Rodriguez v. Prudential-Bache ( 1995 )


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    UNITED STATES COURT OF APPEALS
    FOR THE FIRST CIRCUIT
    ____________________

    No. 95-1590

    PRUDENTIAL-BACHE SECURITIES, INC.,

    Plaintiff - Appellant,

    v.

    ROBERT D. TANNER, ET AL.,

    Defendants - Appellees.

    ____________________

    No. 95-1591

    JOSE F. RODRIGUEZ, ET AL.,

    Plaintiffs - Appellees,

    v.

    PRUDENTIAL-BACHE SECURITIES, INC.,

    Defendant - Appellant.

    ____________________

    No. 95-1592

    PRUDENTIAL-BACHE SECURITIES, INC.,

    Plaintiff - Appellee,

    v.

    ROBERT D. TANNER, ET AL.,

    Defendants - Appellants.

    ____________________

    APPEAL FROM THE UNITED STATES DISTRICT COURT

    FOR THE DISTRICT OF PUERTO RICO

    [Hon. Salvador E. Casellas, U.S. District Judge] ___________________













    ____________________

    Before

    Torruella, Chief Judge, ___________

    Campbell, Senior Circuit Judge, ____________________

    and Watson,* Judge. _____

    _____________________

    Thomas F. Curnin, with whom Roy L. Regozin, Cahill Gordon & _________________ ______________ _______________
    Reindel, Guillermo J. Bobonis, Carlos Bobonis-Gonz lez, Bobonis, _______ _____________________ _______________________ ________
    Bobonis & Rodr guez-Poventud, Louis J. Scerra, Jr. and Goldstein ____________________________ _____________________ _________
    & Manello, P.C. were on brief for Prudential Securities __________________
    Incorporated.
    Jos Angel Rey, with whom Jos Luis Gonz lez-Casta er and _______________ ____________________________
    Harold D. Vicente were on brief for Robert D. Tanner, et al. _________________



    ____________________

    December 29, 1995
    ____________________






















    ____________________

    * Of the United States Court of International Trade, sitting by
    designation.

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    TORRUELLA, Chief Judge. Appellant Prudential TORRUELLA, Chief Judge. _____________

    Securities Incorporated, formerly Prudential-Bache Securities,

    Inc. ("Prudential"), seeks the reversal of a judgment, entered in

    two consolidated actions, confirming arbitration awards entered

    by a panel of New York Stock Exchange arbitrators in favor of

    Jos F. Rodr guez ("Rodr guez"), Robert Tanner ("Tanner"),

    Garland Hedges ("Hedges"), Wolfram Pietri ("Pietri"), and Jos

    Cimadevilla ("Cimadevilla"), former employees of Prudential's

    subsidiary in Puerto Rico, Prudential-Bache Capital Funding

    Puerto Rico, Inc. ("PBPR"). Prudential argues that the award

    should be vacated on either of two grounds: first, that the

    arbitration award was in manifest disregard of Puerto Rico Law

    80; and second, that it went against a well-defined and

    established public policy requiring that securities firms

    maintain accurate and current books and records. However, we

    find that Prudential neither meets the standard for the vacation

    of an award on the grounds of manifest disregard, set out in

    Advest, Inc. v. McCarthy, 914 F.2d 6 (1st Cir. 1990), nor _____________ ________

    demonstrates that the arbitration panel found that appellees

    acted against public policy. Since its argument that the

    district court erred in refusing to vacate the awards of

    attorney's fees and costs also fails, we affirm the judgment of

    the court below on all points.

    BACKGROUND BACKGROUND

    The arbitration underlying this case arose out of

    Prudential's decision to close its Puerto Rican subsidiary and


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    terminate the employment of several executives assigned to PBPR.

    On December 29, 1990, Rodr guez, former President of PBPR,

    together with his wife and their conjugal partnership, filed suit

    against Prudential, seeking compensation for his allegedly

    wrongful discharge. Appellant Prudential moved to compel

    arbitration, and the lower court stayed all discovery and ordered

    the parties to proceed with the arbitration of all claims

    pertaining to Rodr guez. The claims of his wife and their

    conjugal partnership were stayed pending the arbitration's

    outcome. Meanwhile, the claims of Tanner, Hedges, Pietri and

    Cimadevilla, all also former PBPR executives, were brought

    directly through arbitration.

