Brown v. Rauscher Pierce Refsnes, Inc.

• Decision Date: 02 July 1993
• Docket Number: No. 92-2478,92-2478
• Citation: 994 F.2d 775
• Parties: David BROWN and Rita Brown, Plaintiffs-Appellants, v. RAUSCHER PIERCE REFSNES, INC., and William H. Brashears, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 775

994 F.2d 775

David BROWN and Rita Brown, Plaintiffs-Appellants, v. RAUSCHER PIERCE REFSNES, INC., and William H. Brashears Defendants-Appellees.

No. 92-2478.

United States Court of Appeals Eleventh Circuit.

July 2, 1993.

Stanley T. Padgett, Marie Tomassi, Trenam, Simmons, Kemker, Scharf, Barkin, Frye & O'Neill, P.A., Tampa, FL, for plaintiffs-appellants.

Bruce W. Collins, Carrington, Doleman, Sloman & Blumenthal, Dallas, TX, J. Kevin Carey, Carlton, Fields, Ward, Emmanuel, Smith & Cutler, Tampa, FL, for Rauscher Pierce Refsnses, Inc. & William H. Brashears.

Appeal from the United States District Court for the Middle District of Florida.

Before COX, Circuit Judge, JOHNSON, Senior Circuit Judge, and KEHOE ^*, Senior District Judge.

JOHNSON, Senior Circuit Judge:

David and Rita Brown appeal from the district court's order denying their motion to vacate an arbitration award, 796 F.Supp. 496. Because we conclude that the Browns have failed to demonstrate that the award should be vacated, we affirm the order of the district court.

I. STATEMENT OF THE CASE

On November 4, 1984, David Brown, a resident of Florida, opened a securities brokerage account with the Dallas, Texas, office of Rauscher Pierce Refsnes, Inc. ("RPR"). ¹ Brown came to RPR when his long-time broker, Al Gilbertson, joined the firm. Gilbertson serviced the Brown account until his death in July 1985. Upon Gilbertson's death, Brown requested that William H. Brashears, another RPR broker, serve as his account executive. Brashears agreed, and thereafter serviced the account.

Prior to Brashears' assumption of the account, Gilbertson and Brown had pursued an aggressive profit taking strategy by acquiring large positions, usually on margin. After becoming account executive in July 1985, Brashears continued to pursue this aggressive profit taking strategy at Brown's request. Brown and Brashears remained in constant contact, phoning one another several times daily and mailing various documents and confirmation tickets back and forth.

Eventually, this aggressive strategy resulted in substantial losses to the Brown account, which the Browns sought to recover from RPR and Brashears. Pursuant to their customer agreement, the Browns instituted an arbitration proceeding against RPR and Brashears before an arbitration panel of the New York Stock Exchange (the "Panel"). The Browns alleged several violations of Florida's securities laws, including churning, unsuitable transactions and failure to supervise. In addition, the Browns alleged that for three of the four years Brashears had served as their account executive, Brashears had not been registered with the Florida Department of Banking and Finance to sell securities. See Fla.Stat.Ann. § 517.12 (West Supp.1993).

During their arbitration hearing, the Browns abandoned their claims for churning, unsuitability, and failure to supervise, proceeding only on their claim that Brashears was not registered in the state of Florida to sell securities. RPR and Brashears countered that Brashears' failure to register was mere inadvertence, and that in any case the registration requirement did not apply to sellers such as Brashears. The Panel issued, without explanation, a lump-sum award in the Browns' favor for $16,000 in damages and $4,000 in forum fees.

The Browns filed a motion in the Middle District of Florida to vacate the arbitration award and enter final judgment in their favor for $721,762.91 plus costs and interest. See 9 U.S.C.A. § 10(a) (West Supp.1993). The Browns argued that because the Panel had ruled in their favor, the Panel was required to apply Florida's statutory damages formula. See Fla.Stat.Ann. § 517.211. That formula provides that a plaintiff who successfully sues a seller of securities for failing to register with the Banking Department is entitled to recover all losses sustained during the period the seller was unregistered, and that those losses are not to be offset against profits. RPR opposed the motion and requested that the Panel's award be confirmed, arguing that so long as there was a possible basis for the award, the award should be allowed to stand.

Faced with a sharp dispute between the parties concerning the possible basis for the award, the district court remanded the award to the Panel for clarification. The Panel responded:

In reaching our decision, the Panel carefully considered the intent of the Florida law requiring qualification of brokers through licensing. We concluded that while Brashears failed to become licensed in Florida upon assuming this unsolicited account, his failure to do so was by oversight, rather than any effort to take advantage of his clients. We found an equal failure on the part of [RPR] to supervise their own procedures adequately so that his intended licensing would be verified before any business was conducted with the Browns. For these administrative and procedural oversights the Panel found for the claimants in the amounts cited in our award.

