Dowd v. First Omaha Securities Corp.
| Decision Date | 05 February 1993 |
| Docket Number | No. S-90-093,S-90-093 |
| Citation | 495 N.W.2d 36,242 Neb. 347 |
| Parties | Thomas F. DOWD and Barbara A. Dowd, Appellants, v. FIRST OMAHA SECURITIES CORPORATION, Doing Business as First National Brokerage Services, a Corporation, Appellee. |
| Court | Nebraska Supreme Court |
Syllabus by the Court
1. Arbitration and Award: Brokers. Whether a stay should be granted and arbitration required when customers have a dispute with their stockbroker are questions of law.
2. Appeal and Error. When reviewing a question of law, an appellate court is obliged to reach a conclusion independent of the trial court's ruling.
3. Constitutional Law: States. The Supremacy Clause of the U.S. Constitution dictates that state law, including constitutional law, is superseded to the extent it conflicts with federal law.
4. Federal Acts: Arbitration and Award: Courts. The Federal Arbitration Act requires state courts, as well as federal courts, to grant stays pending arbitration.
5. Contracts: Arbitration and Award: Public Policy. This court has consistently held that predispute arbitration agreements oust Nebraska courts of jurisdiction and are therefore unenforceable on public policy grounds. This rule cannot be enforced, however, if it conflicts with the laws of the United States.
6. Federal Acts: Arbitration and Award: States. State law, even when incorporated by a choice-of-law provision, cannot prevent the enforcement of an arbitration clause otherwise valid under the Federal Arbitration Act.
7. Contracts: Arbitration and Award: Federal Acts. Holdings by Nebraska's Supreme Court that a predispute arbitration agreement is unenforceable and void are preempted when the agreement implicates a Federal Arbitration Act provision requiring arbitration.
8. Appeal and Error. A trial court's factual findings will not be set aside on appeal unless clearly wrong.
9. Arbitration and Award. Evident partiality within the meaning of 9 U.S.C. § 10 (1988) will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.
10. Arbitration and Award: Proof: Appeal and Error. The burden of proving facts that establish a reasonable impression of partiality on the part of an arbitration panel member rests upon the party challenging the panel award.
11. Judgments: Appeal and Error. When reviewing a judgment from a bench trial in a law action, an appellate court does not reweigh the evidence, but considers it in the light most favorable to the successful party, resolving evidentiary conflicts in favor of that party.
Michael Boyle and, on brief, Brian J. Muench and Eugene L. Pieper, of Thompson, Crounse, Pieper & Brumbaugh, P.C., Omaha, for appellants.
Frederick S. Cassman and Sandra L. Maass, of Abrahams, Kaslow & Cassman, Omaha, for appellee.
Thomas F. Dowd and Barbara A. Dowd claim, inter alia, that the district court for Douglas County erred (1) in requiring them to submit to arbitration a dispute with their stockbroker, First Omaha Securities (FOS), concerning the liquidation of the Dowds' margin accounts and (2) in confirming the arbitration panel's award in favor of FOS.
Alleging wrongful liquidation of their margin accounts, the Dowds sued FOS for breach of their "customer agreement" with FOS, negligence, and breach of a fiduciary duty. The agreement, signed by the Dowds and FOS on May 25, 1982, provided that (1) FOS would act as the Dowds' securities broker, (2) Nebraska law would govern the contract, and (3) any disputes arising from the agreement would be submitted to arbitration. On October 5, 1988, the district court granted FOS' motion to stay further proceedings pending arbitration. The court ruled that U.S. Supreme Court precedent required that the stay be granted.
At the arbitration hearing, Charles Burmeister, an officer of Ameritas Investment Corporation, testified as an expert for the Dowds. Donald Wagner, one of the three arbitration panel members, was a former Ameritas employee who had been fired by that company. Wagner had an age discrimination complaint pending against Ameritas at the time of the hearing. Burmeister told Dowds' attorney about Wagner's termination at Ameritas. However, neither the Dowds nor their attorney knew about Wagner's age discrimination complaint until after the hearing. Wagner did not disclose any relationship with Burmeister or the pending age discrimination complaint on his arbitrator "Appointment and Oath" form. Rule 19 of the American Arbitration Association's Securities Arbitration Rules (rev.1989) requires panel members to disclose "any circumstance likely to affect impartiality, including any bias ... or any past or present relationship with the parties or their representatives."
