Katalyst Securities LLC v. Marker Therapeutics, Inc.

Background

Katalyst Securities, LLC, a registered broker-dealer and Financial Industry Regulatory Authority (FINRA) member, entered into an agreement with Marker Therapeutics, Inc.’s predecessor in interest. The agreement appointed Katalyst to help find qualified subscribers for a private placement of Marker’s securities. Katalyst would receive cash and warrants, and the agreement provided for an additional fee if an investor introduced by Katalyst completed financing for Marker during a one-year “tail period” after the 2017 private placement.

The agreement required the parties first to mediate disputes and then to arbitrate any dispute that mediation did not resolve. It stated that all controversies concerning the agreement would be submitted to the exclusive jurisdiction of FINRA arbitration. It also provided that New York law would govern the agreement’s construction, validity, enforcement, and interpretation.

Katalyst claimed that Marker obtained financing during the tail period from investors Katalyst had introduced. After mediation failed, Katalyst submitted the dispute to FINRA arbitration on May 20, 2019. Marker repeatedly objected that FINRA lacked jurisdiction, but the arbitration panel overruled those objections and determined that FINRA had jurisdiction.

On August 16, 2021, the panel awarded Katalyst $1,798,501 in compensatory damages, $450,000 in attorneys’ fees, and pre-award interest. Katalyst petitioned for confirmation of the award in New York state court, and Marker removed the action to the federal district court.

Marker’s Motion to Vacate

Marker argued that the award should be vacated on two grounds: the panel lacked authority to arbitrate the dispute, and the panel acted in “manifest disregard” of the law. Manifest disregard is a narrow basis for setting aside an arbitration award when arbitrators knowingly and intentionally ignore clearly applicable law.

Authority to Decide Arbitrability

The court held that the agreement clearly and unmistakably gave the arbitrators authority to decide whether the dispute was subject to arbitration. The agreement referred “all controversies” to the exclusive jurisdiction of FINRA arbitration, which the court viewed as broad, categorical, and unlimited language.

Because the agreement assigned the arbitrability question to the arbitrators, the court deferred to the panel’s determination that FINRA had jurisdiction. The court therefore denied Marker’s motion to vacate based on lack of jurisdiction.

Alleged Manifest Disregard of Law

Marker argued that the panel misinterpreted the contract’s use of the word “consummate” and therefore incorrectly determined the period during which Katalyst could receive additional fees. The court found that Marker had not shown that the panel ignored a clear and specifically applicable legal rule or intentionally disregarded the law. The court also emphasized that disagreement with an arbitrator’s contract interpretation is generally not enough to set aside an award.

The court concluded that Marker had not met the demanding standard for vacatur based on manifest disregard of the law and denied Marker’s motion in its entirety.

Confirmation and Judgment

The court granted Katalyst’s petition to confirm the arbitration award and directed entry of judgment for Katalyst. The judgment included $1,798,501 in compensatory damages, $450,000 in attorneys’ fees, and $154,433.26 in interest accrued before the award, for an arbitration-award total of $2,402,934.

The court also awarded Katalyst $121,463.37 in prejudgment interest at an annual rate of nine percent from August 16, 2021, through entry of judgment, producing a total judgment of $2,524,397.87. Post-judgment interest would accrue at the rate specified in 28 U.S.C. § 1961, and the court granted Katalyst’s request for costs under Federal Rule of Civil Procedure 54(d). The Clerk was directed to enter judgment and close the case.

Disposition

Katalyst’s petition to confirm the arbitration award was granted. Marker’s motion to vacate the arbitration award was denied.