Mid Atl. Capital Corp. v. Bien
| Decision Date | 14 April 2020 |
| Docket Number | 18-1200,Nos. 18-1195,s. 18-1195 |
| Citation | 956 F.3d 1182 |
| Parties | MID ATLANTIC CAPITAL CORPORATION, Petitioner Cross Defendant - Appellant / Cross-Appellee, v. Beverly BIEN ; David H. Wellman, Respondents Cross Claimants - Appellees / Cross-Appellants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Andrew Stanton, Jones Day, Pittsburgh, Pennsylvania, (Derek C. Anderson, Winget, Spadafora & Schwartzberg, LLP, Boulder, Colorado, with him on the briefs), for Appellant / Cross-Appellee.
Richard Fosher, Oakes & Fosher, LLC, St. Louis, Missouri, for Appellees / Cross-Appellants.
Before BRISCOE, HOLMES, and McHUGH, Circuit Judges.
A married couple, Ms. Beverly Bien and Mr. David Wellman, invested money with Mid Atlantic Capital Corporation ("Mid Atlantic"). Their investments performed poorly. Stung by the losses, Ms. Bien and Mr. Wellman initiated arbitration proceedings against Mid Atlantic. The arbitration panel awarded Ms. Bien and Mr. Wellman damages, attorney’s fees, and arbitration costs. The panel also ordered Ms. Bien and Mr. Wellman to reassign their ownership interests in their investments to Mid Atlantic.
Mid Atlantic moved the federal district court to modify the arbitration award to correct "an evident material miscalculation of figures." 9 U.S.C. § 11(a). The district court denied the motion because the alleged error that Mid Atlantic sought to remedy did not appear on the face of the arbitration award. In the amended final judgment, in addition to ordering Mid Atlantic to pay Ms. Bien and Mr. Wellman certain damages, the court ordered that prejudgment interest would accrue on the damages portion of the award and that postjudgment interest would accrue at the federal rate specified in 28 U.S.C. § 1961. Lastly, the court ordered Ms. Bien and Mr. Wellman to reassign to Mid Atlantic their ownership interests in their investments, including any distributions that they had received since the arbitration award due to the investments.
Both parties appeal from the district court’s order. Mid Atlantic specifically challenges the court’s denial of its motion to modify the arbitration award. Ms. Bien and Mr. Wellman cross-appeal, challenging the court’s rulings applying prejudgment interest to only the damages portion of the award and ordering them to reassign any distributions that they had received since the arbitration award due to their ownership interests in the investments. Exercising jurisdiction under 28 U.S.C. § 1291 and 9 U.S.C. § 16(a)(1)(D) and (a)(3), we affirm the district court’s judgment in all respects.
Mid Atlantic is a brokerage firm registered with the Financial Industry Regulatory Authority ("FINRA").1 Ms. Bien and Mr. Wellman opened several brokerage accounts with Mid Atlantic. Through those accounts, Ms. Bien and Mr. Wellman invested in two investment vehicles, Sonoma Ridge Partners and KBS REIT [i.e., real estate investment trusts] ("KBS"). Ms. Bien and Mr. Wellman’s contracts with Mid Atlantic each included an identically worded arbitration clause. That clause obligated the parties to resolve all disputes through binding arbitration conducted according to FINRA rules. See, e.g. , Aplt.’s App., Vol. III, at 715 (Brokerage Account Appl. of Ms. Bien, executed Feb. 12, 2007) ("All controversies that may arise between you, [and] us ... including, but not limited to, controversies concerning ... breach of this or any other agreement between you and us ... shall be determined by arbitration").
After their investments in Sonoma Ridge Partners and KBS suffered heavy losses, Ms. Bien and Mr. Wellman initiated arbitration proceedings against Mid Atlantic. They alleged that Mid Atlantic had, among other things, sold them unreasonably risky investments. To remedy the resulting harm, Ms. Bien and Mr. Wellman sought damages, as well as attorney’s fees, costs, and interest.
The arbitration panel held a hearing. At the hearing, Ms. Bien and Mr. Wellman’s expert offered the panel two ways to calculate the losses at issue. The first option looked to Ms. Bien and Mr. Wellman’s "net out-of-pocket" losses. Aplt.’s App., Vol. II, at 244 (Arbitration Hr’g Tr., dated Nov. 3, 2016). The expert calculated Ms. Bien and Mr. Wellman’s net out-of-pocket losses as $292,411. The second measure of damages looked to Ms. Bien and Mr. Wellman’s "market-adjusted damages." Id. at 250. The measure of those damages is "the difference between the actual return on these investments and what the return would have been if [Ms. Bien and Mr. Wellman’s] money had been invested in a well-managed ‘benchmark’ account." Id. , Vol. V, at 1079 (Order, entered Mar. 23, 2018); see also id. , Vol. II, at 251 (). The expert calculated Ms. Bien and Mr. Wellman’s market-adjusted damages as between $484,684 and $618,049. Mid Atlantic did not present any expert testimony on damages.