After the arbitration panel unanimously found in favor of FOS, the Dowds asked the district court to vacate the arbitration award and to dissolve the stay. The Dowds argued that Wagner's failure to disclose his age discrimination complaint against Ameritas constituted "evident partiality" sufficient to warrant vacating the award. As will be shown later, the district judge properly upheld the stay of the state court proceedings and ordered arbitration. The dispute between the Dowds and their stockbroker is governed by federal law, not by Nebraska's Constitution, statutes, or case law. The district court also found that Wagner had no duty to disclose his age discrimination complaint. The judge stated that if Wagner had "any interest whatsoever, which the Court does not so find, such interest or bias was de minimis." (Emphasis supplied.) The court denied Dowds' motions and granted FOS' motion to confirm the arbitration award. The Dowds then perfected this appeal.
Restated, the Dowds' assignments of error claim that the trial court erred in (1) granting FOS' motion to stay pending arbitration, (2) not applying Nebraska law as set forth in the "customer agreement," (3) enforcing a contractual provision compelling arbitration of future-arising disputes rendered absolutely void by article I, § 13, of the Nebraska Constitution, (4) applying federal law to common-law causes of action brought in a state court, and (5) failing to vacate the arbitration award on grounds of Wagner's failure to disclose a current adversarial relationship with the Dowds' expert witness' employer. We will discuss these assignments of error in order.
The Dowds' assignments of error fall into two categories: those dealing with the propriety of requiring the parties to arbitrate, and those questioning the propriety of the arbitration award itself.
Whether a stay should be granted and arbitration required when customers have a dispute with their stockbroker are questions of law. When reviewing a question of law, an appellate court is obliged to reach a conclusion independent of the trial court's ruling. Nebraska Builders Prod. Co. v. Industrial Erectors, 239 Neb. 744, 478 N.W.2d 257 (1992).
In this case, the district court had no alternative but to grant a stay pending arbitration. The FOS-Dowd contract is governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 through 15 (1988) (FAA). The Supremacy Clause of the U.S. Constitution dictates that state law, including constitutional law, is superseded to the extent it conflicts with federal law. U.S. Const. art. VI, cl. 2; MAPCO Ammonia Pipeline v. State Bd. of Equal., 238 Neb. 565, 471 N.W.2d 734 (1991). Therefore, this court's holdings that a predispute agreement to compel arbitration is void are preempted to the extent they conflicted with the FAA.
The FAA provides, in pertinent part:
§ 2. Validity, irrevocability, and enforcement of agreements to arbitrate
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
....
§ 3. Stay of proceedings where issue therein referable to arbitration
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending ... shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement....
(Title enacted in 1947.)
The U.S. Supreme Court has held that the FAA requires state courts, as well as federal courts, to grant stays pending arbitration. Moses H. Cone Hospital v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The U.S. Supreme Court has also stated:
We discern only two limitations on the enforceability of arbitration provisions governed by the Federal Arbitration Act: they must be part of a written maritime contract or a contract "evidencing a transaction involving commerce" and such clauses may be revoked upon "grounds as exist at law or in equity for the revocation of any contract." We see nothing in the Act indicating that the broad principle of enforceability is subject to any additional limitations under state law.
Southland Corp. v. Keating, 465 U.S. 1, 10-11, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984).
Although a more detailed discussion of the applicability of the FAA to the Dowd-FOS agreement will be undertaken later, for present purposes it is clear that the district court correctly stayed the Dowd-FOS litigation pursuant to FAA § 3. The parties' "agreement" was a written contract empowering FOS to buy and sell securities for the Dowds. As such, as required by §§ 1 and 2 of the FAA, it directly involved interstate commerce. Aside from particular provisions of Nebraska law regarding arbitration, there is no allegation in the...
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