Securities dispute resolution: Enforcing awards

When investors are granted awards in FINRA arbitration, they must be paid within thirty days unless the opposing party files a motion to vacate the award in a court.  Because FINRA has authority to suspend brokerage firms or licensed brokers that do not pay arbitration awards, most investors receive their payment of awards.  Investors, however, carry a risk of not receiving awards when their opposing parties declare bankruptcy or decide to leave the securities industry.    

In the event of noncompliance with arbitration awards, investors may also seek to enforce their awards through the courts.  Title 9 of the United States Code (9 U.S.C.) on the Federal Arbitration Act provides for the enforcement of arbitration awards.  The prevailing party may sue for enforcement of the award within a year of the rendering of the arbitration award.  (See 9 U.S.C. §9.)  The losing party may request a court to vacate the arbitration award within thirty days.  The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in §10 of the Federal Arbitration Act.  These grounds are exclusive according to a Supreme Court decision in Hall Street Associates v. Mattel (2008).

Grounds for vacating an award are stated in 9 U.S.C. §10 as the following:

  1. the award was procured by corruption, fraud, or undue means;  
  2. there was evident partiality or corruption in the arbitrators, or either of them;  
  3. 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 of any other misbehavior by which the rights of any party have been prejudiced; or  
  4. 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.

Thus, a court will only vacate an award where there has been corruption, unfairness, or the arbitrators have exceeded their powers.  These grounds are extremely difficult to prove as evidence tends to be highly circumstantial.  As a result, courts rarely vacate an award.

The time limitations provided for vacating, modifying, or correcting an award are more limiting than the time limitations for enforcing the award.  While a party seeking enforcement can file a suit within a year of the rendering of the award, a party seeking to vacate an award has three months to file.  After the three month period has passed, the party has waived his or her right to seek vacation of the award.  (See 9 U.S.C. §12.)

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