fed-sec-l-rep-p-96841-rm-perez-associates-inc-v-james-welch , 960 F.2d 534 ( 1992 )

960 F.2d 534

Fed. Sec. L. Rep. P 96,841
R.M. PEREZ & ASSOCIATES, INC., Plaintiff,
v.
James WELCH, et al., Defendants.
Victoria A. Carleton JOLLEY, et al., Plaintiffs-Appellants,
v.
PAINE WEBBER JACKSON & CURTIS, INC. and James Welch,
Defendants-Appellees.
Victoria A. Carleton JOLLEY, et al., Plaintiffs-Appellees,
Cross-Appellants,
v.
PAINE WEBBER JACKSON & CURTIS, INC., Defendant-Appellant,
Cross-Appellee.

Nos. 90-3815, 91-3119 and 91-3191.

United States Court of Appeals,
Fifth Circuit.

May 13, 1992.
As Modified June 17, 1992.

Frank Messengale, Gene W. Lafitte and Marie Breaux Stroud, Liskow & Lewis, New Orleans, La., for Victoria A. Carleton Jolley, et al.

George C. Freeman, III, Phillip A. Wittmann and Stephen H. Kupperman, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, La., for Paine Webber Jackson & Curtis, Inc., et al.

James Welch, pro se.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before THORNBERRY, KING, and DEMOSS, Circuit Judges.

THORNBERRY, Circuit Judge:

1

This is an appeal from the final disposition of several consolidated securities fraud cases. The cases against Welch and Paine Webber have been percolating in the federal court system for seven years; only a few isolated issues are presented here for review. We affirm on all issues except the district court's award of attorneys' fees.

I. Background

2

The plaintiffs are eight customers of James Welch, a former Paine Webber stockbroker. The eight plaintiffs--Huey Clemons, Gilbert Disotell, Henry Fry, Stanley Gardeman, Victoria Carleton Jolley, Valerie Mills, Charles Pendleton, and Eugene Young--sued James Welch and Paine Webber for violations of RICO and federal and state securities laws. After the plaintiffs filed suit, Paine Webber moved to compel arbitration of the claims against it. Welch did not seek arbitration of the claims against him. The court referred Paine Webber's motion to a magistrate, who recommended that the motion be denied. The district court disregarded the magistrate's recommendation and granted Paine Webber's motion to compel arbitration as to seven of the eight plaintiffs, leaving one suit by Plaintiff Mills pending in the district court against Paine Webber in addition to the eight against Welch. The plaintiffs appealed this ruling to a prior panel of the Fifth Circuit, which found that it lacked jurisdiction to hear the appeal. Jolley v. Paine Webber Jackson & Curtis, 864 F.2d 402 (5th Cir.), opinion supplemented, 867 F.2d 891 (5th Cir.1989). In this appeal, however, we will consider the district court's ruling on Paine Webber's motion to compel arbitration.

3

All claims against Welch and Mills' claims against Paine Webber were tried to a jury in the summer of 1988. The jury found in favor of the plaintiffs on the securities claims, but rejected the plaintiffs' RICO claims. The district court entered the jury's award of damages in the amount of $274,610.88, and the Fifth Circuit affirmed. Jolley v. Welch, 904 F.2d 988 (5th Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 762, 112 L.Ed.2d 781 (1991). The district court subsequently awarded attorneys' fees to the plaintiffs: $193,149.50 for all plaintiffs against Welch and Paine Webber jointly, and $57,264.12 against Welch only. The district court later reduced the fee award against Paine Webber and Welch jointly from $193,149.50 to $168,639.37. The district court also denied an award of costs for the plaintiffs because they failed to submit a detail of costs along with their application for fees and costs. In this appeal, the parties challenge the district court's rulings on fees and costs.

4

The plaintiffs also appeal the disposition of the claims that were sent to arbitration. The arbitrators awarded $146,425.61 in damages for the plaintiffs. The arbitrators also denied fees because they found that both parties had a legitimate claim to fees, and their fee awards were offsetting. Paine Webber moved to confirm the arbitrators' award; the plaintiffs sought to vacate or modify the award. The district court granted Paine Webber's motion, confirming the arbitrators' award in its entirety. The plaintiffs challenge the district court's confirmation of the award, and both sides seek attorneys' fees in connection with the arbitration proceedings.