    An arbitration panel appointed by the New York Stock

    Exchange heard the parties' claims between February 1992 and

    December 1993. On January 7, 1994, the panel issued its award,

    under which Prudential was to pay Tanner $1,028,000, Rodr guez

    $1,014,250, Hedges $312,750, Pietri $310,750, and Cimadevilla

    $216,025. Various amounts in costs and attorney's fees were also

    awarded. When Rodr guez moved the district court for entry of

    judgment on the award, Prudential filed a petition to vacate the

    arbitration award as against all claimants on the grounds that

    (1) the award was against public policy; (2) the award was in

    conflict with Puerto Rico Law 80; (3) the award of attorney's

    fees was contrary to law; (4) the arbitrators improperly denied

    Prudential the opportunity to conduct discovery into the

    claimants' financial position and current earnings; (5) the award


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    failed to properly record the decision of the arbitrators that

    Prudential was not responsible for promissory notes issued by

    Tanner and Rodr guez to their employees at Prudential in lieu of

    cash bonuses; and (6) the award incorrectly noted that the

    arbitrators ordered that appropriate shares of the bonus were to

    be paid to claimants. They

    contest the district court's findings on the first three of these

    issues on appeal.

    DISCUSSION DISCUSSION

    A. Standard of Review A. Standard of Review __________________

    As the Supreme Court recently stated, "courts of

    appeals should apply ordinary, not special, standards when

    reviewing district court decisions upholding arbitration awards."

    First Options of Chicago, Inc. v. Kaplan, ___ U.S. ___, ___, 115 ______________________________ ______

    S. Ct. 1920, 1926, 131 L.Ed.2d 985 (1995). Accordingly, we

    accept findings of fact that are not clearly erroneous and decide

    questions of law de novo. Id., 115 S. Ct. at 1926. __ ____ ___

    However, our discussion does not end there. "We must

    consider, of course, the district court's standard of

    review . . . ." Kelley v. Michaels, 59 F.3d 1050, 1053 (10th ______ ________

    Cir. 1995). When a district court faces an arbitrator's

    decision, "the court will set that decision aside only in very

    unusual circumstances." First Options, 115 S. Ct. at 1923. The _____________

    first set of "unusual circumstances" are laid out in Section






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    10(a) of the Federal Arbitration Act ("FAA"), 9 U.S.C. 10(a)

    (1994).1 See Gateway Technologies v. MCI Telecommunications, 64 ___ _____________________ ______________________

    F.3d 993, 996 (5th Cir. 1995) (laying out the scope of judicial

    review of arbitration awards in the light of First Options and _____________

    the FAA).

    Prudential relies on a second, narrower, set of grounds

    for review, established by case law for "manifest disregard of

    the law." See Wilko v. Swan, 346 U.S. 427, 436-37 (1953) ___ _____ ____

    (creating the exception), overruled on other grounds by Rodr guez _____________________________ _________

    de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484- _________ _______________________________

    85 (1989); Advest, 914 F.2d at 9 n.5 (noting that this ______

    judicially-created method of review is based on dicta in Wilko _____
    ____________________

    1 Section 10(a) provides that a court may vacate 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 . . . .
    (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.
    (5) Where an award is vacated and the
    time within which the agreement required
    the award to be made has not expired the
    court may, in its discretion, direct a
    rehearing by the arbitrators.

    9 U.S.C. 10(a) (1994); see Advest, 914 F.2d at 8 (stating that ___ ______
    10 "carefully limits judicial intervention").

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    and not found in 10). The test for a challenge to an

    arbitration award for manifest disregard of the law is set out in

    Advest, Inc. v. McCarthy: ____________ ________

    a successful challenge . . . depends upon
    the challenger's ability to show that the
    award is "(1) unfounded in reason and
    fact; (2) based on reasoning so palpably
    faulty that no judge, or group of judges,
    ever could conceivably have made such a
    ruling; or (3) mistakenly based on a
    crucial assumption that is concededly a
    non-fact."

    Advest, 914 F.2d at 8-9 (quoting Local 1445, United Food and ______ _____________________________

    Commercial Workers v. Stop & Shop Cos., 776 F.2d 19, 21 (1st Cir. __________________ ________________

    1985)).

    B. Timeliness of Prudential's Petition to Vacate B. Timeliness of Prudential's Petition to Vacate _____________________________________________

    Before addressing Prudential's arguments, we examine a

    threshold issue appellees raise: whether Prudential's petition

    to vacate was timely. Appellees argue that Prudential's petition

    is governed by Rule 627(g) of the Rules of the New York Stock

    Exchange ("NYSE"), which they maintain establishes a 30-day

    period for filing petitions to vacate.2 Since the petition was
    ____________________

    2 The Rule states:

    All monetary awards shall be paid within
    thirty (30) days of receipt unless a
    motion to vacate has been filed with a
    court of competent jurisdiction. An
    award shall bear interest from the date
    of the award: (i) if not paid within
    thirty (30) days of receipt, (ii) if the
    award is the subject of a motion to
    vacate which is denied, or (iii) as
    specified by the arbitrator(s) in the
    award. Interest shall be assessed at the
    legal rate, if any, then prevailing in
    the state where the award was rendered,

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    filed on March 9, 1994, sixty-one days after the award was

    issued, under appellees' reading of Rule 627(g), Prudential's

    petition would be time-barred. In turn, Prudential claims that

    its petition is governed by the 90-day period set out in 12 of

    the FAA, 9 U.S.C. 12 (1994),3 and so is timely. The court

    below found that Section 12 of the FAA applies, and the petition

    is not time-barred. We affirm.

