In the recent case of Wiand v. Schneiderman et al., No. 14-11203 (11th Cir. 2015), the U.S. Court of Appeals for the Eleventh Circuit held that clawback claims brought by court-appointed receivers are not categorically exempt from having to arbitrate those claims subject to arbitration under the Federal Arbitration Act.
The Securities and Exchange Commission brought an emergency enforcement action against Arthur Nadel, his investment-management companies and six hedge funds connected with an alleged ponzi scheme. Burton Wiand was appointed by the district court as the receiver for six hedge funds, and he was tasked with recovering the false profits from investors so they could be redistributed amongst all investors who lost money in the scheme.
Wiand filed approximately 150 clawback actions, and the one at issue was initiated in January 2010 in the U.S. District Court for the Middle District of Florida against the estate of Herbert Schneiderman. Schneiderman’s estate moved to compel arbitration based on an arbitration agreement contained in the limited partnership agreement and the subscription agreement. The federal court granted the motion, and the matter went to arbitration.
The arbitrator granted the summary judgment motion filed by Schneiderman’s estate, which was thereafter affirmed by the district court. Wiand appealed the decision compelling arbitration and denying the motion to vacate the arbitration award.
In Wiand’s appeal, he argued that: 1) the receivership statutes creating his position preclude the use of arbitration in clawback actions; 2) even if the clawback actions are subject to arbitration as a general matter, the contract containing the arbitration clauses is void; 3) the district court erred in sending all of the claims to arbitration, including those brought by entities with which Schneiderman had no agreement whatsoever; and 4) the arbitrator exceeded his powers.
The Eleventh Circuit affirmed the district court’s decision and held that there was no inherent conflict between arbitration and the underlying purpose of court-appointed receivers pursuing clawback claims under the receivership statute (28 U.S.C. § 754). Although the Court acknowledged the receiver was appointed pursuant to 28 U.S.C. § 754, the Court concluded that the statute did not give the district courts complete jurisdiction and control over receivership properties or prescribe a forum for hearing such disputes. Therefore, under the Federal Arbitration Act, the receiver was obligated to respect the arbitration agreements contained in the relevant contract agreements.
Importantly, this case reinforces the strength of arbitration agreements in the Eleventh Circuit.