Raymond James Financial Services, Inc. v. Bishop, 09-1038.

Citation596 F.3d 183
Decision Date22 February 2010
Docket NumberNo. 09-1038.,09-1038.
PartiesRAYMOND JAMES FINANCIAL SERVICES, INCORPORATED, Plaintiff-Appellee, v. Thomas W. BISHOP; Steven H. Hamant; Timothy E. Scanlon, Defendants-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

ARGUED: Jay J. Levit, Law Office of Jay J. Levit, Glen Allen, Virginia; Scott Gregory Crowley, Sr., Crowley & Crowley, Richmond, Virginia, for Appellants. Stephen Grey Cochran, Haight, Tramonte, Siciliano, Flask & Yeonas, PC, Vienna, Virginia, for Appellee. ON BRIEF: Victor M. Glasberg, Victor M. Glasberg & Associates, Alexandria, Virginia, for Appellee.

Before WILKINSON, DUNCAN, and DAVIS, Circuit Judges.

Affirmed by published opinion. Judge DAVIS wrote the opinion, in which Judge WILKINSON and Judge DUNCAN joined.

OPINION

DAVIS, Circuit Judge:

This is an appeal from an order of the district court vacating an award of compensatory damages rendered by an arbitration panel adjudicating claims pursuant to the rules of the National Association of Securities Dealers ("NASD").1 The award was in favor of three financial advisors, Appellants Thomas W. Bishop ("Bishop"), Steven H. Hamant ("Hamant"), and Timothy E. Scanlon ("Scanlon") against the Appellee, Raymond James Financial Services, Inc. ("Raymond James"), a broker/dealer member of NASD. The Appellants contend that the district court erred in exceeding the narrow scope of review prescribed by the Federal Arbitration Act. See 9 U.S.C. § 10(a). We are mindful that vacatur of an arbitration award is, and must be, a rare occurrence because a federal court employs a standard of review "among the narrowest known at law." Apex Plumbing Supply, Inc. v. U.S. Supply Co., Inc., 142 F.3d 188, 193 (4th Cir.1998). Nonetheless, we conclude, as did the district court, that this case presents one of those rare instances. Accordingly, for the reasons stated within, we affirm the judgment of the district court.

I.

The Appellants are registered representatives working as financial advisors in the securities industry in the Richmond, Virginia, area. In early 2001, Bishop departed from his then firm and entered into a written "Independent Sales Associate Agreement" with Appellee Raymond James Financial Services, Inc. ("Raymond James"), a registered broker/dealer. Bishop became the branch manager at a Raymond James Richmond office. At about the same time, apparently at Bishop's urging, Hamant and Scanlon each entered into a separate written "Financial Advisor Agreement" with Raymond James and practiced their trade out of the Richmond office headed by Bishop.

Each of the three agreements described the individual financial advisor as an "independent contractor." Moreover, each of the three agreements contained the following "Termination of Agreement" provision permitting any party to terminate the agreement on five days notice:

Either party may terminate this Agreement by providing the other party no less than five (5) business days prior written notice of intent to terminate this Agreement. Given the unique transactional nature of the securities business, there is no need for a liquidated damages provision should either party voluntarily terminate the Agreement before the end of its term as neither party would be significantly damaged by such termination.

J.A. 274, 282, 290-91. The agreements contained no general arbitration provision;2 as a member of NASD, however, Raymond James was required to resolve certain disputes with its registered representatives by arbitration.

During 2003, Raymond James received several serious complaints of misconduct from competing financial advisors with respect to the operation of the office headed by Bishop.3 As a result of the mounting complaints, on April 27, 2004, Raymond James notified Bishop and his co-manager at the Richmond branch, Michael Finnie, that the branch would be closed and that their registrations with Raymond James were being terminated in five days. Raymond James acted specifically pursuant to the "Termination of Agreement" provision in its Independent Sales Associate Agreement. Raymond James left open the possibility that the representatives in the Richmond branch, including Appellants, could affiliate with another Raymond James branch. Indeed, Bishop's co-manager, Finnie, promptly re-affiliated with another Raymond James branch. On June 25, 2004, however, after a two month extension of time by Raymond James in effecting the branch closing, the Appellants voluntarily terminated their respective agreements and they did not re-affiliate with Raymond James.4

