Gilmore v. Brandt

• Decision Date: 28 October 2011
• Docket Number: Civil Action No. 11-cv-00151-REB-KMT
• Parties: LAWRENCE R. GILMORE, Applicant, v. SCOTT T. BRANDT, Respondent.
• Court: U.S. District Court — District of Colorado

LAWRENCE R. GILMORE, Applicant,

v.SCOTT T. BRANDT, Respondent.

Civil Action No. 11-cv-00151-REB-KMT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Dated: October 28, 2011

Judge Robert E. Blackburn

ORDER

Blackburn, J.

The matters before me are (1) applicant's Application for Confirmation of Arbitration Award Pursuant to the U.S. Arbitration Act, 9 U.S.C. § 9 [#1]¹ filed January 21, 2011; and (2) Respondent's Motion To Vacate Arbitration Award Pursuant to the U.S. Arbitration Act, Pursuant to 9 U.S.C. § 10 [#21] filed May 20, 2011. I confirm the arbitration panel's award in favor of applicant, and consequently, deny respondent's motion to vacate.²

I. JURISDICTION

I have jurisdiction over this case under 28 U.S.C. § 1331 (federal question).

II. STANDARD OF REVIEW

The Federal Arbitration Act ("FAA") provides that written arbitration agreements in transactions involving interstate commerce are "valid, irrevocable, and enforceable." 9 U.S.C. § 2. Federal policy strongly favors the arbitration of disputes and requires the federal courts to vigorously enforce agreements to arbitrate. Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332,2337, 96 L.Ed.2d 185 (1987).

Nevertheless, because arbitration is entirely a matter of contract, a party cannot be required to arbitrate a dispute, which it has not agreed to submit to arbitration. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57, 115 S.Ct. 1212, 1216, 131 L.Ed.2d 76 (1995). Thus, the seminal issue is whether the parties agreed to arbitrate their dispute. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985); Williams v. Imhoff, 203 F.3d 758, 764 (10th Cir. 2000). This determination pertains not only to the scope and substance of the issues in the case, but, where challenged, to the question of arbitrability itself. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 1923, 131 L.Ed.2d 985 (1995).

Although the question of arbitrability is resolved by reference to ordinary state law principles governing the formation of contracts, "[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clea[r] and unmistakabl[e]' evidence that they did so." Id., 115 S.Ct. at 1924 (quoting AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649, 106 S.Ct. 1415, 1418-19, 89 L.Ed.2d 648 (1986)). As the

Supreme Court has explained further,

[i]n this manner the law treats silence or ambiguity about the question "who (primarily) should decide arbitrability" differently from the way it treats silence or ambiguity about the question "whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement" - for in respect to this latter question the law reverses the presumption.

Id. (emphases in original).³ If the parties agreed to allow the arbitrator to decide the issue of arbitrability, vel non, the standard of review of the arbitrator's determination of that issue is as highly deferential as that applied to his decisions regarding substantive issues within the scope of his authority. Id. at 1923-24. Conversely, if the parties did not agree to submit to arbitration the issue of arbitrability, then the court decides that issue. Id. at 1924.

In either event, if it is determined that the parties agreed to arbitration and that the issue in dispute falls within the scope of their agreement, the only remaining question is whether any statute or policy renders the claims non-arbitrable. Mitsubishi Motors Corp., 105 S.Ct. at 3355; Williams, 203 F.3d at 764. Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983).

A federal court should confirm an arbitrator's award "unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of" the FAA. 9 U.S.C. § 9. Any party to the arbitration may apply to vacate the arbitration award where the arbitrators exceeded theirpowers. See id. § 10. Nevertheless, "the standard of review of arbitral awards is among the narrowest known to law." Brown v. Coleman Co., 220 F.3d 1180, 1182 (10th Cir. 2000), cert. denied, 121 S.Ct. 1191 (2001). "Once an arbitration award is entered, the finality of arbitration weighs heavily in its favor and cannot be upset except under exceptional circumstances." Burlington Northern and Santa Fe Railway Co. v. Public Service Co. of Oklahoma, 636 F.3d 562, 567 (10th Cir. 2010) (citations and internal quotation marks omitted).

III. ANALYSIS

This lawsuit arises from a soured investment deal. Applicant Lawrence Gilmore invested some $92,000 in Diversified Lending Group, Inc. ("DLG"), a California corporation, at the suggestion of respondent, Scott Brandt, a representative of Lighthouse Capital Corporation ("LIghthouse"). Gilmore alleged that the DLG investment was, in fact, a Ponzi scheme and that his entire investment was decimated.

