GOLDMAN, SACHS & CO., SCOTT T. SHEFFER, and ERIC W. GETTLEMAN Applicants
ATHENA VENTURE PARTNERS, L.P. Respondent
MEMORANDUM AND ORDER
J. CURTIS JOYNER, J.
This miscellaneous matter is presently before the Court for resolution of the parties’ cross-motions to (1) confirm and (2) vacate/remand an arbitration award entered on March 13, 2013 by a FINRA arbitration panel. For the reasons articulated below, the Applicants’ motion to confirm shall be denied and Respondent’s motion to vacate and remand granted.
History of the Case
The genesis of the underlying dispute in this matter is Respondent, Athena Venture Partners, L.P.’s decision to invest in Goldman Sachs’ Liquidity Partners 2007, L.P. Fund in August, 2007. According to Athena’s Statement of Claim filed on August 12, 2009 with FINRA, in the summer of 2007 Goldman Sachs, acting through Scott Sheffer and Eric Gettleman, solicited its investment in a new Goldman Fund - Liquidity Partners 2007, purportedly describing it as a “terrific, low principal risk, short term investment with potential higher yields than other available cash investments.” (Statement of Claim, p. 1). Athena further averred that Goldman induced its investment in the fund by representing that it would purchase “a diverse portfolio of very safe, AAA-rated debt securities temporarily available at depressed prices due to market conditions and sell those securities at a profit after market prices returned to normal.” (Statement of Claim, p. 2). In reliance upon these representations, Athena invested $5 million in the Liquidity Partners 2007 Fund, but in fact, the Fund was “never managed as the safe ‘buy and hold,’ fixed-income fund it was represented to be,” but was instead heavily leveraged. As a result, after 15 months Athena had lost over $3 million of its original $5 million investment.
Not surprisingly, Goldman, Sheller and Gettleman (the Applicants here)refute Athena’s version of events. Rather, they assert that Respondent Athena was a sophisticated investor that was well-aware of the speculative nature of the fund’s proposed investments, use of leverage, and risks of loss by virtue of its having received a Private Placement Memorandum which explained all of these facts in advance of its investment in the fund. Thus, Applicants denied making any fraudulent or reckless misrepresentations or non-disclosures and further denied any and all liability for the losses incurred.
A three-member panel of arbitrators heard evidence in Philadelphia on November 2-4, 2011 and October 8-12 and 15, 2012. The written arbitration decision was issued on March 13, 2013 finding Athena’s allegations to be false and/or clearly erroneous, denying the claim in its entirety and recommending the expungement of all references to the arbitration/claim from Mr. Sheffer’s registration records with the Central Registration Depository (“CRD”). (Arbitration Award, p. 3). The Award, however, was, the Goldman parties filed the Application for Order Confirming Arbitration Award which is now before us. In addition to filing a response opposing confirmation, Respondent Athena filed, on June 7, 2013, its Motion to Vacate and Remand Arbitration Award which is likewise now pending.
It has been recognized that “[a] prime objective of an agreement to arbitrate is to achieve ‘streamlined proceedings and expeditious results.’” Preston v. Ferrer, 552 U.S. 346, 357-358, 128 S.Ct. 978, 986, 169 L.Ed.2d 917 (2008)(quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 633, 105 S.Ct. 3346, 87 L. Ed. 2d 444 (1985)). Because there previously existed a “longstanding judicial hostility to arbitration agreements,” Congress enacted the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16,” “[t]o overcome judicial resistance to arbitration.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 S.Ct. 1204, 1207, 163 L. Ed. 2d 1038 (2006); Green Tree Financial Corporation - Alabama v. Randolph, 531 U.S. 79, 89, 121 S.Ct. 513, 521, 148 L. Ed. 2d 373, 382 (2000). See also, Nitro-Lift Technologies, L.L.C. v. Howard, __ U.S. __, 133 S.Ct. 500, 503, 184 L. Ed. 2d 328, 332(2012)([Federal Arbitration Act ... “declares a national policy favoring arbitration...”)(citing Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L. Ed. 2d 1 (1984)). It is Section 2 of the Act which embodies the national policy favoring arbitration. See, Buckeye, supra. By this provision, the FAA explicitly permits the use of arbitration and specifically authorizes individuals in commercial transactions to contract for arbitration. Dluhos v. Strasberg, 321 F.3d 365, 369 (3d Cir. 2003).
