United States District Court, E.D. North Carolina, Western Division
IN RE SUBPOENAS ISSUED TO LYNNE T. ALBERT, RICHARD J. IGOU, AND RICHARD S. SAIFERT
LPL FINANCIAL LLC, Defendants IN THE MATTER OF ARBITRATION BETWEEN SHEPHERD, et al, Plaintiffs,
B. JONES, JR. UNITED STATES MAGISTRATE JUDGE
matter is before the court on the motion of non-parties Lynne
T. Albert, Richard J. Igou, and Richard S. Zaifert
("Arbitrators" or "Movants") to quash
subpoenas duces tecum issued to them by Holton B. Shepherd,
Bonnie L. Shepherd, Robert C. Young, and 109 U-Pull-It, Inc.
("Plaintiffs"). [DE-23]. Plaintiffs have responded
in opposition to the Arbitrators' motion to quash
[DE-31], and with leave of court the Abitrators filed a reply
[DE-34] and Plaintiffs filed a sur-reply [DE-3 6]. All
matters raised in the briefing are ripe for decision. For the
reasons set forth below, the motion to quash is allowed.
subpoenas at issue relate to Plaintiffs' petition to
vacate an arbitration award in a proceeding in which the
Movants served as arbitrators (the "Underlying
Arbitration"). [DE-1-2] at 12, 25-27. Defendant, LPL
Financial, LLC ("LPL Financial") is regulated by
the Financial Industry Regulatory Authority
("FINRA"), and the Underlying Arbitration proceeded
before its subsidiary, FINRA Dispute Resolution. [DE-1-2] at
13. FINRA is a private not-for-profit corporation and a
self-regulatory organization registered with the United
States Securities and Exchange Commission as a national
securities association, and FINRA Dispute Resolution
administers a dispute resolution forum in the securities
industry. [DE-24] at 2. Individuals who serve as arbitrators
on FINRA panels are independent contractors and receive
payment of $300 per hearing session. Id.
9, 2015, Plaintiffs initiated the Underlying Arbitration
seeking over $1.3 million in damages against LPL Financial
LLC ("LPL Financial"). [DE-1-2] at 14, 20-21.
Plaintiffs asserted that an employee of LPL Financial
inappropriately invested Plaintiffs' brokerage accounts
in "risky and unsuitable investments" resulting in
substantial losses. Id. at 40, 44. Before the
Underlying Arbitration began, FINRA provided each party with
a list of arbitrator candidates and the Arbitrator Disclosure
Report for each candidate. [DE-24] at 3 (citing [DE-16-3,
-16-4]). Each party was asked to rank the arbitrators in
order of preference, after which FINRA selected three
arbitration panelists. Id. The Underlying
Arbitration panel consisted of Lynne T. Albert
("Albert"), Richard J. Igou ("Igou"), and
Richard S. Zaifert ("Zaifert"). [DE-1-2] at 25-27.
On December 2, 2016, upon the conclusion of the arbitration
proceeding the Arbitrators entered a unanimous award in favor
of Plaintiffs in the amount of $119, 117.00
("Award"). Id. at 20-27.
February 28, 2017, Plaintiffs filed a motion to vacate the
Award in North Carolina state court, which was removed to
this court on March 30, 2017. [DE-1, -1-2]. Plaintiffs allege
among other things that Albert demonstrated evident
partiality in favor of LPL Financial when she failed to
disclose a previous relationship with an attorney
representing LPL Financial in the Underlying Arbitration
("Defense Counsel"). Id. at 12-18.
Specifically, Plaintiffs claim the purported relationship
consisted of serving as an arbitrator in two prior
arbitration proceedings in which Defense Counsel or his law
firm represented a party. [DE-31 ] at 5-6. The first of these
arbitrations occurred in 2004, and Defense Counsel's
client won a unanimous award before a three-person
arbitration panel which included Albert ("2004
Arbitration"). [DE-1-2] at 15-16. The second arbitration
occurred in 2014, and involved attorneys from Defense
Counsel's law firm ("2014 Arbitration").
[DE-31] at 6. The party represented by Defense Counsel's
law firm won a unanimous award before a three-person panel in
the 2014 Arbitration. [DE-3 0-2].
did not disclose on the arbitrator disclosure checklist forms
the two arbitrations in which she served as a panelist and
Defense Counsel or his law firm appeared before her. [DE-31]
at 5-6. Consequently, Plaintiffs claim Albert made two false
statements on the forms by incorrectly affirming the answers
on the disclosure checklists were complete and accurate, when
in fact the checklists omitted the relationship with Defense
Counsel. Id. Albert did, however, disclose this
relationship on at least two other disclosure checklists in
subsequent arbitration proceedings involving Defense Counsel
and Plaintiffs' attorney ("June and July 2016
Arbitrations"). [DE-34] at 5. In the June and July 2016
Arbitrations, Albert's disclosure checklist forms
indicated she "had... professional, social, or other
relationships or interactions with counsel for any of the
parties in [the] arbitration or their law firms."
