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Click here for the full text of this decision FACTS:Morgan Stanley DW Inc. customer Simon Bulko initiated an arbitration action against Morgan Stanley and one of its stockbrokers, Shane Khubchandani, over Bulko’s $16 million loss over a 14-month period. The arbitration was governed by rules of the National Association of Securities Dealers, which required a three-member panel to hear the case. The panel was to consist of two public and one non-public arbitrator. A non-public arbitrator was defined as “an attorney, accountant, or other professional who has devoted 20 percent or more of his or her professional work, in the last two years, to clients who are engaged” in the securities industry.” The originally designated non-public arbitrator was withdrawn, and Mary Beth Marshall was put on the panel instead. Marshall was a shareholder with her law firm, and securities law made up half of her commercial litigation practice. In 2000, Marshall informed the NASD that she was not practicing law full time. Morgan Stanley and Bulko were informed of all of this, but neither party objected. After the panel ruled in Morgan Stanley’s favor, Bulko discovered that Marshall had not practiced law since 1999 because she took inactive status that year with the Texas State Bar. Bulko thus contested the award, saying the panel acted outside the scope of its authority because it was not properly constituted. A federal district court agreed and vacated the award. HOLDING:Reversed and rendered. The court acknowledges several cases that have involved vacating an arbitration award because arbitrators were selected pursuant contrary to the contract’s terms. The court points out that in this case, however, the contract governing Bulko’s dispute with Morgan Stanley is not a part of the appellate record. Even so, it is undisputed that the parties agreed to submit their dispute to arbitration and that they agreed to abide by NASD rules. Furthermore, NASD rules were followed. Bulko claims only that Marshall was unqualified to serve pursuant to that method. The court notes that even after the move to vacate the award was underway, NASD continued classifying Marshall as a non-public arbitrator in the light of her employment history, although she had not practiced law since 1999. Although it is unclear whether the NASD had full disclosure from Marshall, the action was public information. It is thus reasonable to infer the NASD had available to it all relevant information on Marshall. Contrary to Bulko’s contention, the NASD Code does not limit non-public arbitrator eligibility to practicing attorneys-at-law. In the absence of a specific agreement to the contrary, determining Marshall’s qualifications and eligibility is a matter left to NASD. Even assuming Marshall’s selection did contradict the parties’ agreement, the departure was trivial, not warranting a vacatur. “Based on her work experience, Marshall fulfilled the purpose of a non-public arbitrator, which is to serve as an industry insider on the arbitration panel. And, as discussed, the NASD continues to classify Marshall as a non-public arbitrator due to that experience.” The court further notes that the parties had some notice that Marshall was not practicing law full time, but neither party asked for further information, object or did any independent investigation. OPINION:Barksdale, J.; King, Barksdale and Prado, J.J.

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