    Appellees make their argument in two stages. First,

    they maintain that, since parties may agree to arbitrate under

    non-FAA rules,4 and the parties submitted a Uniform Submission

    Agreement to the NYSE providing that the arbitration would be

    conducted in accordance with the rules of the exchange,5 those
    ____________________

    or at a rate set by the arbitrator(s).

    2 New York Stock Exchange Guide, Rule 627(g) (1989).

    3 The Rule states, in pertinent part:

    Notice of a motion to vacate, modify or
    correct an award must be served upon the
    adverse party or his attorney within
    three months after the award is filed or
    delivered.

    9 U.S.C. 12 (1994).

    4 See Mastrobuono v. Shearson Lehman Hutton, ___ U.S. ___, ___, ___ ___________ ______________________
    115 S. Ct. 1212, 1216, 131 L.Ed.2d 76 (1995) (noting that "the
    FAA's pro-arbitration policy does not operate without regard to
    the wishes of the contracting parties"); Volt Info. Sciences, _____________________
    Inc. v. Board of Trustees, 489 U.S. 468, 479 (1989) ("Arbitration ____ _________________
    under the Act is a matter of consent, not coercion, and parties
    are generally free to structure their arbitration agreements as
    they see fit").

    5 Each appellee signed an Employment Agreement with Prudential
    that contained an arbitration clause. The clause provided for,
    inter alia, settlement of all claims arising between Prudential _____ ____
    and its employees through arbitration under the prevailing

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    rules trump the FAA. Second, they argue that Rule 626(g), by

    requiring payment of the award within 30 days of its receipt if a

    motion to vacate has not been filed, compels the conclusion that

    any challenge to an arbitration award must be filed within the

    same period.

    We are not convinced, however. We do not question that

    the NYSE Rules apply. Where parties agree to a set of rules

    different than those of the FAA, "enforcing those rules according

    to the terms of the agreement is fully consistent with the goals

    of the FAA, even if the result is that arbitration is stayed

    where the Act would otherwise permit it to go forward." Volt, ____

    489 U.S. at 479. While we agree with appellees' first premise,

    however, we do not subscribe to their second one.

    Appellees seek to find a time limit in Rule 627(g) that

    it does not include. To support their reading of the rule,

    appellees argue that it is meant to operate as a stay of

    execution for the period during which the party may challenge the

    award. In that context, they maintain it would be senseless to

    allow such a stay for only 30 days if the period to file a

    petition to vacate is to be governed by the 90-day period of the

    FAA, as the award would be subject to enforcement during the 60

    days following the expiration of the stay. While their logic

    holds some merit, they cannot escape the fact that the text of
    ____________________

    Constitution and Rules of the NYSE. Also, the Submission
    Agreement which the parties filed with the NYSE shows that they
    submitted their dispute to arbitration in accordance with that
    body's Rules, Constitution, By-laws, Regulations, and/or Code of
    Arbitration.

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    the Rule is clear. As stated by the court below, "[t]he plain

    language of Rule 627(g) . . . does not even address the question

    of a time limitation on motions for vacatur, but rather

    establishes when awards are to be paid and the precise moment at

    which interest begins to accrue on unpaid amounts of an award."

    Rodr guez v. Prudential-Bache Sec., Inc., 882 F. Supp. 1202, 1206 _________ ___________________________

    (D.P.R. 1995). We are unwilling to read a time limit into its

    language.

    In contrast, the text of Section 12 is unambiguous,

    clearly setting out a 90-day time limit. Since the Rules of the

    NYSE provide no time limit, we find that the FAA 90-day provision

    applies, and appellant's petition is timely. See Escobar v. ___ _______

    Shearson Lehman Hutton, Inc., 762 F. Supp. 461, 463 (D.P.R. 1991) ____________________________

    ("A party who seeks judicial review of an arbitration award must

    comply with the notice requirements of section 12 . . . ."); cf. ___

    Franco v. Prudential Bache Sec., Inc., 719 F. Supp. 63, 64 ______ _____________________________

    (D.P.R. 1989) (finding motion to overturn an arbitration award

    untimely for failure to petition within 90-day period of 12).



