462 F.3d 95 (2nd Cir. 2006), 04-3260, D.H. Blair & Co., Inc. v. Gottdiener

Docket Nº:04-3260.
Citation:462 F.3d 95
Party Name:D.H. BLAIR & CO., INC., and Kenton E. Wood, Individually and as Director and Chief Executive Officer of D.H. Blair & Co., Inc., Plaintiffs-Appellees, v. Judit GOTTDIENER, Ernest Gottdiener, Ervin Tausky and Suan Investments, Defendants-Appellants, D.H. Blair Investment Banking Corp., J. Morton Davis and Alfred Palagonia, Defendants.
Case Date:September 05, 2006
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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462 F.3d 95 (2nd Cir. 2006)

D.H. BLAIR & CO., INC., and Kenton E. Wood, Individually and as Director and Chief Executive Officer of D.H. Blair & Co., Inc., Plaintiffs-Appellees,


Judit GOTTDIENER, Ernest Gottdiener, Ervin Tausky and Suan Investments, Defendants-Appellants,

D.H. Blair Investment Banking Corp., J. Morton Davis and Alfred Palagonia, Defendants.

No. 04-3260.

United States Court of Appeals, Second Circuit.

Sept. 5, 2006

Argued: May 19, 2005.

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Jay R. Fialkoff, Moses & Singer LLP, New York, New York (Jayson D. Glassman, of counsel), for Plaintiffs-Appellees.

Mark A. Tepper, Fort Lauderdale, Florida, for Defendants-Appellants.

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Before: WINTER and KATZMANN, Circuit Judges, and MURTHA, [*] District Judge.

WINTER, Circuit Judge.

Judit and Ernest Gottdiener, Ervin Tausky, and Suan Investments (collectively "the Investors") appeal from a grant of default judgment to D.H. Blair & Co., Inc. ("D.H.Blair") and Kenton E. Wood (collectively "Broker"). The default judgment granted Broker's motion to confirm in part and vacate in part the award of an arbitration panel.

The Investors argue, inter alia, that the Southern District of New York ("S.D.N.Y.") lacked personal jurisdiction over them and was an improper venue. The Investors also argue that the district court abused its discretion by failing to vacate the default judgment. These arguments are directed to restoring the part of the award vacated in the present actions and to breathing life into their own motion to vacate the arbitral award, which was filed in the Southern District of Florida ("S.D.Fla.") and transferred to the S.D.N.Y. after entry of the default judgment. Although personal jurisdiction existed in the S.D.N.Y. and there was proper venue, we vacate so much of the default judgment as vacated parts of the arbitration award. We confirm the award because it was not manifestly contrary to law, after finding that the Investors waived their arguments regarding Florida law by not raising them in the S.D.N.Y. action.


a) The Arbitration

The Investors maintained securities trading accounts with Broker. Each of the Investors signed separate account agreements and opened trading accounts with D.H. Blair in New York. Each agreement specified that disputes between the Investors and Broker be resolved by arbitration and that:

The award of the arbitrators, or the majority of them, shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction. I consent to the jurisdiction of the state and federal courts in the City of New York for the purpose of compelling arbitration, staying litigation pending arbitration, and enforcing any award of arbitrators.

On May 22, 2000, Investors filed a statement of claim against Broker with the National Association of Securities Dealers ("NASD") in New York City alleging violations of the federal securities and other laws. When filing their claim, the Investors signed a "NASD Regulation Arbitration Uniform Submission Agreement," which provided that:

The undersigned parties further agree to abide by and perform any award(s) rendered pursuant to this Submission Agreement and further agree that a judgment and any interest due thereon, may be entered upon such award(s) and, for these purposes, the undersigned parties hereby voluntarily consent to submit to the jurisdiction of any court of competent jurisdiction which may properly enter such judgment.

On December 19, 2000, the Investors amended their claims to assert violations of the New Jersey Blue Sky Law, contending that they were New Jersey residents. Less than three weeks later, on January 5,

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2001, the Investors, in a collective change of mind, asserted that they were Florida residents during their entire relationship with Broker and requested that the matter be transferred to a NASD office in Florida. The dispute was transferred to Florida, and on June 25, 2002, the Investors amended their claim to assert violations of the Florida Blue Sky Law. The arbitration took place before a panel of three arbitrators in September and October 2002 in the NASD's Boca Raton, Florida offices.

