California Appellate Court Upholds Arbitration Award Against Plaintiff Hedge Fund, Even Though One of the Defendant Law Firms in the Arbitration Never Filed a Separate Petition to Compel the Arbitration

A California appeals court has rejected an attempt by hedge fund Vigilant Investors, L.P. (Vigilant) to have a second bite at the apple after receiving an unfavorable arbitration award in an action against its former attorneys.  In a legal fee and malpractice dispute arising out of Vigilant’s underlying action against its prime broker ABN Amro (which action was also arbitrated), Vigilant sued various attorneys and law firms that represented Vigilant in the underlying suit.  Vigilant was dissatisfied with the arbitration award made in favor of one of those law firms and moved in California Superior Court to overturn the arbitration award, primarily on procedural grounds.  The Superior Court upheld the award and Vigilant appealed.  The Court of Appeal ruled that, because all parties had consented to the arbitration of all claims, Vigilant could not now challenge the arbitral award.  We summarize the procedural background and the Court’s reasoning.  For a recent discussion of the “exceedingly heavy burden” imposed by the Federal Arbitration Act on a party seeking to overturn an arbitration award, see “A Prime Broker that Fails to Diligently Investigate the Sources of Funds in a Hedge Fund’s Margin Account May Be Jointly and Severally Liable, with the Fund and Its Manager, for Fraud by the Manager, to the Extent of Funds in the Account” Hedge Fund Law Report, Vol. 3, No. 47 (Dec. 3, 2010).

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