83 F.3d 132 (6th Cir. 1996), 95-5257, Glennon v. Dean Witter Reynolds, Inc.

Docket Nº:95-5257.
Citation:83 F.3d 132
Party Name:John J. GLENNON, Jr., Plaintiff-Appellee, v. DEAN WITTER REYNOLDS, INC., Defendant-Appellant.
Case Date:May 06, 1996
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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83 F.3d 132 (6th Cir. 1996)

John J. GLENNON, Jr., Plaintiff-Appellee,


DEAN WITTER REYNOLDS, INC., Defendant-Appellant.

No. 95-5257.

United States Court of Appeals, Sixth Circuit

May 6, 1996

Argued March 28, 1996.

Rehearing and Suggestion for Rehearing En Banc Denied July 15, 1996.

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[Copyrighted Material Omitted]

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On Appeal from the United States District Court for the Middle District of Tennessee; Thomas A. Wiseman, Jr., Judge.

Jeffrey L. Liddle, Ethan A. Brecher, Liddle, O'Connor, Finkelstein & Robinson, New York City, for John J. Glennon, Jr.

Betty G. Brooks, Washington, DC, for National Association Securities Dealers, Inc., amicus curiae.

Clisby Hall Barrow, Baker, Donelson, Bearman & Caldwell, Nashville, TN, Vincent J. LaGreca, New York City, Jay S. Bowen, Bowen, Riley, Warnock & Jacobson, Nashville, TN, for Dean Witter Reynolds, Inc.

Before: KENNEDY, WELLFORD, and MOORE, Circuit Judges.

KENNEDY, J., delivered the opinion of the court, in which MOORE, J., joined. WELLFORD, J. (p. 139), delivered a separate concurring opinion.

KENNEDY, Circuit Judge.

Defendant, Dean Witter Reynolds, Inc., appeals a District Court order denying its motion to vacate an arbitration decision adjudicating its disputes with plaintiff, John Glennon, a former employee. Defendant claims that the arbitration panel acted in manifest disregard of Tennessee law and public policy when it awarded plaintiff defamation damages, and that the limited federal judicial review of the arbitrators' award of punitive damages violates the due process clause of the Fifth Amendment. For the reasons set forth below, we AFFIRM.

I. Facts

Defendant, a securities dealer, employed plaintiff as branch manager of its Nashville office and terminated him as the result of a compensation dispute. In his position as a

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producing broker, plaintiff was entitled to a $2,500 annual expense stipend. Defendant inadvertently deposited that amount into plaintiff's account monthly between September of 1990 and May of 1991. Although plaintiff acknowledged that those amounts in excess of $2,500 were overpayments to which he was not entitled, he refused to return the money, claiming them as a set-off against monies defendant allegedly owed him for a finder's fee and a recruitment bonus. Asserting entitlement to the finder's fee and recruitment bonus, in August of 1991, plaintiff commenced an arbitration proceeding against defendant by filing a Statement of Claim with the National Association of Securities Dealers ("NASD"), the self-regulatory organization ("SRO") of which defendant was a member.

Defendant discharged plaintiff in October of 1991, and in November of 1991 completed and filed a Form U-5, Uniform Termination Notice for Securities Industry Registration, in accordance with NASD rules. The form inquired whether the terminated individual was "under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct." In response to this question, defendant answered "yes."

Subsequently, plaintiff amended his arbitration demand, alleging that defendant defamed him by maliciously making the false "yes" answer on the Form U-5. Plaintiff sought compensatory and punitive damages as well as an order directing defendant to amend the Form U-5.

An NASD arbitration panel ruled that plaintiff was entitled to the finder's fee and recruitment bonus. It further found that the statements explaining Glennon's termination in the Form U-5 were defamatory and awarded him $728,250 in compensatory damages, $750,000 in punitive damages, and $213,000 in attorney fees. It also ordered Dean Witter to amend the Form U-5 so as to remove the defamatory explanation of Glennon's termination and replace it with an explanation that he had been terminated as a result of a compensation dispute. Dean Witter moved to vacate the award on a number of grounds and Glennon filed a cross-motion to deny Dean Witter's motion to vacate and to confirm the award. Despite defendant's objections, the District Court confirmed the award.

On appeal, Dean Witter argues that (1) the arbitration panel acted in manifest disregard of the law when it failed to afford the defamatory statements on the Form U-5 an absolute privilege; (2) the arbitration panel acted in manifest disregard of the law and public policy when it awarded plaintiff defamation damages; and, (3) the District Court's limited review of the arbitrators award of punitive damages violates the due process clause of the Fifth Amendment. In his brief, plaintiff asks this Court to award him attorney fees and costs for what he alleges is a "frivolous appeal."

II. Discussion

  1. Standard of Review

    When reviewing a district court's decision to vacate or confirm an arbitration award, we review findings of fact for clear error and questions of law de novo. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 418, 420 (6th Cir.1995) (citing First Options of Chicago, Inc. v. Kaplan, --- U.S. ----, ----, 115 S.Ct. 1920, 1926, 131 L.Ed.2d 985 (1995)).

    A federal court may set aside an arbitration award under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10, only when certain statutory or judicially created grounds are presented. Merrill Lynch, Pierce, Fenner & Smith, 70 F.3d at 420. The FAA provides several statutory bases upon which a court may vacate an arbitration award. It states, in relevant part:

    (a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration--

    (1) Where the award was procured by corruption, fraud, or undue means.

    (2) Where there was evident partiality or corruption in the arbitrators, or either of them.

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    (3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon...

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