At the commencement of the arbitration, the Investors initially sought "1) compensatory damages ...; 2) interest; 3) return of commissions ...; 4) punitive damages ...; 4)[sic] costs; and 5) attorneys' fees," but in their "post-hearing submissions," which were considered by the arbitrators before rendering a decision, the Investors requested slightly different relief, including "1) compensatory damages ...; 2) punitive damages ...; 4) costs ...; 5) pre-judgment interest; and 6) a finding that each respondent violated Section 517.301, Florida Statutes." The differences in the relief sought are monetarily significant in that the compensatory and punitive damages requested were higher and the request for "prejudgment interest" followed the request for compensatory and punitive damages and costs, implying that prejudgment interest should apply to each.

On January 29, 2003, the arbitrators awarded $255,000 in compensatory damages and $450,000 in punitive damages to the Investors. Both awards included prejudgment interest accruing from May 22, 1995, "until the date the Award is paid in full." The Investors moved to have the arbitrators recalculate the compensatory damages to include damages required under Florida law, and Broker filed a response defending the award. On March 12, 2003, the arbitration panel denied the motion.

b) Broker's New York Petition

Broker filed a Notice of Petition and Petition to Confirm in Part and Vacate in Part an Arbitration Award ("New York Petition") in the Supreme Court of New York County. The Petition had a return date of April 29, 2003, and stated that, as allowed by Section 403(b) of the New York C.P.L.R., answering papers had to be served on the movant seven days before that date. The Investors were served with these documents on April 11, 2003. In the New York Petition, Broker argued that the award should be confirmed, except for the portion that awarded prejudgment interest on punitive damages. Broker asserted that this part of the award was in manifest disregard of the law and contrary to public policy. On April 25, 2003, the Investors removed the New York Petition to the S.D.N.Y. with an explicit reservation of all rights and defenses, "including but not limited to all rights and defenses directed to the inadequacy and impropriety of service of process and personal jurisdiction." The Investors asserted that they had "not submitted to the Jurisdiction of the state court in New York and further believe[d] that neither the state court in New York, nor the [S.D.N.Y. had] personal jurisdiction over them." After removal, the Investors took no further action on the New York Petition until the entry of a default judgment as described infra.

On June 4, 2003, Broker sought and received a Clerk's Certificate of default based on the Investors' failure to respond to the New York Petition, relying upon noncompliance with Rule 81(c), which states in relevant part that "[i]n a removed action in which the defendant has not answered, the defendant shall answer or present the other defenses or objections available under these rules ... within 5 days after the filing of the petition for

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removal." Fed.R.Civ.P. 81(c). Broker then moved in the district court for entry of default judgment under Rule 55(b)(2) on June 5, 2003. On June 17, 2003, the Investors filed an Opposition to Entry of Default Judgment, Cross Motion to Vacate Default, and Cross Motion to Dismiss or Transfer. In contesting the entry of default against them, the Investors argued that Broker's New York Petition was a motion, not a complaint or pleading; as such, default was improper because the Rules do not provide for entry of default judgment on a motion. Moreover, the Investors asserted that the New York Petition was incomplete as it lacked a memorandum of law. They also claimed that they had a meritorious defense in that Broker had never called the rule against prejudgment interest on punitive damages to the attention of the arbitrators. Finally, the Investors sought either a dismissal of the New York Petition for lack of personal jurisdiction and improper venue, arguing that the "balance of convenience plainly favors Florida," or a transfer to the S.D.Fla., where there was a pending, related action described below.

c) Investors' Florida Petition

While the Investors did not respond directly to the New York Petition after they removed it to the S.D.N.Y., on April 29, 2003, they filed their own Petition to Partially Vacate/Confirm Arbitration Award and to Determine Prejudgment Interest, Attorney's Fees and for Other Relief ("Florida Petition") in a Florida state court. The Florida Petition asked the court to vacate the compensatory damages portion of the arbitration award as being in manifest disregard of the law because the arbitrators specifically found a violation of Fla. Stat. ch. 517.301 but failed to award the full statutory damages as directed by Fla. Stat. ch. 517.211. The Florida Petition requested confirmation of the remainder of the award and the calculation of attorneys' fees, which had been deferred by the arbitrators.

On May 30, 2003, Broker removed the Florida Petition to the S.D. Fla. and filed an answer to it on June 6, 2003. On July 11, 2003, Broker moved to stay the Florida proceedings until the district court in the S.D.N.Y. ruled on the first-filed New York Petition or, in the alternative, to transfer venue of the Florida action to the...

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