    C. Manifest Disregard of the Law C. Manifest Disregard of the Law _____________________________

    As stated above, judicial review of arbitration awards

    is available where arbitrators have acted in manifest disregard

    of the law. See Wilko, 346 U.S. at 436-37. As this court stated ___ _____

    in Advest, Inc. v. McCarthy, arbitration awards are subject to _____________ ________

    review "where it is clear from the record that the arbitrator




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    recognized the applicable law--and then ignored it."6 914 F.2d

    at 9.

    Prudential argues that this is such a case. It asserts

    that appellees were terminated for "just cause" under

    Commonwealth Law 80, which sets out the remedy for employees

    under contracts without fixed duration who are wrongfully

    discharged. 29 L.P.R.A. 185a (Supp. 1991). Law 80 details

    what constitutes just cause for discharge, including "[f]ull,

    temporary or partial closing of the operations of the

    establishment." 29 L.P.R.A. 185b(d) (Supp. 1991). It provides

    an exclusive remedy.7 See Alvarado-Morales v. Digital Equip. ___ ________________ ______________
    ____________________

    6 We emphasize that this is a narrow basis for review: a mere
    mistake of law by an arbitrator cannot serve as the basis for
    judicial review. We have long recognized the general rule that
    "courts are not to review the merits of an arbitral award."
    Challenger Caribbean Corp. v. Uni n General de Trabajadores, 903 __________________________ _____________________________
    F.2d 857, 861 (1st Cir. 1990). They "do not sit to hear claims
    of factual or legal error by an arbitrator as an appellate court
    does in reviewing decisions of lower courts." Misco, 484 U.S. at _____
    38. Thus our review is circumscribed by the provisions of
    Section 10(a) and the specifications of the "manifest disregard
    of the law" test laid out by this court in Advest. ______

    7 While "[t]here is no question that Act No. 80 is the exclusive
    remedy for wrongful discharge in Puerto Rico," Weatherly v. _________
    International Paper Co., 648 F. Supp. 872, 875 (D.P.R. 1986), ________________________
    three exceptions exist to the rule that Law 80 precludes other
    civil actions against an employer who wrongfully terminates an
    employee. They arise (1) when a plaintiff has an independent
    cause of action for a tort committed in the course of the
    discharge, Vargas v. Royal Bank of Canada, F. Supp. 1036, 1039 ______ _____________________
    (D.P.R. 1985); (2) when a plaintiff is protected by other social
    legislation, Weatherly, 648 F. Supp. at 877 n.8 (listing the _________
    twelve statutes that provide remedies for employment termination
    alongside Law 80); and (3) when the plaintiff's termination
    violates his or her constitutional rights, In re El San Juan ___________________
    Hotel Corp., 149 B.R. 263, 273 (D.P.R. 1992); Santini Rivera v. __________ _______________
    Serv. Air, Inc., 94 JTS 121 (Hern ndez Denton, J., concurring). _______________

    This is not to say, however, that the parties to an employment

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    Corp., 843 F.2d 613, 615 n.1 (1st Cir. 1988) (noting the _____

    exclusiveness of the remedy for wrongful constructive discharge);

    Rodr guez v. Eastern Air Lines, Inc., 816 F.2d 24, 27-28 (1st _________ _________________________

    Cir. 1987) (finding that the remedy's exclusive nature precludes

    reinstatement claim).

    Prudential contends that, given that the five appellees

    were discharged from employment in Puerto Rico under employment

    agreements without a fixed duration, Law 80 applies. Since the

    law provides an exclusive remedy, and the appellees' claims arise

    out of their termination, it argues, the only penalty appellees

    could claim for wrongful discharge would be that set by Law 80.

    Prudential carries its argument a step further, maintaining that

    under Section 185b(d) of Law 80 there was no wrongful discharge,

    as the employees were terminated in conjunction with the closing

    of PBPR.8 Since "employees who are dismissed for cause are not

    entitled to the relief afforded by Act 80," Marti v. Chevron _____ _______

    U.S.A., Inc., 772 F. Supp. 700, 705 (D.P.R. 1991), Prudential ____________

    concludes, the arbitrators' award is irreconcilable with Law 80,
    ____________________

    contract cannot make an agreement regarding indemnification in
    the case of wrongful termination. See Santini Roig v. Iberia ___ _____________ ______
    L neas A reas de Espa a, 688 F. Supp. 810, 817 (D.P.R. 1988) _________________________
    (allowing recovery under Law 80 when parties had been indemnified
    according to a collective bargaining agreement, stating that Law
    80 "is an independent statute that provides for a separate cause
    of action for monetary relief regardless of the terms of the
    collective bargaining agreement.").

