STEPHAN MICKLE, District Judge
This cause comes before the Court on Petitioners' motion for confirmation of an arbitration award (doc. 1), Respondent Cassedy's motion to vacate the award (doc. 10), Petitioners' response (doc. 18), and Respondent Cassedy's reply (doc. 26).
BACKGROUND
Petitioners were unsophisticated investors who lost thousands of dollars through their investment accounts. They pursued claims in arbitration against their securities broker, Respondent Cassedy, for improprieties that included churning (excessive trading to generate commissions), engaging in unsuitable investment strategies, misrepresenting investments and risks, and breaching fiduciary duties. Petitioners also made claims against the brokerage firm, D.E. Frey Company, for failure to supervise Cassedy, and against the clearing firm, Correspondent Services Corporation, for materially aiding securities violations.
An arbitration hearing before an arbitration panel of the National Association of Securities Dealers (NASD) was held in Tampa, Florida on November 13-15, 2002. On January 14, 2003, the panel issued an award in favor of Petitioners and against Respondents Cassedy and D.E. Frey Company, jointly and severally, as follows:
1. To Petitioner Roderick C. Moeller, compensatory damages in the amount of $115,049.00, plus 6% interest per annum from June 16, 2000 until the date of payment.
2. To Petitioner Donald E. Darden, compensatory damages in the amount of $55,100.00, plus 6% interest per annum from June 16, 2000 until the date of payment.
3. To the Donald E. Darden SEP IRA, compensatory damages in the amount of $2,000.00, plus 6% interest per annum from June 16, 2000 until the date of payment.
Petitioners now seek to confirm the arbitration award in accordance with Section 9 of the Federal Arbitration Act, 9 U.S.C. § 9. Neither D.E. Frey Company nor Correspondent Services Corporation has challenged confirmation of the award. Respondent Cassedy, however, seeks to have the arbitration award vacated on several grounds.
DISCUSSION
A court's authority under the Federal Arbitration Act, 9 U.S.C. § 1-16, to vacate an arbitration award is severely limited. Montes v. Shearson Lehman Bros., Inc., 128 F.3d 1456, 1458 (11th Cir. 1997). The act contains four statutory grounds that authorize vacating 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, or either of them.
(3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, 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 submitted was not made.
9 U.S.C. § 10(a). In addition, two non-statutory grounds allow for vacatur where the award is arbitrary and capricious or where the award is contrary to public policy.
Montes,
128 F.3d at 1458.
A presumption that arbitration awards will be confirmed applies,Id. The party moving to vacate the award bears the burden of setting forth sufficient grounds for vacatur. Scott v. Prudential Sec., Inc., 141 F.3d 1007, 1014 (11th Cir. 1998).
In this case, Cassedy advances four grounds, three of which are statutory and one non-statutory, for vacating the award. First, Cassedy argues that the award should be vacated under 9 U.S.C. § 10(a)(3) because the arbitrators refused his request to postpone the hearing after Petitioners were allowed to submit an expert report that Cassedy had not had a sufficient opportunity to review. Second, Cassedy argues that the award should be vacated under 9 U.S.C. § 10(a)(4) because the arbitrators exceeded their powers by failing to enforce rules regarding the exchange of documents and failing to record the proceedings. Third, Cassedy argues that the award is arbitrary and capricious. Finally, Cassedy argues that the award should be vacated under 9 U.S.C. § 10(a)(2) because the chairperson of the arbitration panel was not impartial, as evidenced by disparaging statements the chairperson made when Cassedy requested a continuance. Each of these grounds will be addressed in turn.
1. refusal to postpone arbitration hearing, § 10(a)(3)
When refusal to postpone an arbitration hearing is raised as a ground for vacating an award, the court's task is to determine whether there was "any reasonable basis" for the refusal. Scott, 141 F.3d at 1016 (quoting Schmidt v. Finberg, 942 F.2d 1571, 1574 (11th Cir. 1991)). This deferential standard of review is consistent with the broad discretion arbitrators have in conducting hearings and the "the basic policy behind arbitration, which is to permit parties to resolve their disputes in an expeditious manner without all the formalities and procedures that might attend full fledged litigation." Id.
