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Suzanne Latour, An Individual v. Citigroup Global Markets Inc.

March 15, 2012


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


Plaintiff Suzanne LaTour filed a petition asking the Court to vacate in part an arbitration award against her, confirm the portion of the arbitration award in her favor, and award her costs and attorney's fees. The underlying arbitration award concerned an employment dispute and an attempt to enforce a promissory note against her. She also filed a motion seeking the same relief. Defendant Citigroup Global Markets, Inc. ("CGMI") filed a cross-petition seeking confirmation of the entire arbitration award, which is described in the docket as a motion for confirmation of the award. For the sake of convenience, the Court will refer to these documents as the petition (Docket no. 1); LaTour's motion, or the motion to vacate (Docket no. 4); and CGMI's motion, or the motion to confirm (Docket no. 20).

Although the parties requested oral argument on the cross motions, they agree the issue is whether the arbitration panel manifestly disregarded applicable law in reaching its decision. Because "manifest disregard" is a deferential standard, Johnson v. Wells Fargo Home Mortg., Inc., 635 F.3d 401, 416 (9th Cir. 2011), any error warranting vacatur or modification of the award would necessarily be clear and obvious once it is pointed out in briefing. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986) (manifest error is "obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator"). The Court therefore determined that oral argument would not be necessary, and will rule based on the submitted briefing. See Civil Local Rule 7.1(d)(1) ("A judge may, in the judge's discretion, decide a motion without oral argument.")

I. Jurisdiction and Applicable Law

The petition invokes diversity jurisdiction, although it is clear the source of the Court's jurisdiction is federal question jurisdiction under the Federal Arbitration Act (FAA). CGMI's motion invokes both diversity and federal question jurisdiction (via the FAA). Although the parties may obtain review of some arbitration awards under state statutory or common law, the FAA provides the exclusive basis and standards in federal law for modifying or vacating an arbitration award. See Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 590 (2008).

The briefing on both motions invoke only the FAA's standards, and neither party has asked the Court to apply some other law or any legal standard other than those set forth in the FAA. (See Mem. of P. & A in Supp. of Mot. to Vacate (Docket no. 4-1) at 13:1--27 (citing FAA as the basis for the Court's power to modify the arbitration award).) CGMI did cite the statute of limitations in Cal. Civ. Proc. Code § 1288, but neither party has invoked Cal. Civ. Proc. Code § 1285 (providing for confirmation, correction, or vacatur of arbitration awards) or standards under that provision. Both parties have assumed the FAA's standards govern, and have not developed any arguments that might pertain to the application of state law standards. The Court therefore deems any arguments arising from the application of state law standards waived. See Halicki Films, LLC v. Sanderson Sales & Marketing, 547 F.3d 1213, 1229--30 (9th Cir. 2008) (citations omitted) (arguments not raised in the opening brief, and arguments "made in passing and inadequately briefed" are waived).

The underlying transaction and agreement involve interstate commerce, so as to bring it within the FAA, because they establish financial obligations between a New York employer and LaTour, a California employee, and also because LaTour was employed as an account executive at a brokerage firm. See 9 U.S.C. § 2, Thorup v. Dean Witter Reynolds, Inc., 180 Cal. App. 3d 228, 233 (Cal. App. 1 Dist., 1986) ("It is indisputable that an employment contract involving an account executive of a brokerage firm is a contract 'involving commerce' and is subject to the [Federal Arbitration] Act.")

The Court will therefore apply the FAA's standards, and no others, and can exercise federal question jurisdiction over this controversy.

II. Discussion

The note at issue here was a recruitment loan of $581,150 to LaTour, paid to her when she began employment with CGMI. LaTour and CGMI Holdings (of which CGMI is a subsidiary) were named as parties to the note, although the same day LaTour entered into a special compensation agreement with CGMI in which CGMI agreed to pay back the note for her over time, assuming she remained in CGMI's employ. In other words, CGMI Holdings lent LaTour $581,150, with the understanding that the loan would be forgiven over time, provided LaTour remained in CGMI's employ. After over four years, and before the loan was paid off, LaTour left CGMI, which triggered a repayment obligation. LaTour, however, argues that CGMI was not the holder of the note and was therefore not entitled to enforce it.

The parties submitted their dispute to the Financial Industry Regulatory Authority (FINRA), where it was arbitrated by a three-member panel. The majority determined that CGMI was entitled to enforce a promissory note LaTour had executed. But a dissenting panel member believed that because CGMI was not a holder of the note, under New York law it was not entitled to enforce it. The panel awarded CGMI $322,861.11 plus interest, costs, and attorney's fees.

According to LaTour, the dissenter was correct, and the panel majority's decision was made in "manifest disregard of the law," which is one basis under the FAA for vacating or modifying an arbitration award. She argues the question was not a close call, and the majority disregarded the law on a straightforward issue that could only have been resolved as the dissenter argued it should be. (Opp'n to Mot. to Confirm, 1:9--16.)

The "manifest disregard" standard is difficult to satisfy. As the Ninth Circuit has explained, "Manifest disregard of the law means something more than just an error in the law or a failure on the part of the arbitrators to understand or apply the law." Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634, 641 (9th Cir. 2010) (citing Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995)). "To vacate an arbitration award on this ground, '[i]t must be clear from the record that the arbitrators recognized the applicable law and then ignored it.' " Id.

Biller v. Toyota Motor Corp., ___ F.3d ___, 2012 WL 336135, slip op. at *7 (9th Cir. Feb. 3, 2012). An error of law or a failure to understand the law is insufficient. Carter v. Health Net of California, Inc., 374 F.3d 830, 838 (9th Cir. 2004); Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 997 (9th Cir. 2003) (citation omitted) ("[C]onfirmation is required even in the face of erroneous findings of fact or misinterpretations of law.") Arbitrators are not required to state reasons for their findings, but are presumed to have made their award on permissible grounds. A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992). "[T]here must be some evidence in the record, other than the result, that the arbitrators were aware of the law and intentionally ...

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