Mitchell v. Ainbinder , 214 F. App'x 565 ( 2007 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 07a0058n.06
Filed: January 24, 2007
No. 05-1497
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
JAMES D. MITCHELL; )
JOHN W. MITCHELL, )
)
Petitioners-Appellants, )
) ON APPEAL FROM THE UNITED
v. ) STATES DISTRICT COURT FOR THE
) EASTERN DISTRICT OF MICHIGAN
ROBERT EDWARD AINBINDER, JR.; )
CANTONE RESEARCH INC., )
)
Respondents-Appellees. )
Before: CLAY and SUTTON, Circuit Judges; SHARP, District Judge.*
SHARP, District Judge. James D. Mitchell and John W. Mitchell (collectively, “Mitchell”)
appeal from a district court decision upholding an arbitration award in favor of Robert Edward
Ainbinder and Cantone Research, Inc. For the reasons set forth below, we affirm the judgment of
the district court.
I.
James Mitchell and his father, John Mitchell, opened three accounts with Cantone
*
The Honorable Allen Sharp, United States District Judge for the Northern District of
Indiana, sitting by designation.
No. 05-1497
Mitchell v. Ainbinder.
Research, Inc., a brokerage firm in New Jersey. One account was held by James Mitchell,
another was held jointly by James and his father, and another was held by the Special Needs
Trust for John W. Mitchell, Jr. Robert Ainbinder, one of Cantone Research’s brokers, was listed
as the account executive on all three accounts from January through July of 1998.
In July 1998, Ainbinder left Cantone Research to join Sharpe Capital. Mitchell
transferred his individual account to Sharpe Capital at that time, but kept the joint and trust
accounts at Cantone Research. Mitchell incurred losses on all three accounts.
On January 2, 2001, Mitchell filed a Claim for Arbitration with NASD Dispute
Resolution, Inc. against Ainbinder and Cantone Research. The statement of claim alleged that
Ainbinder and Cantone Research violated federal and state securities laws with respect to
Mitchell’s investments at Cantone Research and Sharpe Capital. The statement of claim also
brought common law claims of unsuitability, churning, unauthorized trading, fraud, and breach
of fiduciary duty. The three-member panel of arbitrators, approved by the parties, conducted
nine days of hearings between June 10, 2003, and April 7, 2004. On May 3, 2004, the arbitrators
denied Mitchell’s claims.
On July 2, 2004, Mitchell filed a petition in the district court to vacate the arbitration
award. On March 10, 2005, the district court denied the petition to vacate and entered judgment
on the arbitration award. This appeal followed.
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II.
As a threshold matter, we briefly address Cantone Research’s contention that we lack
jurisdiction to hear this case because the amount in controversy requirement has not been
satisfied. Diversity jurisdiction exists only “where the matter in controversy exceeds the sum or
value of $75,000, exclusive of interests and costs.” 28 U.S.C. § 1332; see Everett v. Verizon
Wireless, Inc., 460 F.3d 818, 822 (6th Cir. 2006). This Court has stated that district courts
“should consider the amount alleged in a complaint and should not dismiss a complaint for lack
of subject matter jurisdiction unless it appears to a legal certainty that the plaintiff in good faith
cannot claim the jurisdictional amount.” Massachusetts Cas. Ins. Co. v. Harmon, 88 F.3d 415,
416 (6th Cir. 1996). Where, as here, the petitioner seeks to reopen the arbitration, the amount in
controversy “includes the matter at stake in the arbitration.” See Sirotzky v. New York Stock
Exchange, 347 F.3d 985, 989 (7th Cir. 2003) (citations omitted); see also Ford v. Hamilton
Investments, Inc., 29 F.3d 255, 260 (6th Cir. 1994). Even a cursory review of the statement of
claim reveals that well over $75,000 was at stake in the arbitration. Mitchell’s total claim, which
included punitive damages, totaled more than $770,000, exclusive of costs and attorney fees.
See Klepper v. First Am. Bank, 916 F.2d 337, 341 (6th Cir. 1990) (request for punitive damages
may satisfy the amount-in-controversy requirement). There being nothing to suggest that that
claim was made in bad faith, we reach the merits of this case.
Our role in reviewing arbitration decisions is limited, and we apply “one of the narrowest
standards of judicial review in all of American jurisprudence.” Tenn. Valley Auth. v. Tenn.
