Maidman v. O'BRIEN, 73 Civ. 4018.

• Decision Date: 16 March 1979
• Docket Number: No. 73 Civ. 4018.,73 Civ. 4018.
• Parties: Lea MAIDMAN, Plaintiff, v. Joseph H. O'BRIEN II and Evans & Co., Incorporated, Defendants.
• Court: U.S. District Court — Southern District of New York

473 F. Supp. 25

Lea MAIDMAN, Plaintiff, v. Joseph H. O'BRIEN II and Evans & Co., Incorporated, Defendants.

No. 73 Civ. 4018.

United States District Court, S. D. New York.

March 16, 1979.

Lea Maidman, pro se.

Walter E. Hopper, New York City, for defendants.

Memorandum Opinion and Order

HAIGHT, District Judge:

By Memorandum and Order of this Court dated November 16, 1976 (the Opinion), this action was stayed pursuant to section 3 of the Federal Arbitration Act (the Act), 9 U.S.C. § 3, and assigned to this Court's suspense docket, pending the resolution via arbitration of plaintiff's securities law claim against the corporate defendant Evans & Company, Incorporated (Evans). Familiarity with that Opinion is assumed for the purposes of this discussion. That arbitration was conducted on May 23rd and May 27th, 1977, before a panel of five arbitrators under the auspices of the New York Stock Exchange, Incorporated. The panel rendered a decision on June 7, 1977 dismissing Ms. Maidman's claim.¹

Evans has now renewed its pre-arbitration motions pursuant to Fed.R.Civ.P. 12: 1) to dismiss the securities law claim in count three as to it on the basis of the arbitrators' decision; and 2) to dismiss the libel claim in count two, as a) beyond this Court's jurisdiction, and/or b) barred by the applicable statute of limitations. The individual defendant O'Brien has similarly moved to dismiss count three, as it stands against him, on the basis of the collateral estoppel effect of the arbitration and to dismiss the libel claim in count one due to the lack of jurisdiction over its subject matter. The plaintiff has opposed all these applications, objected to the arbitrators' decision, and moved for leave to amend her complaint to add the New York Stock Exchange as a defendant. For the reasons which follow, the defendants' motions to dismiss are hereby granted, plaintiff's motion is denied and this action ordered discontinued in its entirety.

I.

A. Evans' Motion to Dismiss Count Three on the Basis of the Arbitrators' Decision.

Preliminarily, it should be noted that although Evans has not sought to have the arbitration decision confirmed pursuant to 9 U.S.C. § 9, there is authority for treating such motions to dismiss as implicitly seeking that confirmation² and when a party objects to an arbitration decision on the merits, the possible untimeliness of the confirmation application has been viewed as waived.³ Consequently, the discussion will proceed with a review of the arbitration under the standards for confirming or vacating such a decision.

The arbitration hearing on Ms. Maidman's claim against Evans consumed just over six (6) hours on two afternoons and resulted in a transcript of 269 pages. In their decision the arbitrators gave no reasons for dismissing the claim, but they had no obligation to do so,⁴ and the courts in such situations as this are instructed that "if a ground for the arbitrator's decision can be inferred from the facts of the case, the award should be confirmed."⁵

Moreover, although the failure to rule in accordance with the provisions of the securities laws would be grounds for vacating the decision, that failure must "be made clearly to appear."⁶ Thus, unless there is "manifest disregard" of the applicable law,⁷ or the decision evinces an otherwise "grievously flawed character,"⁸ the decision should be upheld even though there might exist an underlying misinterpretation of the law.⁹

Consequently, in reviewing arbitration the courts do not attempt to analyze the reasoning employed therein, but, absent "manifest disregard" of the law, they uphold the award unless the challenging party demonstrates one of the infirmities listed in section 10 of the Act.¹⁰ Plaintiff has, in her papers, alleged both a flagrant disregard for the law in dismissing the claim and also many of the grounds contained in section 10 of the Act.¹¹

A careful review of the transcript of the arbitration hearing, however, reveals none of these flaws. First, with regard to the alleged error in the decision itself, the crux of plaintiff's claim was O'Brien's "unauthorized" transactions with her securities, but as the arbitrators recognized there was a significant difference of opinion between O'Brien and Maidman as to the circumstances surrounding O'Brien's authority. If O'Brien's testimony was credited, the transactions were authorized within the meaning of the securities laws, rendering both Evans and O'Brien non-liable. No further analysis of the decision need be undertaken.

Secondly, regarding the grounds for vacating the decision, as listed in section 10, there is not the slightest hint of any such infirmities.¹² Accordingly, the defendant Evans would be entitled to confirmation of the decision and is hereby granted its motion to dismiss count three of the complaint, as such count stands as to it.

