heard in FINRA’s forum in two instances. The first is for disputes with investors. For an investor dispute to qualify it must involve an investor and an individual or entity registered with FINRA. The second is for disputes involving industry parties only. These cases involve an individual or entity registered with FINRA, such as cases between brokerage firms, between brokers, and between or among brokerage firms and brokers.

Berger v. Welsh illustrates the binding nature of the arbitrator’s award in FINRA proceedings and the difficulty of having these judgments overturned. FINRA had authority to hear the dispute because it involved industry parties. A former employee of Bear Sterns & Co., Berger, claimed that after he left his job he was owed additional compensation in the form of commissions that a former colleague had withheld from him. Berger filed a statement of claim against Welsh, a Bear Sterns’ commission-based financial adviser who had allegedly improperly withheld Berger’s commissions, with FINRA’s dispute resolution division. Berger claimed that Welsh transferred the appropriate portion of commissions to him for several years, but then began to skip payments.

Welsh moved to dismiss the proceeding because he believed the claims had been released in a severance agreement Berger signed with Bear Stearns. According to Welsh, the agreement stated that Berger released Bear Stearns and its current and former employees from all claims such that Berger could not bring a proceeding against Welsh. The arbitrator denied the motion and ruled in favor of Berger, finding that Welsh owed him $98,575.

Unhappy with the arbitrator’s decision, Welsh then filed a motion in the Cobb County Superior Court to vacate or modify the award. After a hearing, the court vacated the award. Then on March 17, 2014, the Georgia Court of Appeals reversed the Superior Court’s decision and reinstated the arbitration award.

The court stated that they must give extraordinary deference to the arbitration process and awards. Arbitration is a creature of contract, and if both parties agreed to resolve their issue in arbitration it is not the courts’ place to step in. The Court of Appeals emphasized the deference given to an arbitrator’s decision, finding very limited and narrowly construed circumstances where such a decision may be vacated. None of those circumstances were present in the instant case.

This case reiterates that there is very little wiggle room when it comes to the decision an arbitrator makes. It is essential for a functioning arbitration process to have the courts back up these awards, and parties will be held to their agreement to submit to the arbitrator’s decision in most circumstances.

We will keep following this case and keep you updated if the Georgia Supreme Court weighs in.