II. The Arbitration Proceedings

5

A. Paine Webber's Motion to Compel Arbitration

6

The plaintiffs contend that the district court erred by rejecting the magistrate's Report and Recommendation and compelling seven of the eight plaintiffs to submit their claims against Paine Webber to arbitration. The magistrate that conducted an evidentiary hearing on the issue of arbitrability recommended that none of the eight plaintiffs' claims against Paine Webber were subject to arbitration. Regarding one plaintiff, Mills, the magistrate found that Paine Webber failed to introduce any documents proving that she had agreed to arbitrate any claims and that she was therefore entitled to pursue her claims against Paine Webber in front of a jury. The magistrate also found, as a matter of law, that three plaintiffs had established a prima facie case of fraud in the factum, rendering their arbitration agreements void. Furthermore, the magistrate found that the unauthorized transactions that all eight plaintiffs complained of could not have been within the scope of the agreements and therefore, that none of the eight plaintiffs' claims were subject to arbitration.

7

The district court partially rejected the Magistrate's Report and Recommendation, finding that seven of the eight plaintiffs were required to submit their claims against Paine Webber to arbitration, while the remaining plaintiff, Mills, was entitled to assert her claims in district court. The district court's interpretation of the documents containing the arbitration agreements is a question of law subject to de novo review. Webb v. Carter Constr. Co. v. Louisiana Central Bank, 922 F.2d 1197, 1199 (5th Cir.1991). After a thorough review of the record, we find that the district court did not err in compelling seven of the eight plaintiffs to submit their claims against Paine Webber to arbitration.

8

Courts perform a two-step inquiry to determine whether parties should be compelled to arbitrate a dispute. First, the court must determine whether the parties agreed to arbitrate the dispute. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985). Once the court finds that the parties agreed to arbitrate, it must consider whether any federal statute or policy renders the claims nonarbitrable. Id. 105 S.Ct. at 3355. We first consider whether, by signing the various documents containing arbitration agreements, the plaintiffs agreed to arbitrate the claims that they assert against Paine Webber.

9

Seven of the eight plaintiffs agree that each signed at least one document (a Client Agreement, Customer Agreement, or Option Agreement) containing an arbitration clause. Some plaintiffs contend, however, that their respective signatures were obtained by fraud, and all assert that the transactions complained of are outside the scope of the arbitration agreement. Those plaintiffs alleging fraud insist that the fraud constitutes fraud in the factum rather than fraud in the inducement. They argue that the distinction between fraud in the factum and fraud in the inducement is determinative of whether they can be compelled to arbitrate.

10

We disagree that the type of fraud alleged is determinative of arbitrability. Under Prima Paint Corp. v. Flood and Conklin Mfg. Co., 388 U.S. 395, 404, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270 (1967), and its progeny, the central issue in a case like this is whether the plaintiffs' claim of fraud relates to the making of the arbitration agreement itself or to the contract as a whole. See C.B.S. Emp. Fed. Cr. Union v. Donaldson, Et Al., 912 F.2d 1563 (6th Cir.1990); Bhatia v. Johnson, 818 F.2d 418 (5th Cir.1987) ("We must determine whether Bhatia's complaint is directed at the entire contract or only the arbitration clause."). If the fraud relates to the arbitration clause itself, the court should adjudicate the fraud claim. If it relates to the entire agreement, then the Federal Arbitration Act requires that the fraud claim be decided by an arbitrator. C.B.S. Emp. Fed. Cr. Union v. Donaldson, Et Al., 912 F.2d 1563, 1566 (6th Cir.1990).

11

We find that the fraud alleged by the plaintiffs relates to the Agreements as a whole and not to the arbitration clauses themselves. Only three of the plaintiffs put forth evidence regarding the circumstances surrounding the signing of the various agreements. Victoria Carleton Jolley testified that she signed the documents before reading them because she trusted Welch and he was in a hurry to get back to his office. She testified that he never mentioned margin, options, or arbitration. Plaintiff Stanley Gardemal testified that he signed the documents because Welch caught him at a weak moment. Welch had called him repeatedly to say that if Gardemal signed the agreements, Welch could transfer some money he had made on a transaction into Gardemal's account. Gardemal agreed to sign the papers but thought that they pertained only to the transaction that had already been completed. Gardemal stated that he never knew he was agreeing to an arbitration clause. Plaintiff Gilbert Disotell testified that although he signed the option agreement, he did not know about any risks involved in signing the agreement and that Welch did not tell him that the agreement contained an arbitration clause. He signed the agreement because he trusted Welch.

12

The testimony of the plaintiffs clearly indicates that the fraud they complain of goes to the Client Agreements and Option Agreements in their entirety and not to the arbitration clauses themselves. The plaintiffs' allegations that they did not read or understand the documents and that Welch did not explain the documents to them does not allege fraud in the making of the arbitration agreements, but goes to the formation of the entire contracts. Therefore, the allegations are arbitrable.

