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Ubs Financial Services, Inc. and Piper v. Mark C. Riley

May 17, 2012


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


Petitioners UBS Financial Services, Inc. ("UBS"), and Piper Jaffray & Co.*fn1 ("Piper Jaffray") filed a petition for order confirming arbitration award [doc. #1] and a motion to confirm or, alternatively, to modify the arbitration award [doc. #2] on September 2, 2011. Respondent Mark C. Riley filed an opposition to the motion on September 7, 2011, to which petitioner filed a reply. In addition, Riley filed a motion for sanctions under Rule 11 of the Federal Rules of Civil Procedure [doc. #9] on September 13, 2011, to which petitioners filed an opposition. The matters having been fully briefed, the Court enters the following decision on the papers submitted and without oral argument pursuant to Civil Local Rule 7.1(d)(1).


Respondent Riley worked for Piper Jaffray. As part of his employment with Piper Jaffray, Riley received a forgivable loan and signed a promissory note for the loan. During the course of his employment at Piper Jaffray, UBS acquired Piper Jaffray and specifically assumed Piper Jaffray's liabilities related to its Private Client Services business,*fn2 including the promissory note. Following the acquisition, Riley accepted employment with UBS and the parties entered into an agreement to arbitrate any dispute between them before the Financial Industry Regulatory Authority ("FINRA"). Additionally, respondent received another forgivable loan and signed a promissory note for that loan. Riley subsequently ended his employment with UBS and failed to pay the outstanding balance on his promissory notes.

On February 9, 2010, UBS initiated a FINRA arbitration proceeding against Riley to recover the outstanding balance on the two promissory notes Riley signed, as well as interest and attorney's fees. Riley filed a counterclaim against UBS and Piper Jaffray alleging a number of claims related to his employment with the firms.

An arbitration hearing was conducted before a panel of three arbitrators appointed by FINRA. On August 4, 2011, the panel issued an arbitration award in favor of UBS for $284,687.50, interest in the amount of $61,337.33, and attorneys' fees in the amount of $31,000, totaling $377,024.83. The panel also held UBS and Piper Jaffray jointly and severally liable for payment to respondent Riley in the amount of $127,024.83.

On August 11, 2011, UBS filed a motion with the arbitration panel requesting the panel to clarify the award in order to provide for Riley's award to be offset against the award for UBS. On August 18, 2011, the Director of Arbitration informed the parties that UBS's motion would not be considered by the panel because it did not comply with the grounds enumerated in FINRA Code of Arbitration Procedure for Industry Disputes Rule 13905.*fn3

UBS now requests that the Court confirm or alternatively, modify the award with a setoff of the amount awarded to Riley against the larger amount awarded to UBS, and enter a single judgment in favor of UBS in the net amount of $250,000, plus interest, attorneys' fees and costs. Riley opposes the motion. In addition, Riley filed a motion for Rule 11 sanctions against petitioners for the filing the motion to confirm or modify the award.


A. Petitioner's Motion to Confirm or Modify Arbitration Award

The Federal Arbitration Act ("FAA") governs the role of federal courts in reviewing arbitral decisions. See 9 U.S.C. §§ 1--16. "[F]ederal court review of arbitration awards is extremely limited." A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992). If a party seeks a judicial order confirming an arbitration award pursuant to the FAA, a federal district court "must grant [a confirmation] order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title." 9 U.S.C. § 9. The proceeding to confirm an arbitration award is intended to be summary. See Northrop Corp. v. Triad Int'l Marketing S.A., 842 F.2d 1154, 1157, n.7 (9th Cir. 1988).

Sections 1 through 16 of the FAA enumerates limited grounds on which a federal court may vacate, modify or correct an arbitral award. See 9 U.S.C. §§ 1--16. Neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court review of an arbitral award under the statute, which is unambiguous in this regard." Kyocera Corp. v. Prudential-Bache T Serv's, Inc., 341 F.3d 987, 994 (9th Cir. 2003). "Under the statute, confirmation is required even in the face of erroneous findings of fact and misinterpretations of law." Id. at 997 (internal quotation marks and citation omitted); see also G.C. and K.B. Invs., Inc. v. Wilson, 326 F.3d 1096, 1105 (9th Cir. 2003) ("[I]t is not even enough that the [arbitrator] may have failed to understand or apply the law.").

The FAA "allows a federal court to correct a technical error, to strike all or a portion of an award pertaining to an issue not at all subject to arbitration, and to vacate an award that evidences affirmative misconduct in the arbitral process or the final result or that is completely irrational or exhibits a manifest disregard for the law." Kyocera, 341 F.3d at 997--98. These grounds allow "an extremely limited review authority, a limitation that is designed to preserve due process but not to permit unnecessary public intrusion into private arbitration procedures."

A party "may not voluntarily submit his claim to arbitration, await the outcome, and, if the decision is unfavorable, then challenge the authority of the arbitrator's act." Ficek v. ...

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