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,

v.

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,

v.

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.

OPINION

CYNTHIA HOLCOMB HALL, Circuit Judge.

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.

FACTS

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.

STANDARDS OF REVIEW

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).

MANIFEST DISREGARD

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...

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