13

Each of the plaintiffs also argue that their claims against Paine Webber are outside the scope of the arbitration clauses. The clauses are found in paragraph 14 of the Customer Agreement, paragraph 15 of the Client Agreement or paragraph 18 of the Option Agreement. The Customer Agreement and the Client Agreement contain identical arbitration clauses providing that "[a]ny controversy between us arising out of or relating to this contract or the breach thereof, shall be settled by arbitration, ...." The Option Agreement contains a slightly different arbitration clause that states, "[a]ny controversy arising out of the handling of any of the transactions referred to in this Agreement shall be settled by arbitration...." This court has found unauthorized trading claims under § 10(b) of the 1934 Act and RICO claims to be within the scope of similar arbitration agreements. See Mayaja v. Bodkin, 803 F.2d 157, 161 (5th Cir.1986). Therefore, we find the plaintiffs' claims to be within the scope of the arbitration agreements at issue here.

14

Finally, plaintiff Henry Fry argues that although he signed the Client Agreement, he did not sign it until after the transactions he complains of had taken place, and therefore, his claims are not subject to arbitration. This argument ignores the language of the Agreement that provides: "In consideration of your ... continuing an account or accounts in my name or for me for the purchase or sale of property, I agree with you ... [that] all my relations and dealings with [you] are subject to this agreement...." Fry's argument that his claims are outside the scope of the agreement is without merit. See Shotto v. Laub, 632 F.Supp. 516, 522 (D.Md.1986) ("[W]hether plaintiffs signed the agreements before or after opening their accounts, or even before the claim arose, does not change the fact that they signed written agreements to arbitrate claims arising out of their account.").

B. Review of the Arbitrators' Award

15

The plaintiffs challenge the arbitrators' application of collateral estoppel and respondeat superior to the issues presented in the arbitration proceedings. While acknowledging the limited nature of judicial review of arbitration awards, the plaintiffs contend that the arbitrators "manifestly disregarded" both of these legal doctrines in reaching its decision. In response, Paine Webber contends that § 10 of the Arbitration Act, 9 U.S.C. § 10, provides the sole basis for vacatur of an arbitration award entered pursuant to the Act. As Paine Webber accurately observes, this circuit never has employed a "manifest disregard of the law" standard in reviewing arbitration awards.1

16

In Forsythe International, S.A. v. Gibbs Oil Company of Texas, 915 F.2d 1017 (5th Cir.1990), we held that

17

judicial review of a commercial arbitration award is limited to Sections 10 and 112 of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. Moseley, Hallgarten, Estabrook & Weeden v. Ellis, 849 F.2d 264, 267 (7th Cir.1988). Accordingly, a district court has no authority to vacate an arbitration award unless: (1) the award was procured by corruption, fraud or undue means; (2) there is evidence of partiality or corruption among the arbitrators; (3) the arbitrators were guilty of misconduct which prejudiced the rights of one of the parties; or (4) the arbitrators exceeded their powers. 9 U.S.C. § 10(a)-(d).

18

Id. at 1020. We review a district court's confirmation of an arbitration award de novo, asking "whether the arbitration proceedings were fundamentally unfair." Id. Because of the speed and informality of arbitration proceedings, "whatever indignation a reviewing court may experience in examining the record, it must resist the temptation to condemn imperfect proceedings without a sound statutory basis for doing so." Id. at 1022. Forsythe International binds us to review the plaintiffs' challenge solely for errors specified in § 10. The plaintiffs, however, do not allege that any statutory ground for vacatur of the award exists. Consequently, the district court correctly confirmed the arbitrators' award.

C. The Award of Offsetting Fees

19

Both sides sought attorneys' fees in the arbitration proceedings. The arbitrators found merit in both sides' arguments for fees, and without determining the appropriate amount of fees to which each side was entitled, found that the fees were offsetting. The arbitrators therefore awarded no fees to either party. The plaintiffs appeal the district court's confirmance of the arbitrators' decision regarding fees. Specifically, citing 9 U.S.C. § 10(d), they contend that the arbitrators exceeded their powers by recognizing a claim which has no basis in law or contract.

20

We agree with the arbitration panel that the plaintiffs were entitled to attorneys' fees for violations of Louisiana Securities Law. La.Rev.Stat.Ann. 51:714 (1987). With regard to the defendant's claim for attorneys' fees, the arbitration panel found merit in the defendant's argument that the plaintiffs litigated the issue of arbitrability of the agreements without a reasonable basis, and the panel recognized an award of attorneys' fees for the defendants for defending against this issue. The arbitrators clearly acted within their powers in making these determinations.

