2015 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-29-2015

Goldman Sachs & Co v. Athena Venture Partners

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 13-3461

GOLDMAN, SACHS & CO., 

SCOTT T. SHEFFER, and 

ERIC W. GETTLEMAN

Appellants

v.

ATHENA VENTURE PARTNERS, L.P.

_____________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(E.D. Pa. No. 2-13-mc-00130)

District Judge: Honorable J. Curtis Joyner

_____________

Argued: October 21, 2014

Before: AMBRO, FUENTES, and NYGAARD, Circuit 

Judges

(Opinion Filed: September 29, 2015)

Kathryn E. Deal, Esq.

Edward M. Posner, Esq. (ARGUED)

Drinker Biddle & Reath 
2

18th & Cherry Streets

One Logan Square, Suite 2000

Philadelphia, PA 19103

Attorneys for Appellants

David R. Moffit, Esq. (ARGUED)

Saul Ewing, LLP

1200 Liberty Ridge Drive

Suite 200

Wayne, PA 19087

Attorney for Appellee

OPINION OF THE COURT

FUENTES, Circuit Judge.

Goldman Sachs and Athena Venture Partners 

participated in an arbitration to settle a $1.4 million 

investment-related dispute. In that proceeding, Athena 

asserted claims of misrepresentation, securities fraud, 

common law fraud and breach of fiduciary duty, among 

others. Following a nine-day arbitration hearing, conducted 

under Financial Industry Regulatory Authority (“FINRA”) 

rules, the panel ruled in favor of Goldman. After the award, 

Athena conducted a background investigation on Demetrio S. 

Timban, one of the panel members. The investigation 

revealed that Timban failed to make disclosures regarding

numerous regulatory complaints against him. 

On a motion to vacate the award, based on these nondisclosures, the District Court ruled in favor of Athena and 
3

ordered a new arbitration hearing. The District Court 

reasoned that Athena’s rights were compromised by an 

arbitrator who misrepresented his ability to serve on the 

arbitration panel and then abandoned the panel before its final 

ruling. Because we find that Athena waived its right to 

challenge the arbitration award, we reverse the District 

Court’s order vacating the award.

I.

Athena is a limited partnership that invested in several 

funds through Goldman. In 2007, Goldman approached 

Athena with an investment opportunity in “Liquidity 

Partners,” describing it as a “terrific, low principal risk, short 

term investment with potential higher yields than other 

available cash investments.”1 In addition, Goldman explained 

that the investment was “a diverse portfolio of very safe, 

AAA-rated debt securities.”2

In supposed reliance upon these representations, 

Athena invested $5 million in the Liquidity Partners fund. By 

late 2008, however, Athena incurred about $1.4 million in

losses on the investment. Believing that Goldman 

misrepresented the risks associated with the investment, 

Athena initiated arbitration proceedings under the parties’ 

Subscription Agreement. The Agreement specified that 

FINRA3rules and regulations applied to the arbitration. A 

 

1

JA-5.

2

Id.

3 FINRA is “an independent, not-for-profit organization 

authorized by Congress to protect America’s investors by 

making sure the securities industry operates fairly and 
4

three-member panel of arbitrators heard evidence in separate 

sessions in November 2011 and October 2012. After the first 

panel session, FINRA disclosed to the parties that one of the 

panel members, Demetrio S. Timban, Jr., had been charged 

with the unauthorized practice of law in connection with an 

appearance in a New Jersey municipal court.4 At this point, 

neither party, nor FINRA, objected to Timban’s continued 

participation on the panel. Likewise, neither party conducted 

further due diligence to follow up on this disclosure. 

Following these hearings, the panel issued its written decision 

finding in favor of Goldman. Two of the panel members 

signed the award, but Timban did not. Under the 

Subscription Agreement, only two members of the panel 

needed to sign the award for it to have binding effect. 

 

honestly.” FINRA (last visited Aug. 31, 2015), 

https://www.finra.org/about.

4 Timban’s verbatim disclosure to FINRA stated: “In 

September of 2011, I was served with a complaint from the 

State of New Jersey, Case #11-10-01215-I charging me with 

the unauthorized practice of law. The specific incident in

question involved my representation of a family frien[d] in a 

local municipal court in Evesham Township. While 

representing the family friend in the matter, I failed to make a 

motion for admission pro hac vice because while I am 

admitted in both Michigan and New York, I am not admitted 

in New Jersey. I take full responsibility for the oversight and 

I am working with the State to settle this and I am confident 

this matter will be expunged from my record. I have also 

informed the state bars of Michigan and New York. I am 

fully confident that this will in no way affect my ability to be 

fair and impartial in my duties to FINRA.” JA-327. 
5

After the award, Athena conducted a background 

check on Timban purportedly based on his failure to sign the

award. This background check revealed that Timban’s sole 

disclosure was misleading, and that he had failed to disclose 

additional legal troubles. With respect to his disclosure, 

Timban represented his unauthorized practice as a one-off 

incident. In reality, Timban maintained an office in Cherry 

Hill, New Jersey for many years, including from 2010-12; he

represented debtors in bankruptcy courts in both Pennsylvania 

and New Jersey; and he had many complaints lodged against 

him for the unauthorized practice of law in 1999, 2002, 2004, 

and 2006. In other words, when Timban described his 

unauthorized practice charge as a simple “oversight,” he 

misrepresented the true scope of his problems.

