Vento v. Quick & Reilly, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
APR 20 2005
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
JOSEPH A. VENTO,
Plaintiff-Appellant,
v. No. 04-1413
(D.C. No. 04-F-290 (BNB))
QUICK & REILLY, INC., a New York (D. Colo.)
corporation,
Defendant-Appellee.
ORDER AND JUDGMENT *
Before SEYMOUR, Circuit Judge, BARRETT, Senior Circuit Judge, and
McCONNELL, Circuit Judge.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Plaintiff Joseph A. Vento appeals from a district court order denying his
motion to vacate an unfavorable decision issued by an arbitration panel for the
National Association of Securities Dealers, Inc. (NASD). Although Mr. Vento
raised several subsections of the statute governing judicial review of arbitration,
see 9 U.S.C. § 10(a)(1)-(4), his objections related primarily to the arbitration
panel’s refusal to hold a hearing and dismissal of his action on the pleadings. The
district court granted summary judgment for Defendant Quick & Reilly, Inc.
(Q&R). We review the district court’s legal determination de novo, Bowen v.
Amoco Pipeline Co., 254 F.3d 925, 931 (10th Cir. 2001), and affirm.
Mr. Vento had a securities account with Q&R that became the subject of
garnishment proceedings relating to a state court judgment obtained against him
in Colorado. Q&R responded to a writ of garnishment by affirming that it held
for Mr. Vento $108,074.42 in a money market fund and $1,300,000 in treasury
bills. R. doc. 9, tab 1, ex. 1, at 2. Thereafter, Q&R received an order directing it
to pay $93,847.25 to the court clerk, who was to turn the sum over to the party
collecting the judgment against Mr. Vento. Id., ex. 3. After Q&R complied, Mr.
Vento filed a claim with the NASD arbitration panel contending Q&R violated
various legal duties when it revealed his assets and turned them over to the state
court clerk.
-2-
Mr. Vento claimed that Q&R improperly complied with procedure
appropriate in cases where “the garnishee is indebted to the judgment debtor,”
Colo. R. Civ. P. 103, Sec. 2(g)(1), whereas the proper procedure, he asserted, was
for the court to “order the garnishee to deliver such property to the sheriff to be
sold as upon execution,” with the proceeds applied to the judgment debt and any
surplus returned to Mr Vento, because Q&R “possess[ed] or control[led]
intangible personal property or personal property capable of manual delivery
owned by the judgment debtor.” Id., Sec. 2(g)(3). Q&R moved to dismiss the
arbitration action, asserting that it had followed a facially valid order and that
“[i]f, in fact, there were procedural irregularities in the processing of the
garnishment, Mr. Vento should have brought them to the attention of the court.”
R. doc. 9, tab 6, at 2. In response, Mr. Vento reasserted his position that the
order Q&R followed was invalid under Rule 103, but did not claim Q&R had any
duty to challenge the garnishment on this basis on his behalf. Id., tab 7. He also
contended “[t]here is no provision in the Code of Arbitration Procedure for a
motion to dismiss comparable to the one filed by Q&R.” R. doc. 9, tab 7, at 2.
After the motion to dismiss was set for hearing, Mr. Vento submitted an
“Advisement” stating he would not attend the hearing but would “continue[] to
advocate and rely upon” his previously filed response to the motion. Id., tab 8.
On the hearing date, the arbitration panel “f[ound] itself in need of additional
-3-
information, and request[ed] an additional brief from each of the parties,” on such
matters as Q&R’s legal duty upon receipt of the garnishment order to investigate
its validity, and whether Mr. Vento did anything to challenge the garnishment
order himself. Id., tab 9, at 1. The panel noted Mr. Vento’s decision to forego
attendance at the hearing on the motion to dismiss and “strongly recommend[ed]
that [he] secure the advice and services of an attorney experienced in matters
involving NASD arbitration.” Id., tab 9, at 2. Mr. Vento filed a pro se brief in
response to the order.
The arbitration panel saw the dispute framed by the parties as purely legal,
concerning the respective duties of a broker-dealer and its client when faced with
a garnishment order: “Q&R did not dispute the basic facts alleged by Vento and
offered no opinion as to whether the [garnishment] writ was valid or invalid,” but
defended solely on the ground “that it was Vento’s responsibility to dispute the
validity of any writ in the underlying court that issued it.” Appendix to the Briefs
(App.) at 18. The panel agreed with Q&R’s position:
Vento should have disputed the writ by filing a motion to
quash with the judge of the same District Court that had allowed its
Court Clerks to issue writs of garnishment. If that motion was
denied, he could and should have filed a writ of mandamus with the
Appeals Court, and, eventually, brought the matter to the attention of
the Colorado Supreme Court. . . . [I]t is the duty of the person
garnished to file a motion to quash a writ issuing improperly out of a
court, or one of its functionaries (ie: the Clerk), if that person feels
that the writ or order was issued under improper circumstances.
Accordingly we express no opinion as to whether the writ was
-4-
invalid, as alleged by Vento, leaving that determination to its proper
place in the court system of the State of Colorado.