21

Likewise, we cannot agree with the plaintiffs that the arbitrators erred in finding that the parties' entitlement to attorneys' fees offset.3 A determination of the amount of attorneys' fees is a finding of fact. See Stelly v. Commissioner, 761 F.2d 1113, 1116 (5th Cir.), cert. denied, 474 U.S. 851, 106 S.Ct. 149, 88 L.Ed.2d 123 (1985); Seamon v. Vaughan, 921 F.2d 1217, 1218 (11th Cir.1991). This court must accept findings of fact made by the arbitration panel. International Union of Elec., Radio & Mach. Workers, Local 1013 v. Ingram Mfg. Co., 715 F.2d 886, 890 (5th Cir.1983), cert. denied, 466 U.S. 928, 104 S.Ct. 1711, 80 L.Ed.2d 184 (1984); Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F.2d 1056, 1058 (9th Cir.1991); Lattimer-Stevens Co. v. United Steel Workers of Am., 913 F.2d 1166, 1168 (6th Cir.1990) (citing International Bhd. of Elec. Workers, Local 429 v. Toshiba Am., Inc., 879 F.2d 208 (6th Cir.1989).

22

Moreover, as a matter of general principles, arbitrators may render an award without disclosing their rationale for doing so. See Raiford v. Merrill Lynch, Pierce, Fenner & Smith, 903 F.2d 1410, 1413 (11th Cir.1990) (echoing this circuit's concern in " 'effectuating the national policy favoring arbitration,' " Legion Ins. Co. v. Insurance Gen. Agency, Inc., 822 F.2d 541, 543 (5th Cir.1987)). The Plaintiffs have not shown that the award of attorneys' fees should be vacated for any of the reasons specified under § 10, nor have they shown that it should be modified for any of the reasons enumerated under § 11. Accordingly, we affirm the district court's confirmation of the arbitrators' fee award.

23

III. Costs and Fees in the District Court Proceedings

24

Subsequent to the jury trial in the district court, the district judge entered an order awarding attorneys' fees for all eight plaintiffs in the total amount of $250,413.62 for reasonable expenses incurred in the district court proceedings. Of that amount, Paine Webber and Welch were jointly liable for $193,149.50, and Welch was individually liable for $57,264.12. After further briefing, the district court reduced the amount of joint liability to $168,639.37. The plaintiffs appeal the district court's award, claiming that the district court improperly applied the Johnson factors when it reduced the plaintiffs' requested fee award. Paine Webber also appeals the district court's determination of fees, contending that the fee award should be proportionate to damages recovered. Paine Webber further contends that the fee award should be apportioned among the plaintiffs, and because Paine Webber defended only against Plaintiff Mills, Paine Webber claims it should be liable only for fees attributable to the prosecution of Mills's claims. We review the district court's determination of attorneys' fees for abuse of discretion; we review any factfindings supporting its award only for clear error. See Von Clark v. Butler, 916 F.2d 255, 258 (5th Cir.1990).

25

The district court, in a 37-page opinion followed by 4 appendices totalling an additional 40 pages, analyzed the plaintiffs' fee request under the factors recognized by the Louisiana Supreme Court in Leenerts Farms, Inc. v. Rogers, 421 So.2d 216, 219 (La.1982) and the Fifth Circuit in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974). The district court reduced the number of hours reasonably billed for some of the time devoted to litigating the arbitrability of the plaintiffs' state law claims. After reviewing the record on this issue, we cannot say that the district court clearly erred in its finding that the plaintiffs were unreasonable in their continued litigation of this issue. Furthermore, the district court did not clearly err in its finding that certain identified billing entries were overly vague. We find no abuse of discretion in the district court's determination of the "lodestar" (reasonable hours expended multiplied by a reasonable hourly rate).

26

The plaintiffs also object to the district court's reduction of the lodestar based on the plaintiffs' limited success and on a comparison of awards in similar cases. We take note that "[t]here is a 'strong presumption' that the lodestar figure ... represents a 'reasonable' attorney's fee," D'Emanuele v. Montgomery Ward & Co., Inc., 904 F.2d 1379, 1384 (9th Cir.1990), and that "upward adjustments of the lodestar are appropriate only in certain 'rare' and 'exceptional' cases." Alberti v. Klevenhagen, 896 F.2d 927, 930 (5th Cir.1990). The district court reduced the lodestar for Paine Webber by 60%, and the lodestar for Welch by 45%, the difference explained by the differing number of plaintiffs pursuing claims against the two defendants. However, the district court failed to take into consideration the substantial number of hours reasonably devoted to issues concerning only Paine Webber, such as arbitrability and vicarious liability. Furthermore, the magnitude of the reduction for limited success overstates the limited nature of the plaintiffs' recovery. The plaintiffs prevailed on the securities claims; the issues they lost on were peripheral to the securities claims. Finally, we note that a number of issues presented by the plaintiffs as a justification for an upward adjustment of the lodestar were rejected by the district court without appropriate factual support. We find that the district court abused its discretion in reducing the plaintiffs' lodestar. See Cobb v. Miller, 818 F.2d 1227, 1235 (5th Cir.1987).

