Prudential-Bache Securities, Inc. v. Tanner , 72 F.3d 234 ( 1995 )

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
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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
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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).
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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).
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(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
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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.
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