The Expert's Examiner

Evan K. Halperin Revocable Living Trust v. Charles Schwab & Co. Inc., No. 21-cv-8098 (S.D.N.Y. Sep. 19, 2022)
January 10, 2023

Evan K. Halperin Revocable Living Trust v. Charles Schwab & Co. Inc., No. 21-cv-8098 (S.D.N.Y. Sep. 19, 2022)

A federal court rejected the contention of an unsuccessful customer claimant that a FINRA arbitration panel’s failure to compel the respondent broker-dealer to produce evidence amounted to “refusing to hear evidence” and “evident partiality.”

The court’s decision denied the claimant Trust’s motion to vacate and granted respondent Schwab’s counter-motion to confirm the August 30, 2021 Award. The identically titled underlying dispute alleged that the Trust was involuntarily logged out of its account with Schwab’s online trading platform while attempting to complete various option trades due to “certain security features” of the platform.

The Discovery Process and Award
Since the case turned on the fate of the Trust’s eight discovery motions, the Court discusses those motions in some detail. The Panel granted the first motion to compel in part, but denied a subsequent “motion to clarify and/or supplement” that order as: “frivolous and an abuse of the discovery process.” In response to the Trust’s next set of three discovery motions, which alleged incomplete compliance with the first one, the Panel compelled production of some of the requested documents, but restricted the relevant date range to the calendar year 2018 and ordered the parties to meet and confer on narrowing the scope of disputed dates of trades. The Trust denied the Trust’s last three discovery motions, but ordered Schwab to provide an affidavit affirming that electronically stored information (ESI) in the form of fraud parameter reports the Trust demanded it produce did not, in fact, exist, and Schwab complied. After an evidentiary hearing, the Panel issued an Award denying the Trust’s claim and ordering it to pay Schwab $100,000 in attorney fees and $42,750.22 in costs.

Some Judicial Housekeeping
Before reaching the merits of the petition to vacate, the Court addresses two steps taken by the Trust in the vacatur proceeding. First, the Trust filed a certificate of default against Schwab on the ground that the latter did not respond to the Trust’s first ground for relief. Ruling that “[t]his assertion is demonstrably untrue,” the Court vacates the certificate. Secondly, the Court denies the Trust’s motion to strike a declaration Schwab filed in court because all of the declaration’s exhibits were part of the arbitration record and were therefore entitled to be considered.

Fundamentally Fair…
The Trust raised two bases for vacatur under section 10 of the Federal Arbitration Act (“FAA”). Its first argument was that, in refusing to grant its discovery motions, “the arbitrators were guilty of misconduct in … refusing to hear evidence pertinent and material to the controversy” under subsection (a)(3). The Court construes this ground as requiring a violation of “fundamental fairness” and notes that this provision: “has been ‘narrowly construed so as not to impinge on the broad discretion afforded arbitrators to decide what evidence should be presented.’” The Court discerns no violation of fundamental fairness here. On the contrary, it finds: “The Panel’s decision to require Schwab to represent in a declaration, under the penalty of perjury, that it does not maintain the specific ESI sought by the Trust speaks to the Panel’s careful consideration of the evidentiary issue at hand, rather than any fundamental unfairness.” Furthermore, the Trust could have called the affiant of the declaration as a witness to question him on his knowledge of the alleged fraud detection system, but did not.

… And No Evident Partiality
The Trust also argued that the Panel was guilty of “evident partiality” under FAA section 10(a)(2), based on its denials of its discovery motions. The Court likewise rejects this ground because: “Fundamental fairness does not mean that a party must win a minimum percentage of motions.” In any case, the Panel agreed in part with some of the Trust’s discovery motions, and even required Schwab to submit a sworn declaration affirming that the fraud parameter reports did not exist. In addition to confirming the Award, the Court awards prejudgment interest on the Award because the Trust did not overcome the presumption in favor of such relief, and provisionally grants attorney fees and costs incurred by Schwab in connection with enforcing the Award, because the arbitration agreement required the party resisting enforcement to pay them.

(ed: *Seems right to us! ** This Squib was prepared by Harry A. Jacobowitz, President of HAJ Research and Writing LLC. Mr. Jacobowitz, a member of the Pennsylvania bar, and his firm perform legal research and writing for attorneys and handle substantive searches of SAC’s Award database. He can be contacted at