In this case, Cassedy requested a postponement due to Petitioners' late disclosure of their expert report. The record shows that Petitioners first identified their expert on October 24, 2002 and provided notice that written reports, if any, would be produced as they became available. (Doc. 10, ex. 8.). No reports or calculations by the expert, however, were provided prior to the hearing. When the arbitration hearing commenced on November 13, 2002, over Cassedy's objection the arbitration panel allowed Petitioners' expert to testify. The panel also allowed the expert to submit a written report containing a summary of his damage calculations even thought the report was not provided to Cassedy beforehand.
In light of Petitioners' failure to properly disclose the expert's damage calculations and the report, Cassedy requested a postponement or, in the alternative, at least one extra day of hearings to allow him time to review the report so he would have a fair opportunity to cross-examine the expert. The arbitrators and counsel for both sides engaged in discussions to resolve the issue. Doc. 10, ex. 11, pp. 479-500. One solution that appeared amenable to both sides was to exclude Petitioners' expert report from evidence, proceed with all of the lay witnesses, and continue the remainder of the hearing until January, at which time both sides would have the opportunity to present their experts' testimony, cross-examine the experts, and make closing arguments, Id. at 485-490. After the panel conferred, they agreed accordingly; that is, to proceed with all of the lay witnesses, to exclude the expert's report, and to allow the parties to put on their experts in January. Id. at 501-02.
After this decision had been made, Cassedy objected even though he previously represented that the procedure was reasonable. Id. at 490, 499, 502. He argued that withdrawal of the report would not cure the prejudice to him because one of the arbitrators had already reviewed it. Id. at 502. Cassedy also argued that he should not be required to present any witnesses until the Petitioners rested with their case-in-chief, Id. 503.
Cassedy then requested that the hearing be postponed after the Petitioners presented the direct testimony of their expert, and that he be given two days starting on January 17, 2003 to cross-examine Petitioners' expert and to put on his own case, including the testimony of his expert and lay witnesses, id. at 503, 507. Ironically, this request was one that Cassedy previously repudiated as one he wasnot seeking because it was unfair, Id. at 498 ("I'm not trying to get his expert witness opinion out and then have a month to prepare to do cross-examination. I think that's unfair.").
The parties engaged in further discussions. Id. at 503-10. Ultimately, the arbitrators decided to go forward with the hearing and they allowed the Petitioners' expert report to remain in evidence. Id. at 510. Although it is not clear from the record excerpts provided what happened in the interim, at some point the arbitrators decided that the parties would submit closing arguments in writing. Id. at 699-700. Cassedy apparently did not call his expert witness as planned, but was given the opportunity to submit a written expert report. Petitioners were given the opportunity to reply in writing. Id.
Given these circumstances, there was a reasonable basis for the arbitrators' decision to deny postponing the hearing as requested by Cassedy. The record shows that Cassedy's ultimate request for postponement was a procedure he had earlier repudiated as being unfair.Id. at 498. Furthermore, Cassedy's change of position immediately after the arbitrators agreed to his initial request for postponement indicates a lack of good faith on his part. The arbitrators had additional cause to believe that Cassedy's claim of prejudice was not genuine based on arguments that (1) the account statements supporting the experts' calculations were produced long ago and thus known to Cassedy, Id. at 491; (2) the same calculations would likely be made by any expert, including Cassedy's expert, Id. 489, 497; and (3) the expert's report was merely a summary of the expert's live testimony, Id. at 496-97.
For reasons unknown, Cassedy did not call his expert witness to testify at the arbitration hearing. The arbitrators did, however, allow him an opportunity to submit a written expert report after the close of the hearing. Cassedy therefore had an opportunity to review and to address through his own written expert report the testimony and the written report of Petitioners' expert. The arbitrators' decision to deny postponing the hearing as requested by Cassedy did not result in prejudice to him and was supported by a reasonable basis. Accordingly, Cassedy's motion to vacate the arbitration award on this ground will be denied.
