Merrill, Lynch, Pierce, Fenner v. Millar
| Decision Date | 20 May 2003 |
| Docket Number | No. Civ.A. 02-1408.,Civ.A. 02-1408. |
| Citation | 274 F.Supp.2d 701 |
| Parties | MERRILL, LYNCH, PIERCE, FENNER & SMITH, INC., Plaintiff, v. Douglas T. MILLAR and Deborah L. Millar, Defendants. |
| Court | U.S. District Court — Western District of Pennsylvania |
Richard R. Nelson, II, Anthony Cillo, Cohen & Grigsby, Pittsburgh, PA, Todd D. Brody, Christopher P. Hall, Morgan, Lewis & Bockius, New York, NY, for Plaintiff.
Robert B. Sommer, James L. McKenna, Jr., Hergenroeder, Rega & Sommer, Pittsburgh, PA, for Defendants.
Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") brings this action under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., to vacate the award of the JAMS Endispute arbitration panel in favor of Douglas T. Millar and Deborah L. Millar (the "Millars") in the amount of $7,741,305.00. Following eight (8) days of hearing before a panel composed of retired Judge Emery von Kann, retired Judge Stanley Harris, and Attorney Phillip E. Cottone (collectively the "Panel"), the Panel found, inter alia, that Merrill breached certain contractual duties and obligations owed to the Millars including the duty to act with "reasonable care and diligence in responding to [the Millars'] instructions" to sell a substantial portion of their stock holdings in FreeMarkets, Inc. Merrill Lynch now asks this Court to vacate the arbitration award contending that the arbitration panel exceeded its powers in that the terms of the award were "completely irrational," and the decision of the panel was in "manifest disregard for the law."
Over a period of time from the beginning of 1996 to 1999, the Millars invested approximately $190,000.00 in FreeMarkets, Inc., compiling approximately 200,000 shares. Tr. 110-112. In December of 1999, FreeMarkets went public and the value of the stock soared to $280.00 per share on the first day of trading. Tr. 114. The Millars were unable to take immediate advantage of their new found wealth, however, because their shares were subject to a lock-up agreement that prevented the Millars from selling their stock until June 7, 2000. Tr. 371-372.
The Millars began searching for the best financial institution to help them manage their wealth. Tr. 124-125. Because the majority of their net worth was tied up in a single holding, FreeMarkets, the Millars wanted to turn part of their stock holdings into cash, which when prudently invested, would permit Deborah Millar to resign her position as a radiologist and stay at home with the Millars' two (2) young children. Tr. 117-118. The Millars opened a new account with Merrill Lynch in the Sewickley Office and deposited their FreeMarkets stock into the account. Tr. 179-180, 963-966. The Millars were invited by Merrill Lynch to fly to Merrill Lynch's headquarters in New York City to meet with some of its highest ranking executives. Tr. 141. In February of 2000. Doug Millar went to New York City with three (3) Merrill Lynch brokers from the local Pittsburgh office, Scott Umstead, Todd Foster and Dave Foster. Tr. 138-141.
In New York, Doug Millar met several of Merrill Lynch's top people, and he was given a presentation about why the Merrill Lynch firm would be the best choice to advise and guide the Millars toward their objectives of monetization, risk management and charitable giving. Tr. 141-163. Doug Millar was impressed with Merrill Lynch's Private Advisory Services ("PAS") and Customized Investments, Investment Strategies and Product Group which as he understood it would give him access to world class advisors through his local financial advisor. Tr. 147-151. After Doug Millar returned to Pittsburgh, he and his wife decided to allow Merrill Lynch to manage their money. Tr. 165-168.
Nothing was done with the Millars stock from February of 2000 through June 7 2000, the date the lock-up expired. Tr. 184-186. When the lock-up expired, the Millars directed Merrill Lynch to sell 5000 shares of their FreeMarkets stock at $57.00 per share. Tr. 196. The shares were sold, the Millars received a confirmation of the sale, and Doug Millar circled the $284,990.50 in proceeds that they realized from the sale of the stock. Tr. 306-309. Because the price of the FreeMarkets stock was not sufficient for their monetization plan, the Millars decided to wait until the price increased before they sold any more of the stock. Tr. 367-368.