His claims in arbitration against Brandt, among others, were determined favorably to him by a Financial Industry Regulatory Authority ("FINRA") panel of arbitrators. By this lawsuit, Gilmore seeks to enforce that award. Brandt has moved to vacate it, maintaining that the FINRA arbitrators lacked jurisdiction over the dispute because he never agreed to submit any dispute with Gilmore to arbitration.

In order to file a Statement of Answer in the arbitration proceeding, Brandt was required to sign a FINRA Arbitration Submission Agreement. That document provides that the parties will "submit the present matter in controversy . . . to arbitration in accordance with" FINRA's rules and procedures, that they "agree to be bound by [FINRA's] procedures and rules," "to abide and perform any award(s) rendered[,] . . . and that a judgment . . . may be entered upon such award(s)." (Applicant Reply App., Exh. 4 at 1, 2 & 4 at 1 [#22], filed June 6, 2011.) Brandt, however, appended a statement to this document "reserv[ing] all rights to challenge the jurisdiction of FINRA in this Arbitration at a later date." (See id. at 1.) In addition, he raised thisjurisdictional objection in both his answer and his substantive pre-hearing brief, as well as in a post-judgment challenge seeking expungement. The arbitration panel did not address any of these arguments directly, but did note in its decision that any relief not specifically addressed therein was denied. (See id., Exh. 7.)

Although procedurally, it would have been more proper for Brandt to seek a stay of the arbitration in order to contest the issue of arbitrability, see Mays v. Lanier Worldwide, Inc., 115 F.Supp.2d 1330, 1342 (M.D. Ala., 2000), given the presumption against agreements to arbitrate arbitrability, see First Options, 115 S.Ct. at 1924, and the repeated nature of Brandt's challenge to the jurisdiction of the arbitration panel, I find that he sufficiently preserved his objection to arbitrability. See Saneii v. Robards, 289 F.Supp.2d 855, 861-62 (W.D. Ky 2003); Mays, 115 F.Supp.2d at 1343. This does not mean that the dispute was not arbitrable, but simply that it falls to me to decide whether it was. See Burlington Northern, 636 F.3d at 568.

As noted above, the determination whether a claim is arbitrable turns on whether the parties agreed to arbitrate their dispute. Mitsubishi Motors Corp., 105 S.Ct. at 3353; Williams, 203 F.3d at 764. Brandt maintains that he never entered into any such agreement with Gilmore. However, pursuant to a Uniform Application for Securities Industry Registration or Transfer ("Form U-4"), which Brandt executed when he first sought licensure to sell securities, Brandt did, in fact, agree to arbitration of a dispute such as this one. The Form U-4, under the section entitled "Acknowledgment and Consent," provides as follows:

I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the SROs [Self Regulatory Organizations] indicated in Section 4 (SRO REGISTRATION) as may be amended from time to time and than any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.

(Applicant Reply App., Exh. 1 ¶¶ 15A(5) at 13.) The SRO specified in Section 4 of Brandt'sForm U-4 is the National Association of Securities Dealers ("NASD"), the predecessor to FINRA. See Cory v. Allstate Insurance, 583 F.3d 1240, 1242 n.1 (10th Cir. 2009). Thus, arbitration of Gilmore's dispute with Brandt will be required if it would be required under FINRA rules.⁴

Rule 12200 of the FINRA Code of Arbitration Procedure provides:

Parties must arbitrate a dispute under the Code if:

• Arbitration under the Code is either

(1) required by a written agreement, or

(2) requested by the customer;

• The dispute is between a customer and a member or associated person of a member; and

• The dispute arises in connection with the business activities of the member or the associated person[.]

(Applicant Reply App., Exh. 5.) There is little question here but that this clause is properly classified as a broad one. See Cummings v. FedEx Ground Package System, Inc., 404 F.3d 1258, 1261 (10th Cir. 2005). The expansive language purports to apply generally to any type of customer dispute arising in connection with the business activities of the member. See id. (noting that broad arbitration clauses are those that "refer all disputes arising out of a contract to arbitration") (citation and internal quotation marks omitted). Because the arbitration clause is broad, "there arises a presumption of arbitrability." Id. (citation and internal quotation marks omitted).

Two further preconditions under Rule 12200 are that arbitration be "requested by the customer" and concern a "dispute...