Penson Financial Services, Inc. v. Holland (Maryland U.S.D.C.)

Filed: February 18, 2010

Opinion by Judge Catherine C. Blake

Held: Objections to the qualifications of arbitrators or the procedure of an arbitration hearing must be raised prior to or during the arbitration hearing or are deemed to have been waived.

Facts and Analysis: Aaron Holland set up a customer account with Penson Financial Services, Inc. in 2007 by signing a Combined Customer Account Agreement. The Combined Customer Account Agreement contained several provisions in large type that provided that the parties were agreeing to a pre-dispute arbitration clause by signing the agreement and explained that all parties to the agreement were waiving their right to a court trial and to have a jury trial.

When a dispute arose regarding Holland's failure to pay a debit balance in his account with Penson, the parties proceeded to have a hearing before three arbitrators in Baltimore, Maryland. In the arbitration hearing, Penson sought $214,661.10 in compensatory damages as well as interest, attorneys' fees, and costs. After the final arbitration hearing on September 30, 2009, Penson was awarded the full amount of compensatory damages sought, but did not receive the requested interest, attorneys' fees or costs.

When, on November 12, 2009, Penson filed an application to confirm the arbitration award, Holland served a Statement of Answer on Penson's counsel, which was later submitted to the Court, requesting the denial of the arbitration award based on (i) the alleged mental competency of one of the arbitrators, (ii) the replacement of one of the arbitrators a day before the hearing without giving him an option to choose the replacement and (iii) Holland's preference for a jury trial.

In addressing Holland's opposition, the Court found that Holland had waived his objection to the arbitration award by not raising his arguments prior to or during the arbitration hearing. The Court also found that the qualifications of the arbitrator whose competency was questioned by Holland and the replacement of an arbitrator a day before the hearing were all in accordance with the Federal Arbitration Act and the arbitration rules established by the Financial Industry Regulatory Authority. With regard to Holland's preference for a jury trial, the Court found that Holland had waived his right to a jury trial by signing the Combined Customer Account Agreement.

The full opinion is available in PDF. The opinion has not been recommended for publication.