Opinion
Case No. 2:02CV641DAK
May 5, 2003
ORDER CONFIRMING ARBITRATION AWARD
This matter is before the court on Plaintiff Emmet A. Larkin Company Inc.'s ("Larkin") Motion to Modify, Correct, or Vacate an Arbitration Award and Defendants Ted and Mary Jo Kaly's ("the Kalys") Cross Motion to Confirm the Arbitration Award. A hearing on the motions was held on May 13, 2003. At the hearing, Plaintiff was represented by David W. Brown and Defendants were represented by Randall R. Heiner. The court took the matter under advisement. The court has considered carefully the memoranda and other materials submitted by the parties, as well as the law and facts relating to the motions. Now being fully advised, the court renders the following Order.
BACKGROUND
Plaintiff Emmett A. Larkin Company, Inc., ("Larkin") seeks to have this court vacate an arbitration award entered against it and in favor of Defendants Ted Kaly and Mary Jo Kaly in the amount of $150,000. Larkin is a full service securities business, which in addition to being a SEC registered broker/dealer also performs clearing and/or execution services for other brokers and dealers. The other defendants in the arbitration action were Royal Hutton Securities Corp., Ruis Reis Figueiredo, Paul S. Medaglia, John I. Pisapia, and John T. Ciofalo. Royal Hutton is a securities brokerage firm that used Larkin as a clearing broker. The Kalys opened an account with Royal Hutton in June of 1999. Ciofalo, an account executive at Royal Hutton, handled the Kaly's account. Figueiredo, Pisapia, and Medaglia are all shareholders and executives of Royal Hutton.
Between June 1999, when the Kalys opened their account, and December 1999, when the Kalys transferred their account back to another securities firm, the Kalys' lost more than $204,700. The Kalys claim that the account was churned and securities were purchased without their authorization or consent. The Kalys also claim that Royal Hutton, Larkin, and their agents used deceptive trade practices, including bait-and-switch tactics, unsuitable recommendations, and improperly disclosed Royal Hutton's interest in recommended stocks.
The Kalys brought claims in arbitration against Larkin and the other defendants for violations of federal and state securities laws, breach of fiduciary duty, breach of contract, negligence, negligent supervision, and respondeat superior. Before the arbitration hearing occurred, Larkin filed a Motion to Dismiss with the three member arbitration panel and the motion was denied. The Kalys withdrew their claims against John T. Pisapia. The remaining defendants, with the exception of Larkin, did not participate at the arbitration hearing.
The arbitration proceeding was conducted by the National Association of Securities Dealers, Inc. ("NASD"). The proceeding was in front of a three-arbitrator panel, including Richard Lawrence, chairman, George H. Speciale, and Elwood A. Crandell. The hearing was held in Salt Lake City, Utah on April 23 and 24, 2002.
The panel unanimously found Royal Hutton Securities, Paul S. Medaglia, Ruis Reis Figueiredo, and John T. Ciofola jointly and severally liable to the Kalys for $690,390.39 in treble damages pursuant to Utah Code Section 61-1-22(2) based on a compensatory damages award of $230,130.13, interest on that amount at 12% from March 22, 2000 until paid, and $276,156.15 in attorneys' fees under Utah Code Section 61-1-22(2).
A majority of the panel found Larkin liable to the Kalys for $150,000 in damages. The panel did not award punitive damages and did not award attorneys' fees against Larkin. Lawrence dissented from the award against Larkin. The award stated that Lawrence believed the panel should have determined whether Larkin "materially aided in the sales and if so whether they met their burden for an affirmative defense."
DISCUSSION Standard of Review
Under Section 10 of the Federal Arbitration Act, "a district court is only permitted to vacate an arbitration award if it finds that: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators; (3) the arbitrators were guilty of misconduct in refusing to postpone a hearing, in refusing to hear evidence, or in misbehaving in some other way; or (4) the arbitrators exceeded their powers or imperfectly executed them." Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir. 2001). There are also judicially-created reasons to vacate an arbitration award, which include "violations of public policy, manifest disregard of the law, and denial of a fundamentally fair hearing." Id. In this case, Larkin claims that the arbitrators so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made and/or the panel manifestly disregarded the law.
"Maximum deference is owed to the arbitrator's decision. In fact, the standard of review of arbitral awards `is among the narrowest known to the law.'" Litvak Packing Co. v. United Food Commercial Workers, Local Union No. 7, 886 F.2d 275, 276 (10th Cir. 1989) (citation omitted). Outside of the limited reasons for reversal, a court should confirm an arbitration award and "errors in either the arbitrator's factual findings or his interpretation of the law . . . do not justify review or reversal." Sheldon, 269 F.3d at 1206. If the court can find any argument that is legally plausible and supports the award, then the award should be affirmed. Merrill Lynch, Pierce, Fenner Smith, Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir. 1995).
"First and most fundamentally, an arbitrator is simply not required to state the reasons for his decision. Such a requirement would serve only to perpetuate the delay and expense which arbitration is meant to combat." Eljer Mfg., Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1245 (7th Cir. 1994).
