A federal judge in Pennsylvania has confirmed a $1.4 million arbitration award resolving a contractual dispute between a nationally recognized securities rating organization (NRSRO) and its exclusive distributor of ratings services.

By P.J. D'Annunzio | April 20, 2020 at 06:30 PM

A federal judge in Pennsylvania has confirmed a $1.4 million arbitration award resolving a contractual dispute between a nationally recognized securities rating organization (NRSRO) and its exclusive distributor of ratings services.

In Pruette v. Egan Jones Ratings, U.S. District Judge Jeffrey Schmehl of the Eastern District of Pennsylvania granted defendant Egan Jones Ratings Co.’s motion to confirm the award in a legal action filed by Steven Pruette and Christopher Pruette, referred to as “Pruette” in the opinion, on behalf of InSearch Partners.

According to Schmehl’s April 16 opinion, the exclusive distribution agreement between the two companies stated that the Pruette, through InSearch Partners, would solicit and accept orders for the securities rating service provided by EJR. The judge said that at some point EJR took on another distributor, Peter Arnold, to do work covered by the agreement.

An arbitrator ultimately determined that EJR breached its contract with InSearch and awarded $1,385,552 plus $51,791 for arbitration costs, fees and expenses to Pruette.

Pruette took issue with the arbitrator’s award as it did not cover all the categories of damages Pruette wanted and asked that the award be partially vacated. EJR argued that the award should be confirmed in its entirety.

Pruette claimed the arbitrator was wrong in believing he was precluded from awarding damages for lost commissions prior to 2014 on the basis of functus officio.

“After extensive review of the record in this matter, I find that there is no evidence to support Pruette’s argument as to this issue. First, it is important to point out that the parties in this matter did not require, and therefore, the arbitrator did not prepare, a reasoned opinion as to damages,” Schmehl said. “His opinion gave no explanation for the amounts that he chose to award or not award as damages; it merely listed the amounts of damages awarded. Any contention by Pruette that the reason for the arbitrator’s damages award was due to his feeling constrained by the functus officio doctrine is pure speculation, as no opinion exists to explain the damages award in any detail and the arbitrator never mentioned functus officio at any time.”

Schmehl continued, “In summary, no one, including this court, can definitively state why or how the arbitrator calculated damages in this case. Any attempt to do so would be pure speculation, and as district court review of arbitration decisions is quite narrow, this court will not rely on conjecture to vacate or remand an otherwise valid decision of an arbitrator.”

Bruce Chasan represents Pruette and did not respond to a request for comment. Patrick Henigan of Eckell, Sparks, Levy, Auerbach, Monte, Sloane & Matthews represents EJR and also did not respond to a request for comment.