Id. Albert clarified these answers by explaining she
had served on prior FINRA panels involving Plaintiffs'
attorney and Defense Counsel. [DE-35-1].
served document subpoenas dated June 5, 2017, on each of the
Arbitrators, seeking (1) copies of the answers filed by any
respondent in a listing of specifically-identified FINRA
Dispute Resolution matters; and (2) copies of the answers
filed by any respondent in any other FINRA Dispute Resolution
matters where any of the Arbitrators presided and certain
counsel, including Defense Counsel, represented LPL
Financial. [DE-25-1 through -25-3]. In response to the
subpoenas, the Arbitrators filed the instant motion to quash
the subpoenas. [DE-23].
parties disagree regarding the standard applicable to the
instant discovery dispute. The Arbitrators contend that
Plaintiffs must demonstrate "clear evidence of
impropriety" to justify post-award discovery from an
arbitrator. [DE-24] at 4-7. Plaintiffs contend that the
relevance standard of Fed.R.Civ.P. 26(b) governs document
subpoenas related to the issue of arbitrator bias, and the
clear evidence standard is only applicable when a party is
seeking to depose an arbitrator or the discovery is aimed at
questioning the merits of the arbitrator's decision.
[DE-31] at 2-4. The court agrees with the Arbitrators that
Plaintiffs must demonstrate clear evidence of impropriety to
obtain the requested documents from the Arbitrators.
Federal Arbitration Act ("FAA"), 9 U.S.C.
§§ 1 et seq., governs the instant case.
See Glass v. Kidder Peabody & Co., 114 F.3d 446,
458 (4th Cir. 1997) (noting the FAA's applicability to an
arbitration involving a brokerage account dispute); Smith
Barney, Inc. v. Bardolph, 131 N.C.App. 810, 812, 509
S.E.2d 255, 257 (1998) (stating that brokerage agreements
"fall within the broad construction" of the FAA).
This is so despite Plaintiffs' assertion of both federal
and state law as grounds for vacatur. See Carpenter v.
Brooks, 139 N.C.App. 745, 749, 534 S.E.2d 641, 645
(2000) (concluding the FAA rather than the North Carolina
Uniform Arbitration Act applied to a motion to vacate an
arbitration award related to a brokerage contract, which
implicated interstate commerce). Once applied, "[t]he
'body of federal substantive law' generated by
elaboration of [the] FAA ... is equally binding on state and
federal courts." Vaden v. Discover Bank, 556
U.S. 49, 59 (2009) (quoting Southland Corp. v.
Keating, 465 U.S. 1, 12 (1984)).
proceedings under the FAA, the Federal Rules of Civil
Procedure govern except to the extent Title 9 provides other
procedures. Fed.R.Civ.P. 81 (a)(6)(B); see Application of
Deiulemar Compagnia Di Navigazione S.p.A. v. M/VAllegra,
198 F.3d 473, 482 (4th Cir. 1999) (recognizing that
"Rule 81  would authorize a district court, in
enforcing an arbitration agreement, to 'order discovery
pursuant to Fed.R.Civ.P. 26 on matters relevant to the
existence of an arbitration agreement.'") (citation
omitted). The Federal Rules generally allow parties to
"obtain discovery regarding any nonprivileged matter
that is relevant to any party's claim or defense and
proportional to the needs of the case ...." Fed.R.Civ.P.
26(b)(1). Notwithstanding, the weight of persuasive case law
demands a heightened showing of "clear evidence of
impropriety" to obtain discovery from a non-party
arbitrator. See Lucent Techs. Inc. v. Tatung
Co., 379 F.3d 24, 32 (2d Cir. 2004) (concluding
discovery into potential arbitrator bias was not appropriate
where the party "has not presented the 'clear
evidence of impropriety' we have held necessary before
granting post-award discovery into potential arbitrator
bias.") (citing Andros v. Marc Rich & Co.,
A.G., 579 F, 2d 691, 702 (2d Cir. 1978)); Van Pelt
v. UBS Fin. Servs., No. 3:05-CV-477, 2006 WL 1698861, at
*2 (W.D. N.C. June 14, 2006) (applying the clear evidence of
impropriety standard and denying discovery of an
arbitrator's employment records to determine whether he
failed to disclose a to material fact); see also Trans
Atlantic Lines LLC v. Am. Steamship Owners Mut. Prot. &
Indem. Ass'n, Inc., 253 F.Supp.3d 725 (S.D.N.Y.
2017) ("In order to take discovery from the ADR panel
itself, a litigant must present 'clear evidence of
impropriety, ' such as bias or corruption.")
the Fourth Circuit Court of Appeals has not squarely
addressed the issue, it has recognized that
there exists a strong federal policy favoring arbitrability.
Moses H. Cone Memorial Hospital v. Mercury Constr.
Corp.,460 U.S. 1, 24-25 (1983). Concomitant with this
federal policy favoring arbitration is the belief that the
arbitration process, as the forum selected by the parties for
the resolution of their dispute, must operate with a minimum
of judicial supervision. The arbitration process represents a
faster and less expensive alternative to litigating disputes
in court. As a result, the arbitration process must not
become but the first step in the ...