FINRA Arbitration Authority: Awarding Damages under Notice 10-39 and Attorneys’ Fees in Defamation Cases

Introduction

In Key Investment Services LLC v. Oliver, 23-7326 (2d Cir. 2025), the Second Circuit considered whether a FINRA arbitration panel may award damages for violations of FINRA Notice 10-39, attorneys’ fees as punitive damages in a defamation claim based on a Form U-5 filing, and whether district courts must expressly include post-judgment interest in the confirmation judgment. The parties are Key Investment Services LLC (“KIS”), a Cleveland-based broker-dealer, and Josh W. Oliver, a former financial advisor who challenged the circumstances of his termination as reported on his FINRA Form U-5. The underlying dispute involved allegations that KIS filed false and defamatory statements about Oliver’s departure, resulting in lost earnings and reputational harm. The district court confirmed a FINRA award granting Oliver over $1.1 million; KIS appealed, arguing that the arbitrators exceeded their authority and manifestly disregarded the law, and Oliver cross-appealed the omission of post-judgment interest.

Summary of the Judgment

The Second Circuit affirmed the district court’s confirmation of the arbitration award in full. The court held:

FINRA panels have the authority to award damages for violations of FINRA Notice 10-39 when those violations are “inextricably tied up” with submitted claims.
Attorneys’ fees may be awarded as punitive damages in a defamation action under Connecticut law, and a panel’s citation to controlling state decisions suffices even if the panel’s final award language appears internally inconsistent.
The panel’s implicit findings of falsity and actual malice could be inferred from its overall award and cited precedent, so its failure to recite detailed findings did not amount to manifest disregard of the law.
Any ambiguity in whether withdrawn claims (retaliation and hostile work environment) were considered did not warrant vacatur, because the award section did not rely on those claims.
Post-judgment interest under 28 U.S.C. § 1961 is mandatory; an affirmance carries with it the assumption that such interest is included.

Analysis

Precedents Cited

Daly v. Citigroup Inc. (939 F.3d 415): Defines the Form U-5 filing requirement under FINRA rules.
Jock v. Sterling Jewelers Inc. (646 F.3d 113): Explains that arbitrators exceed their authority only by deciding issues entirely outside the parties’ submissions.
Landau v. Eisenberg (922 F.3d 495): Emphasizes the “strong presumption” in favor of enforcing arbitration awards.
Vandersluis v. Weil (176 Conn. 353), Gleason v. Smolinski (319 Conn. 394), and Gambardella v. Apple Health Care, Inc. (291 Conn. 620): Establish that Connecticut law permits attorneys’ fees as punitive damages in defamation cases upon a showing of actual malice.
United Paperworkers Int’l Union v. Misco, Inc. (484 U.S. 29): Clarifies that an arbitrator’s serious error is insufficient to set aside a decision so long as it is “arguably” within the scope of the agreement.
H.C. v. N.Y.C. Dep’t of Educ. (71 F.4th 120): Confirms that post-judgment interest under 28 U.S.C. § 1961 is mandatory even if not expressly mentioned in the judgment.

Legal Reasoning

The court’s decision turned on two pillars of arbitration law:

Scope of Arbitrators’ Authority – Under the Federal Arbitration Act, arbitrators act within their powers so long as they resolve issues “inextricably tied” to the clauses the parties agreed to arbitrate. Because Oliver’s defamation claim depended on KIS’s compliance with FINRA Notice 10-39, awarding damages for a Notice 10-39 violation fell squarely within the panel’s remit.

KIS’s challenge that FINRA panels lack authority to enforce FINRA rules was unavailing in the absence of any categorical bar. The panel’s award was “barely colorably justified” by the record, satisfying the low threshold for enforcement.
Manifest Disregard of the Law – Vacatur for manifest disregard requires showing that arbitrators knowingly ignored an explicit legal principle. Here, the panel cited Connecticut defamation precedents justifying punitive damages as attorneys’ fees, and its ultimate award aligned with the parties’ expert valuations of damages. Any internal inconsistency in the award’s wording did not amount to manifest disregard, as the panel’s rationale could be reasonably inferred.

Impact

Key Inv. Servs. LLC v. Oliver clarifies and reinforces several important points:

FINRA arbitration panels may award consequential damages for violations of FINRA’s own regulatory notices when those violations are part and parcel of the arbitrated dispute.
Panels may rely on state defamation law to award attorneys’ fees as punitive damages, even absent an explicit “punitive” label in the award, so long as controlling precedent is cited.
Court confirmation of arbitration awards will not delve into re-weighing evidence or require detailed findings, so long as an “arguable” basis for the outcome exists.
District courts’ judgments confirming awards are deemed to include mandatory post-judgment interest under 28 U.S.C. § 1961, obviating the need for express recitation.

Complex Concepts Simplified

Form U-5: A document broker-dealers file with FINRA when a registered representative leaves. It becomes public and may affect future employment.
FINRA Notice 10-39: Advises member firms to report complete and accurate information on Form U-5 and to update it if new facts emerge.
Qualified Privilege in Defamation: A legal shield allowing certain communications (e.g., mandatory regulatory filings) unless the speaker acted with “actual malice” (knowing falsity or reckless disregard).
Punitive Damages as Attorneys’ Fees: Under some state laws, a defamation plaintiff can recover attorneys’ fees as punitive damages if malice is proven.
Manifest Disregard of the Law: An exceedingly narrow ground to vacate an arbitration award, requiring proof that the arbitrator knew of and refused to apply a clear legal rule.

Conclusion

The Second Circuit’s decision in Key Inv. Servs. LLC v. Oliver reaffirms the breadth of FINRA panels’ authority to award damages tied to FINRA regulatory requirements and to apply state defamation law in awarding punitive-style attorneys’ fees. It underscores the high bar for courts to vacate arbitration awards, emphasizing that “serious error” or internal ambiguities do not suffice when an award is at least “barely colorably justified.” Finally, it cements the mandatory nature of post-judgment interest under 28 U.S.C. § 1961. This ruling will guide practitioners and panels in structuring claims, drafting awards, and advising clients on the enforceability of FINRA arbitration outcomes.