As to the subsequent legal issues, first, in April 2012, a 

formal complaint against Timban was filed with the Attorney 

Discipline Board for the State of Michigan, citing Timban for 

issuing bad checks totaling $18,145, with intent to defraud. 

This allegation constitutes not only a violation of the 

Michigan Rules of Professional Conduct, but the conduct is 

considered a felony criminal offense under Michigan law. 

Second, in July 2012, another formal complaint against 

Timban was filed with the Attorney Discipline Board for the 

State of Michigan. This complaint cited Timban for 

“engaging in conduct involving dishonesty, fraud, deceit, 

misrepresentation, or violation of the criminal law” as a result 

of the unauthorized practice of law in the state of New Jersey.

 

Third, in October 2012, Timban entered into a 

stipulation with the Grievance Administrator for the Attorney 

Discipline Board for the State of Michigan, pleading no 

contest to the allegations of the two formal complaints. He 

agreed to a 175-day suspension of his license to practice law. 
6

Neither Timban, nor FINRA, disclosed any of these issues, 

which occurred prior to the second arbitration session, to the 

parties at any time. In November 2012, days after the parties 

submitted post-hearing briefs to the panel, the Attorney 

Discipline Board for the State of Michigan entered an order 

suspending Timban. 

After Athena conducted this background check and 

unearthed these additional legal issues, it filed a motion to 

vacate the arbitration award. In the District Court, Athena 

argued that vacatur was proper because Timban’s conduct 

and his failure to disclose violated both FINRA’s rules and 

the parties’ agreement to arbitrate. The District Court agreed 

and, therefore, granted Athena’s motion to vacate and denied 

Goldman’s application to confirm the arbitration award. 

Holding that Timban’s initial disclosure was “so grossly 

misleading and incomplete,” the District Court rejected 

Goldman’s argument that Athena waived its right to 

challenge the panel’s award. In so finding, the District Court 

held that FINRA failed to provide the parties with three 

qualified arbitrators and that vacatur was the proper remedy

under the Federal Arbitration Act, 9 U.S.C. § 10(a)(3), and 

(a)(4). Accordingly, the District Court vacated the arbitration 

award and remanded for rehearing before a new panel. 

II.

Goldman raises two main issues on appeal: (1) the 

District Court erred in holding Athena did not waive its right 

to challenge the arbitration award; and (2) the District Court 

erred in vacating the award.

5

 

 

5 The District Court had subject matter jurisdiction over this 

action pursuant to 28 U.S.C. § 1331 and 15 U.S.C. § 78aa(a) 
7

A.

Goldman argues that, by waiting to challenge 

Timban’s participation on the panel until after the award, 

Athena waived its right to seek vacatur of the award. To 

determine whether Athena waived this right, we must decide 

how waiver applies in the arbitration context, a question of 

first impression in this Circuit.6 

Although many circuits generally agree that a party 

waives a claim based on the conduct of an arbitrator if the 

party fails to raise those concerns prior to or during the

arbitration hearings, most have recognized that a blanket 

waiver rule is inappropriate. For instance, in the Sixth 

Circuit, waiver applies only if the party knew of the facts 

suggesting bias during the proceeding.7 The Ninth Circuit, 

along with several others, applies a constructive knowledge 

standard, finding waiver where a party “has constructive 

 

because the underlying arbitration included federal securities 

law claims. We have jurisdiction over this matter under 28 

U.S.C. § 1291 and 9 U.S.C. § 16(a) because this is an appeal 

of the District Court’s final order vacating an arbitration 

award. 

6 Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240,

249 (3d Cir. 2013) (“Our Court has yet to explain how waiver 

applies in the arbitration context.”).

7 See Apperson v. Fleet Carrier Corp., 879 F.2d 1344, 1359 

(6th Cir. 1989) (applying waiver only if “[a]ll the facts now 

argued as to [the] alleged bias were known . . . at the time the 

[arbitrator] heard their grievances” (quoting Early v. E. 