Once an agreement to arbitrate has been established, the FAA further provides a mechanism for ensuring that an award issued pursuant thereto may be enforced. In this regard, Section 9 of the Act decrees:
If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title [9 U.S.C. §§ 10, 11]. If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made. Notice of the application shall be served upon the adverse party, and thereupon the court shall have jurisdiction of such party as though he had appeared generally in the proceeding. If the adverse party is a resident of the district within which the award was made, such service shall be made upon the adverse party or his attorney as prescribed by law for service of notice of motion in an action in the same court. If the adverse party shall be a nonresident, then the notice of the application shall be served by the marshal of any district within which the adverse party may be found in like manner as other process of the court.
A deferential standard of review applies to the arbitration award itself. Sutter v. Oxford Health Plans, LLC, 675 F.3d 215, 219 (3d Cir. 2012); Metromedia Energy, Inc. v. Enserch Energy Services, Inc, 409 F.3d 574, 578 (3d Cir. 2005). Indeed, reviewing courts “do not entertain claims that an arbitrator has made factual or legal errors.” Id. Instead, once a case has been arbitrated, a strong presumption attaches under the FAA that the award should be enforced. Brentwood Medical Associates v. United Mine Workers of America, 396 F.3d 237, 241 (3d Cir. 2005).
As referenced in Section 9, while review must be deferential, this does not mean that an arbitral award can never be challenged. The FAA, however, provides only four grounds upon which arbitral awards may be vacated and the Supreme Court has declared those four grounds to be exclusive. Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 1403, 170 L. Ed. 2d 254 (2008). Specifically, Section 10(a) states:
(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration -
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
“In sum, when parties agree to resolve their disputes before an arbitrator without involving the courts, the courts will enforce the bargains implicit in such agreements by enforcing arbitration awards absent a reason to doubt the authority or integrity of the arbitral forum. Sutter, supra. “An [arbitration] award is presumed valid unless it is affirmatively shown to be otherwise,” and “[t]he party seeking to vacate the award bears the burden of proving that vacatur is appropriate.” Popkave v. John Hancock Distributors, LLC, 768 F.Supp.2d 785, 789 (E.D. Pa. 2011)(quoting, inter alia, Dluhos, 321 F.3d at 370 and Franko v. Ameriprise Fin. Servs., No. 09-09, 2009 U.S. Dist. LEXIS 48907 at *9 (E.D. Pa. June 11, 2009)). See also, Southco, Inc. v. Reele Precision Manufacturing Corp., No. 08-2915, 331 Fed.Appx. 925, 928, 2009 U.S. App. LEXIS 12762 at *8 (3d Cir. June 16, 2009)(same). The four grounds for vacatur delineated in Section 10(a) of the FAA are exclusive and may not be supplemented by contract. Sutter, supra, (citing Hall Street Associates, 552 U.S. at 584). “Likewise, an arbitrator’s ‘improvident, even silly, factfinding’ does not provide a basis for a reviewing court to refuse to enforce the award.” Metromedia Energy, 409 F.3d at 578 (quoting Major League Umpires Assoc. v. American League of Professional Baseball Clubs, 357 F.3d 272, 279-280 (3d Cir. 2004) and Major League Baseball Players Ass’n v. Garvey, 532 U.S. 504, 509, 121 S.Ct. 1724, 149 L. Ed. 2d 740 (2001)).
Here, Respondent argues that “the Arbitration panel exceeded its powers by proceeding with the Arbitration hearing and rendering an Award notwithstanding the disqualifying conduct of one of the three arbitrators assigned by FINRA to participate in the arbitral process.” (Respondent’s Memorandum of Law in Support of Motion to Vacate and Remand Arbitration Award, at p. 2. [emphasis in original]). This means that the award was not authorized by the parties’ agreement to arbitrate insofar as the agreement had provided that the panel was to be comprised of at least three arbitrators qualified under FINRA’s rules, standards and code of conduct. (Respondent’s Reply Brief in Support of Motion to Vacate, p. 1).
Pursuant to its investment in the Liquidity Partners 2007 Fund, Gary DiLella, Athena’s Chief Financial Officer, executed a Subscription Agreement on August 14, 2007 relative to the ...