    8 Prudential makes the additional arguments that appellee
    Tanner's alleged failure to record a transaction in accordance
    with federal and company rules provided just cause for
    termination, and that appellee Rodr guez' decision to resign was
    not constructive discharge under Law 80. These arguments are
    also defeated under the analysis presented below.

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    and so was made in manifest disregard of it.

    In order to demonstrate that the arbitrator both

    recognized and ignored the applicable law, Advest, 914 F.2d at 9, ______

    "'there must be some showing in the record, other than the result

    obtained, that the arbitrators knew the law and expressly

    disregarded it,'" id. at 10 (quoting O.R. Sec., Inc. v. ___ _________________

    Professional Planning Assocs., Inc., 857 F.2d 742, 747 (11th Cir. ___________________________________

    1988)). The demand for a showing in the record sets up a high

    hurdle for Prudential to clear, because where, as here,

    arbitrators do not explain the reasons justifying their award,9

    "appellant is hard pressed to satisfy the exacting criteria for

    invocation of the doctrine." Id. "In fact, when the arbitrators ___

    do not give their reasons, it is nearly impossible for the court

    to determine whether they acted in disregard of the law." O.R. ____

    Sec., 857 F.2d at 747. But see Advest, 914 F.2d at 10 ____ _______ ______

    (suggesting that a court could find arbitrators in disregard of

    the law despite the lack of a record where "the governing law

    [has] such widespread familiarity, pristine clarity, and

    irrefutable applicability that a court could assume the

    arbitrators knew the rule and, notwithstanding, swept it under

    the rug.").

    In the present case Prudential's argument is thwarted

    ____________________

    9 It is well established that arbitrators are not required to
    either make formal findings of fact or state reasons for the
    awards they issue. Labor Relations Div. of Constr. Indus. of ____________________________________________
    Mass., Inc. v. International Bhd. of Teamsters, 29 F.3d 742, 747 ____________ _______________________________
    (1st Cir. 1994); Raytheon Co. v. Automated Business Sys., Inc., ____________ ______________________________
    882 F.2d 6, 8 (1st Cir. 1989).

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    by the fact that the arbitrators did not explain the reasons

    behind their award. It is undisputed that Law 80 was not the

    only cause of action asserted by Prudential's former employees

    before the arbitrators. What is more, it is equally uncontested

    that appellees presented evidence regarding damages under Law 80

    in contradiction of Prudential's position. Given the fact that

    the panel members heard conflicting arguments, it is difficult to

    maintain that they both recognized the applicable law and then

    ignored it, id. at 9, without the benefit of a statement of their ___

    reasons. The broad leeway arbitrators enjoy in determining

    remedies, see id. at 11; Challenger Caribbean Corp., 903 F.2d at ___ ___ __________________________

    869, further stymies Prudential's attempt to demonstrate a

    manifest disregard of the law on the part of the panel, given

    that their remedial options are not limited to those offered

    during the hearing. Advest, 914 F.2d at 11. ______

    Accordingly, we are not convinced that the court below

    abused its discretion in finding that, judging from the award,

    the arbitrators considered and rejected Prudential's argument

    that it had just cause to terminate appellees.10 Therefore,

    like the district court before us, we "decline Prudential's

    ____________________

    10 The parties briefly debate two grounds for recovery
    concurrent to Law 80: (1) whether the appellees' claims for
    emotional and mental suffering are based on tortious conduct
    separate and independent from the termination of their employment
    for the purposes of Law 80; and (2) whether a partnership between
    Tanner, Cabrer, Rodr guez and Prudential was formed under Puerto
    Rico law.
    We find that the arbitrators may have rejected Prudential's just
    cause argument and therefore uphold their award. Accordingly, we
    need not address the details of these disputes.

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    invitation to revisit the merits of their factual contentions",

    Rodr guez, 882 F. Supp. at 1209, and affirm their decision. Cf. _________ ___

    O.R. Sec., 857 F.2d at 748 ("The record of the arbitration ___________

    proceedings in this case shows that the issue of successor

    liability was clearly presented to the arbitrators and the

    arbitrators declined to state reasons for their conclusions.

    This ends the inquiry.").

    D. Public Policy D. Public Policy _____________

    Prudential argues that the awards in favor of appellees

    Tanner and Rodr guez should be vacated because they are contrary

    to a well-defined and dominant public policy requiring that

    securities firms maintain correct books and records.

    Specifically, Prudential asserts that Tanner and Rodr guez failed

    to record three puts11 to Schering Plough, PaineWebber and

    Squibb, as well as a one million dollar rebate (together, the

    "transactions"). The failure to record the transactions, it

    asserts, violates a dominant public policy demanding accurate

    books and records.

    A court may vacate an arbitration award where the

    arbitration agreement as interpreted would violate public policy.

