First Preservation Capital, Inc. v. Smith Barney, Harris Upham & Co.

• Decision Date: 14 August 1996
• Docket Number: No. 91-2576-CIV-RYSKAMP.,91-2576-CIV-RYSKAMP.
• Citation: 939 F. Supp. 1559
• Court: U.S. District Court — Southern District of Florida
• Parties: FIRST PRESERVATION CAPITAL, INC., f/k/a Sheen Investment Management Group, Inc., a Florida corporation, and Sheen Financial Resources, Inc., Plaintiffs, v. SMITH BARNEY, HARRIS UPHAM & CO., INC., a Delaware corporation, Defendant.

939 F. Supp. 1559

FIRST PRESERVATION CAPITAL, INC., f/k/a Sheen Investment Management Group, Inc., a Florida corporation, and Sheen Financial Resources, Inc., Plaintiffs, v. SMITH BARNEY, HARRIS UPHAM & CO., INC., a Delaware corporation, Defendant.

No. 91-2576-CIV-RYSKAMP.

United States District Court, S.D. Florida.

August 14, 1996.

COPYRIGHT MATERIAL OMITTED

Guy Burdette Bailey, Jr., Bailey and Jones, Miami, FL, for Plaintiffs.

Lonnie K. Browne and Richard Martens, Boose Casey Ciklin Lubitz Martens McBane & O'Connell, West Palm Beach, FL, for Defendant.

ORDER DENYING PLAINTIFFS' MOTION TO COMPEL ARBITRATION AND GRANTING DEFENDANT'S CROSS MOTION TO CONFIRM ARBITRATION AWARD

RYSKAMP, District Judge.

THIS CAUSE came before the Court upon plaintiffs' Motion to Compel Arbitration ("Motion") and Accompanying Memorandum of Law ("Memo") DE 37 in which plaintiffs request the Court vacate the arbitration award entered in this matter. Defendant replied in opposition, and filed a Cross-Motion to Affirm Arbitration ("Response") DE 39. Plaintiffs have made subsequent Requests for Oral Argument DE 41 & 43.

I. Procedural History

Plaintiffs, First Preservation Capital, Inc. and Sheen Financial Resources, Inc. (collectively "Sheen entities")¹ brought suit against Smith Barney, Harris Upham & Co., Inc. ("Smith Barney") in 1991. The Sheen entities alleged Smith Barney misappropriated trade secrets, tortiously interfered with advantageous business relationships, interfered with contracts, and committed acts of conversion and civil theft. On November 12, 1991, the case was removed to this Court and on September 23, 1992, the Court compelled arbitration.

Arbitration was conducted under the National Association of Securities Dealers' (NASD) code of arbitration. Smith Barney was represented by counsel. Brian Sheen ("Sheen"), the President/Authorized Representative of Sheen entities, appeared pro se as the arbitration representative for Sheen entities.² See, e.g., Memo, Ex. "E." The parties selected three arbitrators to preside over the dispute ("Panel").

On the eve of arbitration, Sheen moved for a directed verdict as a sanction for Smith Barney's alleged discovery abuse.³ Response, Ex. "O." On October 25, 1995, the discovery period ended. Response, Ex. "C," p. 329. For the next three days, the Panel conducted arbitration proceedings. Motion, ¶ 2.

On November 15, 1995, before the Panel finalized the proceedings but after the discovery cut off date, Sheen addressed a letter to his former clients whom he alleged Smith Barney had improperly solicited ("Letter").⁴Id. Ex. "D." This letter, written on Sheen's personal stationery, was in reference to the arbitration pending between the Sheen entities and Smith Barney. He wrote:

In an effort to avoid having to subpoena you to appear at these proceedings later this month, I have enclosed a survey questionnaire. Please complete this survey, have it notarized and return it to me Sheen prior to January 1, 1996. FAILURE TO COMPLETE AND RETURN THIS MAY RESULT IN A SUBPOENA BEING ISSUED AND SERVED UPON YOU BY THE SHERIFFS DEPARTMENT, ordering your appearance at the hearings in Fort Lauderdale on January 23 and January 24, 1996.⁵ Id. (emphasis in original).

Upon learning of the Letter, Smith Barney requested temporary injunctive relief in Florida's Fifteenth Circuit Court.⁶ Response, Ex. "E." In granting the relief requested, the Court characterized the Letter as "coercive, threatening, and constituting inappropriate communication with Smith Barney's elderly customers, many of whom reside outside of Palm Beach County." Id. at p. 2, ¶ 5.

Florida's Fifteenth Circuit Court also found the Letter contained erroneous statements of law that were interpreted "to mean that the processes of the Court may be used against the recipients for their failure to perform a voluntary act, specifically their failure to make an affidavit which was enclosed with and referenced in the Letter." Id. at p. 2, ¶ 4. The Court concluded that, "recipients of Mr. Sheen's Letter have been, will continue to be, and will be in the future, irreparably harmed by the coercive, threatening and inappropriate Letter. Such harm has arisen from inexcusably aroused emotional and mental anguish intentionally induced by Mr. Sheen's letter ..." Id. at p. 2, ¶ 11.

To mitigate the harms caused by the Letter, Florida's Fifteenth Circuit Court entered an injunction against Sheen. Id. Sheen was prohibited from mailing additional copies of the Letter, contacting the recipients of the letter or indicating that the processes of the court could be used to compel filling out an affidavit. Sheen was further required to instruct recipients of the letter who contacted him of the terms of the injunction and provide Smith Barney and the Court with a list of individuals to whom the Letter was sent. Id. at p. 3, ¶ 1 — 7.

