Corey v. New York Stock Exchange

• Decision Date: 02 November 1982
• Docket Number: No. 80-1408,80-1408
• Parties: George COREY, Trust Fund, Plaintiff-Appellant, v. NEW YORK STOCK EXCHANGE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1205

691 F.2d 1205

George COREY, Trust Fund, Plaintiff-Appellant, v. NEW YORK STOCK EXCHANGE, Defendant-Appellee.

No. 80-1408.

United States Court of Appeals,

Sixth Circuit.

Submitted on Briefs Aug. 31, 1982.

Decided Nov. 2, 1982.

George Corey, pro se.

Richard E. Rassel, Jere D. Johnson, Butzel, Long, Gust, Klein and Van Zile, Detroit, Mich., for defendant-appellee.

Before KENNEDY and KRUPANSKY, Circuit Judges, and RUBIN, ^* Chief District Judge.

KENNEDY, Circuit Judge.

Corey appeals from the District Court's dismissal of his lawsuit against the New York Stock Exchange (NYSE) in which he claimed that the procedures followed in an arbitration proceeding sponsored by the NYSE and to which he was a party were wrongful and caused him injury. Corey sought to hold the NYSE liable for the conduct of the arbitrators and the NYSE's arbitration director, Cavell. We agree with the District Court that Corey's claims against the NYSE for the acts of the arbitrators are barred by arbitral immunity and those based on Cavell's acts constitute no more than an impermissible collateral attack on the arbitrators' award. ¹

In 1965, Corey began to invest in the stock market under the guidance of a long-time friend, Wright, who was an account executive with Merrill Lynch, Pierce, Fenner & Smith (Merrill Lynch). Wright suffered a paralyzing stroke in 1968, but returned to work thereafter and reestablished his business relationship with Corey. In 1972 and 1973, Corey invested heavily in the stock market, allegedly because of Wright's advice. Medical concerns prompted Wright's retirement in 1973 and Corey's account was transferred to another Merrill Lynch employee. The stock in Corey's portfolio depreciated in value and he was forced to liquidate it to meet the margin requirements of his account. Corey claims to have lost approximately $175,000 as a result of the liquidation.

Corey elected to initiate arbitration proceedings against Merrill Lynch in April 1976. Article VIII of the Constitution of the NYSE, gives non-members the option of submitting a claim against a member brokerage corporation for arbitration, ² instead of pursuing remedies at law. ³ In his statement of claim Corey alleged that his loss resulted directly from Wright's impaired judgment as a result of his stroke and from the negligence of Merrill Lynch in permitting Wright to return to work before he was capable of intelligently advising customers. The rules of the NYSE, which sponsored the arbitration, governed the selection of the five arbitrators responsible for Corey's case as well as the procedural rules to be followed. Cavell, the Assistant Arbitration Director for the NYSE, administered arbitrations between members and non-members of the NYSE. He was responsible for overseeing the preliminary arrangements for arbitrations, including the obtaining of written submissions, arranging for the appointment of arbitration panels, scheduling hearing dates, acting as a moderator on behalf of the arbitration panel and furnishing the parties with written notification of arbitration decisions. Upon selection of the arbitration panel, two hearings were held in Detroit at which Corey appeared without counsel. In March 1977, the arbitrators dismissed Corey's claim against Merrill Lynch and assessed $700 in costs against him. Cavell mailed a copy of this decision to Corey in early April 1977. Corey was not informed of his right to appeal and did not avail himself of the appeal provisions of the federal Arbitration Act. 9 U.S.C. Secs. 1 et seq.

In early 1978, Corey filed suit in Ingham County Circuit Court against Merrill Lynch claiming Merrill Lynch and the NYSE conspired to deprive him of a fair hearing before the arbitrators. Neither the NYSE, Cavell nor the individual arbitrators were named as defendants. Corey challenged the composition of the arbitration panel as violative of the NYSE rules and asserted procedural irregularities that prevented him from submitting evidence, caused hearings to be postponed over his objection and allowed the arbitrators to dominate the proceedings with the purpose of defeating his claims. A motion for accelerated judgment was granted in favor of Merrill Lynch on the ground that the arbitrators' award was final and binding and that the court lacked jurisdiction over the parties and the subject matter of the suit. Corey did not appeal this decision.

In August 1978, Corey filed suit against the NYSE in Ingham County Circuit Court making allegations virtually identical to those in his suit against Merrill Lynch. He did not name Cavell or the individual arbitrators as defendants, although complaining of their acts, presumedly pursuing the NYSE on some theory of vicarious liability. Specifically, Corey alleged that the acts of Cavell during the arbitration hearings sponsored by the NYSE deprived him of a fair hearing because Cavell selected members of the arbitration panel in violation of the NYSE rules and adjourned and rescheduled hearings over Corey's objection. Although the wrongdoing is alleged to be that of Cavell, other allegations address matters unique to the arbitrators, such as their alleged refusal to allow Corey to present evidence and their prejudgment as to the merit of Corey's claims. Corey sought $1,000,000 in punitive damages for mental anguish and long-standing physical problems brought about as a result of these acts.

