Jenkins v. Prudential-Bache Securities, Inc.

• Decision Date: 23 May 1988
• Docket Number: PRUDENTIAL-BACHE,Nos. 86-1414,86-1473,s. 86-1414
• Citation: 847 F.2d 631
• Parties: Joseph JENKINS and Stanley Hodges, Plaintiffs-Appellants & Cross-Appellees, v.SECURITIES, INC., Defendant-Appellee & Cross-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 631

847 F.2d 631

Joseph JENKINS and Stanley Hodges, Plaintiffs-Appellants &amp Cross-Appellees, v. PRUDENTIAL-BACHE SECURITIES, INC., Defendant-Appellee &amp Cross-Appellant.

Nos. 86-1414, 86-1473.

United States Court of Appeals Tenth Circuit.

May 23, 1988.

Rehearing Denied July 1, 1988.

Thomas M. Knepper, Law Offices of Neal, Gerber & Eisenberg, Chicago, Ill., for plaintiffs-appellants & cross-appellees.

Spencer E. Austin, Parsons, Behle & Latimer, Salt Lake City, Utah, for defendant-appellee & cross-appellant.

Before McKAY and BALDOCK, Circuit Judges, and SAFFELS, District Judge ^*.

SAFFELS, District Judge.

Plaintiffs Joseph Jenkins and Stanley Hodges appeal from a district court order affirming an arbitration decision of the New York Stock Exchange, Inc. Plaintiffs' grievance stems from defendant Prudential-Bache Securities, Inc.'s decision to close its Provo, Utah branch office at which plaintiffs were employed. Plaintiffs were given the opportunity of relocating to Prudential-Bache's Salt Lake City office but preferred to accept employment with another investment firm and sought compensation from Prudential-Bache for breach of their employment contracts. The arbitration panel found in favor of Prudential-Bache, and the district court upheld the award and denied Prudential-Bache's motion for sanctions. Under the narrow standards for review of an arbitration award, we find no basis for plaintiffs' allegation of error. We therefore affirm the award and likewise deny sanctions.

I.

In November 1983, Joseph Jenkins and Stanley Hodges each signed two agreements with Prudential-Bache: an employment agreement and a promissory note. Pursuant to the employment agreements, Jenkins and Hodges were hired as Account Executives at the new Prudential-Bache office located in Provo. A bonus provision in the employment agreement interfaced with the promissory note as follows. Plaintiffs were to be given a bonus of approximately $60,000.00 to be paid in yearly installments over the four-year term of employment. At the same time, Prudential-Bache "loaned" plaintiffs $60,000.00 as memorialized by the security agreement. Prudential-Bache reserved the right to apply the bonus payments to the outstanding loan amount. In essence, plaintiffs each received an approximately $60,000.00 forgivable loan. The outstanding loan amount was to become immediately due and payable upon certain events, including termination of employment. The employment agreement also had an arbitration provision.

The Provo branch office was not profitable, and on March 27, 1984, Prudential-Bache notified plaintiffs that it would close the facility. Prudential-Bache offered the plaintiffs similar positions in its Salt Lake City office some thirty miles away. Plaintiffs determined that they could not or would not accept such employment. The record indicates that plaintiff Jenkins suffered from multiple sclerosis, was bound to a wheelchair, and could not have easily commuted from Provo, where he preferred to maintain his residence. In addition, Jenkins and Hodges had a partner relationship and were determined to stay together. Without notifying Prudential-Bache, plaintiffs accepted employment with Shearson Lehman/American Express in Provo beginning April 2, 1984.

Prudential-Bache subsequently demanded repayment of the loans, which the plaintiffs refused. On August 6, 1984, Prudential-Bache filed formal statements of claim for arbitration against plaintiffs with the New York Stock Exchange, Inc. A three-member panel held a hearing in Salt Lake City, Utah on March 20, 1985, and on that same day issued its decision, without analysis, awarding Prudential-Bache recovery of the loaned amounts.