Smith Barney moved for the Panel to dismiss the case in its entirety as a sanction for Sheen's actions. They also sought additional sanctions. Response, Ex. "F," ¶ 9, 10 & 11. After reviewing Sheen's letter, the Panel dismissed the Sheen entities' arbitration claims in their entirety with prejudice. Id. ¶ 1.

Plaintiffs then requested an emergency hearing by NASD to set aside the dismissal. Memo, Ex. "E," p. 1. Sheen asserted several reasons why the ruling should be overturned, including: (1) the Panel had not yet ruled on whether Sheen could obtain the information at issue, thus he felt "it was the only way he could get this discovery," (2) the mailing was orchestrated through legal counsel, and Sheen was not personally involved,⁷ (3) in Sheen's opinion, defendants were not prejudiced, did not lose evidence, and did not experience undue expense, and (4) "if the panel had granted what Sheen believed to be reasonable discovery requests, Sheen does not believe this would have occurred." Id. at 1-2. Sheen cited the dissent of Kozel v. Ostendorf,⁸ 603 So.2d 602, 603 (Fla.1992), as providing a test to determine whether the dismissal with prejudice was warranted. Plaintiffs also threatened that if NASD failed to set aside the Final Order and dismissal "it is apparent the Appeals Court will overturn this Dismissal." Memo, Ex. "E," p. 2.

Defendant opposed the motion to set aside the dismissal, and reduced to writing additional allegations of discovery abuses. Smith Barney noted that a witness was verbally abused and threatened by Sheen. They also asserted that "another witness was badgered until nearly coming to blows with Sheen." Memo, Ex. "F," p. 1. Defendant indicated that Sheen had filed Bar complaints against both of Smith Barney's counsel as a result of the proceedings. The Florida Bar later determined the allegations against Smith Barney's attorneys were fallacious. Letters from Richard Liss, Assistant Staff Counsel, to Sheen (Mar. 29, 1996 and Feb. 9, 1996).

The Panel denied Sheen's request for a rehearing on the dismissal of his action. Memo, Ex. "G," Plaintiffs now move this Court to overturn the Panel's decision.

II. Legal Standard

"It is well-established that `the purpose of the Federal Arbitration Act ("FAA") was to relieve congestion in the courts and to provide parties with an alternative method for dispute resolution that would be speedier and less costly than litigation.'" O.R. Sec., Inc. v. Professional Planning Assoc., 857 F.2d 742, 745 (11th Cir.1988) (quoting Ultracashmere House, Ltd, v. Meyer, 664 F.2d 1176, 1179 (11th Cir.1981)). See also, Robbins v. Day, 954 F.2d 679, 682 (11th Cir. 1992), cert. denied, 506 U.S. 870, 113 S.Ct. 201, 121 L.Ed.2d 143 (1992). "Accordingly, the Federal Arbitration Act presumes that reviewing courts will confirm arbitration awards and that the courts' review of the arbitration process will be severely limited." Robbins, 954 F.2d at 682 (citations omitted).

When reviewing arbitration awards, Courts are expected to give great deference to arbitration awards. Nitram Inc. v. Industrial Risk Insurers, et al., 848 F.Supp. 162, 165 (M.D.Fla.1994) (citing O.R. Sec., 857 F.2d at 746) (additional citation omitted). See also, Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775, 778 (11th Cir.1993) (Federal Arbitration Act presumes arbitration decision will be confirmed); Booth, 902 F.2d at 932; O'Rear v. Am. Family Life Assurance Co. of Columbus, Inc., et al., 817 F.Supp. 113, 115 (M.D.Fla.1993); Dole Ocean Liner v. Georgia Vegetable Co., 84 F.3d 772, 774 (5th Cir.1996) (courts should only set aside arbitrators' decisions in narrow circumstances). This deferential review is required to promote the primary advantages of arbitration — speed and finality. Robbins, 954 F.2d at 682.

Deference given to arbitrators' decisions accompanies not only a review of the final order itself, but also arbitrators' decisions "to control the order, procedure and presentation of evidence." Nitram, 848 F.Supp. at 165. Arbitrators are given considerable liberty in conducting an arbitration hearing. Robbins, 954 F.2d at 685. Their proceedings are in no way constrained by formal rules of procedure or evidence. Id. See also, Hoteles Condado Beach, La Concha & Convention Center v. Union De Tronquistas Local 901, 763 F.2d 34, 38 (1st Cir.1985); Sunshine Mining Co. v. United Steelworkers of America, 823 F.2d 1289 (9th Cir.1987); Chasser v. Prudential Bache Securities, 703 F.Supp. 78, 79 (S.D.Fla.1988).

When examining an arbitration award, it is not necessary for the Court to have the reasons for the decision explicitly stated. Robbins, 954 F.2d at 684; Nitram, 848 F.Supp. at 165. See also, Associated Const. Co. v. Moliterno Stone Sales, Inc., 782 F.Supp. 15 (Conn.1992) (despite requirement of local law that arbitrators state reasons for decision, arbitrators' failure to do so is insufficient to vacate award). Furthermore, Courts are generally prohibited from vacating an arbitration award on the basis of errors of law or interpretation. Ainsworth v. Skurnick, 960 F.2d 939, 940 (11th Cir.1992). So long as the...