Ehrich v. AG Edwards & Sons, Inc.

• Decision Date: 18 December 1987
• Docket Number: Civ. No. 85-5199.
• Parties: Lorraine EHRICH, Plaintiff, v. A.G. EDWARDS & SONS, INC. and Harold S. Neff, Defendants.
• Court: U.S. District Court — District of South Dakota

675 F. Supp. 559

Lorraine EHRICH, Plaintiff, v. A.G. EDWARDS & SONS, INC. and Harold S. Neff, Defendants.

Civ. No. 85-5199.

United States District Court, D. South Dakota, W.D.

December 18, 1987.

Gregory A. Eiesland and Jay C. Shultz, Lynn, Jackson, Shultz & Lebrun, Rapid City, S.D., for plaintiff.

J. Crisman Palmer, Gunderson, Palmer & Goodsell, Rapid City, S.D., Stephen H. Rovak, Peper, Martin, Jensen, Maichel & Hetlage, St. Louis, Mo., for defendants.

MEMORANDUM OPINION

BATTEY, District Judge.

HISTORY OF THE CASE

The Plaintiff Lorraine Ehrich filed her complaint against A.G. Edwards & Sons, Inc., a futures contract commission merchant, and Harold S. Neff, a broker employed as an agent for A.G. Edwards. The complaint set forth separate causes of action alleging (1) violation of the Commodity Exchange Act, 7 U.S.C. §§ 1 et seq.; (2) common law fraud and deceit; (3) breach of fiduciary duty; and (4) negligence. The action involves the acts and conduct relating to the management of the commodities fund established with A.G. Edwards by the Plaintiff and her husband, Robert Ehrich. Actual and punitive damages are sought.

On March 14, 1986, this Court ordered that the controversy be submitted to arbitration as required by the Customer's Agreement¹ and Addendum² dated June 8, 1981, signed by the parties.

In due course Arbitrator Gary L. Monserud was appointed and on May 30, 1987, entered an award of $290,785.75 as follows:

1. COMPENSATORY DAMAGE: For the commissions on the joint account constituting an ill-gotten gain RESPONDENTS, A.G. Edwards and Sons, Inc. and Harold S. Neff, are jointly and severally liable to Lorraine Ehrich, hereinafter referred to as CLAIMANT, for the sum of $2,644.00 plus $1,724.00 which is interest to the date of this Award. RESPONDENTS are jointly and severally liable to CLAIMANT for the sum of FOUR THOUSAND THREE HUNDRED SIXTY-EIGHT DOLLARS AND NO CENTS ($4,368.00).

2. COMPENSATORY DAMAGE: For commissions on the joint account constituting ill-gotten gain RESPONDENT, A.G. Edwards and Sons, Inc. is liable to CLAIMANT in the amount of $12,464.00 plus $8,128.00 which is interest to the date of this Award. Therefore, in addition to its joint liability under Item No. 1, RESPONDENT, A.G. Edwards and Sons, Inc., is liable to CLAIMANT FOR TWENTY THOUSAND FIVE HUNDRED NINETY-TWO DOLLARS ($20,592.00).

3. COMPENSATORY DAMAGE: For Claimant's losses on the joint account for checks wrongfully endorsed, RESPONDENT, A.G. Edwards and Sons, Inc., is liable to CLAIMANT in the amount of $97,341.00 plus $71,143.75 which is interest to the date of this Award. Therefore, in addition to its joint liability under Item No. 1 and its liability under Item No. 2, RESPONDENT, A.G. Edwards and Sons, Inc., is liable to CLAIMANT for an additional ONE HUNDRED SIXTY-EIGHT THOUSAND FOUR HUNDRED EIGHTY-FOUR DOLLARS AND SEVENTY CENTS ($168,484.75) sic.

4. EXEMPLARY DAMAGES: For the joint checks purposefully and wrongfully endorsed, RESPONDENT, A.G. Edwards and Sons, Inc., is liable to CLAIMANT for NINETY SEVEN THOUSAND THREE HUNDRED FORTY-ONE DOLLARS AND NO CENTS ($97,341.00) as exemplary damages.

On June 8, 1987, the Plaintiff petitioned this Court to confirm the arbitration award as filed and to issue judgment pursuant thereto.³ Defendants A.G. Edwards and Harold S. Neff assert that the award sought to be confirmed by the Plaintiff includes an award made in excess of the power of the arbitrator and includes a material miscalculation of the figures adopted by the arbitrator. Specifically, the Defendants allege that (1) the award of actual damages included in paragraph 3 of the award should have been $23,688.68 and interest of $14,895.42; (2) the award of exemplary (punitive) damages in the amount of $97,341, a figure identical to the award of actual damages, was not permitted by law and the contract of the parties; and (3) in the event exemplary damages are awardable, that the amount awarded ($97,341) contains a material miscalculation of figures and should accordingly be modified.

