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WSJ Compliance Watch: Morgan Keegan Asks Court to Vacate Awards
By Suzanne Barlyn
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(August 4, 2009 - Tuesday) - In an unusual action, the company is asking a state court to overturn the rulings, angering lawyers for investors who say Morgan Keegan is prolonging their clients' trouble and expense.
Morgan Keegan, a regional brokerage owned by Birmingham-based Regions Financial Corp. (RF), has faced a flood of claims by investors who were hit by sizable losses in 2007 and 2008 in seven funds that made bets in debt and other mortgage-related holdings.
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 very difficult to win, and thus rarely are made, says Peter Henning, a securities law professor at Wayne State University Law School in Detroit.
"The presumption is that arbitration is the end. You don't have judges second-guessing it," he says.
Kathy Ridley, a Morgan Keegan spokeswoman, acknowledged the appeals were unusual "but we believe the arbitrators exceeded their authority or improperly applied the law."
Morgan Keegan filed its motions to vacate in a Birmingham, Ala., court. The most recent appeal was filed July 22 and involved a $220,000 award including attorney’s fees and costs. In that case, the brokerage argues that the panel's chairman, who previously sat on another panel that ruled against Morgan Keegan, should have been rescued, according to Debra Brewer Hayes, a Houston-based securities attorney who represents the investor.
Hayes' client in the case is United Prison Ministries International in Verbena, Ala., which distributes free bibles and religious books to prisoners and their families. She says the $220,000 award is about half the original request and calls it "level and even handed."
The appeal, she says, could prolong the case another eighteen months to two years. Hayes says she's dealt with only one or two other motions to vacate during her more than 20 years of practice.
In another appeal, filed in May, Morgan Keegan asked the court to vacate an award totaling over $628,000 on behalf of two investors. The motion accuses arbitrators of misconduct for not postponing a hearing during which the investors presented suitability claims. The investors, Morgan Keegan says, had "disavowed" such claims.
Andrew Stoltmann, a Chicago-based attorney who represents the investors, calls the allegation "categorically not true." He said it was the second motion to vacate he has faced in some 700 cases over 10 years.
A third motion to vacate, also filed in May, says an arbitration panel exceeded its authority in awarding more than $187,000 in damages, attorneys fees and costs, according to Steven B. Caruso, a New York attorney who represents the investor.
Henning, the law professor, calls the motions "basic trendsetter cases."
"They may be trying to get the test cases sorted out, see what a court would say, and then they can go about settling," he says.
But the strategy - and its delays - may also come with a price tag, says Caruso. "Who pays for it? The shareholders of Regions Financial," he says.
(Suzanne Barlyn writes Compliance Watch, a column that focuses on compliance and regulatory issues affecting financial advisers. She can be reached at 212-416-2230 or by email at suzanne.barlyn@dowjones.com)
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