336 F.3d 1128 (9th Cir. 2003), 02-56016, Coutee v. Barington Capital Group, L.P.

Docket Nº:02-56016
Citation:336 F.3d 1128
Party Name:Coutee v. Barington Capital Group, L.P.
Case Date:July 28, 2003
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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336 F.3d 1128 (9th Cir. 2003)

Herbert COUTEE; Lorine Coutee, Petitioners-Appellees,


United States Court of Appeals, Ninth Circuit

BARINGTON CAPITAL GROUP, L.P.; Morton Gerald Gropper; Bruce Adam Gropper; James Anthony Mitarotonda; Jerome Snyder; John Telfer, Respondents-Appellants.

Herbert Coutee; Lorine Coutee, Petitioners-Appellants,


Barington Capital Group, L.P.; Morton Gerald Gropper; Bruce Adam Gropper; James Anthony Mitarotonda; Jerome Snyder; John Telfer, Respondents-Appellees.

Nos. 02-56016, 02-56052.

United States Court of Appeals, Ninth Circuit

July 28, 2003.

Argued and Submitted June 5, 2003.

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Stuart A. Jackson, Ré, Parser & Partners, New York, NY, for the appellants/cross-appellees.

Ryan K. Bakhtiari, Aidikoff & Uhl, Beverly Hills, CA, for the appellees/cross-appellants.

Appeal from the United States District Court for the Central District of California; George H. King, District Judge, Presiding. D.C. No. CV-02-00953-GHK.

Before HALL, THOMAS, and PAEZ, Circuit Judges.



Barington Capital Group, L.P., Morton Gropper, Bruce Gropper, James Mitarotonda, Jerome Snyder, and John Telfer (collectively, "Barington") appeal the district court's order confirming the compensatory damages, punitive damages, interest, and fees portions of a National Association of Securities Dealers (NASD) arbitration award in favor of Herbert and Lorine Coutee. The Coutees cross-appeal the district court's decision to vacate the attorney's fee portion of the award.

We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm in part, reverse in part, and remand with instructions to enter an order confirming the arbitration award in its entirety.


Herbert and Lorine Coutee are retired factory workers with second-grade educations. In December 1997, the Coutees' grandson-in-law, Jason Wirtzer, arranged for Mr. Coutee's Individual Retirement Account (IRA) to be transferred to Barington Capital Group, L.P., an investment firm offering brokerage services. 1

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Mr. Coutee signed a letter authorizing the account transfer and requesting that all communications related to the account be directed to Wirtzer. Mr. Coutee also signed a customer agreement, which contained a New York choice of law provision.

The brokers of record for Mr. Coutee's account at Barington were Morton Gropper and Bruce Gropper ("the Groppers"). Shortly after Wirtzer opened Mr. Coutee's account, he instructed the Groppers to sell Mr. Coutee's transferred assets and to use the proceeds to purchase "penny stocks." By March 1998, nearly 100% of Mr. Coutee's Barington portfolio consisted of stock in two high-risk companies, ATM Holdings, Inc. ("ATMH") and Environmental Technology, Inc., and the stated value of the account had fallen from approximately $55,000 to approximately $600.

In 1999, the Coutees met with an accountant to prepare their 1998 tax return and to make arrangements for Mr. Coutee's mandatory IRA distributions. At this time, the Coutees discovered that essentially all of the funds in the Barington account had been lost. On June 7, 2000, the Coutees filed a Statement of Claim with the National Association of Securities Dealers (NASD) against Barington and related parties. 2 The Coutees sought damages for alleged breaches of fiduciary duty, unauthorized trading, fraud, failure to supervise, and violations of state and federal securities laws, NASD Rules, and New York Stock Exchange Rules.

On January 30, 2002, a three-member arbitration panel awarded the Coutees $54,000 in compensatory damages, $21,600 in interest, $975 in costs, $30,240 in attorney's fees, and $100,000 in punitive damages. 3 Barington and the Coutees filed timely petitions seeking, respectively, vacation and confirmation of the award. On May 20, 2002, the district court vacated the attorney's fee portion of the award and confirmed the remainder. Both parties timely appealed.


