Napoleone v. S2K Financial, LLC

Background

Napoleone’s employment agreement with S2K required disputes relating to his employment to be arbitrated before three neutral arbitrators at the Financial Industry Regulatory Authority (FINRA) in New York. S2K began arbitration to recover a $100,000 sign-on bonus that Napoleone had not repaid.

FINRA initially assigned one arbitrator under its rules. S2K later asked to expand the panel to three arbitrators under the employment agreement. Napoleone opposed that request, arguing that S2K had waived its right to seek three arbitrators by participating in the selection of the single arbitrator. He repeated that position during a pre-hearing conference.

When Napoleone considered increasing his counterclaim from $27,071.92 to approximately $180,000, the arbitrator informed him that FINRA rules required a three-arbitrator panel for a counterclaim exceeding $100,000. Napoleone chose instead to limit his counterclaim to $100,000 so the arbitration could continue before one arbitrator. S2K continued to maintain that the dispute should be heard by three arbitrators.

On March 7, 2018, the sole arbitrator found Napoleone liable for breach of contract, awarded S2K $100,000 in compensatory damages plus interest, and denied Napoleone’s counterclaim in full.

Napoleone’s request to vacate

Napoleone asked the court to vacate, or set aside, the arbitration award. He argued that the arbitrator exceeded his authority and disregarded the law by deciding the case without changing the panel to three arbitrators. S2K opposed the request and sought confirmation, which would make the arbitration award enforceable as a judgment.

The court applied the Federal Arbitration Act, which allows an award to be vacated on limited grounds, including when arbitrators exceed their authority. The court also recognized the Second Circuit’s “manifest disregard of the law” standard, a basis for vacating an award when an arbitrator’s decision meets that legal standard.

The court did not decide whether the arbitrator actually exceeded his authority or acted in manifest disregard of the law. Instead, it held that Napoleone was judicially estopped. Judicial estoppel prevents a party from taking a position in one legal proceeding that contradicts a position the party previously took and that the earlier decision-maker adopted.

The court found that Napoleone had opposed a three-member panel three times during the arbitration. The arbitrator adopted that position by declining to grant S2K’s request to expand the panel and by allowing Napoleone to choose between increasing his counterclaim and proceeding with three arbitrators, or limiting the counterclaim and proceeding with one. Napoleone chose the second option. The court therefore held that he could not later argue that the award should be vacated because the case was heard by one arbitrator.

Confirmation and judgment

The court also reviewed the arbitration award and found more than a “barely colorable justification” for its result. Because Napoleone had offered no other basis for vacating the award, the court granted S2K’s cross-motion to confirm the arbitration award.

The court’s conclusion denied Napoleone’s petition to vacate and granted S2K’s petition to confirm. It directed the Clerk of Court to enter judgment for S2K and against Napoleone for $100,000, with interest accruing at 9% annually from April 1, 2017, through the date of judgment, followed by post-judgment interest at the statutory rate. Judge Deborah A. Batts signed the order.