During the hearing’s closing arguments, Ms. Bien and Mr. Wellman read into the record a written final prayer for relief. In it, they requested only market-adjusted damages. Indeed, they asserted that compensating them for their net out-of-pocket losses would be "inconsistent with the case law" and would not make them whole. Id. , Vol. II, at 434 n.1 (Final Prayer for Relief, dated Mar. 13, 2017). And so Ms. Bien and Mr. Wellman prayed for market-adjusted damages. Together, they also requested $118,560 in attorney’s fees, $26,812.82 in costs, interest on the damages at 8% per year, and punitive damages.
The arbitration panel ruled in substantial part in favor of Ms. Bien and Mr. Wellman. It ordered Mid Atlantic to pay them two forms of damages: (1) initial-investment-loss damages and (2) compensatory damages. The panel’s damages award looked like this:
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In addition, the arbitration panel ordered Mid Atlantic to pay interest at 8% per year on each form of damages. That interest would accrue from the date Ms. Bien and Mr. Wellman initiated arbitration proceedings until the damages were "paid in full." Id. , Vol. I, at 28 (Arbitration Award, dated Dec. 12, 2016). The award also called for Mid Atlantic to pay $118,560 in attorney’s fees, $26,812.82 in costs, and all arbitration fees. The panel declined, however, to award any other remedies, such as punitive damages. And it did order Ms. Bien and Mr. Wellman to "reassign ownership of all Sonoma Ridge Partners and KBS REIT investments to [Mid Atlantic]." Id.
Mid Atlantic moved the district court to modify the arbitration award.2 It argued, among other things, that the arbitration panel had given Ms. Bien and Mr. Wellman a double recovery. According to Mid Atlantic, the panel’s $292,411 award in initial-investment-loss damages corresponded with Ms. Bien and Mr. Wellman’s expert’s testimony that their net out-of-pocket losses were $292,411. And the panel’s $484,683 award in compensatory damages almost exactly matched the $484,684 in market-adjusted damages that the expert had at one point said Ms. Bien and Mr. Wellman incurred. Yet, that expert had presented net out-of-pocket damages and market-adjusted damages as alternative measures of their losses, and Ms. Bien and Mr. Wellman had asked for only market-adjusted damages in their final prayer for relief. Thus, by effectively awarding Ms. Bien and Mr. Wellman both net out-of-pocket damages and market-adjusted damages, the panel allegedly gave them a double recovery. To correct this purported double recovery, Mid Atlantic asked the district court to modify the arbitration award.
In response, Ms. Bien and Mr. Wellman moved the district court to confirm the award. As they saw it, the district court could modify the arbitration award to correct the alleged double recovery only if there was "an evident material miscalculation of figures" on the face of the award. Id. , Vol. III, at 517 () (quoting 9 U.S.C. § 11(a) ). And the alleged double recovery here appeared only when one delved into the arbitration record. Thus, they argued that the district court lacked authority to modify the award.
The district court sided with Ms. Bien and Mr. Wellman. Like Mid Atlantic, the court thought the arbitration award was "disturbing." Id. , Vol. V, at 1084. It agreed that "what the panel called ‘initial investment loss[es]’ " and "compensatory damages" corresponded with what Ms. Bien and Mr. Wellman had called, respectively, "net out-of-pocket losses" and "market-adjusted damages." Id. So the court found that by awarding "both net out-of-pocket losses ... and market-adjusted damages," the panel effectively gave Ms. Bien and Mr. Wellman a double recovery. Id. But the district court read 9 U.S.C. § 11(a) as authorizing it to correct "an evident material miscalculation of figures" only if the miscalculation appeared "on the face of the award." Id. at 1085. Because the alleged double counting at issue appeared only upon looking to the arbitration record, the district court concluded that it lacked authority to modify the award. For that reason, it denied Mid Atlantic’s motion to modify and granted Ms. Bien and Mr. Wellman’s motion to confirm the award.
After receiving proposed judgments from the parties, in April 2018, the district court entered an amended final judgment. That judgment awarded Ms. Bien and Mr. Wellman damages, attorney’s fees, and costs in the same amounts that the arbitration panel had specified. The court likewise confirmed the arbitration panel’s award of 8% yearly prejudgment interest on the damages—but with no interest on the attorney’s fees or costs. As for postjudgment interest, the court applied the 2.1% federal rate listed in 28 U.S.C. § 1961. Lastly, the district court ordered Ms. Bien and Mr. Wellman to reassign to Mid Atlantic their ownership interests in their investments...
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