The Fifth Circuit today handed down a decision involving arbitration. Bulko v. Morgan Stanley DW Inc. involved a dispute between Simon A. Bulko and Morgan Stanley and a Morgan Stanley.
After losing $16 million within a 14-month period, Bulko initiated a National Association of Securities Dealers (NASD) arbitration against Morgan Stanley. Because his claim exceeded $50,000, NASD requires a three-member panel consisting of two public and one non-public arbitrator. When the non-public arbitrator withdrew, NASD proposed replacing the arbitrator with a lawyer who said, in her application, that she was a commercial litigator emphasizing securities law. The parties accepted NASD's recommendation. In 2000, the lawyer advised the NASD that she was no longer practicing law full time. It turned out that she had taken inactive status from Texas bar in 1999.
When the panel subsequently ruled in Morgan Stanley's favor, Bulko appealed to the decision to a federal district court. The court found that the lawyer was not qualified to serve as a non-public arbitrator, granting summary judgment in Bulko's favor and ordering the parties to submit the dispute to another arbitration panel.
On appeal to the Fifth Circuit, the appellate court reversed. The court found that regardless of the lawyer's status as a practicing attorney, she was selected pursuant to the NASD's rules. Moreover, those rules do not require the non-public arbitrator to be a practicing attorney. Finally, even if the lawyer's participation contradicted the parties' arbitration agreement, the departure was too "trivial" to warrant vacatur of the arbitral award.
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