Transfer, 699 F.2d 552, 558 (1st Cir. 1983))).
8

knowledge of a potential conflict but fails to timely object.”8 

The Ninth Circuit viewed this as a better approach in light of 

its “policy favoring the finality of arbitration awards.”9

Constructive knowledge is defined as the 

“[k]nowledge that one using reasonable care or diligence 

should have, and therefore that is attributed by law to a given 

person.”10 Our sister circuits have interpreted constructive 

knowledge in this context to mean that a complaining party 

either knew or should have known of facts indicating 

partiality or other misconduct of an arbitrator. Relevant to 

this point, the First Circuit commented that a party “which 

was put on notice of the risk when it signed the contract [and] 

chose not to inquire about the backgrounds of the Committee 

members either before or during the hearing” waived the right 

to challenge the decision.11 Likewise, the Eighth Circuit 

applied constructive knowledge where a party “did not have 

full knowledge of all the relationships to which they now 

object, [but] they did have concerns about [the arbitrator’s] 

impartiality and yet chose to have her remain on the panel 

rather than spend time and money investigating further until 

 

8 Fid. Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306, 

1313 (9th Cir. 2004); see also Lucent Techs. Inc. v. Tatung 

Co., 379 F.3d 24, 28 (2d Cir. 2004); JCI Commc’n, Inc. v. 

Int’l Bhd. of Elec. Workers, Local 103, 324 F.3d 42, 52 (1st 

Cir. 2003); Kiernan v. Piper Jaffray Cos., 137 F.3d 588, 593 

(8th Cir. 1998).

9 Fid. Fed. Bank, FSB, 386 F.3d at 1313.

10 Black’s Law Dictionary 888 (8th ed., 2004).

11 JCI Commc’n, Inc., 324 F.3d at 52.
9

losing the arbitration.”12 The Second Circuit has stated that 

“where the complaining party should have known of the 

relationship . . . or could have learned of the relationship just 

as easily before or during the arbitration rather than after it 

lost its case,” constructive knowledge existed and resulted in 

waiver.13 Constructive knowledge in the arbitration context

reasonably requires parties to “exercise as much diligence and 

tenacity in ferreting out potential conflicts . . . []in selecting 

the panel[] as they do . . . []once attacking the award became 

the sole reason to research the arbitrators[].”14 Moreover, 

where a party is capable of “thoroughly and systematically 

digging for dirt on each of the three arbitrators,” it should do 

so prior to being solely motivated by the chance of vacating 

the award.

15

 

 

12 Kiernan, 137 F.3d at 593.

13 Lucent Techs. Inc., 379 F.3d at 28 (internal citation and 

quotation marks omitted).

14 Stone v. Bear, Stearns & Co., Inc., 872 F. Supp. 2d 435, 

457 (E.D. Pa. 2012).

15 Id. at 440; see also Merit Ins. Co. v. Leatherby Ins. Co., 

714 F.2d 673, 683 (7th Cir. 1983) (“It is true that the 

disclosure requirements are intended in part to avoid the costs 

of background investigations. But this is a $10 million case. If 

Leatherby had been worried about putting its fate into the 

hands of someone who might be linked in the distant past to 

the adversary’s principal, it would have done more than it did 

to find out about [the arbitrator]. That it did so little suggests 

that its fear of a prejudiced panel is a tactical response to 

having lost the arbitration.”).
10

Indeed, we came close to adopting the “constructive 

knowledge” standard in a previous case. In Freeman v. 

Pittsburgh Glass Works, LLC, the appellant challenged an 

arbitration award based on an arbitrator’s failure to disclose a 

relationship to one of the parties to the arbitration.

16

 The 

district court denied the appellant’s motion to vacate the 

award, finding the nondisclosures were immaterial and 

insubstantial. While neither party raised the waiver issue, we 

addressed it and opined that “[t]he Ninth Circuit’s approach 

has considerable merit: a party waives later challenges only if 

it either knew or should have known of the facts indicating 

partiality.”

17

 We view this approach favorably because it 

“allows a party to challenge an arbitration when it had no way 

of discovering the arbitrator’s bias beforehand”18 while, “at 

the same time, it encourages investigation by making the 

parties accountable for information they should have known. 

Moreover, it prevents the losing party from receiving a 

second bite at the apple.”

19

 The rationale for applying 

constructive knowledge in the arbitration context makes good 

sense. It both encourages parties to conduct adequate due 

diligence prior to issuance of the award and promotes the 

arbitration goals of efficiency and finality. Therefore, we

conclude that if a party could have reasonably discovered that

any type of malfeasance, ranging from conflicts-of-interest to 

non-disclosures such as those at issue here, was afoot during 

the hearings, it should be precluded from challenging the 

subsequent award on those grounds. 

 

16 709 F.3d at 246. 