2. exceeding powers by ignoring rules, 9 U.S.C. § 10(a)(4)
Cassedy argues that the arbitration award should be vacated because the arbitrators exceeded their powers by ignoring rules regarding the exchange of evidence and the recording of proceedings. The evidence at issue consists of the Petitioners' expert report and calculations, which Cassedy contends was admitted despite Petitioners' failure to adhere to prehearing exchange requirements, a post-hearing affidavit that contained multiple hearsay statements, and a brief filed in support of Petitioners' claim. The audio recording of the proceedings, Cassedy argues, was not in compliance with the rules because large portions were not intelligible.
A review of the applicable rules shows that the arbitrators retained broad discretion regarding the admission of evidence and did not abuse their discretion. For example the rule regarding prehearing exchange requires the parties to exchange all documents they intend to present at the hearing at least twenty days beforehand. The rule states that "[t]he arbitratorsmay exclude from the arbitration any documents not exchanged or witnesses not identified." Rule 10321, NASD Code of Arbitration Procedures (emphasis supplied). Given the permissive language of the rule, exclusion is not required in every instance. The arbitrators in this case found a reasonable alternative way to address the late disclosure of the expert report, consistent with the rule Exclusion of the affidavit submitted after the hearing or the Respondents' brief was likewise not required under the applicable rule. The arbitrators were not constrained by formal rules and retained broad discretion to control the order, procedure, and presentation of evidence. First Preservation Capital, Inc. v. Smith. Barney, Harris Upham Co., 939 F. Supp. 1559, 1563 (S.D. Fla. 1996). Great deference is accorded to their evidentiary decisions. Nitram, Inc. v. Indus. Risk Insurers, 848 F. Supp. 162, 165 (M.D. Fla. 1994).
Rule 10321(c). Pre-Hearing Exchange
At least twenty (20) calendar days prior to the first scheduled hearing date, the parties shall serve on each other copies of documents in their possession they intend to present at the hearing and shall identify witnesses they intend to present at the hearing. The arbitrators
may exclude from the arbitration any documents not exchanged or witnesses not identified. This paragraph does not require service of copies or documents or identification of witnesses which the parties may use for cross-examination or rebuttal.
(emphasis added).
Rule 10323. Evidence
The arbitrators shall determine the materiality and relevance of any evidence proffered and shall not be bound by rules governing the admissibility of evidence.
The arbitrators allowed Cassedy a fair opportunity to respond to the affidavit through his own post-hearing submissions and allowed Cassedy to file a written closing argument. Furthermore, there is no indication that Petitioners' affidavit was even considered by the arbitrators since they denied Petitioners' request for punitive damages, contrary to what Petitioners advocated through the affidavit. Vacation of the arbitration award on these grounds is therefore not warranted.
With regard to the hearing record, the applicable rule allows for the proceedings to be tape recorded, as the arbitrators did in this case. Although Cassedy contends some portions of the recording were unintelligible, Cassedy does not contend that anyone purposefully tampered with the recording. Nor does Cassedy argue that the missing portions preclude effective judicial review. The failure of the equipment to record every portion of the proceedings under these circumstances does not justify vacating the arbitration award. See Card v. Stratton Oakmont, Inc., 922 F. Supp. 806, 814-15 (D.Minn. 1996) (literal violation of rule requiring verbatim recording did not warrant vacating the arbitration award); Grosso v. Barney, 2003 WL 22657305 at *7 (E.D. Pa., July 8, 2003) (no misconduct or prejudice inferred from failure to record small portion of proceedings). Accordingly, relief as to this ground will be denied.
Rule 10326. Record of Proceedings
(a) A verbatim record by stenographic reporter or a tape recording of all arbitration hearings shall be kept. If a party or parties to a dispute elect to have the record transcribed, the cost of such transcription shall be borne by the pary or parties making the request unless the arbitrators direct otherwise. The arbitrators may also direct that the record be transcribed. If the record is transcribed at the request of any party a copy shall be provided to the arbitrators.