    See United Paperworks Int'l Union v. Misco, Inc., 484 U.S. 29, ___ _____________________________ ___________

    42-43 (1987); W.R. Grace & Co. v. Local Union 759, United Rubber ________________ ______________________________

    Workers, 461 U.S. 757, 766 (1983). However, this authority does _______
    ____________________

    11 A put is "[a]n option permitting its holder to sell a certain
    stock or commodity at a fixed price for a stated quantity and
    within a stated period. Such a right is purchased for a fee paid
    the one who agrees to accept the stock or goods if they are
    offered." Black's Law Dictionary 1237 (6th ed. 1990).

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    not include "a broad judicial power to set aside arbitration

    awards as against public policy." Misco, 484 U.S. at 43. _____

    Rather, the court's power is limited "to situations where the

    contract as interpreted would violate 'some explicit public

    policy' that is 'well defined and dominant, and is to be

    ascertained 'by reference to the laws and legal precedents and

    not from general considerations of supposed public interests.''"

    Id. (quoting W.R. Grace, 461 U.S. at 766). ___ __________

    In United Paperworks Int'l Union v. Misco, Inc., the _______________________________ ____________

    Supreme Court set out two requirements for overturning

    arbitration awards on the grounds of public policy. First, the

    "alleged public policy must be properly framed under the approach

    set out in W.R. Grace." Id. This demands "examination of ___________ ___

    whether the award created any explicit conflict with other 'laws

    and legal precedents' rather than an assessment of 'general

    considerations of supposed public interests.'" Id. (quoting ___

    W.R. Grace, 461 U.S. at 766); see W.R. Grace, 461 U.S. at 766, __________ ___ __________

    770 (finding that obedience of judicial orders and voluntary

    compliance with Title VII of the Civil Rights Act of 1964 are two

    such public policies). Second, "the violation of such a policy

    must be clearly shown if an award is not to be enforced." Misco, _____

    484 U.S. at 43.

    To meet the demands of the first requirement and

    demonstrate that the policy is "ascertained 'by reference to the

    laws and legal precedents,'" id. (quoting W.R. Grace, 461 U.S. at ___ __________

    766), Prudential points to the reporting requirements set out for


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    registered broker-dealers in Section 17(a) of the Securities

    Exchange Act of 1934, 15 U.S.C. 78q(a) (1994), and the rules

    promulgated under that Act, SEC Rule 17a-3, 17 C.F.R. 240.17a-3

    (1994), as well as the rules of self-regulatory organizations.

    See, e.g., 2 New York Stock Exchange Guide, Rule 440 (1989). All ___ ____

    of these statutes and rules mandate recording transactions like

    those of Tanner and Rodr guez in the books and records of the

    registered broker-dealer. It is not disputed that these

    regulations applied to the transactions.

    We need not address, however, whether these reporting

    requirements establish an explicit public policy such that the

    "award create[s] any explicit conflict with other 'laws and legal

    precedents.'" Misco, 484 U.S. at 43 (quoting W.R. Grace, 461 _____ __________

    U.S. at 766). Since the second requirement of the Misco analysis _____

    demands that the violation of the policy "be clearly shown," id., ___

    and Prudential cannot show that the arbitration panel found that

    Tanner and Rodr guez violated public policy, its argument fails.

    In reviewing an arbitration award challenged on public

    policy grounds, we "tak[e] the facts as found by the arbitrator."

    Board of County Comm'rs v. L. Robert Kimball and Assocs, 860 F.2d _______________________ ____________________________

    683, 686 (6th Cir. 1988), cert. denied, 494 U.S. 1030 (1990); see _____ ______ ___

    Misco, 484 U.S. at 45 ("The parties did not bargain for the facts _____

    to be found by a court, but by an arbitrator chosen by

    them . . . ."). Although the parties are in dispute whether

    Tanner and Rodr guez' failure to record the transactions is an

    admitted fact, Prudential's argument is again undercut by the


    -17-












    arbitrators' decision not to explain their award. The

    arbitration panel heard Prudential's claims, and its award of

    more than one million dollars each to both Tanner and Rodr guez

    "suggests that they were unpersuaded by Prudential's

    allegations."12 Rodr guez, 882 F. Supp. at 1208. In the face _________

    of the panel's silence and its awards, we cannot conclude that

    the arbitrators, in their fact-finding capacity, necessarily

    found that there was a recording violation, and we refuse to do

    so in their stead. See Misco, 484 U.S. at 44-45 (holding that ___ _____

    for the Court of Appeals to draw inferences from known facts was

    an "inappropriate" exercise in factfinding).