Meanwhile, prior to the Appellants' resignations, a lawyer from Raymond James' legal department, Terrance Bostic, Esq., had assumed representation of the Appellants (jointly with his representation of Raymond James) in the NASD arbitration proceedings arising from some of the complaints lodged against the Richmond office staff. Such representation of the Appellants continued after the Richmond branch closed. In due course, the arbitration proceedings against Scanlon concluded in his favor while he was represented by Bostic, whereas Hamant personally paid $10,000 in respect to a NASD arbitration award against him. J.A. 262.5

The arbitration proceeding involving Bishop was ongoing as of December 1, 2004. On that date, Bostic withdrew as counsel for Bishop (while continuing as counsel to Raymond James) based on an incipient conflict of interest. Specifically, the conflict of interest arose when Raymond James discovered that someone had obtained unauthorized access to its computer system; legal action against Bishop was contemplated in connection with the incident.6 In any event, within just a few days after Bostic withdrew from his representation of Bishop, the parties to the pending arbitration proceeding reached a global settlement resulting in no liability to Bishop.

II.

In July 2005, the Appellants filed a consolidated arbitration demand against Raymond James pursuant to NASD rules. Specifically, the Appellants sought damages on the basis of the following legal theories: (1) wrongful discharge; (2) breach of contract; (3) tortious interference with contract; (4) common law and statutory conspiracy; (5) violation of the Virginia Retail Franchising Act; and (6) violation of "just and equitable principles of trade." Thereafter, Raymond James submitted its Answer, Affirmative Defenses, and Counter-claims, and a Motion to Dismiss, which the Appellants opposed.

On May 11, 2006, the arbitration panel denied Raymond James' Motion to Dismiss. Then, on December 12, 2006, following a hearing extending over several days, the arbitration panel found Raymond James liable. In its award, the arbitration panel summarized the Appellants' claims as follows:

breach of fiduciary and legal duties; violation of just and equitable legal principles of trade; breach of promises and inducements; interference with, and unlawful termination of [the Appellants'] prospective economic advantages; interference with the performance of contractual promises and inducements; tortious and deceitful termination of [the Appellants'] legitimate and high business expectations; violation of statutory Virginia public policy set forth in Virginia code § 13.1-558; and common law and statutory conspiracy.

J.A. 353. The panel granted the following substantial compensatory damages to the Appellants: Bishop, $156,050; Hamant, $74,050; and Scanlon, $72,050. J.A. 354.

By way of explanation for its award, the panel cited Raymond James' "unauthorized practice of law [sic] by employing staff counsel to advise and represent [Appellants] in their individual capacities" in NASD arbitrations. J.A. 354. The panel also found that Raymond James failed to warn the Appellants that they were subjected to heightened scrutiny after Raymond James received complaints about them. Id. The panel further found that Bostic's withdrawal from Bishop's representation in the arbitration prejudiced "some or all [Appellants'] litigation interest and made their transfer to other Raymond James Financial Services, Inc. branch offices impossible as a practical matter." Id.

On January 12 and 18, 2007, Raymond James filed in the United States District Court for the Eastern District of Virginia a timely Motion to Vacate the Award, and an Amended Motion to Vacate, respectively. The Appellants filed timely Motions to Confirm the Award.

On July 26, 2007, the district court held a hearing. The court noted the lack of clarity in the arbitration panel's explanation for its award, and in particular, among other things, the peculiar manner in which the arbitration panel seemed to treat the claims of all three of the Appellants identically, although the factual circumstances and background as to Bishop, on the one hand, and Hamant and Scanlon, on the other hand, were quite different. When the district court asked counsel for the latter two to identify Raymond James' actionable conduct as to his clients (Hamant and Scanlon), counsel indicated that the actionable conduct was wrongful termination. When the court asked counsel how any termination could be "wrongful" in light of the "Termination of Agreement" provision included in each written agreement, which on its face provided for termination at-will on five days notice, counsel argued that the law in the NASD securities industry requires that, irrespective of the parties' agreement, termination of a registered representative could only be for cause.

Ultimately, despite its best efforts to discern some coherence in the award, the district court concluded that it could not do so and remanded the matter to the arbitration panel.7 Appellants filed an interlocutory appeal to this court from the district court's remand order. On April 2, 2008, we dismissed the appeal for lack of jurisdiction.

On April 11, 2008, the arbitration panel issued a supplemental letter opinion in response to the district court's remand order. Therein, the...

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