An Alabama state court has denied a request by Morgan Keegan & Co. to fully overturn a securities arbitration award entered in favor of an investor, disagreeing with the company’s arguments that an arbitrator was allegedly biased.
Judge Nicole Gordon Still, a civil division judge in Birmingham, affirmed a $220,000 award in favor of United Prison Ministries International in Verbena, Ala., which distributes free bibles and religious books to prisoners and their families. A Financial Industry Regulatory Authority arbitration panel awarded the sum in July 2009.
The claim was related to a family of bond funds steeped in mortgage-related holdings that suffered sizable losses in 2007 and 2008 when the housing bubble burst.
Morgan Keegan & Co., a unit of Birmingham-based Regions Financial Corp. (RF), filed the court case seeking to appeal the award shortly thereafter, as previously reported by Dow Jones Newswires. The brokerage argued that the panel’s chairwoman, who previously sat on another panel that ruled against Morgan Keegan, should have been recused, according to court documents.
Judge Gordon Still disagreed in a ruling made on Tuesday, saying there was “no specific instance” of the chairwoman “showing bias or prejudice against Morgan Keegan.”
“The mere fact that she has served on arbitration panels of Morgan Keegan, and has ruled against Morgan Keegan in the past, is not enough to establish bias or prejudice,” the judge wrote in an opinion.
Arbitration awards are typically binding. Federal arbitration law gives parties the right to appeal awards only under very limited circumstances, such as when arbitrators clearly ignore established law. Appeals are rarely granted, say lawyers.
The court did, however, agree to overturn a $20,000 award for expert fees that was calculated in error, according to the ruling.
“It’s a good victory,” says Debra Brewer Hayes, a lawyer in Houston, who represented the investor. “It’s very affirming that the judge did the right thing.”
Philip Aidikoff, a securities lawyer in Beverly Hills, Calif., says the arguments of alleged bias are “absurd.”
“It’s not unusual for a person on one panel to be chosen to sit on another panel,” he says, especially in a situation that involves so many investor claims. About 700 claims are pending against Morgan Keegan. “There is a limited number of people in each geographic pool to be selected for arbitration panels,” he says.
A Morgan Keegan spokeswoman says five awards appealed by the company have been decided. Courts have overturned awards in three of those cases, she says.
“Morgan Keegan appealed the case because we believed the panel was biased and that the award was inaccurately computed,” she says. “The court found our submission compelling and reduced the judgment rather than ordering a retrial.”