Kashner Davidson Securities Corp. v. Mscisz

• Decision Date: 01 April 2010
• Docket Number: No. 09-1356.,09-1356.
• Parties: KASHNER DAVIDSON SECURITIES CORP., Victor L. Kashner, Matthew Meister, Timothy Varchetto, Plaintiffs, Appellees, v. Steven MSCISZ, Mark Mscisz, Lynda Mscisz, Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

601 F.3d 19

KASHNER DAVIDSON SECURITIES CORP., Victor L. Kashner, Matthew Meister, Timothy Varchetto, Plaintiffs, Appellees, v. Steven MSCISZ, Mark Mscisz, Lynda Mscisz, Defendants, Appellants.

No. 09-1356.

United States Court of Appeals, First Circuit.

Heard October 7, 2009.

Decided April 1, 2010.

John A. Stern, Greenberg Traurig LLP, with whom Jason C. Moreau was on brief, for appellants.

Richard J. Babnick, Jr., Sichenzia Ross Friedman Ference LLP, with whom Marc J. Ross was on brief, for appellees.

Before LIPEZ, STAHL, and HOWARD, Circuit Judges.

LIPEZ, Circuit Judge.

This matter is before us for the second time. In Kashner Davidson Securities Corp. v. Mscisz, 531 F.3d 68, 79 (1st Cir. 2008), we held that the arbitration award at issue in this case must be vacated because the arbitrators acted in manifest disregard of the law. We did not specify what, if anything, the district court should do after vacating the award. On remand, the district court entered an order vacating the arbitration award and remanding the matter to the arbitral body for further proceedings. It then denied the appellants' motion under Federal Rule of Civil Procedure 60(b) for relief from the remand order. The appellants now challenge both the remand order and the order denying their Rule 60(b) motion, arguing that both contravene our mandate.

For the reasons that follow, we affirm the decision of the district court to issue the remand order. However, we also direct the district court to clarify its position on whether the arbitration should proceed before the same panel of arbitrators or a newly constituted panel.

I.

The background facts are recounted in detail in our previous opinion. See Kashner Davidson, 531 F.3d at 71-74. In 2004, the underlying dispute between appellants Steven Mscisz, Mark Mscisz, and Lynda Mscisz ("the Customers") and appellee Kashner Davidson Securities Corp. ("Kashner Davidson") was submitted to arbitration before the National Association of Securities Dealers ("NASD"). A panel of three arbitrators found the Customers jointly and severally liable to Kashner Davidson for $421,000 in compensatory damages, attorneys' fees, and costs. The panel also dismissed the Customers' counterclaims and third-party claims with prejudice as a sanction for the Customers' failure to comply with a discovery order.

The district court confirmed that award, and the Customers appealed to this court. We held that the arbitration panel improperly dismissed the Customers' counterclaims and third-party claims as a sanction of first resort rather than a sanction of last resort, noting that the NASD Code of Arbitration Procedure provides for dismissal of a claim or defense as a sanction only when "lesser sanctions have proven ineffective." Kashner Davidson, 531 F.3d at 76. We concluded that the dismissal reflected the arbitration panel's "intentional and willful disregard of the clear and unequivocal language" of the NASD rules, which under our circuit precedent was sufficient to justify vacatur of the award. Id. at 79. Consequently, we "reversed the decision of the district court and remanded the case for entry of an order vacating the arbitration award."¹Id.

After we filed our opinion, but before the mandate issued, counsel for Kashner Davidson sent a letter to the district court judge. Referring to the Financial Industry Regulatory Authority ("FINRA"), the successor organization to the NASD, counsel requested that "the Court remand the matter to FINRA and direct FINRA to reconstitute the original Arbitration Panel. . . for further proceedings consistent with the Court of Appeals' decision." There is no indication in the record that the district court took any immediate steps in response to the letter. Once our mandate had issued, the district court entered an order vacating the arbitration award and remanding the matter to FINRA "for further proceedings consistent with the First Circuit's opinion." The district court's remand order did not address whether the original arbitration panel should be reconstituted.

The Customers then filed a brief motion in which they argued that a remand to FINRA was inappropriate because the judgment on appeal did not mention such a remand. Treating the Customers' motion as one for relief from an order pursuant to Fed.R.Civ.P. 60(b),² Kashner Davidson argued that the Customers' perfunctory motion did not demonstrate an entitlement to relief under the exacting requirements of that rule. It requested that the district court "allow the parties to work towards reaching a final resolution of this dispute before the original FINRA arbitrators by allowing FINRA to hold further proceedings consistent with the First Circuit's Decision." In a reply brief, the Customers added that even if a remand to FINRA were appropriate, "established case law mandates the composition of a new panel when, as here, the initial panel manifestly disregarded the law."

