FAA Is Subject to Equitable Tolling: Ninth Circuit | Practical Law

FAA Is Subject to Equitable Tolling: Ninth Circuit | Practical Law

In Move, Inc., v. Citigroup Global Markets, Inc., the US Court of Appeals for the Ninth Circuit held that the Federal Arbitration Act (FAA) is subject to equitable tolling.

FAA Is Subject to Equitable Tolling: Ninth Circuit

Practical Law Legal Update w-004-4323 (Approx. 4 pages)

FAA Is Subject to Equitable Tolling: Ninth Circuit

by Practical Law Litigation
Law stated as of 04 Nov 2016 • California, USA (National/Federal)
In Move, Inc., v. Citigroup Global Markets, Inc., the US Court of Appeals for the Ninth Circuit held that the Federal Arbitration Act (FAA) is subject to equitable tolling.
On November 4, in Move, Inc., v. Citigroup Global Markets, Inc., the US Court of Appeals for the Ninth Circuit held that the Federal Arbitration Act (FAA) is subject to equitable tolling ( (9th Cir. Nov. 4, 2016)).
Citigroup Global Markets, Inc. (Citigroup) managed an investment account for Move, Inc. (Move). In connection with its investments, Move entered into a client agreement with Citigroup that required arbitration of all disputes. Move later commenced arbitration proceedings before a three-member FINRA panel, alleging that Citigroup mismanaged Move’s funds by investing in speculative auction rate securities. The FINRA panel issued a unanimous award denying Move’s claims in 2009.
In March 2014, Move learned that James H. Frank, one of the three arbitrators and chair of the FINRA tribunal, had lied about being a licensed attorney and had been impersonating a retired California attorney. FINRA later confirmed this discovery.
Move filed a complaint and a motion to vacate the arbitration award in June 2014 in federal district court, arguing that Mr. Frank’s misrepresentations warranted vacatur. Although 9 U.S.C. § 12 provides that a party must serve notice of a motion to vacate an arbitration award within three months after the arbitrator or panel delivers the award, Move argued the deadline should have been equitably tolled. Citigroup moved to dismiss.
The district court denied Move’s motion to vacate and granted Citigroup’s motion to dismiss. The court ruled that equitable tolling is available under the FAA, but that Move failed to demonstrate an adequate ground for vacatur under the FAA.
The Ninth Circuit upheld the lower court's ruling that the FAA is subject to equitable tolling. The Ninth Circuit reasoned that:
  • There is a rebuttable presumption that limitations periods are subject to equitable tolling.
  • The text of the FAA does not preclude equitable tolling.
  • The FAA’s structure is not incompatible with equitable tolling.
  • Equitable tolling would not undermine the basic purpose of the FAA, which Congress enacted to make valid and enforceable written agreements to arbitrate disputes.
The Ninth Circuit disagreed with the lower court regarding Move's entitlement to vacatur. Under section 10(a)(3) of the FAA, courts may vacate an arbitration award where the arbitrators were guilty of "misbehavior by which the rights of any party have been prejudiced." Here, the Ninth Circuit held, the tribunal chairperson's fraudulent conduct deprived Move of a fundamentally fair hearing and therefore prejudiced Move.