On September 1, 2000, Doug Millar met with Dave Foster and Todd Foster at Merrill Lynch's office in the U.S.X. Building in Pittsburgh. Tr. 227. At the meeting, Dave Foster gave an extensive presentation regarding strategies once the monetization was in place. Essentially Dave Foster gave a presentation regarding Merrill Lynch's stable of money managers in a variety of disciplines that would in essence manage the Mars' money similar to a mutual fund concept. Tr. 227-228. Following a two (2) hour presentation, Dave Foster told Doug Millar that it was a good program, but he, Dave Foster, "could do better." Tr. 229, 684. Later that same day, Doug Millar and Todd Foster played golf together. Tr. 230. They discussed the monetization strategy that afternoon, and Todd Foster told Doug Millar that the price of FreeMarkets stock was reaching into the eighties. Tr. 232. Doug Millar and Todd Foster discussed the implications of selling 100,000 shares at $80.00 per share and its affect on the monetization strategy and the plan to replace Mrs. Millar's income. Tr. 233-234, 690-692. Doug Millar testified that he told Todd Foster that $80.00 per share would be sufficient and to sell those shares. Tr. 235. Moreover, Todd Foster testified that he recommended that Doug Millar sell 100,000 shares of the FreeMarkets stock because of the price on September, 1, 2000. Tr. 690. There was no ambiguity: Todd Foster admitted that Doug Millar expressed an intent to sell 100,000 shares when the market opened on Tuesday, September 5, 2000. Tr. 693, 694. Todd Foster then told Doug Millar that he would talk to Dave Foster on Tuesday and tell him of Doug Millar's wishes to sell. Tr. 237, 693-694.
Todd Foster testified that on Tuesday, September 5, 2000, he told Dave Foster that Doug Millar wanted to sell 100,000 shares of his FreeMarkets stock. Tr. 695. Todd further testified that Dave Foster said he would call Doug Millar because the shares were tied up in a call strategy. Tr. 696. Dave Foster contends that he spoke with Doug Millar on September 6, 2001, and Doug made no mention of an order to sell 100,000 shares of stock. Tr. 1230-1231. On September 27, 2000, Todd Foster and Dave Foster met Doug Millar at Millar's travel business to discuss a 401K plan for the business. Tr. 1232. Dave Foster testified that he also had a discussion with Doug Millar at that time about his option positions and, again, no mention was made about the alleged order to sell the FreeMarkets stock. Tr. 1235
Despite not receiving a confirmation on the sale of 100,000 shares of his FreeMarkets stock, Doug Millar alleged that he did not know the stock was not sold until October 25, 2000, when Dave Foster called him to talk about certain option contracts. Tr. 245-247. In fact, Doug Millar testified that be reviewed his September 2000 statement from Merrill Lynch and that there was no indication that a large block of FreeMarkets stock was sold. Tr. 405-406. Though he was upset, Doug Millar contended that Dave Foster assured him his strategy was sound, restored his confidence in the strategy, and Doug Millar again deferred to Dave Foster's expertise. Tr. 248-249. After similar endorsements from Todd Foster and Scott Umstead,1 the Millars decided to stay with the team of Dave Foster, Todd Foster and Merrill Lynch. Tr. 253-254.
By late December, the price of FreeMarkets had fallen below $20,00 per share. Doug Millar contends he met with Todd Foster and Dave Foster on December 22, 2000 because he was concerned about what Merrill Lynch had promised and what he was actually getting. Tr. 268-269. Incredibly, Doug Millar testified that even at this point in the relationship, he did not realize that he and his wife were not at risk in the market. Tr. 269-270.
In March of 2001, Doug Millar sent an e-mail to Tim Miller, a manager at Merrill Lynch, expressing his concern over the performance of his account and Merrill Lynch's responsibility for such performance. See Merrill Lynch Appendix Vol. 1, Tab 14. Doug Millar's complaints, however, did not include a complaint that Merrill Lynch failed to exercise an order to sell 100,000 shares of his FreeMarkets stock. Id. When the Millars moved their accounts from Merrill Lynch in April of 2001, the price of FreeMarkets had fallen below $15.00 per share.
Following eight (8) days of hearings in Pittsburgh, Pennsylvania from May 6, 2002, through May 9, 2002, and from May 13, 2002, through May 16, 2002, final oral argument on June 11, 2002, and submission of post-hearing briefs by the parties, the majority2 of arbitrators concluded as follows:
1. The Respondent's Motion for Partial Summary Judgment is denied.
2. Merrill Lynch breached certain contractual obligations and duties it owed Claimants under the circumstances of this particular broker-customer relationship, including the duty of the New York Private Advisory Services group to work with Claimants' Pittsburgh Financial Consultants to formulate and implement strategies with the most suitable recommendations for Claimants' individual needs and objectives, the duty to develop and adequately explain to Claimants the advantages and disadvantages of various need-based solutions for their highly concentrated position, and the duty to act with reasonable care and diligence in responding to Claimants' instructions. These instructions included what was acknowledged by the agent of Merrill Lynch with responsibility for the relationship with Claimants to be, at the very least, a clear and unambiguous...
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