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M. Michele Sawyer v. Arbitration Award Horwitz & Associates

January 30, 2012

M. MICHELE SAWYER,
PLAINTIFF,
v.
ARBITRATION AWARD HORWITZ & ASSOCIATES, INC. AND CARLOS LEGASPY, DEFENDANT.



The opinion of the court was delivered by: Honorable Larry Alan Burns United States District Judge

ORDER CONFIRMING

Michele Sawyer challenges an arbitration award entered against her by a panel of the Financial Industry Regulatory Authority. Defendants are a brokerage firm and one of its representatives who, Sawyer alleges, lost almost all of the $1,805,085 that she entrusted to their care through a series of ill-advised (and unauthorized) naked put options. Sawyer brought eight claims against the Defendants, alleging violations of the Securities Exchange Act as well as California law. The panel, in a 2-1 decision, denied all claims in their entirety.

I. Legal Standard

The Federal Arbitration Act provides that an arbitration award may be vacated

(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; or

(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). With respect to (4), "'arbitrators exceed their powers . . . not when they merely interpret or apply the governing law incorrectly, but when the award is completely irrational, or exhibits a manifest disregard of law.'" Schoenduve Corp. v Lucent Technologies, Inc., 442 F.3d 727, 731 (9th Cir. 2006) (quoting Kyocera Corp. v. Prudential-Bache Trade Services, Inc., 341 F.3d 987, 997 (9th Cir. 2003)).

A manifest disregard of the law is indicated when it's clear that the arbitrators recognized the applicable law and then ignored it. Bosack v. Soward, 586 F.3d 1096, 1104 (9th Cir. 2009). "[T]here must be some evidence in the record, other than the result, that the arbitrators were aware of the law and intentionally disregarded it." Id. (quoting Lincoln Nat'l Life Ins. Co. v. Payne, 374 F.3d 672, 675 (8th Cir. 2004)). Moreover, the law has to be well defined, explicit, and clearly applicable. Carter v. Health Net of California, Inc., 374 F.3d 830, 838 (9th Cir. 2004). A legal conclusion that is merely erroneous, or rests on a misinterpretation of law, must be left alone. Kyocera Corp., 341 F.3d at 994; French v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 784 F.2d 902, 906 (9th Cir. 1986). Absent a written opinion or some other indication of the arbitrators' reasoning, "it is all but impossible to determine whether they acted with manifest disregard for the law." Id. (quoting Dawahare v. Spencer, 210 F.3d 666, 669 (6th Cir. 2000)).

The Ninth Circuit has not elaborated at length on the meaning of "completely irrational," Comedy Club, Inc. v. Improv West Associates, 553 F.3d 1277, 1288 (9th Cir. 2009), but suffice it to say that neither unsubstantiated factual findings nor erroneous factual findings justify vacating an arbitral award.*fn1 Id. at 994; Merrill Lynch, 784 F.2d at 906.

Indeed, "[w]hether or not the panel's findings are supported by the evidence in the record is beyond the scope of . . . review." Bosack, 586 F.3d at 1105. In other words, this Court has no authority to re-weigh the evidence presented to an arbitration panel and ask whether it would have reached the same decision. Id. See also Coutee v. Barington Capital Group, L.P., 336 F.3d 1128, 1134 (9th Cir. 2003); Local Joint Executive Bd. of Las Vegas v. Riverboat Casino, Inc., 817 F.2d 524, 527 (9th Cir. 1987). "Broad judicial review of arbitration decisions could well jeopardize the very benefits of arbitration, rendering informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process." Kyocera Corp.,341 F.3d at 997--98.*fn2

II. Discussion

Arbitrators have no obligation to explain their decisions. A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992). When they don't offer any explanation, however, the Court finds itself in a difficult position. Even though its review is a deferential one, and the Court doesn't even ask whether the panel's findings are supported by the record, it helps to have something to go on. This is especially true when, as here, a petitioner doesn't focus her objections to the panel's decision and instead objects to it wholesale.*fn3 Indeed, Sawyer's motion has all the substance of a brief for the panel adjudicating her claims for the first time. Over the course of ten pages under the heading "The Undisputed Evidence Proved Legaspy Breached His Fiduciary Duties To Claimant," Sawyer essentially tries to make her case all over again, articulating four different points of law and making six different points about what, in her view, the undisputed evidence established.

A. Denial of Motion for Expungement

Sawyer's first argument for vacatur is that the panel's refusal to expunge Sawyer's claims against Defendants necessarily means the claims were meritorious. That's simply not true.

At the conclusion of the evidence, Defendants moved for expungement under FINRA Rule 2080(b)(1)(A) and 2080(b)(1)(C). (Lendrum Decl., Ex. 17.) The former allows for expungement when "the claim, allegation or information is factually impossible or clearly erroneous." The latter allows for expungement when "the claim, allegation or information is false."*fn4 Without any kind of explanation, the panel denied the request: "Respondent Legaspy's request for expungement is denied." (Lendrum Decl., Ex. 9.)

What does that mean, though? Sawyer interprets it as a finding that her claims were not false, given that that is the basis for expungement under Rule 2080(b)(1)(C). But Defendants also moved for expungement on the ground that Sawyer's claims were factually impossible or clearly erroneous, the basis for expungement under Rule 2080(b)(1)(A). It is entirely possible that the panel denied the motion to expunge because, even though it found Sawyers' claims to be false, it did not find them to be factually impossible or clearly erroneous.*fn5 Moreover, Sawyer's argument forgets what the Court is looking for here: a decision that is completely irrational or exhibits a manifest disregard of law. Schoenduve, 442 F.3d at 731. Sawyer cites no authority, and the Court does not believe any exists, for the proposition that it is completely irrational, or manifestly unlawful, for an arbitral to refuse to expunge claims that it nonetheless finds are not ...


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