Bonar v. Dean Witter Reynolds: Perjury by Expert Witness Necessitates Vacatur of Punitive Damages in Arbitration Awards

Introduction

In Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378 (11th Cir. 1988), the United States Court of Appeals for the Eleventh Circuit addressed critical issues surrounding the validity of arbitration awards when fraud is introduced by key witnesses. The plaintiffs, James and Beverly Bonar, entered into a securities trading agreement with Dean Witter Reynolds, Inc., which later culminated in arbitration proceedings where punitive damages were awarded. The defendants contested the punitive damages on grounds of fraud, specifically alleging that an expert witness had perjured himself during arbitration.

Summary of the Judgment

The Eleventh Circuit examined whether the district court erred in refusing to vacate the arbitration award of punitive damages based on fraud. The Court found that the district court indeed abused its discretion by not vacating the punitive damages awarded to the Bonars. The critical factor was the discovery that an expert witness, Thomas E. Nix, had falsified his credentials, thereby committing perjury which materially influenced the arbitration panel's decision to award punitive damages. Consequently, the appellate court reversed the portion of the judgment concerning punitive damages and remanded the case for a new arbitration hearing on that specific issue.

Analysis

Precedents Cited

The Court relied heavily on precedents that define the parameters for vacating arbitration awards due to fraud. Notably, LaFarge Conseils et Etudes, S.A. v. Kaiser Cement, 791 F.2d 1334 (9th Cir. 1986), and DOGHERRA v. SAFEWAY STORES, INC., 679 F.2d 1293 (9th Cir. 1982) were instrumental in establishing the three-part test for determining fraud under the Federal Arbitration Act (FAA). Additionally, the Court drew parallels with Harre v. A.H. Robins, 750 F.2d 1501 (11th Cir. 1985), reinforcing the notion that expert witness fraud undermines the integrity of arbitration awards.

Legal Reasoning

The Court applied a stringent analysis to determine whether the arbitration award should be vacated. The three-part test for fraud under 9 U.S.C. § 10(a) was meticulously followed:

Establishment of Fraud: Dean Witter Reynolds, Inc. presented clear and convincing evidence that Thomas E. Nix, an expert witness, had fabricated his credentials.
Non-Discoverability Through Due Diligence: The Court acknowledged that the fraud was not discoverable before or during arbitration due to the lack of opportunity to verify Nix's credentials pre-hearing.
Material Relation to Arbitration Issues: Nix's testimony was pivotal in the arbitrators' decision to award punitive damages, directly influencing the outcome.

Furthermore, the Court examined the authority of arbitrators to award punitive damages, concluding that under the customer agreement and the FAA, such an award was permissible. The Court also addressed procedural aspects, affirming that Dean Witter's amended motion to vacate was timely under Rule 15 of the Federal Rules of Civil Procedure.

Impact

This judgment reinforces the integrity of arbitration proceedings by establishing that fraud, particularly by expert witnesses, can lead to the vacatur of arbitration awards. It underscores the necessity for parties to conduct thorough due diligence on expert witnesses and ensures that punitive damages are subject to strict scrutiny. Moreover, it clarifies the conditions under which arbitration panels have the authority to award punitive damages, influencing future arbitration agreements and practices.

Complex Concepts Simplified

Federal Arbitration Act (FAA)

The FAA is a federal law that provides the framework for arbitration agreements. It ensures that arbitration awards are enforceable and outlines the grounds upon which they can be vacated, such as fraud or overreach of the arbitrators' authority.

Vacating an Arbitration Award

To vacate an arbitration award means to nullify or set it aside. Under the FAA, this can occur if the award was obtained through fraud, the arbitrators exceeded their authority, or the award is otherwise legally defective.

Punitive Damages

Punitive damages are monetary compensations awarded in lawsuits as a punishment to the defendant for particularly egregious or malicious behavior, and to deter similar conduct in the future.

Expert Witness Perjury

Perjury by an expert witness involves providing false statements while testifying, especially regarding qualifications or findings. Such misconduct can undermine the credibility of the arbitration or trial process.

Conclusion

Bonar v. Dean Witter Reynolds serves as a pivotal case in arbitration law, delineating the boundaries and responsibilities inherent in arbitration proceedings. The Eleventh Circuit's decision emphasizes that fraud, particularly through expert witness perjury, is a grave offense that can invalidate punitive damage awards. Additionally, the ruling affirms the authority of arbitration panels to award punitive damages when such power is explicitly or implicitly granted through contractual agreements. This case underscores the importance of honesty and due diligence in arbitration, ensuring that justice is served and the integrity of arbitration awards is maintained.