Arbitrators Cannot Sanction Attorneys

After nearly 4 years, a Court vacates a $700,000 arbitrator sanction against trial counsel

CIBC Oppenheimer Corp. v. Friedman, No. B141521 (Cal. App., 2Dist., 2/21/02).

Agreement to Arbitrate * Vacatur of Award * State Law, Applicability of * Exceeding Powers * Sanctions (Arbitral) * Breadth of Agreement * State Statutes Interpreted (Calif. CCP §§128.5 ad 128.7).

An Attorney representing parties in arbitration does not, by his/her representation, agree to submit to the sanction powers of the Arbitrators.

The Pacific Stock Exchange Award in this matter shocked everybody, with a breathtaking $700,000 sanction against Claimants and their counsel (PCX ID #98-S017). We have been following the progress of this Award from its issuance (SAA 00-01) to its confirmation, without reason or analysis, by the trial court (SLA 2000-03) through the ancillary actions that have followed in the wake of the arbitration (see Paul v. Friedman, SLA 2002-05).

At the point this Court decides the issue of the propriety of the sanctions, the Claimants have settled and only the lawyer, Michael Friedman, remains opposed. Mr. Friedman contends that the arbitrators lacked the power to impose sanctions against him, arguing that he was not a party to the arbitration agreement, and only acted as counsel to claimants in the arbitration.

The Court agrees.

The scope of arbitration is a matter of agreement between the parties and the powers of the arbitrators are also circumscribed by the parties’ agreement. Arbitrators possess power, the Court agrees with Respondents, to award attorney fees against the claimants, especially where, as here, there is no limiting language. However, the Arbitrators exceed their powers where they sanction counsel. “We decline to extend the broad reach of arbitration agreements to attorneys employed only to represent parties during arbitrations by making such trial attorneys parties to the contract being enforced in the arbitration…. Friedman’s representation of the claimants at the arbitration cannot be construed as his agreement to become a party to the arbitration agreement.” (SAC Ed: The Court ends its Opinion with a quizzical paragraph that appears to state, after the earlier iterations about the power to sanction parties, that the Court would have vacated the award of sanctions against the Claimants as well on notice grounds. California rules require 30 days notice that a tribunal is considering sanctions. “The arbitrators never provided notice they were considering sanctions, and thus did not comply with the notice and time requirements of [CCCP] sections 128.5 and 128.7…. Friedman is also entitled to have the sanctions award against him vacated for this reason.”) (SLC Ref. No. 02-09-02)

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Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.

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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

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