Eyvgenyi E. Scherban v. Merrill Lynch

Background

The plaintiffs asserted claims concerning assets and accounts allegedly held by Merrill Lynch. The claims included fraud, concealment of fraud, money had and received, civil conspiracy, alleged violations of New York’s abandoned-property law, and alleged violations of New York’s deceptive-business-practices law. They sought, among other relief, $3,577,976 in compensatory damages.

The court previously ordered some claims to arbitration and stayed the case while arbitration proceeded. A Financial Industry Regulatory Authority arbitration panel held a hearing and, on March 1, 2019, dismissed all of the plaintiffs’ claims with prejudice after determining that they were time-barred. The panel stated that the claims had been filed between 13 and 18 years after they arose.

The plaintiffs moved under section 10 of the Federal Arbitration Act to vacate, or set aside, the arbitration award. Merrill Lynch cross-moved under section 11 of the Act to correct an error in the award and to confirm the award as corrected.

Motion to Vacate

The plaintiffs advanced five principal grounds for vacatur: that panel chairman David I. Goldblatt was unfit to serve; that he was evidently partial to Merrill Lynch; that the panel engaged in misconduct; that the panel disregarded facts and evidence; and that it manifestly disregarded the law. The court explained that federal review of an arbitration award is very limited and that a party seeking vacatur faces a heavy burden.

The court rejected the fitness argument. The plaintiffs relied primarily on observations that Goldblatt sometimes asked witnesses to repeat themselves or cupped his ear, along with conclusory statements that he had a hearing impairment or other serious medical condition. The court found that the record did not support vacatur and noted that witnesses testified without microphones, several witnesses testified through a translator, and the hearing ended after the plaintiffs completed their case and the panel heard Merrill Lynch’s dismissal motion.

The court also rejected the partiality argument. Goldblatt had disclosed earlier arbitrations involving Merrill Lynch, including matters in which Merrill Lynch received favorable awards, and the plaintiffs did not object to his appointment. The court held that any objection based on those disclosures was waived. The plaintiffs also argued that Goldblatt failed to disclose a later arbitration award involving Merrill Lynch. The court concluded that this undisclosed matter did not show a material conflict of interest or establish that a reasonable person would conclude Goldblatt was partial.

The court found no misconduct requiring vacatur. It rejected the plaintiffs’ claims that Goldblatt failed to review a transcript, that the panel improperly declined to question a witness by video call, and that the panel refused to allow two witnesses to testify. The record showed that the plaintiffs chose not to call those witnesses in their own case, and Merrill Lynch had no direct case after the panel granted its motion to dismiss.

The court further held that disregarding evidence is not an independent basis for vacating an arbitration award in the Second Circuit. The plaintiffs’ arguments, in the court’s view, challenged the panel’s interpretation of the evidence rather than identifying a proper ground for vacatur.

Finally, the court held that the plaintiffs did not show that the panel manifestly disregarded the law. That doctrine applies only when arbitrators knowingly refuse to apply a clearly established and clearly applicable legal rule. The court concluded that the plaintiffs primarily disagreed with the panel’s determination of when they were placed on notice of the alleged fraud and with its application of statutes of limitations. The court also rejected the argument concerning New York’s abandoned-property law because the plaintiffs sought damages, did not allege that the funds had been turned over to New York, and therefore could not rely on the provision they cited to avoid the time bar.

Motion to Correct and Confirm

Merrill Lynch identified an error in the award’s description of the court’s earlier arbitration orders. The award incorrectly stated which of Eyvgenyi’s and Ruslan’s individual claims had been ordered to arbitration. The court determined that this was an evident material mistake in describing a person, or an error in the form of the award that did not affect the merits, that the court could correct under section 11 of the Federal Arbitration Act.

The court replaced the disputed paragraph with language stating that the court had granted Merrill Lynch’s motion to compel arbitration in part, denied it as to Eyvgenyi’s individual claims, and later granted it as to Ruslan’s individual claims. The corrected language also stated that Eyvgenyi was participating as a claimant solely as a lawful heir of Yevgenyi A. Scherban.

Disposition

The court denied the plaintiffs’ motion to vacate the arbitration award. It granted Merrill Lynch’s motion to correct the award and confirm it as modified. The court directed the Clerk of Court to close the motions at docket entries 54 and 62.