The opinion of the court was delivered by: LEGGE
CHARLES A. LEGGE, UNITED STATES DISTRICT JUDGE
Applicant Merrill Lynch, Pierce, Fenner & Smith, Inc. has filed a motion to vacate, alter or modify an arbitration award of the Pacific Coast Stock Exchange. Respondent Florence R. Burke opposes that motion, and moves for confirmation of the award and for sanctions. The motions raise some difficult questions about the role of a federal court in reviewing decisions of an industry arbitration panel. The motions were briefed, argued and submitted for decision. The court has considered the moving and opposing papers, the record of the case, the arguments of counsel, and the applicable authorities.
For a few months in 1987, Burke had an account with Merrill Lynch. The employee of Merrill Lynch who was Burke's financial consultant or registered representative was Ms. Litwok. After a few months of trading activity, Ms. Litwok transferred her employment to another broker, and Burke moved her account to that broker. The dispute here concerns activity in Burke's account while she was a customer of Litwok and Merrill Lynch. Burke alleged churning of her account by Litwok, and that Litwok placed her in unsuitable investments.
As a substitute for civil litigation, the investment industry has provided for arbitration of such disputes. An arbitration clause is contained in most agreements between brokers and their customers. Such agreements generally foreclose either party from pursuing civil litigation, and limit them to the remedy of arbitration.
When the dispute arose in this case, the arbitration clause resulted in arbitration before a three person panel of the Pacific Coast Stock Exchange. The matter was heard over approximately four days, and on July 15, 1989 the arbitration panel entered a decision in favor of Burke and against Merrill Lynch. The panel awarded Burke over $ 57,000 in compensatory damages, plus interest. The panel also awarded Burke $ 250,000 in punitive damages. These are the awards that are in issue in these motions.
Merrill Lynch challenges the amount of the award of compensatory damages. Merrill Lynch contends that the arbitrators did not admit evidence of the settlement between Burke and the subsequent broker, and that the settlement should have reduced the amount of compensatory damages to which Burke was entitled against Merrill Lynch. Merrill Lynch also argues that the net realized loss in Burke's account with Merrill Lynch was much smaller than the panel awarded. Merrill Lynch invokes the power of this court to correct an arbitration award if "there was evident material miscalculation of figures." 9 U.S.C.A. § 11 (a) (West 1970 & Supp. 1989).
According to the briefs, but without any record before this court of the arbitration proceedings, it appears there was a dispute between the parties on how to calculate Burke's damages. The measure of damages in a churning case is at least reimbursement of the commissions which the broker earned, the interest paid on the account, and the actual trading losses. Some courts have also authorized the award of lost opportunity damages. See Hatrock v. Edward D. Jones & Co., 750 F.2d 767 (9th Cir. 1984); Shad v. Dean Witter Reynolds, Inc., 799 F.2d 525 (9th Cir. 1986); Mihara v. Dean Witter & Co., 619 F.2d 814 (9th Cir. 1980). In view of the several permissible theories of damages which might be awarded by arbitrators in this circuit, and in view of the obviously conflicting evidence and arguments before the arbitration panel, this court cannot say that there was an "evident material miscalculation of figures."
Merrill Lynch also attacks the award of punitive damages. On this subject, the arbitration panel simply stated: "Claimant is further awarded $ 250,000 in punitive damages." There was no explanation of the standard which the arbitration panel used, ...