17 Id. at 250 (internal quotation marks omitted).

18 Id.

19 Id. 
11

In this case, Goldman argues that Athena waived its 

claims to vacate the award. Specifically, Goldman contends 

that Timban’s initial disclosure, while incomplete, provided 

the specific charge against him and the docket number for his 

case. Hence, Athena could have conducted, at the very least, 

a cursory background check as early as April 2012. Athena, 

however, asserts that Timban’s incomplete disclosure, 

coupled with his failure to disclose the additional legal issues, 

weighs against finding waiver. Because Timban’s subsequent 

legal issues occurred after his initial disclosure, the argument 

goes, Athena could not have waived its right to vacatur. Even 

if it had done a background check, these other issues could 

not have been identified. We disagree. While we appreciate 

Athena’s argument with respect to the timing of the 

subsequent legal issues, it does not change the fact that 

Athena should have raised a challenge based solely on the

initial disclosure. 

Applying the constructive knowledge standard, the 

question becomes whether Athena knew or could have known

about the extent of Timban’s unauthorized-practice-of-law 

charge. We believe it could have. The initial disclosure, 

deficient as it was, provided enough alarming information to 

compel the parties to do further research on Timban. Or at 

least such a disclosure should have provoked alarm. Indeed, 

the essence of an unauthorized-practice-of-law charge is that 

a person has made serious misrepresentations to a court of 

law. At bottom, this should have been enough to set off 

sirens for both parties, irrespective of the circumstances 

behind the charge. That his disclosure was deficient, and that 

he failed to make the additional disclosures, certainly 

exacerbates concerns regarding Timban’s character and 

fitness to serve as an arbitrator—but the crux of the issue 

before us is that Athena could have expressed the same 

concerns after the first disclosure. Had Athena conducted the 
12

same diligence after Timban’s disclosure, it would likely have

discovered not only the true extent of Timban’s unauthorized 

practice of law, but that his disclosure to FINRA itself was 

false. Indeed, Athena attached a probable cause statement to 

its motion to vacate, which revealed that Timban had been 

practicing out of an office in Cherry Hill, New Jersey and that

the New Jersey Committee on Unauthorized Practice of Law

had received complaints about Timban in 1999, 2000, 2002, 

and 2004.20 Athena, however, failed to look into the matter

further until after it lost in arbitration.

This is the paradigmatic case of the “sore loser,” so to 

speak, trying for a second bite at the apple—and the exact 

type of case the law disfavors. A party should not be 

permitted to game the system by rolling the dice on whether 

to raise the challenge during the proceedings or wait until it 

loses to seek vacatur on the issue. Nor should a party “wait[] 

until [it] los[es] and then almost immediately beg[i]n scouring 

the internet for anything that might suggest one arbitrator or 

another was biased against it.”21 This is all to say, under the 

constructive knowledge standard, a party may not conduct a 

background investigation on an arbitrator after the award with 

the sole motivation to seek vacatur. If it were any other way, 

 

20 The District Court itself stated that it “would be inclined to 

agree with [Goldman’s] argument that, by failing to object or 

request Mr. Timban’s removal following the issuance of his 

updated disclosure in March, 2012, [Athena] waived [its] 

right to now challenge the panel’s award, were it not for the 

fact that it was so grossly misleading.” JA-21. Had it, 

however, applied the constructive knowledge standard we 

now adopt, the District Court may have also found waiver. 

21 Stone, 872 F. Supp. 2d at 456. 
13

arbitrations would cease to have finality and result in endless 

hearings within hearings.

Accordingly, because Athena had constructive 

knowledge of Timban’s insufficient disclosure, we conclude 

that it waived its right to challenge the award. Because we 

hold that Athena waived its right to vacatur, we need not 

address Goldman’s second argument that FINRA failed to 

provide the parties with three qualified arbitrators.

We would be remiss not to mention that even had 

Athena raised the issue during the panel hearing, it is unclear 

under which statutory ground it could have called for 

Timban’s removal. FINRA’s rules effectively isolated 

Timban from both disqualification prior to empanelment and 

removal once the hearings began. We thus agree with the 

District Court’s sentiments that “it [finds ] remarkable that 

neither of these parties nor, more particularly, FINRA saw fit 

to conduct any investigation or due diligence into Mr. 

Timban’s qualifications after he revealed that he was the 

subject of a complaint by the State of New Jersey for 

unauthorized practice.”

22

 We further agree that FINRA’s 

June 2013 announcement that it would conduct annual 

background checks on its arbitrators and additional review 

before appointment is “too little too late” in this case.23 

Nevertheless, this potential inequity with respect to FINRA 

rules does not alter our analysis on waiver.

 

22 JA-21. 

23 See id.
14

III.

For all the reasons stated above, we reverse the District 

Court’s order granting vacatur and remand for further 

proceedings with respect to Goldman’s motion to confirm the 

arbitration award.