South-Western Legal Studies in Business

NASD Arbitrators Protected by Arbitral Immunity
Description Appeals court held it proper to dismiss a suit by an unhappy investor who sought to overturn a NASD award against him and also held the arbitrators protected against suit for allegedly losing or destroying evidence critical to his lawsuit.
Topic Securities Law
Key Words Investor; Arbitration; NASD; Immunity
C A S E   S U M M A R Y
Facts Pfannenstiel complained to Merrill Lynch that it had made accounting mistakes in his account. Merrill Lynch denied there were mistakes. After five years of complaining, Pfannenstiel submitted his claim to a three-member panel of National Association of Securities Dealers (NASD), requesting $217,785 plus damages. The terms of his account required disputes to go to NASD arbitration. Pfannenstiel’s claim was denied. He then claimed to have new evidence but that NASD representatives lost it after he gave it to them. He then sued Merrill Lynch on his original claim of accounting errors and sued the NASD, requesting that the arbitration ruling be vacated and that NASD be held liable for his alleged losses. The district court dismissed the complaint, holding that NASD was protected by arbitral immunity. Pfannenstiel appealed.

Affirmed. The doctrine of arbitral immunity generally rests on the notion that arbitrators acting within their quasi-judicial duties are the functional equivalent of judges. The NASD is entitled to arbitral immunity against Pfannenstiel’s claim that it was responsible for destroying or losing evidence he claimed to have turned over to it. The original decision of the arbitrators in favor of Merrill Lynch also stands and will not be vacated.

Citation Pfannenstiel v. Merrill Lynch, 477 F.3d 1155 (10th Cir., 2007)

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