(b) A verbatim record of mediation conducted pursuant to the Rule 10400 Series shall not be kept.
3. arbitrary and capricious
An award is subject to vacatur as arbitrary and capricious if "a ground for the arbitrator's decision cannot be inferred from the facts of the case." Raiford v. Merrill Lynch, Pierce, Fenner Smith. Inc., 903 F.2d 1410, 1413 (11th Cir. 1990). The award in this case is not arbitrary and capricious. Petitioners alleged that Cassedy churned their accounts, engaged in unsuitable investment strategies, misrepresented investments and risks, and breached fiduciary duties. The arbitration award can be inferred from these facts. Cassedy provides no specific arguments to the contrary. Accordingly, relief as to this ground will be denied.
4. chairperson not impartial, 9 U.S.C. § 10(a)(2)
Finally, Cassedy argues that the arbitration award should be vacated because the chairperson of the panel was not impartial. In support of this argument, Cassedy cites generally to statements the chairperson made when Cassedy objected after the panel granted his initial proposal for postponing the hearing.
Cassedy does not specify the statements at issue, but some of the statements the chairperson made in response to the requested postponement are:
Mr. Bernard: I'm telling you that the only way this makes sense-remember, this is your objection. Everything was worked out until you started making objections, okay. Basically, I'm not fully convinced about your good faith on the objection. We are sticking to what we had discussed. . . . . Doc. 10, exhibit 11, p. 504, In. 17-22
Mr. Bernarnd: I can understand watching your client's rights and I admire that, but now you're being obstructionist. We're trying to nail this down. We're trying to finish an arbitration that started two years ago. And I think, in a sense, it's disgraceful that it took this long to bring it to trial. And I am not going to (inaudible) it off, it's as simple as that, and make everybody come back another time and another time after that.
Id. at 505 In. 16-24.
To warrant vacating an arbitration award, the alleged partiality must be "direct, definite and capable of demonstration rather than remote, uncertain and speculative." Middlesex Mut. Ins. Co. v. Levine, 675 F.2d 1197, 1202 (11th Cir. 1982) (internal quotes omitted). The statements made by the chairperson taken in context do not rise to this level.
The record shows that the panel assented to Cassedy's initial request for postponement when Cassedy changed his position and requested a different postponement that he had repudiated earlier as unfair. The statements made by the chairperson evidence frustration with Cassedy's change of position, but they do not support a "reasonable impression of partiality." Scott, 141 F.3d at 1015. Relief on this ground will therefore be denied.
CONCLUSION
Cassedy's grounds for vacating the arbitration award, taken individually and cumilatively, do not warrant relief. The arbitrators did not commit misconduct and did not exceed their powers. The arbitrators' award can be inferred from the facts. The chairperson's statements do not support a reasonable impression of impartiality. Accordingly, it is
ORDERED AND ADJUDGED:
1. Respondent Cassedy's motion to vacate the award (doc. 10) is denied.
2. Petitioners' motion for confirmation of an arbitration award (doc. 1) is granted.
3. The clerk shall enter judgment as follows:
a. Against Respondent Cassedy in favor of Petitioners in the amount of $500.00 for the NASD initial claim filing fee.
b. Against Respondents Cassedy and D.E. Frey, jointly and severally,
(1) in favor of Petitioner Roderick C. Moeller, compensatory damages in the amount of $115,049.00, plus 6% interest per annum from June 16, 2000 until the date of payment; and
(2) in favor of Petitioner Donald E. Darden, compensatory damages in the amount of $55,100.00, plus 6% interest per annum from June 16, 2000 until the date of payment; and,
(3) in favor of Petitioner Donald E. Darden SEP IRA,
compensatory damages in the amount of $2,000.00, plus 6% interest per annum from June 16, 2000 until the date of payment.
DONE AND ORDERED.