After receiving the Panel's response, the district court denied the Browns' motion to vacate and granted RPR's motion to confirm the arbitration award. The Browns now appeal.

II. STANDARD OF REVIEW

A. Review of Arbitration Awards Generally

Our review of commercial arbitration awards is controlled by the Federal Arbitration Act ("FAA"). See 9 U.S.C.A. §§ 1-16. Judicial review of arbitration awards under the FAA is very limited. Booth v. Hume Publishing, Inc., 902 F.2d 925, 932 (11th Cir.1990). The FAA presumes that arbitration awards will be confirmed, 9 U.S.C.A. § 9, and enumerates only four narrow bases for vacatur, none of which are applicable in this case. ² In addition to these four statutory grounds for vacatur, we have recognized two additional non-statutory bases upon which an arbitration award may be vacated. First, an arbitration award may be vacated if it is arbitrary and capricious. Ainsworth v. Skurnick, 960 F.2d 939, 941 (11th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1269, 122 L.Ed.2d 665 (1993); Raiford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 1410, 1413 (11th Cir.1990); United States Postal Serv. v. National Ass'n of Letter Carriers, 847 F.2d 775, 778 (11th Cir.1988). Second, an arbitration award may be vacated if enforcement of the award is contrary to public policy. Delta Air Lines, Inc. v. Airline Pilots Ass'n, 861 F.2d 665, 671 (11th Cir.1988), cert. denied, 493 U.S. 871, 110 S.Ct. 201, 107 L.Ed.2d 154 (1989); U.S. Postal Service, 847 F.2d at 777. ³

When considering a motion to vacate on one of these non-statutory grounds, the reviewing court begins by looking to the award itself. When no rationale is given for a lump-sum award, the reviewing court first reviews the arbitration award to determine if there is a rational basis for the award. Robbins, 954 F.2d at 684. "The onus is on the party requesting the vacatur to refute ... every rational basis upon which the arbitrator could have relied." Id. So long as there is a "proper basis" for the award, the party seeking vacatur is limited to the four narrow bases set forth in the FAA, and may not invoke the non-statutory bases as grounds for vacating the award. Id. See Sullivan, Long & Hagerty, Inc. v. Local 559 Laborers' Int'l Union, 980 F.2d 1424, 1427-1430 (11th Cir.1993) (applying Robbins analysis to silent lump-sum award in labor arbitration). In contrast, when considering an award, such as this one, which is not silent as to its rationale, the reviewing court should not engage in this procedure. Rather, the party seeking vacatur may raise any of the statutory or non-statutory grounds in support of its motion to vacate the award. See Ainsworth, 960 F.2d at 940 (challenging award containing rationale as arbitrary and capricious); U.S. Postal Service, 847 F.2d at 777-78 (challenging award containing rationale as arbitrary and capricious and contrary to public policy).

B. The District Court's Consideration of the Award

The Browns challenged the Panel's initial lump-sum award as being arbitrary and capricious and against public policy. RPR and Brashears countered, contending that the award had a rational basis and was neither arbitrary and capricious nor against public policy. Faced with this dispute, the district court remanded the award to the arbitration panel for clarification. Upon receipt of the clarified award which now contained an explanation, the district followed the procedure set forth in Robbins, examining the award to determine if it had a rational basis. Concluding that the award had a rational basis which the Browns were unable to refute, the district court held that the Browns were limited to the FAA's four statutory bases for vacatur, and were precluded from attacking the award as being arbitrary and capricious or against public policy. Accordingly, the district court denied the Browns' motion to vacate the award.

We review the district court's denial of a motion to vacate an arbitration award for an abuse of discretion. Robbins, 954 F.2d at 681; Schmidt v. Finberg, 942 F.2d 1571, 1573 (11th Cir.1991); Raiford, 903 F.2d 1410 at 1412 n. 2. Although the district court has wide latitude in exercising its discretion, that discretion is bounded by the procedural framework we have prescribed for analyzing arbitration awards. Cf. SEC v. Elliott, 953 F.2d 1560, 1567 (11th Cir.1992) (district court's discretion to conduct summary proceeding bounded by procedural requirement that parties be able to present evidence regarding controverted facts); National Companies Health Ben. Plan v. St. Joseph's Hosp., 929 F.2d 1558, 1575 (11th Cir.1991) (district court's broad discretion to award attorney fees in ERISA case bounded by procedural requirement that court address "nuclei of concerns"); In re McDonald, 819 F.2d 1020, 1024 (11th Cir.1987) (district court's discretion to summarily punish criminal contempt for violation of court order bounded by procedural requirements that court's order be...