Plaintiff's Motion to Modify, Correct, or Vacate Arbitration Award
Plaintiff argues that the arbitration award entered against it should be overturned because the arbitrators did not determine whether Larkin materially aided Royal Hutton in violating securities laws and whether Larkin met its burden of establishing a lack of knowledge affirmative defense.
First, Plaintiff argues that the panel's failure to determine these issues means that the arbitrators "so imperfectly executed their powers that a mutual, final, and definite award upon the subject matter submitted was not made," and the award should be vacated under the FAA. However, the record is not as clear on this point as Plaintiff suggests. Although the panel stated that it was finding liability under Utah Code Ann. Section 61-1-22(2) against the other defendants and it did not make a similar reference with respect to Larkin, the panel was not obligated to make any written findings supporting the award. Plaintiff acknowledged at the arbitration hearing that the two issues relating to Larkin were factual, and there are facts in the record to support a finding on these issues.
Moreover, the award against Larkin is a final and definite award. Larkin is liable to the Kalys for $150,000. This is not a situation where the award is somehow ambiguous or unclear. Although the Tenth Circuit has not interpreted this basis for vacating an arbitration award, the Second Circuit has held that "an arbitration award is final if it `resolves all issues submitted to arbitration, and determine[s] each issue fully so that no further litigation is necessary to finalize the obligations of the parties.'" Rocket Jewelry Box Inc. v. Noble Gift Pack., 157 F.3d 174, 177 (2d Cir. 1998) (citation omitted). Here, the panel's award does not require any further litigation to determine the obligations of the parties.
Plaintiff also argues that the arbitrators' award should be reversed under the judicially created doctrine of "manifest disregard of the law." The Tenth Circuit "has characterized the `manifest disregard' standard as `willful inattentiveness to the governing law.'" Jenkins v. Prudential-Bache Sec. Inc., 847 F.2d 631, 634 (10th Cir. 1988). Manifest disregard of the law "clearly means more than error or misunderstanding with respect to the law." Jeppsen v. Piper, Jaffruy Hopwood, 879 F. Supp. 1130 (D. Utah 1995). "Short of some evidence of `willful inattentiveness to the governing law,' we may not question [an arbitrator's] conclusions." Bowen v. Amoco Pipeline Co., 254 F.3d 925, 939 (10th Cir. 2001).
There are several instances in the transcript that demonstrate that the panel clearly recognized the law and the issues. Plaintiff argues that Lawrence's dissent is evidence that the other arbitrators refused to reach the issue and disregarded the law. However, Lawrence's dissent could have merely been based on the fact that he thought the other arbitrators should have made written findings as to their decision. The award implies that the other arbitrators determined the issue and found in favor of the Kalys on the issues.
Plaintiff claims that the award against Larkin is suspect because it did not find Larkin jointly and severally liable with the other defendants as it should have under Utah Code Section 61-1-22. Although the failure to award damages jointly and severally under the state may be a legal error, legal errors are not a basis for finding manifest disregard of the law or for correcting, modifying or vacating an arbitration award. In addition, the award of $150,000 is consistent with testimony from Larkin's witness at the hearing, Pisapia, who testified that the Kaly's damage "was about one-hundred fifty-thousand." Because there is a basis for the award in the record, the court cannot conclude that the award was anything other than a possible misapplication or misunderstanding of the law or the panel's belief that it could fashion an equitable remedy.
As stated above, there are facts in the record that make the panel's award legally plausible. Therefore, the court concludes there is no basis for modifying, correcting, or vacating the award.
Defendants' Cross Motion to Confirm Award
Defendants request that the court confirm the award. Defendants assert that the Tenth Circuit has determined that if an award is not vacated, it must be confirmed. See PP Indus. Inc. v. Sutter Corp., 179 F.3d 861, 866 (10th Cir. 1999) (quoting 9 U.S.C. § 9). Because of its determination on Plaintiff's motion to vacate, the court concludes that it is proper to confirm the award.
Defendants also seek interest from June 14, 2002, the date the arbitration award was served through the date this court confirms the award. Defendants then seek federal post-judgment interest from the date of this court's judgment confirming the award. Plaintiff does not appear to contest Defendants' request for interest. Therefore, the court awards Defendants both post-award and post-judgment interest.
Defendants also seek attorney's fees for defending the award. Under Utah Code Ann. § 78-31a-16, attorney's fees may be awarded. Plaintiff asserts that Defendants improperly rely on Utah Code Ann. § 78-31a-16 and related Utah case law to support an award of attorney's fees when the case is governed by the Federal Arbitration Act, not the Utah Arbitration Act.
In determining whether the Federal Arbitration Act preempted or conflicted with the Utah Arbitration Act with respect to awarding attorney's fees, the Utah Supreme Court found there was no conflict between the federal and state law and "[i]n fact, awards of attorney fees are supportive of the federal statute's policies." Buzas Baseball Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941, 952-53 (Utah 1996). The court concludes that Defendants are entitled to reasonable attorney's fees in the amount requested, $7,780.50, plus $1,170 for preparation and presentment of the argument at the hearing on this matter.
CONCLUSION
Plaintiff's Motion to Modify, Correct or Vacate An Arbitration Award is DENIED, and Defendants' Cross Motion to Confirm the Award is GRANTED.