The duty to timely file a motion to quash and subsequent
appellate procedures, relating to an improper garnishment order,
properly falls on the shoulders of the person garnished. . . . It
appears, however, that Vento was essentially demanding that Q&R
either willfully violate what appeared to be a valid garnishment by
simply not complying, or to expend attorney’s fees and costs to
oppose the garnishment by filing a motion on his behalf. That is not
within the scope of a broker-dealer’s fiduciary duty to its customer.
Id. at 18-19. The panel held it was “compelled to find in favor of Q&R as a
matter of law,” id. at 19, and dismissed the case with prejudice pursuant to NASD
Code of Arbitration Rule 10305, 1 id. at 21-23.
“[A] court may grant a motion to vacate an arbitration award only in the
limited circumstances provided in [9 U.S.C. § 10(a)(1)-(4)], or in accordance with
a few judicially created exceptions.” Bowen, 254 F.3d at 932. Mr. Vento invoked
1
NASD Code of Arbitration Rule 10305 provides:
(a) At any time during the course of an arbitration, the arbitrators
may either upon their own initiative or at the request of a party,
dismiss the proceeding and refer the parties to their judicial
remedies, or to any dispute resolution forum agreed to by the parties,
without prejudice to any claims or defenses available to any party.
(b) The arbitrators may dismiss a claim, defense, or proceeding with
prejudice as a sanction for willful and intentional material failure to
comply with an order of the arbitrator(s) if lesser sanctions have
proven ineffective.
(c) The arbitrators shall at the joint request of all parties dismiss the
proceedings.
-5-
several grounds: the arbitration panel “w[as] guilty of misconduct,” § 10(a)(3),
and “exceeded [its] powers,” § 10(a)(4), in cancelling a final adjudicatory hearing
and dismissing his case with prejudice on the pleadings when such a disposition is
not authorized by Rule 10305; the panel exhibited “evident partiality” (against his
pro se status), § 10(a)(2), when it recommended that he consult an experienced
attorney; and the panel’s decision was in “manifest disregard of the law,” Bowen,
254 F.3d at 932. See R. doc. 1, at 2-5.
As the district court explained, the circumstances presented here did not
warrant any interference with the arbitration panel’s decision under the “highly
deferential standard” that federal courts must employ in this area. Bowen, 254
F.3d at 932 (noting standard governing judicial review of arbitration decisions is
“among the narrowest known to law” (quotation omitted)). Mr. Vento’s primary
objection, regarding the lack of authorization for a dismissal on the pleadings
under Rule 10305, was explicitly rejected by this court in Sheldon v. Vermonty,
269 F.3d 1202, 1206 (10th Cir. 2001):
Although NASD’s procedural rules do not specifically address
whether an arbitration panel has the authority to dismiss facially
deficient claims with prejudice based solely on the pleadings, there is
no express prohibition against such a procedure. In addition,
NASD’s procedural rules expressly provide that “[t]he arbitrator(s)
shall be empowered to award any relief that would be available in a
court of law.” NASD Manual, § 10214. Logically, this broad grant
of authority should include the authority to dismiss facially deficient
claims with prejudice, and we hold that a NASD arbitration panel has
full authority to grant a pre-hearing motion to dismiss with prejudice
-6-
based solely on the parties’ pleadings so long as the dismissal does
not deny a party fundamental fairness.
Like the plaintiff in Sheldon, Mr. Vento “was provided with a fundamentally fair
arbitration proceeding in that he was provided with the opportunity to fully brief
and argue the motion[] to dismiss.” Id. at 1207. Given that his “claims [were]
facially deficient and [he] therefore ha[d] no relevant or material evidence to
present at an evidentiary hearing, the arbitration panel ha[d] full authority to
dismiss the claims without . . . holding an evidentiary hearing.” Id.
Mr. Vento’s attempts to avoid the rule of Sheldon are plainly meritless. He
argues that Q&R’s motion to dismiss “was not based on the parties’ pleadings as
required by [Sheldon],” because it rested on the assertion “that Q&R followed an
order by a court clerk.” Aplt. Br. at 7, 8. But the latter point was not beyond the
scope of Mr. Vento’s arbitration claims; it was essential to them. The alleged
misconduct of Q&R consisted in its compliance with the garnishment writ and
ensuing order. See R. doc. 9, tab 1 & exs. 1, 3. When the arbitration panel
concluded that such compliance was proper as a matter of law, dismissal on the
pleadings was precisely the appropriate procedural disposition.
Mr. Vento contends the panel’s decision was not on the pleadings as in
Sheldon because the panel’s rationale rested on a legal ground omitted from
Q&R’s motion to dismiss. See Aplt. Br. at 7-8. This argument is unavailing.
