In Doral Financial Corp. v. Garcia-Velez, 725 F.3d 27 (1st Cir. 2013), LJL 33rd Street Associates v. Pitcairn Associates Properties, 725 F.3d 184 (2d Cir. 2013), and Bain Cotton Co. v. Chesnutt Cotton Co., 531 F. App’x 500, Appeal 12-11138 (5th Cir. June 24, 2013), the appeals each involved a losing party attempting to vacate an arbitration award by arguing that when the arbitrator(s) refused to give the parties free rein in seeking discovery or offering evidence, the arbitrators’ decisions were “misconduct” or “evident partiality or corruption,” thus warranting vacatur pursuant to § 10 of the Federal Arbitration Act (FAA) (9 U.S.C. § 10). None prevailed.

May Arbitrators Deny a Party’s Untimely Request for Third-Party Subpoenas?

In Doral Financial, the First Circuit considered an arbitration panel’s authority to refuse to issue third-party subpoenas on the panel’s determination that the subpoenas requested were both untimely and overly broad. Doral fired García-Vélez from his position as president of its consumer banking division. He filed for arbitration, claiming to be entitled to a large severance package pursuant to his employment agreement with Doral; Doral asserted that he had been dismissed for cause. When García-Vélez notified Doral that he had accepted a senior position at a bank in Miami that competed with Doral in Puerto Rico, it asserted an alleged breach of the noncompetition clause in their agreement as an additional defense. It also sued García-Vélez’s new employer in state court.

At a preliminary arbitration conference on March 23, 2009, the parties agreed that May 15, 2009, and August 7, 2009, should be the final deadlines for requests for information and submission of witness lists, respectively. The arbitration panel also incorporated into its scheduling order a requirement that any party wishing to issue a subpoena to a third party first confer with the other party to determine if there were any disagreements about the date or contents of the subpoena; the panel would then resolve any dispute. Five days before the hearing was to begin, Doral filed an “Urgent Motion to Stay the Arbitration Proceedings,” stating that the Miami branch of the bank where García-Vélez worked had merged with Doral’s Puerto Rico holding company and arguing that the merger proved the falsity of García-Vélez’s assertion that he worked only for the Miami branch. The panel denied the motion and commenced the hearings as scheduled. A few days into the hearing, Doral’s counsel had medical problems that caused a two-month recess in the proceedings. During the recess, Doral notified opposing counsel that it intended to request prehearing third-party subpoenas directed to García-Vélez’s employer. Doral then filed its request, García-Vélez opposed, and the panel determined that the subpoenas were untimely and would delay the arbitration further. Undaunted, shortly before the hearing was to resume, Doral filed an application for hearing subpoenas. It also asked the panel to reconsider its decision on the prehearing subpoenas. The panel denied Doral’s request and found that the subpoenas proffered were broader than it would have permitted, even if the request had been timely. Shortly thereafter, the panel issued a written decision further explaining its reasoning. It said that Doral’s claims had not changed during the course of the proceedings, that the information Doral sought should have been requested earlier, and that it was seeking information via arbitration subpoenas to assist it in its litigation with García-Vélez’s employer. When the hearing resumed, Doral had the opportunity to cross-examine the claimant—who had testified at length prior to the recess—to present its own evidence and to submit posthearing filings. The panel awarded García-Vélez about $2.4 million, including pre-award interest, for breach of his employment agreement. It specifically found that he had not breached the noncompetition clause.

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Tags: Doral Financial, Doral Financial Corp., employment agreement, Pitcairn Associates Properties