    E. Attorney's Fees and Costs E. Attorney's Fees and Costs _________________________

    Prudential's final contention is that the arbitrators'

    awards of attorney's fees and costs to the appellants should be

    vacated. First, it claims that the award of attorney's fees is

    not contemplated by Rule 629(c) of the NYSE.13 Prudential
    ____________________

    12 Prudential asserts that the district court improperly relied
    on an issue Prudential did not raise before it, namely, that the
    transactions were done without authorization. Indeed, the
    district court characterizes the authorization issue as
    "Prudential's main contention." Rodr guez, 882 F. Supp. at 1209. _________
    However, its discussion of Prudential's argument to the panel as
    well as the arbitrators' decision, quoted above, refers not only
    to the authorization issue, but also to Prudential's "assumption
    that the actions . . . were in fact unlawful." Id. at 1208. ___
    Therefore, we can rely on these findings of the district court in
    our discussion of whether there was a clear violation of public
    policy, without being guilty of factfinding.

    13 That rule provides, in pertinent part:

    In addition to forum fees, the
    arbitrator(s) may determine in the award
    the amount of costs incurred pursuant to
    Rules 617, 619 and 623 and, unless

    -18-












    argues that because the rule does not explicitly mention

    attorney's fees, to assume it provides an implicit independent

    basis for awarding them is contrary to the general American rule

    that parties typically bear their own legal fees. See Alyeska ___ _______

    Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247 (1975), __________________ ________________

    superseded by statute as stated in Stanford Daily v. Zurcher, 550 __________________________________ ______________ _______

    F.2d 464, 465-66 (9th Cir. 1977). Second, Prudential points out

    that under Puerto Rico law attorney's fees may be awarded only if

    provided for by statute, or against a party which raises and

    obstinately pursues meritless claims or otherwise vexatiously

    engages in unnecessary litigation. See P rez Marrero v. Colegio ___ _____________ _______

    de Cirujanos Dentistas, 92 J.T.S. 124 (1992); Elba A.B. v. _______________________ __________

    Universidad de Puerto Rico, 90 J.T.S. 13 (1990). Prudential ____________________________

    argues that no judge could reasonably find that it raised

    frivolous claims or pursued them improperly, given its claims of

    violations of the record-keeping requirements by Rodr guez and

    Tanner.

    We disagree. Since Prudential does not state its basis

    for overturning the award, we presume it is relying on Section

    10(a)(4) of the FAA, which provides that courts may set aside

    awards when the arbitrators exceed their powers. 9 U.S.C.

    10(a)(4). This award was, however, within the panel's

    ____________________

    applicable law directs otherwise, other
    costs and expenses of the parties. The
    arbitrator(s) shall determine by whom
    such costs shall be borne.

    2 New York Stock Exchange Guide, Rule 629(c) (1989).

    -19-












    authority. First, we do not think that the district court read

    an implicit basis for awarding attorney's fees into Rule 629(c).

    The rule states that it provides for "costs and expenses, unless

    applicable law directs otherwise." We read this language to

    include attorney's fees, and have found no case law suggesting

    otherwise.14

    Second, although not noted by the court below, the

    record reveals that both parties requested attorney's fees from

    the panel (Joint Appendix, pp. 811, 923-24), suggesting that

    awarding fees was contemplated by the parties to be within the

    scope of the agreement to arbitrate. The case law suggests that

    this is an important factor. See Bacard Corp. v. Congreso de ___ _____________ ____________

    Uniones Industriales, 692 F.2d 210, 214 (1st Cir. 1982) (finding ____________________

    arbitrator exceeded his authority awarding attorney's fees where

    grieving union did not claim them, and their award "did not draw

    its essence from the collective bargaining agreement"); Wing v. ____

    J.C. Bradford & Co., 678 F. Supp. 622, 626 (N.D. Miss. 1987) ____________________
    ____________________

    14 In fact, we have found little case law on this issue,
    although there is certainly precedent for the award of attorney's
    fees. See, e.g., Phoenix Central v. Dean Witter Reynolds, Inc., ___ ____ _______________ __________________________
    768 F. Supp. 702, 703 (D. Ariz. 1991) (granting order to confirm
    NYSE panel arbitration award including attorney's fees); Barbier _______
    v. Shearson Lehman Hutton, 752 F. Supp. 151, 154 (S.D.N.Y. 1990) ______________________
    (confirming NYSE arbitrators' award of attorney fees without
    comment), aff'd in part, rev'd in part, 948 F.2d 117 (2d Cir. ______________ ______________
    1991). What cases we have found addressing whether arbitrators
    should have awarded attorney's fees analyze the issue under state
    law, not the Rules of the NYSE. See, e.g., Zate v. A.T. Brod & ___ ____ ____ ___________
    Co., 839 F. Supp. 27, 29 (M.D. Fla. 1993) (analyzing whether ___
    arbitrator should have awarded attorney's fees under Florida
    law); Emrick v. Deutsche Bank Capital Corp., No. 91 Civ. 0592, ______ ____________________________
    1991 WL 61091, at *2-4 (S.D.N.Y. Apr. 15, 1991) (weighing NYSE
    panel's failure to award attorney's fees under New York labor
    law).