Following the removal of this action to federal district court, the NYSE successfully moved for summary judgment. Corey v. New York Stock Exchange, 493 F.Supp. 51 (W.D.Mich.1980). Corey appeals this determination.

I. ARBITRAL IMMUNITY

To the extent that Corey's complaint may be construed to allege wrongdoing by the arbitrators for which the NYSE is liable we agree with the District Court that the NYSE, acting through its arbitrators, is immune from civil liability for the acts of the arbitrators arising out of contractually agreed upon arbitration proceedings. Our decision to extend immunity to arbitrators and the boards which sponsor arbitration finds support in the case law, the policies behind the doctrines of judicial and quasi-judicial immunity and policies unique to contractually agreed upon arbitration proceedings.

The Supreme Court has long recognized that there are certain persons whose special functions require a full exemption from liability for acts committed within the scope of their duties. ⁴ The rationale behind the Supreme Court decisions is that the independence necessary for principled and fearless decision-making can best be preserved by protecting these persons from bias or intimidation caused by the fear of a lawsuit arising out of the exercise of official functions within their jurisdiction. Butz v. Economou, 438 U.S. 478, 508-11, 98 S.Ct. 2894, 2911-13, 57 L.Ed.2d 895 (1978); Imbler v. Pachtman, 424 U.S. 409, 96 S.Ct. 984, 47 L.Ed.2d 128 (1976); Bradley v. Fisher, 80 U.S. 335, 20 L.Ed. 646 (1872). In Butz the Court stated that immunity is not extended to individuals because of their particular location in government but because of the special nature of their responsibilities. Butz, supra, 438 U.S. at 511, 98 S.Ct. at 2913. The Court said that the relevant consideration in evaluating whether immunity should attach to the acts of persons in certain roles and with certain responsibilities was the "functional comparability" of their judgments to those of a judge. Id. 512, 98 S.Ct. at 2913; Imbler, supra, 424 U.S. at 423 n. 20, 96 S.Ct. at 991 n. 20. In each instance, safeguards were present to protect other participants and the integrity of the decision-making process. Paramount among these safeguards is the right of judicial review. Butz, supra, 438 U.S. at 512-14, 98 S.Ct. at 2913-14; Pierson v. Ray, 386 U.S. 547, 554, 87 S.Ct. 1213, 1217, 18 L.Ed.2d 288 (1967).

We believe that determinations made by the panel of arbitrators in the case on appeal are functionally comparable to those of a judge or an agency hearing examiner even though this was not a statutory arbitration or one where the arbitrators were court appointed. In Burchell v. Marsh, 58 U.S. 344, 15 L.Ed. 96 (1855), the Supreme Court stated that "[a]rbitrators are judges chosen by the parties to decide the matters submitted to them ...." Id. 58 U.S. at 349. The submission of the parties replaces a statute or court order as the source of the arbitrators' power with regard to subject matter and procedural rules. The arbitrators in this case were appointed by private agreement of the parties and empowered by the parties to resolve disputes between them. By agreement, the parties invoked the arbitrators' independent judgment and discretion. Cahn v. International Ladies' Garment Union, 311 F.2d 113 (3d Cir. 1962); Corbin v. Washington Fire and Marine Insurance Co., 278 F.Supp. 393, 398-99 (D.S.C.), aff'd, 398 F.2d 543 (4th Cir. 1968). By private agreement the parties have substituted the arbitrators for a judge as the decision-maker in their case. Jurisdiction by consent is recognized by reviewing and enforcing courts. See 9 U.S.C. Secs. 2, 9, 10, 11.

Other circuits have applied in substance a functional comparability test and accorded arbitrators immunity for acts arising out of the scope of their arbitral functions and within their jurisdiction in contractually agreed upon arbitration proceedings. Tamari v. Conrad, 552 F.2d 778, 780 (7th Cir. 1977) (Chicago Board of Trade arbitrators); Cahn, supra, (labor arbitrator). See E.C. Ernst, Inc. v. Manhattan Construction Company of Texas, 551 F.2d 1026, 1032-33 (5th Cir. 1977), cert. denied, 434 U.S. 1067, 98 S.Ct. 1246, 55 L.Ed.2d 769 (1978) (no architectural arbitral immunity as a matter of fact); Lundgren v. Freeman, 307 F.2d 104, 117-18 (9th Cir. 1962) (architects as arbitrators). The same result has been reached by a number of district courts. Yates v. Yellow Freight System, 501 F.Supp. 101, 105 (S.D. Ohio 1980) (labor arbitrator); I. & F. Corp. v. International...