27

Paine Webber also appeals the district court's decision on attorneys' fees by, first, claiming that a rule of proportionality prevents the district court from awarding fees so far in excess of damages recovered.3 Paine Webber bases this argument on the Supreme Court's decision in City of Riverside v. Rivera, 477 U.S. 561, 106 S.Ct. 2686, 91 L.Ed.2d 466 (1986). However, we rejected this interpretation of Rivera in our 1987 opinion in Cobb v. Miller, 818 F.2d 1227, 1234 (5th Cir.1987). Furthermore, we agree with other circuits addressing the issue that Rivera provides no support for a rule of proportionality in cases outside of the civil rights context. See Northeast Women's Center v. McMonagle, 889 F.2d 466, 472-73 (3d Cir.1989).

28

Paine Webber also argues that the district court should have apportioned the fee award between it and Welch based on a pro rata division of the fees among the plaintiffs. Under this theory, Paine Webber would be liable for only one-eighth of all of the fees awarded because only one of the eight plaintiffs pursued claims against Paine Webber. The district court rejected this argument based on our decision in Abell v. Potomac Insurance Co., 858 F.2d 1104 (5th Cir.1988). We agree with the district court that Abell is applicable, and we find Paine Webber's arguments to the contrary unpersuasive.

29

Based on the foregoing, we find that the district court abused its discretion by reducing the plaintiffs' lodestar by the percentages noted above. We therefore vacate the district court's judgments regarding attorneys' fees and remand with instructions to enter an award of attorneys' fees for the full amount of the lodestar as determined by the district court in its Minute Entry dated February 22, 1991.

30

As a final matter, the plaintiffs contest the district court's refusal to reconsider its decision denying costs. The district court initially denied costs to the plaintiffs when they failed to submit documentation of their costs after they were notified that their application omitted any substantiation of costs. Upon a motion to reconsider this decision, the district court found that the plaintiffs had failed to show good cause for their failure to document their claim for costs, and refused to allow plaintiffs to supplement their application with the appropriate accounting of costs. We cannot assess error in the district court's refusal to reconsider the issue of costs. See Nelson v. James, 722 F.2d 207, 208 (5th Cir.1984); Copper Liquor, Inc. v. Adolph Coors Co., 684 F.2d 1087 (5th Cir.1982).

31

For all of the foregoing reasons, we remand to the district court for the entry of judgment for attorneys' fees in the district court proceedings based on the lodestar calculation.

32

AFFIRMED in part; REMANDED in part.

1

The manifest disregard doctrine originated in the Supreme Court's decision in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). The Supreme Court there stated that "interpretations of the law" by arbitrators were not subject "to judicial review for error in interpretation." Id. at 436-37, 74 S.Ct. at 187-88. A legal error would present grounds for vacating an arbitrator's award only when the arbitrator's failure to decide in accordance with the law was clearly apparent, constituting "manifest disregard" as opposed to mere misinterpretation. Id. at 436, 74 S.Ct. at 187. Circuits differ over whether to augment the statutory bases for review provided in the Arbitration Act, see 9 U.S.C. §§ 10 and 11, with the manifest disregard of the law standard. Compare, e.g., Merrill Lynch, Pierce, Fenner & Smith v. Bobker, 808 F.2d 930, 933-34 (2d Cir.1986) (endorsing the manifest disregard of the law standard) with Robbins v. Day, 954 F.2d 679, 684 (11th Cir.1992) (declining to adopt the manifest disregard of the law standard)

2

Section 11 applies to requests for modification of awards. See 9 U.S.C. § 11

3

The plaintiffs contend that they were denied attorneys' fees contrary to the requirements of the Louisiana statute. This is incorrect. The offsetting award suggests that they were awarded fees equal to those awarded to the defendants. The plaintiffs' contention may therefore be characterized more properly as a quarrel with the amount of fees granted

3

Paine Webber makes the comparison between the damages recovered against it by Mrs. Mills, approximately $23,000, and the fees assessed against Paine Webber, which were $168,639.37