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Valley Trades & Labor Council, 184 F.3d 510, 515 (6th Cir. 1999) (internal quotation marks
omitted). So long as “an arbitrator is even arguably construing or applying the contract and
acting within the scope of his authority, the fact that a court is convinced he committed serious
error does not suffice to overturn his decision.” Major League Baseball Players Ass’n v. Garvey,
532 U.S. 504, 509 (2001) (internal quotation marks omitted). A court may vacate an arbitration
award: (1) where the award was procured by fraud; (2) where the arbitrators were evidently
partial or corrupt; (3) where misconduct of the arbitrators prejudiced the rights of the parties; or
(4) where the arbitrators exceeded their powers. 9 U.S.C. § 10(a). A reviewing court may also
vacate an award where the arbitrators have manifestly disregarded the law. Dawahare v.
Spencer, 210 F.3d 666, 669 (6th Cir. 2000) (citing Glennon v. Dean Witter Reynolds, Inc., 83
F.3d 132, 135 (6th Cir. 1996)). When reviewing a district court’s denial of a motion to vacate an
arbitration decision, we consider questions of law de novo, and we accept the court’s findings of
fact, unless clearly erroneous. Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621, 625
(6th Cir. 2002).
Mitchell argues that the arbitration panel manifestly disregarded the law in its decision.
Specifically, Mitchell argues that the panel acted with manifest disregard for the law in denying
their suitability, churning, and breach of fiduciary duty claims. We disagree.
“An arbitration panel acts with manifest disregard if ‘(1) the applicable legal principle is
clearly defined and not subject to reasonable debate; and (2) the arbitrators refused to heed that
legal principle.’” Dawahare, 210 F.3d at 669 (quoting Merrill Lynch, Pierce, Fenner & Smith,
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No. 05-1497
Mitchell v. Ainbinder.
Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir. 1995)). Proof that the panel “disregarded” the law or
“refused to heed” the law implicitly requires proof that the arbitrators “have consciously chosen
not to apply” the relevant law. See Dawahare, 210 F.3d at 669 (citing M & C Corp. v. Erwin
Behr GmbH & Co., 87 F.3d 844, 851 n.3 (6th Cir. 1996)). To make things even more difficult
for petitioners, arbitrators are not required to explain their decisions. When they choose not to do
so, as they have done here, “it is all but impossible to determine whether they acted with manifest
disregard for the law.” Dawahare, 210 F.3d at 669 (citing Jaros, 70 F.3d at 421)). “If the court
can find any line of argument that is legally plausible and supports the award then it must be
confirmed. Only where no judge or group of judges could conceivably come to the same
determination as the arbitrators must the award be set aside.” Jaros, 70 F.3d at 421
We agree with the district court’s conclusion that Ainbinder and Cantone Research
presented plausible arguments for the denial of Mitchell’s suitability claim. Contrary to
Mitchell’s assertions on appeal, the arbitration panel was presented with evidence suggesting that
Mitchell was an aggressive trader who preferred high risk investments.
We also agree with the district court’s conclusion that Ainbinder and Cantone Research
presented plausible arguments for the denial of Mitchell’s churning claims. To bring a successful
churning claim, a petitioner must establish three elements: “(1) the trading must be excessive in
light of the customer’s objectives; (2) the broker must exercise control over the account; [and]
(3) the broker must act with intent to defraud or with willful and reckless disregard of the
customer’s interest.” M & B Contracting Corp. v. Dale, 795 F.2d 531, 533 (6th Cir. 1986)
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(citations omitted). Mitchell relies solely on the high rate of turnover to support his churning
claim. While that may be enough to support a churning claim before an arbitration panel, it does
not require a finding of excessive trading in every instance. NASD Conduct Rule IM-2310(b)(2)
states that “[t]here are no specific standards to measure excessiveness of activity in customer
accounts because this must be related to the objectives and financial situation of the customer
involved.” (internal quotations omitted).
Mitchell also argues that Christine Cantone, vice president of Cantone Research, perjured
herself during the arbitration proceedings and that this perjury amounts to “fraud” and “undue
means” under 9 U.S.C. § 10(a)(1). Specifically, Mitchell argues that Ms. Cantone testified
falsely that: (1) the records requests of Cantone Research related solely to Ainbinder, when in
fact the requests called for the records of “any other broker” assigned to or associated with the
Mitchell accounts; and (2) that no broker at Cantone Research required special supervision, when
in fact Ainbinder was to be under strict supervision.
Generally, when a plaintiff is seeking vacatur of an arbitration award under 9 U.S.C. §
10(a)(1), fraud must be established by clear and convincing evidence. See Bonar v. Dean Witter
Reynolds, Inc., 836 F.2d 1378, 1383 (11th Cir. 1988). Both perjury and fraud require proof of
some sort of willful intent to give false testimony. Therefore, Mitchell would be required to
prove, by clear and convincing evidence, that Ms. Cantone intended to provide false testimony.
They have failed to do so. Therefore, vacatur on this basis would be improper.
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III.
For these reasons, the judgment of the district court is AFFIRMED.
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