    -20-












    (confirming NYSE arbitration panel award of attorney's fees where

    parties submitted the award of fees to panel).

    Third, Prudential is correct in stating that Puerto

    Rico law demands a finding that a "party or its lawyer has acted

    obstinately or frivolously." P.R. R. Civ. P. 44.1(d). However,

    appellees offered examples of Prudential's conduct to support

    such a conclusion. It is reasonable to find that the fact that

    the panel awarded attorney's costs indicates it found Prudential

    obstinate and/or temarious in litigating some of the claims, or

    in its conduct. Thus, given that the panel had evidence in front

    of it as to obstinate or frivolous conduct, that both parties

    requested attorney's fees, and that the NYSE Rules provide for

    the award of fees, we cannot conclude that the arbitrators

    exceeded the scope of their authority under Section 10(a)(4).

    Finally, Prudential argues that the former employees

    failed to leap a procedural hurdle, since they did not submit a

    verified statement to the panel itemizing all expenses sought, as

    mandated by Puerto Rico civil procedure. P.R. R. Civ. P.

    44.1(a), (b). In so arguing, Prudential ignores the fact that

    the parties agreed to arbitrate under the rules of the NYSE, and

    Rule 629(c) imposes no itemization requirement. Nevertheless,

    the appellees itemized their costs in their closing brief, filed

    five days before the parties made their final arguments to the

    panel. While Prudential had the opportunity to challenge the

    accuracy or reasonableness of the costs, it chose not to do so.

    Therefore, because we do not find that the arbitration panel


    -21-












    clearly exceeded the scope of its powers, and giving its decision

    the deference due to arbitrators, we find that the award of

    attorney's fees should not be vacated. Cf. Advest, 914 F.2d at 8 ___ ______

    (stating that even where arbitrators' factual or legal error is

    "painfully clear," courts may not reconsider an award's merits).

    CONCLUSION CONCLUSION

    For the foregoing reasons, the judgment of the district

    court is affirmed. affirmed. ________






































    -22-






Document Info

Docket Number: 95-1590

Filed Date: 12/29/1995

Precedential Status: Precedential

Modified Date: 9/21/2015

Authorities (26)

Bacardi Corporation v. Congreso De Uniones Industriales De ... , 692 F.2d 210 ( 1982 )

labor-relations-division-of-construction-industries-of-massachusetts-inc , 29 F.3d 742 ( 1994 )

W. R. Grace & Co. v. Local Union 759, International Union ... , 103 S. Ct. 2177 ( 1983 )

Kagan v. El San Juan Hotel Corp. (In Re El San Juan Hotel ... , 149 B.R. 263 ( 1992 )

fed-sec-l-rep-p-98800-bf-kelley-jr-individually-and-as-trustee , 59 F.3d 1050 ( 1995 )

Wilko v. Swan , 74 S. Ct. 182 ( 1953 )

Franco v. Prudential Bache Securities, Inc. , 719 F. Supp. 63 ( 1989 )

Rodriguez v. Prudential-Bache Securities, Inc. , 882 F. Supp. 1202 ( 1995 )

Barbier v. Shearson Lehman Hutton, Inc. , 752 F. Supp. 151 ( 1990 )

fed-sec-l-rep-p-96290-in-the-matter-of-new-york-stock-exchange , 948 F.2d 117 ( 1991 )

Escobar v. Shearson Lehman Hutton, Inc. , 762 F. Supp. 461 ( 1991 )

Advest, Inc. v. Patrick McCarthy , 914 F.2d 6 ( 1990 )

Manuel Rodriguez v. Eastern Air Lines, Inc. , 816 F.2d 24 ( 1987 )

Local 1445, United Food and Commercial Workers ... , 776 F.2d 19 ( 1985 )

Weatherly v. International Paper Co. , 648 F. Supp. 872 ( 1986 )

Zate v. AT BROD & CO., INC. , 839 F. Supp. 27 ( 1993 )

Santoni Roig v. Iberia Lineas Aereas De Espana , 688 F. Supp. 810 ( 1988 )

Raytheon Company v. Automated Business Systems, Inc. , 882 F.2d 6 ( 1989 )

Alyeska Pipeline Service Co. v. Wilderness Society , 95 S. Ct. 1612 ( 1975 )

O.R. Securities, Inc. v. Professional Planning Associates, ... , 857 F.2d 742 ( 1988 )

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