See More Light Investments v. Morgan Stanley Dw Inc. ( 2011 )

FILED
NOT FOR PUBLICATION JAN 14 2011
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
SEE MORE LIGHT INVESTMENTS, No. 09-16953
Plaintiff - Appellee, D.C. No. 2:08-cv-00580-MHM
v.
MEMORANDUM *
MORGAN STANLEY DW INC.,
Defendant - Appellant.
Appeal from the United States District Court
for the District of Arizona
Mary H. Murguia, District Judge, Presiding
Argued and Submitted November 4, 2010
San Francisco, California
Before: GOULD and CALLAHAN, Circuit Judges, and KORMAN, Senior District
Judge.**
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable Edward R. Korman, Senior United States District
Judge for the Eastern District of New York, sitting by designation.
Morgan Stanley DW, Inc. (“MSDW”), appeals the district court’s vacation
of an arbitration award against See More Light Investments (“SMLI”).1 Because
we find that the Cuban Assets Control Regulations, 31 C.F.R. §§ 515.101 et seq.
(2009) (“CACR”), are not “well defined, explicit, and clearly applicable” to the
bond transaction at issue here and because it is not clear that the arbitrators
exercised a manifest disregard for the law, we reverse.
First, we deny MSDW’s motion to strike Exhibits 7-23 from SMLI’s
supplemental excerpts of record. Although SMLI did not follow the proper
procedure to supplement the record, we exercise our authority to consider these
documents as this is the extraordinary case in which the documents are helpful to
the court and are not prejudicial to either party. See United States v. W.R. Grace,
504 F.3d 745, 766 (9th Cir. 2007).
Next, we reverse the district court’s determination that the arbitrators acted
in manifest disregard of the law by finding in favor of MSDW. We review a
decision to vacate or confirm an arbitration award de novo. Lagstein v. Certain
Underwriters at Lloyd’s, London, 607 F.3d 634, 640 (9th Cir. 2010). The burden
of establishing grounds for vacating an arbitration award is on the party seeking it.
1
The parties are familiar with the facts and we repeat them here only as
necessary to explain our decision.
2
U.S. Life Ins. Co. v. Superior Nat’l Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010).
Review of the award is “both limited and highly deferential” because arbitration is
a favored form of dispute resolution. PowerAgent Inc. v. Elec. Data Sys. Corp.,
358 F.3d 1187, 1193 (9th Cir. 2004) (internal quotation marks and citation
omitted).
The Federal Arbitration Act (“FAA”) limits the circumstances in which a
federal court may vacate an arbitration panel’s award. See 9 U.S.C. §§ 9-10.
Specifically, 9 U.S.C. § 10 provides, in part, that a court may vacate an arbitration
award “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.” Id. at § 10(a)(4).
Where, as was the case here, the claim is that the arbitrators exceeded their
powers the Ninth Circuit has imposed a high standard. “[A]rbitrators exceed their
powers . . . not when they merely interpret or apply the governing law incorrectly,
but when the award is completely irrational, or exhibits a manifest disregard of
law.” Kyocera Corp. v. Prudential-Bache T. Servs., Inc., 341 F.3d 987, 997 (9th
Cir. 2003) (internal quotation marks and citations omitted). “‘Manifest disregard
of the law’ means something more than just an error in the law or a failure on the
part of the arbitrators to understand or apply the law.” Mich. Mut. Ins. Co. v.
3
Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995). “It must be clear from the
record that the arbitrators recognized the applicable law and then ignored it.” Id.“‘As such, mere allegations of error are insufficient.’” Collins v. D.R. Horton,
Inc., 505 F.3d 874, 879 (9th Cir. 2007) (quoting Carter v. Health Net of Cal., Inc.,
374 F.3d 830, 838 (9th Cir. 2004)).
The district court held that the arbitrators manifestly disregarded the law
when they recognized that the CACR applied to bond transaction between MSDW
and SMLI but failed to find that the CACR prohibited the transaction. The district
court’s decision rests on its interpretation of the text of the CACR.2 The district
court held that, under the CACR, “the sale of Cuban bonds unquestionably
constitutes a transaction as defined by the Regulations, [so] there is no doubt that
the transaction between Plaintiff and Defendant is prohibited and null and void.
The Regulations are well defined, explicit, and clearly applicable, in accord with
the Ninth Circuit’s requirement in Carter, 374 F.3d at 838.”
We disagree. We do not find that the CACR are as “well defined, explicit,
and clearly applicable” as did the district court. For example, the district court
does not discuss the provision set forth at 31 C.F.R. § 515.203(d) that provides an
2
SMLI did not submit any excerpts or exhibits from the arbitration
proceeding in support of its motion to vacate the arbitration award.
4
exception for certain otherwise void transactions under the CACR. Specifically, it
provides that transactions that are otherwise null and void, and therefore
unenforceable under the CACR, are not void if the transfer was not a “willful
violation” and the actor did not have “reasonable cause” to know of the violation,
and upon discovery of the possible violation the actor “[p]romptly” reported the
transaction to the U.S. Treasury. Id.Here, it is undisputed that the arbitrators considered the CACR.
Accordingly the arbitrators may have concluded that the exception described in §
515.203(d) applied to the bond transaction at issue here. SMLI, which carried the
burden of proof, did not address whether MSDW fell within this exception, and the
district court did not address this exception. Moreover, the arbitrators may have
considered some other provision of the CACR, or interpreted the CACR
differently, then the district court did. Absent a showing that the arbitrators
manifestly disregarded the CACR, we are compelled to confirm the award under
our deferential standard of review. Mich. Mut. Ins. Co., 44 F.3d at 832. We
therefore REVERSE the district court’s order vacating the arbitrators’ award.
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