Although Mr. Vento acknowledges the motion asserted Q&R acted properly in
-7-
complying with the garnishment order because Mr. Vento had not challenged it,
see also R. doc. 9, tab 6, at 2, he insists the panel’s rationale–that it was his, not
Q&R’s, duty to challenge the order–reflects a distinct legal proposition. But the
latter is obviously inherent in (if not a mere paraphrase of) the defense advanced
by Q&R in its motion and, in any event, the panel’s decision clearly encompassed
both: “The duty to timely file a motion to quash . . . an improper garnishment
order[] properly falls on the shoulders of the person garnished. . . . [E]xpending
attorney’s fees and costs to oppose the garnishment by filing a motion to quash on
his behalf . . . is not within the scope of a broker-dealer’s fiduciary duty to its
customer.” App. at 18-19. The whole point of holding that Q&R was not
duty-bound to oppose the garnishment order is to explain why it acted properly in
complying with it.
Mr. Vento’s accusation of bias on the part of the arbitration panel is equally
meritless. The panel’s recommendation that Mr. Vento consult with an attorney
experienced in NASD arbitration was just prudent advice. There is nothing in the
record to suggest any basis for questioning the panel’s impartiality.
Turning to the legal substance of the arbitration panel’s determination, the
general rule is that an arbitrator’s “erroneous interpretations or applications of
law are not reversible.” Bowen, 254 F.3d at 932 (quotation omitted). Federal
courts review arbitration decisions solely for a “manifest disregard of the law,”
-8-
i.e., for a “willful inattentiveness to the governing law.” Id. (quotation omitted).
Thus, in order to justify judicial interference based on the merits of the arbitration
decision under review, “the record [must] show the arbitrators knew the law and
explicitly disregarded it.” Id. No showing of this kind is evident here.
As for Mr. Vento’s challenge to the validity of the garnishment order under
specific provisions of state procedural law, the arbitration panel accepted that
premise for purposes of its analysis and therefore cannot be said to have
disregarded that law. As for the legal point that was ultimately dispositive of the
case, regarding a broker-dealer’s duty to challenge garnishment process on behalf
of a client, the panel asked Mr. Vento to cite the legal precedent supporting his
claim, see R. doc. 9, tab 9, at 1, to which he responded only that he “ha[d]
researched . . . whether the broker dealer is obligated to investigate the validity of
that court order or may it merely accept the order as written, and [had] found no
legal precedents about the matter,” id., tab 10, at 1. His appellate briefing is
likewise deficient.
The only authority cited in connection with Mr. Vento’s manifest-
disregard-of-law argument are three cases offered for the general proposition that
a failure to follow prescribed procedures “is fatal” and invalidates the writ. Id.Again, that relates only to the point accepted by the arbitration panel. Although
two of the cases reflect efforts by a garnishee opposing garnishment, in both cases
-9-
garnishment was opposed on the ground that the garnishee owed nothing to the
judgment debtor. See Worchester v. State Farm Mut. Auto. Ins. Co., 473 P.2d
711, 712 (Colo. 1970) (insurance company answered garnishment by denying
coverage for judgment debtor’s obligation); State v. Elkins, 270 P. 875, 875-76
(Colo. 1928) (state employer answered garnishment by denying that any earnings
were owed to judgment debtor). That a garnishee may defend its own interests by
denying an obligation to the judgment debtor implies nothing about whether the
garnishee may, much less must, defend the interests of the debtor by challenging
the propriety of the garnishment itself. Nor is any such implication suggested by
Rule 103, which sets out procedures for the debtor to raise objections regarding
the garnishment, see Colo. R. Civ. P. 103, Sec. 2(f), & Sec. 6, but provides the
garnishee with procedures only to admit or deny an obligation to the debtor, see
Colo. R. Civ. P. Sec. 2(g)(1) & (3) and Sec. 7.
Finally, Mr. Vento’s argument that the district court erred by proceeding
under Fed. R. Civ. P. 12 and 56 is specious. The civil rules apply in arbitration
cases “to the extent that matters of procedure are not provided for in [the federal
arbitration] statutes.” Fed. R. Civ. P. 81(a)(3). Because the arbitration statutes
do not provide procedures to displace Rules 12 and 56, and Mr. Vento offers no
“reason why normal procedures should be subverted,” the district court properly
adhered to these rules. Milwaukee Typographical Union No. 23 v. Newspapers,
-10-
Inc., 639 F.2d 386, 390 (7th Cir. 1981); see Champion Boxed Beef Co. v. Local
No. 7 United Food & Commercial Workers Int’l Union, 24 F.3d 86, 87 (10th Cir.
1994) (noting “we review the grant of summary judgment” in arbitration cases
under traditional de novo standard).
Sanctions
Q&R has moved for sanctions against Mr. Vento. Upon consideration of
the motion and Mr. Vento’s response (Reply Br. at 1-2), we conclude an award of
reasonable attorney fees and costs is warranted under Fed. R. App. P. 38. We
agree with Q&R that this appeal is frivolous for the reasons we have discussed.
Because deciding on an appropriate amount of fees and costs requires assessment
of facts, we remand the matter to the district court for determination.
The judgment of the district court is AFFIRMED. Q&R’s motion for
sanctions is GRANTED, and the matter is REMANDED for the determination of a
proper amount.
Entered for the Court
Stephanie K. Seymour
Circuit Judge
-11-