Plaintiffs filed a complaint to vacate the award in the United States District Court for the District of Utah. The district court rejected plaintiffs' argument that no evidence existed to support plaintiffs' having voluntarily terminated the employment agreement. Because the district court found ample support for the award, the arbitrators' decision was upheld. This timely appeal followed.

On appeal, Jenkins and Hodges argue that the arbitration record contained no evidence which rationally supports the award; therefore, the district court's confirmation of the arbitrators' decision was erroneous. In making this argument, Jenkins and Hodges assume that "fundamental irrationality" (or its functional equivalent) is an implied basis for vacating an arbitration award under section 10 of the Federal Arbitration Act, 9 U.S.C. Sec. 10 (1982). Plaintiffs boldly assert that if any evidence can be pinpointed in support of the arbitration panel's and district court's decisions, their appeal should be denied. Plaintiffs view the evidence as establishing only one possible finding: Prudential-Bache breached the contract by closing the Provo office. By closing the office, Prudential-Bache allegedly violated the clause that referred to plaintiffs as "Account Executives at the Prudential-Bache office located in Provo," which plaintiffs interpret as meaning "Provo and only Provo." They argue that any events occurring after this breach are irrelevant, including their decision to decline Prudential-Bache's offer of employment in the Salt Lake City office.

II.

In a statute unamended since its original enactment in 1947, Congress enumerated certain instances in which federal courts may review an arbitration award:

"In either 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--

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

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

(c) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.

(d) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

(e) Where an award is vacated and the time which the agreement required the award to be made has not expired the court may, in its discretion, direct a rehearing by the arbitrators."

9 U.S.C. Sec. 10 (1982). However, federal courts have never limited their scope of review to a strict reading of this statute. Viewed either as an inherent appurtenance to the right of judicial review or as a broad interpretation of subsection (d) prohibiting arbitrators from exceeding their powers, the arbitration award has traditionally been subjected to a sort of "abuse of discretion" standard.

One alternative method of limitation began with the Supreme Court's decision in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). In that opinion, the Court held that under section 10 of the Federal Arbitration Act, "the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation." Id. at 436-37, 74 S.Ct. at 187-88. The Second Circuit recently had the occasion to discuss this standard. In Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930 (2d Cir.1986), the court stated:

" 'Manifest disregard of the law' by arbitrators is a judicially-created ground for vacating their arbitration award.... It is not to be found in the federal arbitration act. 9 U.S.C. Sec. 10. Although the bounds of this ground have never been defined, it clearly means more than error or misunderstanding with respect to the law."

808 F.2d at 933. See also French v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 784 F.2d 902, 906 (9th Cir.1986). The "manifest disregard" standard was most recently mentioned in Shearson/American Express, Inc. v. McMahon, --- U.S. ----, ----, 107 S.Ct. 2332, 2340, 96 L.Ed.2d 185, 197 (1987). Although the McMahon Court questioned the continued validity of the Wilko opinion's general mistrust of the arbitral process, id. at ----, 107 S.Ct. at 2339-42, 96 L.Ed.2d at 196-99, the Court did not have the occasion to undermine Wilko 's statement concerning the limited judicial review of arbitration awards. See also id. at ----, 107 S.Ct. at 2355, 96 L.Ed.2d at 215 (Blackmun, J., dissenting in part) ("Judicial review is still substantially limited to the four grounds listed in Sec. 10 of the Arbitration Act and to the concept of 'manifest disregard' of the law.").

While the "manifest disregard" analysis deals mainly with willful unattentiveness to the governing law, several other terms of art have been employed to ensure that the arbitrator's decision relies on his interpretation of the contract as contrasted with his own beliefs of fairness and justice. Some courts state that the arbitrator's decision must have a rational basis. E.g., French v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 784 F.2d 902, 906 (9th Cir.1986) ("An arbitrator's decision must be upheld...