In Wiand v. Schneiderman, Case No. 14-11203 (decided February 10, 2015), the United States Court of Appeals for the Eleventh Circuit held that a receiver appointed by a federal court was bound to adhere to existing arbitration agreements when performing activities as a receiver.

A federal court had appointed the appellant, Burton Wiand, as a receiver for six hedge funds that were alleged to have been part of a Ponzi scheme. The receiver was appointed to marshal the assets of the hedge funds in order to compensate the defrauded investors. As a part of that effort, Mr. Wiand initiated cases against investors in the funds who had “profited” during the execution of the Ponzi scheme by virtue of having received distributions greater than their investments. In one of those cases, the targeted investor claimed that an arbitration agreement in the limited partnership agreement and the subscription agreement that documented his investment required that any claims against him to be decided by an arbitrator. The federal district court agreed. The matter went to arbitration and the investor prevailed on the receiver’s claims. The receiver returned to federal court seeking to vacate the arbitration award on the grounds, among others, that the matter never should have been sent to arbitration.

The Eleventh Circuit agreed that arbitration was required and affirmed the award. Although the Court acknowledged the receiver was appointed pursuant to a federal statute, the Court concluded that the statute merely allowed the federal district court to appoint a receiver with the authority to marshal assets. The statute did not vest the district court with the authority to hear all disputes relating to the property being marshaled or prescribe a forum for hearing such disputes. Therefore, under the Federal Arbitration Act, the receiver was obligated to respect arbitration agreements.  The investor’s obligations and rights relating to his investment were governed by a contract that included an arbitration clause. The receiver’s arguments that the contract was void or unenforceable were matters addressing the contract’s validity, which needed to be decided by the arbitrator.

The case represents another strong endorsement by the Eleventh Circuit of the enforceability of arbitration agreements.

The Opinion can be found at http://media.ca11.uscourts.gov/opinions/pub/files/201411203.pdf

For more information on Arbitration Agreements, contact your Appellate Counsel at Smith, Gambrell & Russell.