DISCUSSION

Arbitration is increasingly being used as an alternate means of dispute resolution. The foundation for arbitration is the agreement of the parties. In this case, the Defendants offered and the Plaintiff accepted a contract providing for dispute resolution by arbitration. Presumably the parties were indicating their preference for the process of arbitration as opposed to judicial resolution. Having bargained for arbitration, the parties are to be held to that bargain. In such case, the Court has only a limited role in the process. Diapulse Corp. of America v. Carba, Ltd., 626 F.2d 1108 (2d Cir.1980) citing I/S Stavborg v. National Metal Converters, Inc., 500 F.2d 424 (2d Cir.1974) and other cases.

Under the Federal Arbitration Act, 9 U.S.C. §§ 1-14 (1982) (Act), where the parties have agreed to seek dispute resolution by arbitration, the courts are asked to stay their hand. Merrill Lynch, Pierce, Fenner & Smith v. Hovey, 726 F.2d 1286, 1289 (8th Cir.1984), citing Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The scope of the arbitration agreement must be interpreted liberally and any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Moses H. Cone, 103 S.Ct. at 941 and note 27. See also Shearson/American Express, Inc. v. McMahon, ___ U.S. ___, 107 S.Ct. 2322, 2337, 96 L.Ed.2d 185 (1987).

The issue now to be decided is the extent to which this Court may now exercise its statutory function to confirm that award.

The Act provides authority for a court to either vacate⁴ or modify⁵ an arbitration award.

In Stroh Container Co. v. Delphi Industries, Inc., 783 F.2d 743 (8th Cir.1986) cert. denied ___ U.S. ___, 106 S.Ct. 2249, 90 L.Ed.2d 695 (1986), Chief Judge Lay, writing for the panel, discussed the rules of law limiting judicial review and the judicial process in the arbitration context stating that such rules are "well established." Id. at 751. Judge Lay points out at footnote 12 that the initial attractiveness of dispute resolution by arbitration has waned with the experience of now finding that arbitration often does not provide simple, inexpensive, and expeditious dispute resolution but rather "is complex, expensive and time consuming," the "results" of which, "by private and untrained `judges,' are distantly remote from the fair process procedurally followed and application of principled law found in the judicial process." Id. at 751.

The Defendant A.G. Edwards sought to avoid judicial resolution of any disputes with its customer, the Plaintiff. It now should be held to its bargain which is to accept the limited scope of the review by this Court under these well-established rules. To permit a full scale trial de novo by this Court would only frustrate the process and provide an additional remedy not covered by the contract between the parties. The Defendant is not entitled to a second bite out of the dispute resolution apple.

In its limited role the Court shall consider whether there was an evident miscalculation of figures, 9 U.S.C. § 11(a), or whether or not arbitrator Monserud exceeded his powers, 9 U.S.C. § 10(d). In the context of the issues of this case, these grounds constitute the only grounds for vacation or modification.

In United Elec. Radio & Mach. Workers v. Litton, 704 F.2d 393, 395 (8th Cir.1983), rev'd en banc 728 F.2d 970 (1984),⁶ the court stated:

In reviewing an arbitration award, a court does not reexamine the merits of the respective parties' claims, but gives deference to the arbitrator's decision so long as it "draws its essence" from the collective bargaining agreement. Judicial deference to arbitration, however, does not grant carte blanche approval to any decision that an arbitrator might make. A court may vacate a labor arbitration award if the arbitrator makes a central factual assumption that is unsupported by the record, grants a punitive award in the absence of any provision for punitive awards and of any substantiating proof of willful or wanton conduct, or contravenes a limitation contained in the collective bargaining agreement.

Id. at 395 (citations omitted).

The en banc court quoted Justice Blackmun in United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 596, 80 S.Ct. 1358, 1360, 4 L.Ed.2d 1424, 1427 (1960) as follows:

Under well established standards for the review of labor arbitration awards, a federal court may not overrule an arbitrator's decision simply because the court believes its own interpretation of the contract would be the better one. When the parties include an arbitration clause in their collective-bargaining agreement, they choose to have disputes concerning constructions of the contract resolved by an arbitrator. Unless the arbitral decision does not "draw its essence from the collective bargaining agreement," a court is bound to enforce the award and is not entitled to review the merits of the contract dispute. This remains so even when the basis for the arbitrator's decision may be ambiguous. (Citations omitted.)

Litton at 971.

In referring to the scope of the arbitration award, Rule 43 of the Securities Arbitration Rules of the American Arbitration Association provides:

The arbitrator may grant any remedy or relief which the arbitrator deems just and equitable and within the scope of the agreement of the parties.

The contract provision in this case and the broad scope of the arbitration rule as to remedies are indeed broad. The assessment of punitive or exemplary damages⁷ is a well recognized remedy for redress of those wrongs which go beyond that of ordinary or even gross negligence. An article on the subject of punitive damages which covers practically every aspect of the problem facing this Court is Punitive Damages in Arbitration — Garrity v. Lyle Stuart, Inc., Revisited, 66 B.U.L.Rev. 953 (1986), by Stipanowich. The...