B. Evans' Motion to Dismiss Count Two.

Count two seeks damages from Evans due to the alleged defamation Ms. Maidman suffered as a result of Evans' "publication"¹³ on February 23, 1973 of an allegedly libelous statement authored by O'Brien. This claim was asserted for the first time against Evans in the amended complaint which was sworn to on June 18, 1976 and served on Evans' counsel's office July 16, 1976.¹⁴ Evans submits such a claim is barred by the one-year statute of limitations prescribed in N.Y.C.P.L.R. § 215.¹⁵

Evans is correct. Under such circumstances the action was not "commenced" against Evans within one year after publication. Kern v. Hettinger, 303 F.2d 333 (2d Cir. 1962). Accordingly the second count is hereby ordered dismissed.¹⁶

II.

O'Brien's Motion to Dismiss Count Three on the Basis of the Collateral Estoppel Effect of the Arbitrators' Decision.

It is well settled that the related doctrines of res judicata and collateral estoppel are properly applied to arbitration decisions.¹⁷ The defensive use of the collateral estoppel effect of arbitration, as sought herein by O'Brien, has been sanctioned in this circuit for some time. In Ritchie v. Landau, 475 F.2d 151 (2d Cir. 1973), an individual successfully raised the defense of collateral estoppel to a claim which had been dismissed by the decision in a prior arbitration against the corporation, the individual's employer. The Court, applying New York State principles of collateral estoppel in a diversity action,¹⁸ observed per Judge Waterman:

"We have held that one not a named party to an arbitration proceeding can successfully rely in defense of a court action upon the collateral estoppel doctrine when the party suing him had been given a full opportunity to litigate the issue in a prior arbitration proceeding. Goldstein v. Doft, 236 F.Supp. 730 (SDNY 1964), aff'd 353 F.2d 484 (2 Cir. 1965), cert. denied, 383 U.S. 960, 86 S.Ct. 1226, 16 L.Ed.2d 302 (1966); see Israel v. Wood Dolson Co., 1 N.Y.2d 116, 151 N.Y.S.2d 1, 134 N.E.2d 97 (1956). Although plaintiff attempts to distinguish Goldstein v. Doft, supra, on the ground that plaintiff Goldstein `lost' in the arbitration proceedings, while plaintiff Ritchie `won,' this attempted distinction is clearly without merit. The critical fact in both cases is that the plaintiffs were given one opportunity to litigate their claims for compensation before the arbitrators; and one opportunity is all they are entitled to have." 475 F.2d at 155-56 (footnote and citation omitted).

The Goldstein case has been cited with approval by the Supreme Court for the principle that collateral estoppel should apply in appropriate circumstances "to prevent relitigation of factual disputes resolved by an arbitrator."¹⁹ As in the Ritchie case, this defense can be raised in an action which began before arbitration, and warrant dismissal after the arbitration is completed.

The claims at issue here, being securities law claims, are governed by federal law and thus the federal courts must apply their own rules governing collateral estoppel.²⁰ Yet, despite the exclusive jurisdiction over such claims in federal courts, determination of necessary factual issues elsewhere can be given collateral estoppel here.²¹ To the extent that there may remain any significant distinction between collateral estoppel's application under "general federal law" versus New York State law, this Court views such differences as immaterial to our situation.²² Accordingly, the following discussion will focus on two prerequisites to invocation of the collateral estoppel defense, which must be established here: first, "`an identity of issue which has necessarily been decided in the prior action and is decisive of the present action, and, second, . . . a full and fair opportunity to contest the decision now said to be controlling.'"²³

With regard to the identity of the issue necessarily decided in the arbitration and decisive of the present claim, we must begin our analysis by resolving what issues were submitted to the arbitrators. The submission, pursuant to the agreement of Ms. Maidman and Evans, included all claims against the latter arising out of the alleged securities law violations. Opinion at 5. These were the claims charged in count three of the complaint, which essentially accuses O'Brien of improper trading in Ms. Maidman's securities and Evans' vicarious liability therefor. Opinion at 8. The only "culpable" conduct mentioned in count three which was not that of O'Brien himself was either Evans' officers approving O'Brien's dealings²⁴ or failing to take the necessary corrective measures when Ms. Maidman complained.²⁵ O'Brien is not charged with any conduct, and resultant liability, in count three which is not also charged against Evans, which Ms. Maidman averred was "responsible for all his O'Brien's actions."²⁶

After reviewing all the pleadings and submissions presented in the instant record and the transcript of the arbitration hearing it is clear that whatever charges in count three are not attributable to O'Brien were asserted to prove Evans' liability...