We "review the confirmation or vacation of an arbitration award like any other district court decision ... accepting findings of fact that are not clearly erroneous but deciding questions of law de novo." Barnes v. Logan, 122 F.3d 820, 821 (9th Cir. 1997) (citations and internal quotation marks omitted), cert. denied, 523 U.S. 1059, 118 S.Ct. 1385, 140 L.Ed.2d 645 (1998). With respect to the underlying arbitration decision, however, our review is "both limited and highly deferential." Sheet Metal Workers' Int'l Ass'n v. Madison Indus., Inc., 84 F.3d 1186, 1190 (9th Cir. 1996). We may vacate an arbitration award only if the conduct of the arbitrators violated the Federal Arbitration Act (FAA), 4 or if the award itself is "completely irrational" or "constitutes manifest disregard of the law." G.C. & K.B. Invs., Inc. v. Wilson, 326 F.3d 1096, 1105 (9th Cir. 2003)

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(citations and internal quotation marks omitted).


Barington contends that the arbitrators manifestly disregarded the facts by concluding that Barington's conduct caused the Coutees to suffer a $54,000 loss. We may vacate an arbitration award "only if that award is completely irrational, exhibits a manifest disregard of law, or otherwise falls within one of the grounds set forth in [the FAA]." G.C. & K.B. Invs., 326 F.3d at 1105 (quoting LaPine Tech. Corp. v. Kyocera Corp., 130 F.3d 884, 888 (9th Cir. 1997)) (emphasis added). Manifest disregard of the facts is not an independent ground for vacatur in this circuit. 5

In some circumstances, however, legally dispositive facts are so firmly established that an arbitrator cannot fail to recognize them without manifestly disregarding the law. See American Postal Workers Union v. United States Postal Serv., 682 F.2d 1280, 1284-86 (9th Cir. 1982), cert. denied, 459 U.S. 1200, 103 S.Ct. 1183, 75 L.Ed.2d 431 (1983). In American Postal, we reviewed an arbitration decision requiring the Postal Service to reinstate Michael Murphy, a former employee who conceded that he had participated in a strike for approximately two hours. Id. at 1283. Pursuant to federal law, persons who have participated in a strike against the federal government are prohibited from holding federal government positions. 5 U.S.C. § 7311(3). Because the undisputed facts established that Murphy was barred from reinstatement by § 7311, we vacated the arbitration decision as unenforceable and in manifest disregard of the law. American Postal, 682 F.2d at 1286. We also held that the arbitrator's failure to make an explicit factual determination as to Murphy's participation, or non-participation, had no import because the undisputed facts compelled the conclusion that Murphy had participated in a strike. Id. at 1284. We noted that although "[i]n most cases, courts must defer to an arbitrator's conclusions even where they are erroneous," here, "a conclusion that Murphy did not strike would constitute manifest disregard of the law." Id.

American Postal does not establish an independent "manifest disregard of the facts" ground for vacatur. See, e.g., Pacific Reinsurance Mgmt. Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1026 (9th Cir. 1991) (observing that American Postal does not permit a reviewing court to reexamine the "ultimate weight of [the] evidence"). Rather, American Postal stands for the unexceptional proposition that a federal court will not confirm an arbitration award that is legally irreconcilable with the undisputed facts. Moreover, American Postal recognizes that because facts and law are often intertwined, an arbitrator's failure to recognize undisputed, legally dispositive facts may properly be deemed a manifest disregard for the law.

Barington argues that the arbitrators manifestly disregarded legally dispositive

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facts by relying on a March 1998 monthly statement, which lists the value of Mr. Coutee's account as approximately $600, to determine the amount of loss incurred by Mr. Coutee. As Barington points out, the March 1998 statement does not reflect the value of "unpriced" securities such as the ATMH and Environmental Technology stocks that formed a substantial percentage of Mr. Coutee's portfolio. Barington contends that these unpriced securities had substantial value in March 1998 and that the actual value of Mr. Coutee's account at that time was more than $70,000. The Coutees dispute Barington's valuation, pointing to an internal Barington memorandum that states, "Coutee client bought 23M of ATMH at $2.00 per share. Stock is now worthless."

The arbitrators considered this factual...

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