Opinion
No. 00-2520, SECTION M.
January 16, 2001.
ORDER AND REASONS
Before the Court is a Motion to Vacate Punitive Damages Award filed by plaintiffs, Morgan Keegan Company, Wilmer Freiberg, and Ryan LeBlanc, which came for hearing on January 10, 2001 at 9:30 am. After considering the record in this matter, including the transcript of the proceedings before the arbitration panel, the briefs filed by counsel and the arguments presented by the parties, for the following reasons, the Court finds no basis for vacating the award and accordingly, the Motion is DENIED.
I. FACTS
Defendant, Theresa Lalonde, held an investment account with Morgan Keegan Company (hereafter, "Morgan Keegan") from March, 1998 until March, 1999. During that period of time, Ryan LeBlanc was her broker and Wilmer Freiberg was Ryan LeBlano's supervisor and a branch officer manager at Morgan Keegan. Ms. Lalonde filed a claim with the National Association of Securities Dealers (NASD) against Morgan Keegan, Mr. LeBlanc, and Mr. Freiberg contending that Mr. LeBlanc churned her account to generate commissions, made unsuitable trades considering her investment objectives, and made numerous unauthorized trades by allowing Mr. Lalonde to trade the account without written authorization Ms. Lalonde also claimed that Morgan Keegan and Mr. Freiberg inadequately supervised Mr. LeBlanc's activities with respect to this account. She sought over $1 million dollars in compensatory damages, punitive damages, costs and fees.
Plaintiffs countered that Ms. Lalonde authorized all the trading that occurred in her account, that Ms. Lalonde and her husband represented themselves to be sophisticated and experienced investors with substantial wealth, that notices of the activity in the account were sent to Ms. Lalonde, and further, that they intended to, and did, trade the account aggressively.
The arbitration panel conducted an eleven-day long hearing and subsequently awarded Ms. Lalonde $1.00 in compensatory damages and $250,000.00 in punitive damages, the maximum allowed by Georgia law. Plaintiffs seek to vacate the punitive damages award on the basis that it is grossly excessive and in manifest disregard of current case law, and that it exceeded the scope of the arbitrators authority.
Plaintiffs point to BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) which, in awarding punitive damages, sets forth three factors for consideration: 1) the degree of reprehensibility of the conduct, 2) the disparity between the harm suffered and the punitive damage award, and 3) the punitive damage awards in similar cases. Plaintiffs suggest that this Court should review this case in light of these factors. However, theGore case does not involve review of an arbitration award and the Court finds that the extremely narrow standard of review required in arbitration cases does not invite the type of analysis suggested by plaintiff.
Although the arbitration panel did not state the basis for the award, Ms. Lalonde contends that any of the four aspects of her claim would support such an award: 1) Morgan Keegan engaged in unauthorized trading by buying and selling stocks without Ms. Lalonde's approval, 2) the Morgan Keegan plaintiffs manufactured evidence in anticipation of litigation, 3) the Morgan Keegan plaintiffs accepted orders from Mr. Lalonde in violation of NASD rules and its own policy, and 4) the trading in Ms. Lalonde's account was grossly excessive.
II. Standard of Review
In reviewing an arbitration award, a court will vacate the decision of the panel only in very unusual circumstances. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995). Errors in interpretation or application of the law, or mistakes in factfinding are not sufficient grounds to overturn an award. United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 38 (1987). "By consenting to arbitration, parties exchange `the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.'" Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).
Except in cases involving federal employment rights statutes, the U.S. Fifth Circuit Court of Appeals has not yet approved of the `manifest disregard' standard and has limited a district court's review of an arbitration award in a commercial contract case to those grounds set forth in Section 10 of the Federal Arbitration Act. Mcllroy v. Painewebber, Inc., 989 F.2d 817, 820 (5th Cir. 1993). Here, plaintiffs' only alleged Section 10 violation is to the effect that the award exceeded the authority of the arbitrators. In securities arbitration cases, an award of punitive damages is permitted unless expressly excluded from the agreement. Mostrobuono v. Shearson Lehman Hutton, 514 U.S. 52 (1995). In addition, the panel awarded the punitive damages pursuant to Georgia statutory law, OCGA § 51-12-5.1, which provides for a maximum punitive damage award of $250,000 for tort actions. The arbitration panel was clearly within the scope of its authority in fashioning this award.
In Williams v. Cigina Fin. Advisors, Inc., 197 F.3d 752 (5th Cir. 1999), the court recognized the manifest disregard standard approved by the Supreme Court in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). The court stated that, "[t]his case involves a claim under the ADEA, but our decision will have implications for the review of arbitration claims under the FAA involving Title VII of the Civil Rights Act of 1964 (Title VII) and other federal employment rights statutes."Id. at 758.
Title 9 U.S.C. § 10 (a) provides that a district court may vacate an award: (1) Where the award was procured by corruption, fraud or undue means. (2) Where there was evident partiality or corruption in the arbitrators. . . . (3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing . . . or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. (4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter was not made. 9 U.S.C. § 10 (a).
Even if this Court were to apply the "manifest disregard of the law" standard to this commercial contract case, the award must stand because there is no evidence that the arbitrators acted contrary to applicable law. Plaintiffs' notion that the ratio of punitive to compensatory damages is contrary to law is, itself, contrary to law. In addition, for this Court to engage in the punitive damages analysis set forth in Gore v. BMW, which is not an arbitration case, would disregard the standard of review required in this case. Finally, a review of the transcript of the proceedings supports the conclusion that a colorable basis for the decision is present; a further indication that the panel acted within its scope of authority in fashioning the award.
In applying this standard, the award will be upheld "where on the basis of the information available to the court it is not manifest that the arbitrators acted contrary to the applicable law." Williams, 197 F.3d at 762. Because this award is not contrary to the law, we will not discuss the second prong of the Williams analysis which requires consideration of whether the award will result in significant injustice.
Accordingly, for these reasons, the motion is DENIED. Plaintiffs' petition is hereby DISMISSED WITH PREJUDICE.
New Orleans, Louisiana, this 16th day of January, 2001.