The district court denied the Customers' motion in a brief electronic order: "Essentially for the reasons stated in Kashner Davidson's Opposition, this motion is hereby DENIED." The Customers then initiated the present appeal, which challenges both the district court's remand order and its electronic order denying the Customers' Rule 60(b) motion.

II.

We have jurisdiction to review the district court's orders under section 16 of the Federal Arbitration Act. See 9 U.S.C. § 16(a)(1)(E); Bull HN Info. Sys. v. Hutson, 229 F.3d 321, 327-28 (1st Cir.2000).

Before turning to the Customers' arguments, we address an issue raised in the appellees' brief. Kashner Davidson argues that a recent Supreme Court decision, Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008), undermines our earlier mandate in this case. In Hall Street, the Supreme Court held that the grounds for prompt vacatur or modification of an arbitral award enumerated in the Federal Arbitration Act, 9 U.S.C. §§ 10-11, are exclusive and may not be supplemented by contract. 552 U.S. at 584, 128 S.Ct. 1396. Kashner Davidson contends that our holding in the first appeal—that the award must be vacated because the arbitrators manifestly disregarded the law—is in conflict with Hall Street because manifest disregard of the law is not explicitly listed as a ground for vacatur in section 10 of the FAA.

The continued vitality of the manifest disregard doctrine in FAA proceedings is a difficult and important issue that the courts have only begun to resolve. See, e.g., Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir.2009) (manifest disregard of the law is no longer an "independent, nonstatutory ground" for setting aside an arbitration award); Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1281 (9th Cir.2009) (manifest disregard of the law "remains a valid ground for vacatur of an arbitration award under § 10(a)(4) of the Federal Arbitration Act"); Stolt-Nielsen SA v. AnimalFeeds Int'l Corp., 548 F.3d 85, 94-96 (2d Cir.2008) (manifest disregard doctrine is "a judicial gloss on the specific grounds for vacatur enumerated in section 10 of the FAA"), cert. granted on other grounds, ___ U.S. ___, 129 S.Ct. 2793, 174 L.Ed.2d 289 (2009). We have referred to the issue in dicta, see Ramos-Santiago v. United Parcel Serv., 524 F.3d 120, 124 n. 3 (1st Cir. 2008), but have not squarely determined whether our manifest disregard case law can be reconciled with Hall Street.

In an effort to have us decide that issue now, Kashner Davidson has asked us to take the unusual step of recalling our earlier mandate.³ We will not oblige. The power to recall a mandate is "one of last resort, to be held in reserve against grave, unforeseen contingencies." Calderon v. Thompson, 523 U.S. 538, 550, 118 S.Ct. 1489, 140 L.Ed.2d 728 (1998). We have exercised that power sparingly over the course of many years, recalling mandates in only the most extraordinary circumstances.⁴

Kashner Davidson's current predicament is hardly extraordinary. The company failed to take advantage of numerous earlier opportunities to raise the Hall Street argument through ordinary procedures.⁵ Most immediately, it could have cross-appealed in this proceeding from the district court's remand order and urged us to revisit our previous decision under ordinary law of the case principles. See Nkihtaqmikon v. Impson, 585 F.3d 495, 498 (1st Cir.2009) ("We could revisit our own earlier decision if the appellant could show that controlling legal authority has changed dramatically; proffer significant new evidence, not earlier obtainable in the exercise of due diligence; or convince the court that a blatant error in the prior decision will, if uncorrected, result in a serious injustice.") (internal quotation marks and citations omitted). Kashner Davidson did not do so, and now it is faced with the well-settled rule that an appellee who fails to file a cross-appeal may "urge in support of a decree any matter appearing in the record" but may not "attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary." El Paso Natural Gas Co. v. Neztsosie, 526 U.S. 473, 479, 119 S.Ct. 1430, 143 L.Ed.2d 635 (1999) (quoting United States v. Am. Ry. Express Co., 265 U.S. 425, 435, 44 S.Ct. 560, 68 L.Ed. 1087 (1924)); see also Greenlaw v. United States, ___ U.S. ___, ___, 128 S.Ct. 2559, 2564, 171 L.Ed.2d 399 (2008).

Considering the circumstances, we cannot say that we are faced with the sort of "grave, unforeseen contingency" that would justify the recall of a mandate. Thompson, 523 U.S. at 550, 118 S.Ct. 1489. By strategic choice or through lack of diligence, Kashner Davidson waited until the last possible moment to raise its Hall Street argument. It cannot now circumvent the cross-appeal rule by invoking a remedy reserved for extraordinary situations. Kashner Davidson's request is denied.

III.

The Customers advance two arguments on appeal. First, they argue...